PARVATHA VARDHINI C | August 28, 2016 | The Hindu Business Line
The fund’s debt exposure offers downside protection to conservative investors
Equity-oriented balanced funds are a good choice to beat the current volatility in the markets. These funds invest up to 35 per cent of their corpus in debt instruments and thus provide good downside protection for risk-averse investors. Franklin India Balanced is a fund that fits the bill in this category.
Performance and strategy
In falling and yo-yoing markets, Franklin Balanced remains resilient. In 2011, when the bellwethers and broader markets lost 25-27 per cent, the fund lost only 13 per cent.
In the see-sawing markets of 2015, the fund emerged on top, gaining about 5 per cent, while the indices fell 1-5 per cent.
Franklin Balanced managed to stay on top in the 2014 rally too, by deft asset allocation. The fund did not latch on too much to riskier mid- and small-cap stocks to ride the bull run and allocated less than 15 per cent of its equity portfolio to the same. It, instead, took advantage of the rally in bond prices, by increasing its holdings in government securities in this period. A sharp up-move in both equity and bond markets saw the fund clock 47 per cent return in 2014, as against the 30-37 per cent clocked by the bellwethers and the BSE/Nifty 500 indices.
Its returns are better than of peers’ such as Canara Robeco Balance and Reliance Regular Savings Balanced. The performance even matches that of diversified equity funds such as SBI Magnum Equity.
The fund normally keeps its mid-cap allocations to less than 10 per cent of its equity portfolio, barring occasional spikes up to 15 per cent during market upswings. Its top sectors are typically a combination of cyclicals and defensives. The fund has stepped up its holdings in bank stocks after a breather last year due to multiple headwinds hitting the sector. Barring SBI, its choices lean towards private banks such as HDFC, IndusInd, YES Bank, ICICI and Kotak Mahindra Bank currently.
In the auto sector too, the fund pushed up stake in Mahindra and Mahindra, betting on good monsoon. Other holdings here include Hero MotoCorp, Tata Motors and TVS Motors. Power Grid Corporation, Maruti Suzuki, Mahanagar Gas and Oil India are recent entrants. About 26 per cent is allocated to government securities. In the last couple of months, the fund has been trimming its exposure to corporate bonds. While its exposure to corporate bonds is not significant currently, in the past it has stuck with higher rated bonds — those rated AAA or AA.
By Kshitij Anand, ECONOMICTIMES.COM | Aug 10, 2016, 01.51 PM IST
The unique challenges to growth of developed markets make emerging markets, especially India, look attractive. However, a strong upside from current level looks challenging at this point in time, says Nimesh Shah, MD & CEO, ICICI Prudential AMC . In an interview with Kshitij Anand of ETMarkets.com, he shared his views on markets, GST and the behaviour of retail investors. Excerpt-
ETMarkets.com: How significant is GST reform for the economy? It looks like the market has already factored in most of the upside from the reforms? What is your take on the whole equation?
Nimesh Shah: Over the years, the goods and services tax (GST) has become a symbol of reforms in the country for both Indian as well as foreign institutional investors (FIIs). With the passage of the GST bill, sentiments have surely improved, but it is imperative to understand that the GST is unlikely to change things overnight.
As a country, we will be reaping the benefits of this reform over the next five to seven years, and not in next five months. Now the size of the organised sector in several industries is bound to go up, thanks to the improved compliance of taxation because of the nature of GST and its benefits for the economy.
At current valuation, the market seems to have fully factored in the positives of the bill. One must take cognisance of the fact that a rerating of the Indian market is likely to happen over the long run. However, if there is an immediate re-rating, solely based on the expected positives, the market is likely to see some correction.
ETMarkets.com: The domestic market is already trading at valuations that are above historic highs. Is there potential for more upside or should investors brace for a sharp fall? Some experts even call this a new normal. What is your take?
Nimesh Shah: It is premature to say high valuation is the new normal for the Indian equity market. There is a plethora of factors in the form of good monsoon, repressed oil price, bottoming of earnings de-growth, which are currently supporting market valuations.
Adding to this is the unique growth challenges of the developed markets, which make emerging markets, especially India, look attractive. However, a sharp upside from current level looks challenging at this point of time.
