Reserve Bank of India, the nation's central bank, has had a tough first six months at office -- first to keep inflation under check and then to delicately address the runaway rise of the Indian rupee (against the dollar).
A series of measures linked to curbing credit growth and lowering short-term interest rates twice this year, have pegged inflation to 4.27 per cent for the week ending July 4 from a two-year high of 6.73 per cent in January-end. Currently, India's inflation is within the medium-term range set by the RBI.
A variety of factors are, however, keeping the rupee firm against the dollar, which has risen by nearly 10 per cent between January-July this year. The rupee stands at a near-decade high of 40.3 against the dollar, from 44.2 when the year began.
Rupee appreciation has been the sharpest in three decades in the April-June quarter this year. And analysts expect the rupee to gain further.
The impact of a rupee rise
As the rupee rises against the dollar (or conversely the dollar weakens) Indian exports firms earn less and thus begin to lose their competitive edge -- whether it be textile, jewellery, software, drugs or automobiles.
India's 'big four' in the software pack -- Infosys, TCS, Wipro and Satyam have already seen their net income in the first quarter ending June, fall due to the sharp rupee rise. This is because India's software companies bill several clients in dollar terms.
A weak dollar thus hits currency-linked earnings.
The impact is seen through:
Lower exports, as exporters are unable to maintain necessary profit margins if their dollar-linked earnings fall. Analysts now predict that India's export target of $160 billion may not be met. A more 'realistic' export target for this year has been pegged at $135-140 billion.
If the rupee continues to gain against the dollar, India's competitive strength in world trade (which is already negligible) will weaken. This, in turn, shrinks new job avenues.
Exporters are keener to sell their product/services locally, if possible. This would increase local supplies and lower prices and inflation.
Export lobby groups and trade analysts are now urging the government to act to curb the rupee's rise. The equation is simple. In a competitive business environment where operating margins will determine survival, export houses are in a fix.
FIEO calls for government intervention, government gives relief
The Federation of Indian Export Organisations, in an official statement this month, said that the profitability of exporters in executing existing contracts has been reduced substantially. In certain sectors exports are being executed at loss to honour the contract and maintain the market presence.
"The competitiveness of our exports is eroded and we are losing orders to our competitors like China, Thailand, Pakistan, Sri Lanka, Bangladesh, Vietnam and Indonesia," the statement read.
Last week, the government announced a much-awaited $345 million relief package for exporters. This includes increasing duty drawback rates on most existing export items eligible for this concession, increasing the list of export items eligible for duty drawback, and banks offering shipment credit on easier terms for small and large exporters.
Overseas fund flows key factor
India's economic growth story remains intact, with growth expected to sustain at around the 9 per cent mark for 2007-08. With the outlook global equities and emerging markets improving, India's stock markets are expected to remain robust due to strong liquidity and confidence of positive quarterly earnings going ahead.
The benchmark 30-share Sensex stood at a record close of 15,794.92 on Tuesday, up 14.5 per cent this year, led by strong overseas fund flows.
Overseas fund have so far invested $9.9 billion worth into Indian equities in 2007, well above last year's level of $7.99 billion. Foreign direct investment rose to $17.7 billion in 2006-07 from $7.7 billion a year earlier.
As buyers, overseas funds convert dollars and buy rupees to invest into Indian companies. This will keep the demand for the rupee up.
What the RBI says
Well, in this case, not much. The RBI has said that the rupee will continue to find its true value based on pure market dynamics. The bank has officially declined to comment on any intervention to curb the rupee surge, but traders said that in recent weeks the RBI is widely believed to have bought dollars to prevent the rupee from rising beyond 40.30 levels.
A theory doing the rounds is that if the RBI intervenes to stop the rupee from appreciating further, it may increase the profitability of export-oriented units and create more jobs, which in turn could increase the inflationary tendency in the market.
But jobs may be lost
However, on the other hand, if the rupee keeps strengthening, a lot many people may actually lose jobs. Exporters are also considering layoffs, which may eventually affect 275,000 jobs by the year-end.
Yet another fallout of the rupee rise is the proposal by the IT and BPO companies in India which plan to increase the working hours of their employees and doing away with a 5-day week and making them work on Saturdays too.
