Intermediate

Back in my school days I used to mug up reams and reams of chemical formulas, not knowing if I would ever use them in the future. In the investing world those esoteric formulas, now seem rather meaningless. However, one concept that is still stuck in my head is that of an Isotope which I likely encountered in Class IX or X. The concept of ‘elements’ is the very foundation of Chemistry. An Isotope of an element is a similar atom with same number of protons but different neutrons.

In mutual fund transactions, the time of receipt of the transaction and money affects the applicable Net Asset Value (NAV). To bring uniformity in the operational processes, SEBI (Securities & Exchange Board of India) has prescribed the cut-off timings for mutual fund transactions across all the mutual fund houses. Therefore, mutual fund transactions are processed based on the prevailing NAV of the respective scheme, if the fund house receives the transaction/ funds before the cut-off time.

Mutual funds have emerged as a preferred investment option among retail investors due to the benefits of professional fund management and ease of investing. As a new investor, many people have this question in mind - how do mutual funds work? What do Asset Management Companies (AMCs) do with the small investments that individuals provide?

Investors may choose to invest in equity markets through two primary investment strategies: active and passive. Active investing refers to the active selection of stocks in the portfolio depending on company fundamentals and other parameters. In contrast, passive investing refers to tracking a benchmark index and replicating its composition in the portfolio. When a scheme is actively managed, the fund manager decides which stock to invest and in what proportion to invest.

Behavioural finance is a branch of behavioural economics, which proposes that various psychological biases influence the behaviour of people towards their financial and investment decisions. People tend to behave differently to even similar news and events, and thus, behavioural investing takes into cognizance the influence of biases in the investment decisions. 

OWhen chalking out a prudent financial roadmap, one may have several goals. It is always desirable to divide such financial goals into short-term and long-term. Long-term goals may include retirement planning, children's education, marriage, etc. Short-term goals may consist of maintaining an emergency fund, house renovation in the next six months, family vacation, vehicle purchase, etc. While equities are considered for long-term financial purposes, choosing the right investment option for short-term financial goals may be tricky for some investors.

It is a known fact that the purchasing power of money reduces over time. An Rs. 2000 note today will fetch lower value a year later and further lower a decade later. Similarly, a Rs. 100 item will most likely not be available at the same rate a year later and available at much higher rates 10 years later. This happens due to the increase in prices of raw materials, input services etc. In normal parlance, this is referred to as inflation, which reflects the increase in prices of commodities and services across different periods.

The outbreak of COVID-19 is being referred to as a “once in a century event” and has heightened uncertainty for many companies which have to deal with the prospect of a significant drop in their cash flows. The longer the pandemic persists, greater the risks as leveraged businesses might find it hard to service the debt or access credit.

When it comes to investing in mutual funds, data suggests that investors are highly inclined to invest in equity funds. As per the quarterly data for July - September 2022, about 9.2 crore folios featured equity schemes across the mutual fund industry, with the total Assets Under Management (AUM) of ₹14.64 lakh crores. In comparison, the number of folios in debt-oriented schemes stood at around 72 lakh. (Source: AMFI)

On July 31, 2020, the Nifty Pharma index has hit a 52-week high levels. This no doubt gives us great satisfaction considering that the Pharmaceutical sector is the largest overweight sector position in UTI Value Opportunities Fund (the Fund). Even as many of our portfolio companies were battered by the impact of the COVID-19 pandemic, this index has bounced nearly 79% from its low in Mar-2020.