At the same time, one cannot completely turn a blind eye to the possibility of volatile times arising due to negative global news flow.
Historically, it has been observed that negatives on the global front have managed to trump the positives on the local front. But prudent action in times of volatility would be to use that as an opportunity.
ETMarkets.com: Has the retail investor matured in the way he invests in equities now?
Nimesh Shah: There has been a remarkable improvement over the past few years in the way retail investors invest in equities. Over the past couple of years, retail investors have preferred to approach stock market via the mutual fund route, rather than investing directly in stocks.
We see this as an acknowledgement of mutual fund industry’s robust track record, well designed and very well regulated product line and transparency.
Within the mutual fund route, the heartening feature is that increasingly funds are coming through the SIP route. As an industry, we have witnessed the SIP book swell from Rs 1,800 crore in March 2015 to nearly Rs 3,000 crore per month and growing. Other than this, the other major positive is the change in investment behaviour.
There was a time when investors used to enter at market highs and would sell in case of a correction, leading to negative investor experience. However, this has changed now, thanks to the relentless investor education initiatives by the media, distributors and fund houses. Now, the mantra is to stay invested and not be swayed by market swings.
ETMarkets.com: Can a retail investor become a crorepati by just following the SIP approach? If yes, on an average how much he needs to set aside every month to achieve that goal?
Nimesh Shah: Yes, if a retail investor invests in a diversified equity fund through a systematic investment plan over the long term, she/he can become a crorepati. For example, Rs 20,000 invested through a monthly SIP for about 15 years can grow to over Rs 1 crore, if you assume a rate of return of 12 per cent.
ETMarkets.com: Is the big bull run intact in in the domestic market? The Indian market is already up 20 per cent from its 52-week low. Do you think the current bull run is driven by liquidity rather than fundamentals? If yes, are we staring at a big slide as soon as the liquidity tap dries up?
Nimesh Shah: The current rally is fuelled by both domestic as well as global factors. One has to take into account that the current rally in emerging markets is happening after 3-4 years of underperformance vis-a-vis developed markets.
At a time when almost all the developed nations of the world are facing a zero or sub-zero interest rates coupled with muted growth, India is emerging as an oasis of growth.
Going forward, gradual improvement in demand and strong operating leverage will drive earnings in the upcoming quarters, rendering the much-required earnings support.
All these factors are likely to support the equity markets, even at a time when liquidity starts to taper down.
ETMarkets.com: What is your call on the bond market? Should investors go for debt funds?
Nimesh Shah: The Indian bond market has been an attractive bet for global investors thus far. The four factors that have worked in favour of India are a) a well-managed current account deficit (CAD), b) benign global commodity prices, c) favourable credit growth trajectory and d) non-inflationary Government policies.
Thanks to the prevailing interest rate scenario in global markets, the Reserve Bank of India (RBI) is likely to maintain an accommodative policy stance given the uncertainties on account of international factors.
We are of the view that yields will head lower in the days ahead. Therefore, we would recommend short to medium duration or accrual funds for incremental allocation.
ETMarkets.com: Fitch said the global bond market is at risk of losing $3.8 trillion. How are we placed in the global equation?
Nimesh Shah: India is far better placed in the context of international fixed income markets. In the developed markets, interest rates are at a historic low while in the case of India, interest rates are still elevated. The focus of monetary policy now is more towards managing inflation and globally it is on renewing growth.
Over the last three years, GOI and the RBI have managed to get current account deficit and domestic inflation under control, along with moderate growth and political stability. As long as this equation is not juggled with, India is well placed in the global equation.
ETMarkets.com: Can you name five stocks that you think could fetch multibagger return over the next 2-3 years. And why?
Nimesh Shah: In the current market, construction, auto ancillaries, pharma and healthcare services are the pockets that are in a position to generate attractive returns in the medium term.
ETMarkets.com: ICICI Prudential AMC has become the largest asset management company in the country. What are your five key takeaways from your journey so far?