According to a study by the Union commerce ministry, the worst hit sectors are infotech, textile, leather, handicrafts, marine products, engineering, sports goods, toys and agri products.
Analysts predict firm Rupee trend going ahead
Most analysts predict a firm trend for the rupee going ahead. Local brokerage firm Ambit Capital has revised its assumptions for the rupee-dollar to 40.58 for FY 2008 (estimates), 40 for FY09(E) and 39 for FY2010(E).
However, a stronger rupee will benefit importers such as the oil marketing companies and airlines. While exporters like software, textiles, drugs and auto components will be adversely impacted by the stronger rupee, for global cyclicals, lower prices of landed imports will create downward pressure on local prices, the brokerage told its clients, in a latest note.
According to the equity research outfit of French Bank Credit Lyonnais, companies like Hindalco, Wipro, Infosys and Tata Steel will be negatively impacted by currency appreciation. Earnings of textile and hotel companies will also see downward revision in earnings due to strengthening of rupee, it said.
How will the Rupee surge impact you?
With factors suggesting that the rupee could rise, we could see a scenario of an increasing percentage of goods and services being offered locally, which would lead to lower prices and hence curb inflation further.
Industries, where domestic prices are linked to the cost of imported raw material -- like metals, have and will lead to further lowering of input cost of imported aluminium and copper. A reduction in the domestic prices is expected. Obviously, importing price-sensitive electronics and gadgets would also be cheaper, as would other retail items.
An appreciating rupee shows the strength of the economy, which can be seen when one travels overseas, if you try to convert what the dollar is worth. So maybe you should plan your overseas trip now, if you have enough disposable income.
You obviously have concerns if you are an exporter or work in an export-house. Another groups of people who may not be happy to see the rupee rising, would be those who hold dollar-denominated accounts.
Sunday, July 29, 2007
Thursday, April 05, 2007
Of sportsmen, ads and wrong strategy
When Sachin Tendulkar was bowled out for a duck by CDR Fernando during the India-Sri Lanka World Cup match, he didn't just destroy the hopes of a cricket-mad nation. Echoing the groans were advertisers and marketers who have pumped in more than Rs 500 crore (Rs 5 billion) into the Cricket World Cup.
The jury is still out on the extent of losses incurred by advertisers and broadcasters due to India's exit from the World Cup, much earlier than anticipated. Meanwhile, the strategist spoke to experts on how sports advertisers can play better strokes and mitigate risks
Associations with sports must always be planned carefully. Take the case of Shell, which sponsored the Ferrari team in Formula 1. Since Ferrari ran on Shell's fuel there was a clear association.
Brand ambassador Michael Schumacher also had a positive rub off on the brand. It was an association between a great car manufacturer, a great driver and a great fuel company. There was a clear link. But that is an ideal case and generally, you need to be really lucky when it comes to association with sports.
The trouble in India is, companies don't follow any branding principles. Some time earlier, Airtel's brand ambassadors included Sachin Tendulkar, Shah Rukh Khan and Kareena Kapoor.
Today, Reliance Telecom features Tendulkar in its ads. In India, brands and endorsers have neither a connection nor a long-term relationship.
Every four years, at Cricket World Cup time, companies spend large sums of money, sign on cricketers, carpet bomb ads and hope sales improve. But this is guess work marketing. Good companies always choose their sports and celebrities carefully. Nike and basketball star Michael Jordan would be a good example.
Of course, even globally, advertising behind sports is not working. Consider the Super Bowl in the US, for instance. Super Bowl advertising is very expensive: people spend huge sums for every second. But study after study shows that customers do not remember brands that are advertised during the event. There is a lesson here: Don't just jump on a sport. It won't deliver value and will be commercial suicide.
I have a fundamental issue with cricket-backed advertising. Studies show that customers in metros want to be associated more with tennis, golf, soccer and F1 racing. Cricket should be used only by mass market or FMCG brands that work on the value-for-money promise. For others, how much of the money spent will translate into sales or value to business is questionable.
