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Laymans Guide
To Time-Tested



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The Science

Different Asset Classes

If you have been viewing the stock markets over the past
five years from the sidelines, you might be wondering how
anyone still has the stomach for investing. Markets have
swung, which can be quite disconcerting. But these up-anddown market cycles are normal. Historically, leaving your
investments alone has proven a smart investment strategy
in most circumstances. But if youre starting to have doubts,
its a good idea to brush up on your understanding of the
markets and determine your motivation for investing in the
first place.
The stock market allows everyone the opportunity to
participate in the economy by investing in businesses.
Investing in the stock market is one of the best ways to
create wealth. It is not, however, a sure thing. The generation
of wealth does not come without risk. The reason for
fluctuations in the stock market is that it reflects the rise
and fall of the companies that participate in it. When the
economy is prospering and companies are doing well, the
stock market generally reflects that. When the economy is
faltering, like it has been recently, the stock market reflects
that as well.
The following pages are modern day tenets which will
help you understand capital markets better, break myths
about stock markets and show you the best way to equity
investing through mutual funds. Understanding how the
stock market works can help you make good investment
decisions and ensure wealth creation over time. We hope
you benefit from them.

There are four main asset classes, each with different levels of risk and
return-equities, debt, gold and real estate. Asset allocation is a way to
describe what proportion of money is invested into each class within an
investment. Investments can go down as well as up and these ups and
downs can depend on the assets youre invested in and how the markets
are performing. Its a natural part of investing. It is for this reason that
a diversified portfolio of investments is suggested, which helps balance
risks and rewards.

Of Wealth Creation

ARE For Different Reasons


In What You Know

There is infinitely more that we dont know than what we do know. If
we invest only in what we know we are concentrating investments and
not diversifying. And worse, just because we know something does not
mean it is able to produce good returns - for anybody. For instance, the
great Warren Buffet missed on Microsoft in the 1980s because he did
not invest in technology because he said, he did not understand it.

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INVESTMENT is for those
Who Can Manage It


There are various ways to invest in equity; there are several types of
mutual funds, which are not only tax efficient, but also match your risk
appetite with the investment objective. For instance an Exchange traded
fund (ETF) is low cost and matches an index that it invests in, if you can
take some risk and select a good performing fund, the professional fund
management expertise could help generate additional returns over the

Equities are


The fixation to material assets is high.

The best thing about equities is they can
adapt to markets. A smart CEO leading
a smart company can change strategy,
and investments, and create value or
at least check its erosion. Equities are
not steeped in physical assets, they are
liquid and available to you when you
need it.


in the market is



Equities can be volatile in the short term, but historically have proved to
be a wealth creator if invested over a longer time frame. Testimony to
this is the fact which shows that in the last 15 years even if one invested
every year at the peak index level he still made an annual return of
11.21 % . Hence, Time in the market is more important than Timing the
Source: SENSEX returns (XIRR) for investment on market peaks from January 1998 to December 2012.

THE MARKETS are the same as

They Were In


Change is the only constant. For example, in January 2008 when the
Sensex was at 20,251, the PE was at 21.4X, whereas in January 2013,
when the index touched 20,039 , the PE was at 14.35X. PE is the value
of the stock markets. The markets were effectively 33 per cent cheaper.
Hence, though the market levels seem the same, the underlying drivers
are different. Thus, it is the valuations that are important to look at, rather
than the market levels.
Source: Kotak Securities. PE is one year forward PE.

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Share Price Of A Company does not reflect

We always feel that if the stock price of a company is going up, its
because the company is doing great today. Not necessarily so. The
share price of a company generally reflects its future business potential
and not only the current status. For example, if the company announces
a new product launch which investors feel would do well and would
increase the prospect of the company in future, they will buy more shares
and thus the share price will increase. However, in future, if the product
does not do well due to certain factors, the demand for its share will go
down and thus the share price will decrease. Similarly, if the company is
doing well today but has taken a huge loan for some acquisition which
investors feel will not fare well in the future, they may start selling its
shares, bringing down its price.

You are

part owner with an


The difference between savings and investments is that, when you save
you are actually lending to someone, whereas when you are investing,
you part take in the business in which you invest.

Many investors believe that a mutual fund scheme with Rs 10 NAV (in
case of NFO), provides a better investment opportunity than a scheme
with NAV of say, Rs 100. This is a wrong approach to invest. For an
investor, the potential growth of the underlying security is what that
should matter. For instance, a scheme with Rs 100 NAV going up to Rs
150 is any day better than the Rs 10 NAV going up to Rs 12. In the first
instance, the growth is 50 per cent and in the next it is just 20 per cent.
Moreover, a fund that is old, will have a performance history to provide
an idea about its track record and past performance. After all, it is the
value of the underlying asset in a mutual fund that determines the growth
of the NAV and not the denomination of NAV.