Nimesh Shah: Our journey to the top (as the largest asset management company) has been accompanied by much learning. Primarily, as an industry, we realise when a product is transparent and is beneficial to the investor, the industry is bound to multiply several folds, with time.
Our experience shows that a fund house with a proven track record of managing investor money is bound to attract more investments.
As for investment experience, it is a noted phenomenon that investors shy away from investing in equities when valuations are cheap. Therefore, we have products like balanced, dynamic asset allocation funds that aim to benefit out of volatility and provide a better investment experience.
Lastly, one of the inherent challenges has always been simplifying the process of investing. As of now, the inflows into mutual fund schemes are limited through banking channels, thereby missing on the cash payment channel.
Once Sebi’s uniform KYC regulation is implemented, these processes are likely to be simpler, thereby aiding larger participation across financial class.
By Sunil Dhawan | ECONOMICTIMES.COM | Jul 20, 2016, 02.53 PM IST
Gold in its physical form — jewellery or ornaments — has always been popular among Indians, especially women. Unlike in the past when gold was only considered a hedge against inflation and held entirely in physical form, today it finds its place even in an investor’s portfolio and largely as paper gold. Earlier as gold exchange traded funds (Gold ETFs) and now as Sovereign Gold Bonds (SGBs), paper gold offers many advantages to Indian investors now.
The Series I of SGB 2016-17 is currently open for subscription from July 18 to 22. The fourth tranche of SGB, its price has been fixed at Rs 3,119 per gram.
However, before you buy SGBs, you need to be clear about why you need to invest in gold. Is it to meet a financial goal or for pure investment purposes? If it is for the former, then most financial planners will suggest not having more than 10 per cent of the total portfolio in gold. Aniruddha Bose, Director & Business Head, FinEdge Advisory, says, “In our view, investors shouldn’t overexpose themselves to SGBs. They may form 5-10 per cent of the overall asset allocation of an investor.”
Window of opportunity
The bonds will not be available all year round. The government will keep coming out with primary issue of different tranches of SGBs for open purchase. This could typically happen every 2-3 months and the window will remain open for about a week. For investors looking to purchase SGBs between two such primary issues, the only way out is to buy earlier issues (at market value) which are listed in the secondary market.
The biggest advantage of SGBs is clearly on the tax front. The 2016-17 Budget had proposed that the redemption of the bonds by an individual be exempt from the capital gains tax. Therefore, holding till maturity has its tax advantage. Redeeming in stock exchange may, however, result in capital gains or loss and one may have to pay tax accordingly. Interest on the bonds is, however, fully taxable as per the tax rate of an investor. For someone in the 10, 20, or 30 per cent tax bracket, the post-tax return comes to 2.47, 2.18 and 1.9 per cent respectively.
The initial cost of owning physical gold in the form of bars, coins is around 10 per cent and even higher for jewellery. SGBs and Gold ETFs are cost-effective as there is no entry cost in either. In the latter, the expense ratio could be around 1 per cent. Still, owning gold in paper form is cost-effective than owning physical gold.
The returns from gold can be highly volatile, especially over the short term. Therefore, link a long term goal to your gold investments. Goals that are at least 7-8 years away are ideal as SGBs mature after 8 years. The investor could be given an option to roll over his holdings for an additional period. However, one may withdraw prematurely five years from the issue date on interest payment dates. Although one can exit in the secondary market anytime, the liquidity and price risk may exist. There may not be enough buyers for the quantity offered by you and even the market price may be low. These are the concerns when one wants to exit from an investment in a hurry. Goals such a children’s education, marriage, or your own retirement, which are eight years away or more, may be linked to investment in SGBs.
Identify a long term goal and estimate its inflated cost. Calculate the amount you need to save towards it. Similarly, find out the investment required towards other long term goals. Earmark not more than 10 per cent of the total monthly investments towards all your long term goals into SGBs. Bose says, “From a financial planning standpoint, it makes sense to take a larger exposure to more aggressive assets such as equities (as opposed to gold) for the fulfilment of long term goals.”