Hero Honda is a case in point. The brand has advertised with cricket for many years now. But have its sales increased? Earlier, it had an unassailable lead over Bajaj. But today Hero Honda's margins, market share, targets are under pressure. Cricket has become a crutch that marketers can't seem to walk without but will have to discard if they are to run.
Cricket, its travails and tribulations have ruled headlines in the last few days. It is best to look at examples of good sports marketing from outside the immediate realm of cricket.
Look at the highly planned and disciplined manner in which Lenovo has built its global brand, riding the goodwill of the Olympic Games. Lenovo was originally branded Legend and it was, at best, a local Chinese brand that had global ambitions. The company started its association with the Olympic Games when preparations began for the Athens Games, by becoming a technology provider and partner.
The association was then built-up and Lenovo became the first ever Olympic partner brand from China. This coincided with Legend re-branding itself as Lenovo, apart from buying out the global IBM PC business, including the ThinkPad brand. Along the way, Lenovo played high stakes with Ronaldinho in the FIFA World Cup soccer and now it has lined up huge investments for Olympics 2008 in Beijing.
Lenovo has had a clear decade-long roadmap of global plans for the brand and has paced its association with relevant sports to grow its global equity, timed to brand-name change, international acquisitions and growing global ambitions. The Olympic Games have been used as a brand booster, a truly global platform from which the brand can speak to the world.
This is also the path many large Japanese brands have taken. Brands like Panasonic and Seiko are known for having consistently and diligently invested behind the Olympic Games to give them a global aura and to connect with sport at its noblest.
In India, we are still learning to handle investments in sports. Brands either go for an over-kill or they tend to do things half-heartedly. Just signing-up a sports star in a one-off commercial will never enrich a brand's equity. At the same, time building a humongous 360-degree exercise where you put all your efforts behind an event or sport can back-fire.
Use sports with the right balance, both strategically and tactically. Some brands build equity, and then strangely give it up. Britannia ruled the cricket scene till the last World Cup.
At present, all you see of the brand is its logo on the bats of some players. That kind of investment is neither here nor there. Of course, the other extreme of Pepsi's blue billion and exaggerated creative renditions turning cricketers into winning tigers can also be counter-productive when things go wrong.
Is there a fit between the brand and the World Cup? It's a very basic question that many marketers seem to miss. It may be too tempting for brands to jump onto the World Cup bandwagon, but it is critical to not overlook the fit.
Some product categories are just not suited for advertising in and around such big-ticket events - they could do more harm than good.
After the fit, one needs to consider brand life-cycle and thus, what does the brand seek to achieve through the association? Brands in early phases of their life cycle seek to gain increased awareness through World Cup-related promotions.
New brands are disadvantaged to the extent that they need to invest at disproportionately higher levels (compared to more established brands) to break clutter and gain increments in awareness.
For mature brands, the challenge is different - the marketing task is more image- and loyalty-oriented. Here, it makes sense to associate closely with the event, if possible through sponsorship, so as to get the desired changes in audience attitudes.
Speaking of closeness of association, great risks (and obviously the possibility of great returns) are involved for marketers when the brand is very closely associated with cricketers, rather than the event.
Pepsi, being endorsed by key cricket "tigers", was faced with the burning of its logos and posters when team India lost its match against Bangladesh. Tata Sky, which has used a non-cricket celebrity for its promotion, has managed to extract a lot out of a mild association with the event, at the same time insulating itself from such negative outbursts as Pepsi witnessed. It is important for the brand not to be seen as taking over the event.
In terms of the nature of campaigns, the World Cup gives an opportunity like none other for marketers to push the creative boundaries that they would normally adhere to in regular television viewing environments.
Ads that celebrate the spirit of the game or the event (say, Nike) are perhaps most appreciated by core cricket viewers. Contests offering tickets to winners (Britannia, for instance) have worked well in the past.
But with every other marketer using a form of this approach, it can no more be regarded as innovative or clutter-breaking. Celebrity ads will have a high decay. Ultimately, the success of any World Cup-related marketing campaign will be determined by how well it is integrated into the brand's on-going marketing activities, especially after the event.
In such a case as Team India's early exit, no amount of marketing craft can rescue the falling effectiveness of World Cup campaigns. Such is life! Better luck in 2011!