Select Funds


A fund that does well during select market periods is not the best way
to invest. Look for a fund that is consistent over market cycles and beats
the benchmark. Peer comparison is important, but should not be the only
driver when investing in a fund.

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More often people use thumb rules to decide the equity-debt allocation
depending on the age of the investor. The most common rule is to subtract
ones age from 100 and allocate that much to debt. Asset allocation is
not perfectly correlated with age, it has a lot to do with the risks you can
take and your goals. For instance, for a financial goal that is 20 years
away, you should consider investing only in equity. However, if you have
a financial goal which is a year or little over that away, stick to only fixed
return debt instruments.

There are several types of debt funds available depending on the securities
they invest in, the tenure that they hold securities for and liquidity. This
makes the debt option suitable to save, invest and a combination of
the two. For instance, a liquid fund is good to park money temporarily
to save. A short-term fund option does both, while income funds, gilt
funds and MIPs, which have a dash of equity exposure are all good for
investing from short to medium-term.

Gold Returns only reflect

the demand and supply dynamics in


The Indian penchant for gold is well known. However, gold prices depend
on global demand and currency parity a point often missed by retail
investors. Thus it not only reflects the actual demand for the metal, but
also the currency fluctuations. For example, if the rupee depreciates
against the dollar, the price of gold would increase in India, even if the
international price of gold does not change in that time period and vice
versa. Do invest in gold, as long as you foresee the need for the metal
in the future such as a marriage in the family. However, if it is wealth
creation, gold is best suited as a part of your overall asset allocation.


By sticking to some basic time-tested principles, investing in mutual
funds will help you not only get exposure to equities, it will also take
care of several of your concerns, such as professional management and
active management.

Owning a variety of assets that will prosper in different market and
economic conditions, is always sought after. The most efficient portfolio,
manages to post the highest returns with the lowest risk, because it
is well diversified. Diversification does not simply translate into greater
numbers. Diversification across market capitalisation and sectors will
ensure a good exposure to every element of the economy.

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Select stock picking

Many investors make the mistake of doing too much to their investment
portfolio. Mutual funds invest in well researched and analysed select
stocks, thereby, you own a unit in the underlying stock or business.

Mutual funds are managed by professional money managers who invest
and exit investments depending on the market conditions, which can
help aid a healthy portfolio.

These are simple and straightforward an idea. You invest a fixed sum
regularly in an equity fund, regardless of market conditions. Over a
long-term, you end up buying more units when the markets are down
and fewer when the markets are up. Your average price of acquisition
is generally lower than what it would have been had you tried to time
the market by trying to predict and anticipate its movements. Instead of
trying to time ones investments, one should regularly invest a constant
Mutual funds offer all these benefits in a single stroke. You should
capitalise on the easy manner in which this product works and benefit
from investing in them.

For further details contact

Registered Office
Kotak Mahindra Asset Management Co Ltd
36-38A, 3rd Floor, Nariman Bhawan,
227, Nariman Point,
Mumbai--400 021
Tel: 91-22-66384400
Fax: 91-22-66384455
Services Team
Kotak Mahindra Asset Management Co Ltd
6th Floor, Kotak Towers, Building No:21,
Infinity Park, Off Western Express Highway,
Goregaon - Mulund Link Road,
Malad (East), Mumbai - 400 097
Tel: 91-22-66056825 (Board Line)
Fax Number: 91-22-66384455
Call Centre: 91-22-66384400 - 1800222626 (Toll Free)
Corporate Office Address
Kotak Mahindra Asset management Company
6th Floor, Vinay Bhavya Complex,
159, CST Road, Kalina, Santacruz (East),
Mumbai - 400 098
Tel: 91-22-66384400 (Board Line)
Fax: 91-22-66384455
Call Centre: 91-22-66384400 - 1800222626 (Toll Free)
Also contact us at
Delhi (011) 66306900/01/02

Ahmedabad (079) 66178140/41

Kolkata (033) 22822411/12

Hyderabad (040) 66178140/41

Chennai (044) 28221333/28220500

Chandigarh - (0172) 4671885/5049476

Pune (020) 64013395/96


Mutual Fund Investments are subject to market

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risks, read all scheme related documents carefully