Treat investment in every tranche (primary issue by government) of SGBs as SIP. Alternatively, Bose suggests, “SGBs are actively traded on the exchanges, so one could always buy more of them at a later stage, from a portfolio balance standpoint.” But remember, not to invest in them when the linked-goal remains 2-3 years away. Let the existing investments in SGBs continue and make sure to redeem them at least a year before the goal to ensure the volatility in gold portfolio is minimal.
Returns in SGBs are market-linked and will depend on gold prices prevalent on maturity after eight years. “Buy SGBs keeping your overall asset allocation in mind, rather than just buying them blindly. Also, understand the risks – gold prices have already gone up sharply in the past year,” says Bose.
Rather than owning gold in physical form and not earning anything on it, SGBs mean owning gold and also earning interest on it. The government has fixed interest of 2.75 per cent per annum on the investment, with no compounding of interest. The interest shall be paid in half-yearly rests and the last one shall be payable on maturity along with the principal.
It will also be important to re-invest the half-yearly interest as the amount could be low and used up unnecessary. To put the interest amount in perspective, on an investment of Rs 1 lakh, Rs 2,750 received yearly yields Rs 22,000 after 8 years.
Gold ETFs provide much better liquidity than SGBs. Owning units is much easier than SGBs as it’s entirely online in the case of ETFs. The risk of owning and holding doesn’t exist in both. The only disadvantage of ETFs is that it won’t help you earn the additional interest of around 2 per cent per annum. So depending on how comfortable you are managing your investments online, choose either ETFs or SGBs.
Source : http://goo.gl/xBb4pN
Vivina Vishwanathan | First Published: Mon, Jul 11 2016. 04 03 AM IST | Live MInt
Actor Sunny Leone’s current business interests include perfumes and online gaming. Personal investments, too, are made with a long-term intent
Sunny Leone is not an ordinary Bollywood star. The 35-year-old has been the most searched person on the Internet in India for four years in a row. The adult movie star-turned-actress was always fascinated with business and was a control freak when it came to finances. But that was before she met husband, Daniel Weber.
“I was 8 or 10 years old when I used to go to the street with my brother and a neighbour in Canada, and shovel snow in the driveways and earn a dollar a piece. But the snow was two-feet high and we thought we should charge more because it was double the work,” says Leone, who was born in Canada and lived there as a child. In fact, as a child, she routinely put up lemonade stands during summers and shovelled snow in the winters to earn money. “I was the girl who sold things for my basketball team and soccer team. That was before I even went to high school.”
Her interest in business continued in high school. “When I went to high school in California, I joined a club called Future Business Leaders of America. That is when I started learning a lot of things about marketing, and supply and demand. I took different classes around business and economics. We would go to young entrepreneurial conferences in that area and that’s kind of where everything started.”
Even at a young age, Leone wanted to start her own venture. “When I became an adult, I realised that (adult content) was a business. But more than that, I wanted to own a website and run my own company.” She used to handle everything. “If I have to be in this industry, I want to make all the money—every dollar. After all, it is my body, my image and my brand.”
So, she learnt to manage her website, learning HTML, video editing, photography, and how to build thumb gallery posts (TGP). “I would do everything from start to finish. That was when I learnt about website traffic. In a digital world, traffic is the best thing you can have. I learnt where to send this traffic and how to capitalise all of it.”
Leone says a business should be grown slowly and steadily. “Believe me, it takes at least a year to three years for a business to turn profitable. I don’t believe in any business that is fast paced. If it is moving very fast, it doesn’t seem right to me. I like the idea of growing slowly and steadily and making the roots of the company strong.”
Move to India
Moving to India was a calculated risk for Leone. When she got an offer to participate in the prime time reality show Bigg Boss in India, Leone initially declined. “I thought it was absolutely insane because I’d got so many hate mails from the Indian community. Because I had got so much hatred, I said I don’t want to go through it again.” But then her husband, Weber, went to her with a PowerPoint presentation and armed with statistics. “We had the viewership and the reach details. We started doing further research. I think at that time Bigg Boss was watched by 25 million people in 10 different countries or something. It was huge. By the time I finished researching, we both came to the conclusion that if we didn’t take this chance, it might be one of the biggest regrets we would ever have.”