Most sporting events with celebrities grab the attention of viewers, especially when the sport is a part of a social culture, like cricket and films being a part of the Indian culture, despite the presence of diverse sub-cultures. Creating awareness about a new service, concept or product generates higher levels of interest among the consumers, and retailing arrangements are required as a follow up. Unless the brand is prepared for this follow up, it loses the advantage of being associated with the event.
But any sales promotion has to be synergised with the longer objective of the overall brand strategy. For instance, a brand like Nike may use the opportunity to strengthen its brand association with sports as this will result in enhancing its brand equity.
Similarly, a brand that commands a premium cannot indulge in sales promotion often. Hence an event like the World Cup offers such brands the ideal opportunity. The brand can package a few freebies and attract consumers without diluting its premium image. But there has to be consistency.
Repeated use of such opportunities will provide mileage to a brand: otherwise the brand's efforts will get lost in the clutter. The "Nothing official about it" campaign by Pepsi after it was not the official sponsor in the 1996 World Cup and the visibility that followed for the brand in the symbolically driven category of soft drinks shows the creativity that can be achieved when an event like World Cup is on.
Brands that solely depend on mega events or sports celebrities without a long-term brand strategy are exposed to several risks. The excitement around an event may decline in an unpredictable manner, such as in the case India's defeat or a celebrity not performing as expected. Brand associations with events and celebrities should be part of an overall integrated marketing strategy.
First, the heightened interest in the game leads to "guaranteed eyeballs". This means any product advertised during this period has a higher OTS.
But one must remember these "guaranteed eyeballs" are predominantly among men and youngsters. That means categories that are relevant to these segments have a higher chance of exploiting this phenomenon.
The heightened interest in the game leads to a desire to be physically there. So offers that are directly related to this desire will work.
Then, passive interest in some facilitating categories such as TVs and TV connections (cable, dish) and holidays to the Caribbean turning into active interest means expenditure on these items is "catalysed".
If you look at these First Principles of sports-related promotion closely, you will realise that they are in an increasing level of behaviour change and increasing level of cash investment.
For instance, if I already have a TV with a cable connection, all I am doing is swapping my time on some other channel (on TV) or other media (say, Internet) for this channel showing the World Cup. I indulge in no additional money investment; only time.
On the other hand, in the later stage, I'm probably spending a few thousand rupees on buying a TV or going on a tour.
So the Nike, Reebok or Pepsi ads can merely use the opportunity of increased eyeballs to communicate what their brands stand for or combine it with an offer that acts as a catalyst leading to consumers spending on the brand. The Tata Sky offer exploits this principle well.
On the other hand, a jewellery, sari or make-up brand launched on the theme of cricket for young women may not reap the same benefits since young women as a segment are unlikely to be as avid watchers of the World Cup. Nor are these categories linked to the game.
However, if the barrier to entering a contest is too high (the contest is too complicated), it will fail again.
While entering into sports marketing or even celebrity endorsements, a back-up plan is always required.
There needs to be a hard-nosed questioning of sports and celebrity endorsements. The Super-Bowl opportunity can be compared in some ways to cricket. At least two advertisements in the Super Bowl were created by consumers. That was a lateral creative way of sports marketing and more effective than a celebrity mouthing a brand message.
The jury is still out on the extent of losses incurred by advertisers and broadcasters due to India's exit from the World Cup, much earlier than anticipated. Meanwhile, the strategist spoke to experts on how sports advertisers can play better strokes and mitigate risks
Associations with sports must always be planned carefully. Take the case of Shell, which sponsored the Ferrari team in Formula 1. Since Ferrari ran on Shell's fuel there was a clear association.
Brand ambassador Michael Schumacher also had a positive rub off on the brand. It was an association between a great car manufacturer, a great driver and a great fuel company. There was a clear link. But that is an ideal case and generally, you need to be really lucky when it comes to association with sports.
The trouble in India is, companies don't follow any branding principles. Some time earlier, Airtel's brand ambassadors included Sachin Tendulkar, Shah Rukh Khan and Kareena Kapoor.
