How it will be like if we are going to have the First India Bear Fund: FIB Fund. Here is what all you wish to know about the Fund.
The Methodology The FIB Fund takes short positions in individual stocks and market proxies, and purchases put options, to benefit from a anticipated decline in particular stocks or stock market indices. The fund also holds some "long" positions, primarily stocks of gold and silver asset classes. Investors should realize that the fund is not a "market neutral" fund, but will typically have far more "short" than "long" exposure. And because most long positions are gold stocks, the long portion of the portfolio is unlikely to closely track the general stock market. The fund manager believes this portfolio of short positions and gold stocks will benefit if the long bear market continues to unfold as we expect.
The fund regularly makes short sales of securities, which involves unlimited risk including the possibility that losses may exceed the original amount invested. The fund may also use options and future contracts, which have risks associated with unlimited losses of the underlying holdings due to unanticipated market movements and failure to correctly predict the direction of securities prices, interest rates and currency exchange rates. However, a mutual fund investor's risk is limited to one's amount of investment in a mutual fund. The fund may also hold restricted securities purchased through private placements. Such securities may be difficult to sell without experiencing delays or additional costs.
How does the fund potentially benefit investors in stock market declines?
Like most mutual funds, the Fund is a broadly diversified investment vehicle. But the FIBFund is primarily engaged in "short sales." The fund may also purchase put options. An investor who sells a stock short or buys a put option profits when the stock goes down. The fund also holds short positions on indexes which act as proxies for the stock market or a segment of the market. This portfolio of "short" positions (in addition to put options) allows the fund to potentially benefit from a steep market decline.
The fund does have some long positions, but these are primarily stocks of gold mining companies. We expect gold stocks to benefit during the secular bear market that we believe is ongoing. What is short selling?Typically an investor buys a stock in hopes it will appreciate. He tries to "buy low and sell high." But if you believe the price of a stock will decline you can sell a stock short. Here, the goal is to sell "high" and buy the stock back "low." An investor may short a stock because he believes it is overvalued or because there is fundamental problem with the company. Or an investor may want to protect against a broad market decline by shorting a number of stocks or an index. How do you sell a stock short?When you short a stock you borrow the stock from you broker and sell it in the market hoping to buy at back later at a lower price.
Here's how it works:
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