She was taking a chance, and she was scared. “There was a lot of negativity and backlash for Viacom, Bigg Boss, and Colors for bringing me here because it was the first time someone from that (adult content) industry was coming to mainstream television. Meanwhile, I thought if I work for a couple of weeks, make money and then come home, I could put a down payment on a house and go back to living in my bubble. I didn’t think anything was going to come from it.”
But when she started working in Bigg Boss, she realised she was breaking into a market that she has been trying to enter for years. “Our research showed that majority of the traffic that came to my website or different social media sites was from India. We were not capitalising the traffic. Nobody made it to the ‘join’ page or purchased anything. Bigg Boss was my chance to break into a market that I had never been able to tap into.” She says people knew her and were at her website but were not spending. “There is definitely a disconnect that happens when you are someone from abroad. Living here is being a part of the Indian culture and there is a connect that happens. Hence, moving to India was very calculated.”
Taking plans further
After Bigg Boss, Leone bagged some Bollywood movies and debuted with Jism-2. She has also done a song for Shah Rukh Khan-starrer Raees, which is expected to hit the screens next year.
While Leone may be getting more and more films now, she knows that her role in the entertainment industry will not last forever. “It can end like tomorrow,” she says. Therefore, she is always thinking of branching out. “Once we got a handle of how it works in India, after signing a bunch of movies and doing different brand endorsements, we have tried to think of ways to branch out.” She considers movies as only a small piece of the puzzle. Among her other ventures are TV shows. Apart from movies, she does a show every year. At present, she co-hosts MTV Splitsvilla.
As part of the expansion plan, she has launched a perfume line—The Lust. “It is manufactured by me. Taking the Kardashian model, and some of the other artists out there in the US, the goal is to keep growing. When the movies or something else ends, I know that we have created something here above, beyond, and bigger than us.”
After perfumes, Leone plans to venture into women’s cosmetics. “I plan to create products for women such as nail polish, skin care, lipsticks…. I’m not sure about clothing right now but it is something we keep talking about,” says Leone. “We have invested a lot of time and money in it. I personally would like to invest more money in merchandising and branding because it is something that can continue forever.”
Recently, Leone wrote a collection of short-stories for the mobile-first digital publishing house Juggernaut. Titled Sweet Dreams, the stories, as defined by Juggernaut, are “fictional stories of power… emotions… desires”. “It was a little bit more difficult than I anticipated. It takes a lot of work to be a good writer.” She is also into online gaming with Teen Patti with Sunny Leone.
The next step, says Leone, may be producing movies in India. “But I am in no rush because there is a shift happening in the entertainment industry and if you don’t have great content and dialogues, usually it doesn’t work.”
Leone has stopped working in the adult content industry. Her focus now is on building her brand. “I stopped working in that industry long time ago. But we have a lot of traffic and we don’t know what to do with it. Now we have a reach of around 100 million people. Hence, let’s say, there is a company that wants me to tweet about something or put it on Facebook, I use this traffic to monetise now.” The same strategy works when she wants to raise money for charity. “We also found that the traffic is now monetised because those people are donating or spreading the word. We are able to do so many things now, which we were just not able to do earlier.”
Leone has over 1.5 million followers on Twitter; a reach she uses for promotions and branding. “Every day, we use social media to get across something that we want to say. A brand will call and say we want you to tweet about our brand once, which we do.” But she says she doesn’t like spamming. “For instance, we do movie promotions. There have been some directors who come and say ‘I want you to keep tweeting every 20 minutes the same thing over and over’. I say it is not going to happen because you are not going to get traction with this. It is not going to work. You are not even letting it get absorbed before having me tweet again. We don’t want to block them (the followers) or get them to unfollow.”
Like her business ventures, in investments, too, Leone has only what she understands. Her investment portfolio has a mix of stocks, mutual funds, real estate, and retirement funds. “In the US, we have invested some of our money in very stable stocks and some mutual funds. We also have some IRAs (Individual Retirement Accounts).” An IRA offers various tax breaks. It’s a basket in which you keep stocks, bonds, mutual funds, and other assets. “We have bought our home there. We have invested a lot of our money in real estate. We do love the idea of getting into real estate a bit more. We are also interested in investment homes. And we obviously save a lot of money.”