Today, Reliance Telecom features Tendulkar in its ads. In India, brands and endorsers have neither a connection nor a long-term relationship.
Every four years, at Cricket World Cup time, companies spend large sums of money, sign on cricketers, carpet bomb ads and hope sales improve. But this is guess work marketing. Good companies always choose their sports and celebrities carefully. Nike and basketball star Michael Jordan would be a good example.
Of course, even globally, advertising behind sports is not working. Consider the Super Bowl in the US, for instance. Super Bowl advertising is very expensive: people spend huge sums for every second. But study after study shows that customers do not remember brands that are advertised during the event. There is a lesson here: Don't just jump on a sport. It won't deliver value and will be commercial suicide.
I have a fundamental issue with cricket-backed advertising. Studies show that customers in metros want to be associated more with tennis, golf, soccer and F1 racing. Cricket should be used only by mass market or FMCG brands that work on the value-for-money promise. For others, how much of the money spent will translate into sales or value to business is questionable.
Hero Honda is a case in point. The brand has advertised with cricket for many years now. But have its sales increased? Earlier, it had an unassailable lead over Bajaj. But today Hero Honda's margins, market share, targets are under pressure. Cricket has become a crutch that marketers can't seem to walk without but will have to discard if they are to run.
Cricket, its travails and tribulations have ruled headlines in the last few days. It is best to look at examples of good sports marketing from outside the immediate realm of cricket.
Look at the highly planned and disciplined manner in which Lenovo has built its global brand, riding the goodwill of the Olympic Games. Lenovo was originally branded Legend and it was, at best, a local Chinese brand that had global ambitions. The company started its association with the Olympic Games when preparations began for the Athens Games, by becoming a technology provider and partner.
The association was then built-up and Lenovo became the first ever Olympic partner brand from China. This coincided with Legend re-branding itself as Lenovo, apart from buying out the global IBM PC business, including the ThinkPad brand. Along the way, Lenovo played high stakes with Ronaldinho in the FIFA World Cup soccer and now it has lined up huge investments for Olympics 2008 in Beijing.
Lenovo has had a clear decade-long roadmap of global plans for the brand and has paced its association with relevant sports to grow its global equity, timed to brand-name change, international acquisitions and growing global ambitions. The Olympic Games have been used as a brand booster, a truly global platform from which the brand can speak to the world.
This is also the path many large Japanese brands have taken. Brands like Panasonic and Seiko are known for having consistently and diligently invested behind the Olympic Games to give them a global aura and to connect with sport at its noblest.
In India, we are still learning to handle investments in sports. Brands either go for an over-kill or they tend to do things half-heartedly. Just signing-up a sports star in a one-off commercial will never enrich a brand's equity. At the same, time building a humongous 360-degree exercise where you put all your efforts behind an event or sport can back-fire.
Use sports with the right balance, both strategically and tactically. Some brands build equity, and then strangely give it up. Britannia ruled the cricket scene till the last World Cup.
At present, all you see of the brand is its logo on the bats of some players. That kind of investment is neither here nor there. Of course, the other extreme of Pepsi's blue billion and exaggerated creative renditions turning cricketers into winning tigers can also be counter-productive when things go wrong.
Is there a fit between the brand and the World Cup? It's a very basic question that many marketers seem to miss. It may be too tempting for brands to jump onto the World Cup bandwagon, but it is critical to not overlook the fit.
Some product categories are just not suited for advertising in and around such big-ticket events - they could do more harm than good.
After the fit, one needs to consider brand life-cycle and thus, what does the brand seek to achieve through the association? Brands in early phases of their life cycle seek to gain increased awareness through World Cup-related promotions.
New brands are disadvantaged to the extent that they need to invest at disproportionately higher levels (compared to more established brands) to break clutter and gain increments in awareness.
For mature brands, the challenge is different - the marketing task is more image- and loyalty-oriented. Here, it makes sense to associate closely with the event, if possible through sponsorship, so as to get the desired changes in audience attitudes.
Speaking of closeness of association, great risks (and obviously the possibility of great returns) are involved for marketers when the brand is very closely associated with cricketers, rather than the event.
