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Money Matters

Money Matters
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First Published: Sun, Oct 26 2008. 10 12 PM IST

Updated: Sun, Oct 26 2008. 10 12 PM IST
Do I need a demat account to buy mutual funds online? What is the process for this?
—JAMIE
If you buy mutual fund (MF) schemes from any MF’s website, you do not require a demat account. You will still get a physical certificate. However, if you buy from an online broker such as www.icicidirect.com or www.hdfcbank.com, you require a demat account. Once you open an account with them, you will automatically be required to open a demat account, too. You can then buy and sell shares as well as other securities, in addition to MFs. Contact your nearest bank branch and ask for an online trading three-in-one account. You will then have to open three accounts—a trading account, a bank account and a demat account.
Your online trading account may not offer you all the schemes, however. Options differ from one online broker to another.
I invested in Reliance Natural Resources Fund online (new fund offer period 1-30 January 2008). My account statement shows the name of an unknown agent and entry load of 2.25%. When I contacted the fund house, I was issued a new account statement showing direct investment, but the entry load was still there. The fund house said the NFO period had ended and so the entry load was charged. Is it right? What should I do?
—PARAMVIR GILL
The Securities and Exchange Board of India (Sebi) guidelines that exempted investors from paying entry loads on direct investments in MFs was applicable for all schemes launched after 4 January. The same date was also applicable for all the schemes existing then. However, the NFO period of your scheme—Reliance Natural Resources Fund—began on 1 January. Since the scheme was launched before the deadline of the Sebi mandate, it could charge entry load. However, the scheme became an “existing” one soon after its NFO closed (30 January). Therefore, investors who entered the scheme after 30 January were exempt from paying the entry load. Since you invested before this date you will have to pay the entry load of 2.25%.
I have invested in Franklin Templeton’s High Growth Companies Fund, but its performance has not been good lately. What is your advice? Should I stay invested or switch to another fund of Franklin? Which fund should I switch to?
—NIRAT SHETH
Franklin India High Growth Companies Fund (FIHGCF) is an aggressive scheme that will invest in a blend of large- and mid-cap companies where the fund manager sees high growth potential. The scheme is barely a year old and its performance has not been too good. It lost 23.44% and 13.17% over the past one year and six months, respectively. Unfortunately, market conditions turned volatile almost six months after the fund was launched. This is one reason for the scheme’s poor performance. The story is not much brighter in other equity funds, although this applies to different degrees in each case.
Another reason for FIHGCF’s poor show in 2008 is its asset allocation. Being an aggressive scheme, FIH has invested around 43% of its portfolio, on an average, in small and medium-sized companies in 2008. In volatile or falling markets, this segment gets hit more than larger and better established counterparts. As FIH hasn’t yet got a decent chance to perform, it’s unfair to advise redemption. A one-year time frame for investments is too short for equity funds. Besides, the story isn’t much brighter in other equity funds as the current dry run has impacted all equity funds. Stay invested for now.
Write to us at moneymatters @livemint.com
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First Published: Sun, Oct 26 2008. 10 12 PM IST