When it comes to stocks too, she remains updated. “When this whole Brexit happened, we lost some money, which was not fun. But I do believe that it will steadily go back up and back to normal. This is just a shock to everybody. I didn’t think that this would affect us, but it did.”
The Indian stock market, however, is not part of her portfolio yet. “It is difficult for Overseas Citizens of India and people from outside of India to invest in India. You have to follow the whole process, which is crazy.”
The Indian real estate market, too, is not in her view. “It is really difficult to invest in Indian realty. When there are so many people involved, money just goes away. And then trying to sell the house and transfer the money into our bank account out of India is another huge issue. I think buying stocks and mutual funds is probably little easier with the right people in India, than buying real estate.”
She is not interested in start-ups due to the way their valuations work. “I have been hearing a lot of information about start-ups and how they are getting evaluated. Personally, I think it is a very interesting business model that I don’t think is going to last very long. My husband might think completely opposite. I think it is great if it is a start-up that stays true to what it is, instead of getting evaluated and getting into selling some big dream to somebody else.”
Leone doesn’t look at gold as an investment choice. “I know that there are a lot of families in India that buy gold. I like wearing them—gold, diamond, jewels—rather than looking at them as an investment option.”
Daniel: the financial guru
Before Leone was married, she took care of all her finances. “As far as finances were concerned, I used to put a lot of my money back into my company. But at some point I did have to branch out. You can’t micro manage everything. Before I met Daniel (her husband), I was in control of everything.” Initially she had doubts about doing business with her husband. “When we started doing business together, it was really difficult mentally to bring someone into my inner financial and business circle. But he has a great business mind as well. So when we started discussing all these different things, it was very natural for us to come together and form a company together.” Now she thinks it is the best thing that has ever happened to her. “His business background and mine are totally different. And he just completely streamlined everything and helped me organise things because I was growing faster than I could manage. You need help at that point. You can’t think of doing everything. You will stop growing, since you don’t have the time in a day to do everything.” She says her husband manages everything, ensuring that she and her staff work every day and their money is allocated in the right places in multiple countries. However, financial decisions are always taken after weighing the pros and cons.
Being financially independent
Leone always wanted to be independent. “I wanted to be on my own ever since I was really little. Also my parents would tell me over and over again that you have to be independent. That stuck with me.” Besides financial independence, her parents always tried to tell her to save money. “I grew up in a lower middle-class family, so we didn’t have a lot of money. As I got older, I realised I should save money. She doesn’t have any money regrets. “I am pretty calculated. If I am not 100% convinced that this is going to be financially viable, I won’t take the risk. If I know that it is a risk and if it doesn’t work, I am okay with what is lost too. I think I am realistic when it comes to investments.”
Source : http://goo.gl/u5y8sE
By Chandralekha Mukerji | ET Bureau|Jul 04, 2016, 09.25 AM IST | Economic Times
BENGALURU: A rulebook guides the inexperienced to make rational decisions. This is true for money management too. Money rules help you keep your finances on track. But rule of thumb that do not fit your situation can be a waste of time, or worse, actually worsen your finances. They may be oversimplifying a complex issue which can harm long-term prospects and be a poor substitute for analysis. Here are five personal finance rules that based on your circumstances, you can consider breaking.
Rule 1: Young should have equity-heavy portfolio
Risk appetite is independent of age. A young person usually has higher risk tolerance and a longer investment horizon and therefore advised to keep a heavier chunk of portfolio in equities. However, historical data shows that equity investment requires a commitment of four to five years for good returns. Even if you are 20-something, equities are not for you if you have a lot of debt and many dependents or are saving for short-term (read: 2-3 years) goals.
If there is an ailing family member and a medical emergency can arise unannounced, you should have your savings in debt as chances of capital corrosion are less while the penalty for early exit is not high. On the other hand, you may be 60 and retired, but have enough liquidity to manage your short-term expenses. Then, you must consider allocating a portion towards equities. “The first step to asset allocation is therefore knowing your risk appetite through a risk profiling exercise, step two is understanding the constraints in life and decide your equity-debt investment ratio,” says Vivek Rege, CEO, VR Wealth Advisors.