Pepsi, being endorsed by key cricket "tigers", was faced with the burning of its logos and posters when team India lost its match against Bangladesh. Tata Sky, which has used a non-cricket celebrity for its promotion, has managed to extract a lot out of a mild association with the event, at the same time insulating itself from such negative outbursts as Pepsi witnessed. It is important for the brand not to be seen as taking over the event.
In terms of the nature of campaigns, the World Cup gives an opportunity like none other for marketers to push the creative boundaries that they would normally adhere to in regular television viewing environments.
Ads that celebrate the spirit of the game or the event (say, Nike) are perhaps most appreciated by core cricket viewers. Contests offering tickets to winners (Britannia, for instance) have worked well in the past.
But with every other marketer using a form of this approach, it can no more be regarded as innovative or clutter-breaking. Celebrity ads will have a high decay. Ultimately, the success of any World Cup-related marketing campaign will be determined by how well it is integrated into the brand's on-going marketing activities, especially after the event.
In such a case as Team India's early exit, no amount of marketing craft can rescue the falling effectiveness of World Cup campaigns. Such is life! Better luck in 2011!
Most sporting events with celebrities grab the attention of viewers, especially when the sport is a part of a social culture, like cricket and films being a part of the Indian culture, despite the presence of diverse sub-cultures. Creating awareness about a new service, concept or product generates higher levels of interest among the consumers, and retailing arrangements are required as a follow up. Unless the brand is prepared for this follow up, it loses the advantage of being associated with the event.
But any sales promotion has to be synergised with the longer objective of the overall brand strategy. For instance, a brand like Nike may use the opportunity to strengthen its brand association with sports as this will result in enhancing its brand equity.
Similarly, a brand that commands a premium cannot indulge in sales promotion often. Hence an event like the World Cup offers such brands the ideal opportunity. The brand can package a few freebies and attract consumers without diluting its premium image. But there has to be consistency.
Repeated use of such opportunities will provide mileage to a brand: otherwise the brand's efforts will get lost in the clutter. The "Nothing official about it" campaign by Pepsi after it was not the official sponsor in the 1996 World Cup and the visibility that followed for the brand in the symbolically driven category of soft drinks shows the creativity that can be achieved when an event like World Cup is on.
Brands that solely depend on mega events or sports celebrities without a long-term brand strategy are exposed to several risks. The excitement around an event may decline in an unpredictable manner, such as in the case India's defeat or a celebrity not performing as expected. Brand associations with events and celebrities should be part of an overall integrated marketing strategy.
First, the heightened interest in the game leads to "guaranteed eyeballs". This means any product advertised during this period has a higher OTS.
But one must remember these "guaranteed eyeballs" are predominantly among men and youngsters. That means categories that are relevant to these segments have a higher chance of exploiting this phenomenon.
The heightened interest in the game leads to a desire to be physically there. So offers that are directly related to this desire will work.
Then, passive interest in some facilitating categories such as TVs and TV connections (cable, dish) and holidays to the Caribbean turning into active interest means expenditure on these items is "catalysed".
If you look at these First Principles of sports-related promotion closely, you will realise that they are in an increasing level of behaviour change and increasing level of cash investment.
For instance, if I already have a TV with a cable connection, all I am doing is swapping my time on some other channel (on TV) or other media (say, Internet) for this channel showing the World Cup. I indulge in no additional money investment; only time.
On the other hand, in the later stage, I'm probably spending a few thousand rupees on buying a TV or going on a tour.
So the Nike, Reebok or Pepsi ads can merely use the opportunity of increased eyeballs to communicate what their brands stand for or combine it with an offer that acts as a catalyst leading to consumers spending on the brand. The Tata Sky offer exploits this principle well.
On the other hand, a jewellery, sari or make-up brand launched on the theme of cricket for young women may not reap the same benefits since young women as a segment are unlikely to be as avid watchers of the World Cup. Nor are these categories linked to the game.
However, if the barrier to entering a contest is too high (the contest is too complicated), it will fail again.
While entering into sports marketing or even celebrity endorsements, a back-up plan is always required.
There needs to be a hard-nosed questioning of sports and celebrity endorsements. The Super-Bowl opportunity can be compared in some ways to cricket. At least two advertisements in the Super Bowl were created by consumers. That was a lateral creative way of sports marketing and more effective than a celebrity mouthing a brand message.
Friday, March 23, 2007
12 mutual fund terms you must know
As you probably know, a mutual fund is an investment that pools together money from a number of investors. It then uses professionals to manage and invest this money with the aim of achieving a return.
The mutual funds industry is regulated by the Securities and Exchange Board of India.
If you are interested in investing in mutual funds, here are some terms you need to understand.
AMC
An Asset Management Company is the fund house or the company that manages the money.
The mutual fund is a trust registered under the Indian Trust Act. It is initiated by a sponsor. A sponsor is a person who acts alone or with a corporate to establish a mutual fund. The sponsor then appoints an AMC to manage the investment, marketing, accounting and other functions pertaining to the fund.
For instance, ABN AMRO Trustee (India) Private Limited is appointed as the trustee to the ABN AMRO mutual fund.
ABN AMRO Asset Management (India) Limited is appointed as its investment manager.
Various funds with different objectives can be floated under the umbrella of one parent.
So ABN AMRO Equity Fund, ABN AMRO Opportunities Fund and ABN AMRO Flexi Debt Fund are all independent schemes of ABN AMRO Mutual Fund. They are managed by the ABN AMRO AMC.
NAV
The Net Asset Value is the price of a unit of a fund. When a fund comes out with an NFO, it is priced Rs 10. Later, depending on the value of the investments, this price could rise or fall.
Load
This is a fee that is charged when you buy or sell the units of a fund.
When you buy the units of a fund, you pay a percentage of it as a fee. This is known as the entry load.
Let's say you are investing Rs 10,000 and the entry load is 2%. That means you pay Rs 200 as the entry load and Rs 9,800 is invested in the fund.
Now, let's assume you are selling the units of your fund. And the Rs 10,000 you invested initially is now Rs 15,000. Let's further assume the exit load is 2%. So you pay Rs 300 and get back Rs 14,700.
Generally, if funds charge an entry load, they will not charge an exit load. Or vice versa. Only one of the loads is charged.
The load is a percentage of the NAV.
Portfolio
This is the term given to all the investments made by the fund as well as the amount held in cash.
Corpus
Let's assume a very small mutual fund has an initial investment of 1,000 units and each unit is worth Rs 10. Hence, the total amount with the fund is Rs 10,000. This is referred to as the corpus. Later, some other investors invest Rs 2,000. Now the corpus will be Rs 12,000 (Rs 10,000 + Rs 2,000).
The total amount invested (Rs 12,000) is called the corpus or the total amount of money invested in the fund.
AUM
Assets Under Management is the total value of all the investments currently being managed by the fund.
Let's say the corpus is Rs 12,000 but, due to a rise in the price of the shares it has invested in, the value of the units has increased. So the Rs 12,000 invested is now worth Rs 15,000. This figure is referred to as AUM.
Diversified equity mutual fund
This is a mutual fund that invests in stocks of various companies in various sectors.
ELSS
Equity Linked Saving Schemes are diversified equity mutual funds with a tax benefit under Section 80C of the Income Tax Act.
To avail of the tax benefit, your money must be locked up for at least three years.
Balanced fund
A fund that invests in both equity (shares) and debt (fixed return investments) is known as a balanced fund.
Debt fund
These are funds that invest in fixed return investments like bonds. A liquid fund is one that invests in money market instruments, these are fixed return investments of a very short tenure.
NFO
A New Fund Offering is the term given to a new mutual fund scheme.
SIP
A Systematic Investment Plan refers to periodic investing in a mutual fund. Every month or every three months, the investor will have to commit to putting in a fixed amount. This will go towards the purchase of units.
Let's say that every month you commit to investing, say, Rs 1,000 in your fund. At the end of a year, you would have invested Rs 12,000.
If the NAV on the day you invest in the first month is Rs 20, you will get 50 units.
The next month, the NAV is Rs 25. You will get 40 units.
The following month, the NAV is Rs 18. You will get 55.56 units.