Rule 2: The key to financial success is cutting expenses
The key to financial success is not in cutting your expenses. It is in creating a surplus that can be invested, which can be done by reducing your costs or increasing your income.
While budgeting is a must, however, some costs can’t be snipped beyond a point. Your financial planner may then advise you to either reduce your goals or push back the target dates or re-prioritise your financial needs. However, what if the financial need can’t be compromised. Take the case of 35-year-old Pravin Kumar, who works for an IT company.
“Although his earnings were enough to meet his present needs, he wanted an overseas education for his 10-year-old daughter, which was not possible considering he had already taken a huge home loan,” says Mimi Partha Sarathy, MD, Sinhasi Consultants and Kumar’s financial planner. One of the constraints for Kumar to earn more was his qualification, so he decided to take up an executive MBA in marketing from a top B-school. “With this new addition to his resume, he negotiated not only a promotion but a 40% increase in his salary with an increased role,” Partha Sarathy. It was then easy to allocate the necessary funds for the child’s future needs.
Rule 3: Debt is bad. Try to avoid debt at all cost
Debt is not always bad but you shouldn’t borrow beyond your repayment limits. Loans can help you lead a lifestyle that you desire by drawing from current and future income. “While in the previous generation, our parents had to wait till they saved up enough to buy a house, we are able to do that easily today through a home loan. Loans give us a lot of flexibility to enjoy a lifestyle today rather than in the future,” says Priya Sunder, director, PeakAlpha Investment Services. However, in case of financial distress, you lose all flexibility since EMIs will have to be paid, with very adverse consequences in case of default.
“Hence it is prudent to create a Plan B in case of a loan default such as hrough insurance covers or collaterals,” adds Sunder. Having an open credit card limit with sufficient insurances is a great emergency planning. “It is a much better idea than building huge emergency corpus,”adds Bhuvana Shreeram, a Mumbai-based Certified Financial Planner. If you are a good borrower, even credit cards are not bad. “Apart from using credit wisely, you can use debt to create appreciating assets like a home not only to gain through appreciation but also tax savings,” says Manish Shah, CEO, Bigdecisions.com.
Rule 4: Realty is the best asset
Too much of anything is bad, especially an unpredictable and illiquid asset like real estate. However, most Indians have a portfolio terribly skewed towards real estate. “They overestimate the returns real estate gives. If they did the math, they would know better,” says says Shreeram. “Even when real estate had a good bull run in the last 10-12 years (2002 to 2014), most investors have made about 9% to 10% after accounting for interest repayment on loans, tax benefit, cost of maintenance etc., which may be better than bank deposit but not worth taking 20-year loans at 10%,”adds Shreeram. Also, the bull run does not last long. So, the investment is not as safe or liquid as bank deposits. The time during 2011 to mid-2014 was a very challenging time for those who had invested in the stock markets. “Many HNIs moved to real estate during this time and at high levels which is now close to impossible to liquidate,” says Partha Sarathy. Sunder of PeakAlpha Investments doesn’t recommend holding more than 60% of portfolio in real estate.
Rule 5: Re-evaluate your portfolio regularly
Yes, there is a need to regularly rebalance and evaluate your portfolio. However, too much tinkering is not good either. “There are people who have long-term goals but have a habit of tracking their investments on a daily basis and get carried away by the emotions of the market,” says Anil Rego,CEO, Right Horizons. Tinkering is either motivated by the need to earn more (greed) or by the need to save whatever is there (fear). “Jumping in and out of investments is the single-most wealth destroyer, followed by waiting in the sidelines and losing precious time,” says the expert. Every investment has a time horizon for it to achieve its expected returns and this must be respected and adhered to.
RAJESHWARI ADAPPA | Tue, 28 Jun 2016-06:55am | dna
Experts advise that you should park the lump sum in avenues such as liquid or ultra-short term funds till you decide where to invest it as putting the money in a savings account not only earns low interest but also tempts you to blow it
Windfalls or coming into large sums of money sure makes you feel rich but if you want to stay rich, then the challenge is to ensure that the money lasts for a really long time.