So, after three months, you would have 145.56 units. On an average, you would have paid around Rs 21 per unit. This is because, when the NAV is high, you get fewer units per Rs 1,000. When the NAV falls, you get more units per Rs 1,000.
The mutual funds industry is regulated by the Securities and Exchange Board of India.
If you are interested in investing in mutual funds, here are some terms you need to understand.
AMC
An Asset Management Company is the fund house or the company that manages the money.
The mutual fund is a trust registered under the Indian Trust Act. It is initiated by a sponsor. A sponsor is a person who acts alone or with a corporate to establish a mutual fund. The sponsor then appoints an AMC to manage the investment, marketing, accounting and other functions pertaining to the fund.
For instance, ABN AMRO Trustee (India) Private Limited is appointed as the trustee to the ABN AMRO mutual fund.
ABN AMRO Asset Management (India) Limited is appointed as its investment manager.
Various funds with different objectives can be floated under the umbrella of one parent.
So ABN AMRO Equity Fund, ABN AMRO Opportunities Fund and ABN AMRO Flexi Debt Fund are all independent schemes of ABN AMRO Mutual Fund. They are managed by the ABN AMRO AMC.
NAV
The Net Asset Value is the price of a unit of a fund. When a fund comes out with an NFO, it is priced Rs 10. Later, depending on the value of the investments, this price could rise or fall.
Load
This is a fee that is charged when you buy or sell the units of a fund.
When you buy the units of a fund, you pay a percentage of it as a fee. This is known as the entry load.
Let's say you are investing Rs 10,000 and the entry load is 2%. That means you pay Rs 200 as the entry load and Rs 9,800 is invested in the fund.
Now, let's assume you are selling the units of your fund. And the Rs 10,000 you invested initially is now Rs 15,000. Let's further assume the exit load is 2%. So you pay Rs 300 and get back Rs 14,700.
Generally, if funds charge an entry load, they will not charge an exit load. Or vice versa. Only one of the loads is charged.
The load is a percentage of the NAV.
Portfolio
This is the term given to all the investments made by the fund as well as the amount held in cash.
Corpus
Let's assume a very small mutual fund has an initial investment of 1,000 units and each unit is worth Rs 10. Hence, the total amount with the fund is Rs 10,000. This is referred to as the corpus. Later, some other investors invest Rs 2,000. Now the corpus will be Rs 12,000 (Rs 10,000 + Rs 2,000).
The total amount invested (Rs 12,000) is called the corpus or the total amount of money invested in the fund.
AUM
Assets Under Management is the total value of all the investments currently being managed by the fund.
Let's say the corpus is Rs 12,000 but, due to a rise in the price of the shares it has invested in, the value of the units has increased. So the Rs 12,000 invested is now worth Rs 15,000. This figure is referred to as AUM.
Diversified equity mutual fund
This is a mutual fund that invests in stocks of various companies in various sectors.
ELSS
Equity Linked Saving Schemes are diversified equity mutual funds with a tax benefit under Section 80C of the Income Tax Act.
To avail of the tax benefit, your money must be locked up for at least three years.
Balanced fund
A fund that invests in both equity (shares) and debt (fixed return investments) is known as a balanced fund.
Debt fund
These are funds that invest in fixed return investments like bonds. A liquid fund is one that invests in money market instruments, these are fixed return investments of a very short tenure.
NFO
A New Fund Offering is the term given to a new mutual fund scheme.
SIP
A Systematic Investment Plan refers to periodic investing in a mutual fund. Every month or every three months, the investor will have to commit to putting in a fixed amount. This will go towards the purchase of units.
Let's say that every month you commit to investing, say, Rs 1,000 in your fund. At the end of a year, you would have invested Rs 12,000.
If the NAV on the day you invest in the first month is Rs 20, you will get 50 units.
The next month, the NAV is Rs 25. You will get 40 units.
The following month, the NAV is Rs 18. You will get 55.56 units.
So, after three months, you would have 145.56 units. On an average, you would have paid around Rs 21 per unit. This is because, when the NAV is high, you get fewer units per Rs 1,000. When the NAV falls, you get more units per Rs 1,000.
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