Incidentally, experts advise that when one does not know what to do with a large sum, the first thing to do is take it off the bank savings account.
“The money lying there not only earns low interest but tempts you to blow it. Hence, park it in short-term avenues such as liquid funds or ultra-short term funds until you decide or get advice on where to invest the money in,” says Vidya Bala, head of mutual fund research, FundsIndia.
If you have a lump sum to invest, it is best to revisit your investment plan, advises certified financial planner Gaurav Mashruwala.
“Firstly, buy adequate health and life insurance. Secondly, if you have any loans, pay up the loans. After that, you can start goal-based investing,” says Mashruwala.
Most people are confused where to invest for the best returns. “Where to invest would depend on whether they have a near-term use for the money,” says Bala.
“If it is retirement money and the investor needs to create an income stream, they could deploy it in a combination of ultra-short and short-term debt funds and do a systematic withdrawal plan to generate their own income. If it is for the long term, a combination of equity and debt funds will work well. So one needs to know the purpose and the time frame before they can decide where to invest,” says Bala.
The most important task is to create a goal for such money and then allocate and invest accordingly. While goals would depend on the individual’s requirements, broadly your goals could include creating funds for a specific purpose such as a retirement fund, an emergency fund, a kids education or a marriage fund or even a fund for personal goals (say a foreign trip), etc.
A retirement fund is a must. HDFC Pension’s CEO Sumit Shukla advises that 20-30% of the sum should be invested for retirement. He suggests investing the lump sum initially in Tier II account of NPS from which some money could be transferred into the Tier I account every month via systematic withdrawal plan. “This would help to ensure that initially the money is invested in debt (Tier II account) and as one invests in the Tier I account, slowly the equity portfolio is also built up,” says Shukla.
“Corporate debt has earned 10.47% while government debt has earned 10.35%. Compared to the 8.8% returns from PF, this difference would work out to be huge over a period of time,” points out Shukla.
Depending on your risk and return profiles, there is a range of avenues. “Investors seeking low to medium risk can examine fixed deposits, debt mutual funds, corporate bonds, tax-free bonds and monthly income plans.
However, investors with higher risk preference can look at balanced & equity funds, direct equities, private equity & real estate funds,” according to a DBS spokesperson.
“Lump Sum investing is fine when it comes to low-risk debt funds. However, when it comes to equity funds, it is important to understand the risk of timing the market by investing in one go. Ability to take near-term falls is a must of one chooses to invest lump sum,” says Bala. A better option is to invest in a phased manner through an SIP (systematic investment plan).
It may be a good idea to take professional advice. “Also, consider the impact of tax on the returns,” says the DBS spokesperson.
The mistake that many people who come into big money suddenly make is that they start living a lavish lifestyle. “Instead, invest in income generating and growth-oriented assets. Use the returns from these assets to enhance your lifestyle,” advises Mashruwala.
The solution is to invest wisely keeping in mind two primary goals: ensuring safety of capital and also growth.
Source : http://goo.gl/4KucZz
By Jayant Pai | Jun 20, 2016, 07.00 AM IST | Economic Times
Every parent fondly looks forward to the day when children will begin earning a steady income. However, for Indian parents, it is difficult to sever the metaphorical umbilical cord even after their child secures financial independence.
There are various reasons parents do not shy away from advising their children on money matters. One, they feel that their naive children will be parted from their money if left to their own devices. Hence, right from the first payday, they will tell you about the virtues of saving and warn against reckless spending. Two, they do not want their children to make the same mistakes they made, be it a failed investment or a loan to a friend which was never returned. Three, errors of commission committed by close family members also play a part in conditioning parents’ thought process.
Why such advice may be less effective today: The previous generation was brought up on the belief that the collective wisdom of elders was indispensable. Today’s generation is a bundle of contradictions. On the one hand, they are avowedly individualistic. On the other, they are swear by the opinions of peers in social media on every topic, be it fashion, electronics or money. Hence, parental influence is waning.
While every generation thinks it knows best when it comes to finance and investments, today’s youngsters have more educational and decision-making tools at their disposal. These may be in the form of blogs, apps, portals and even robo-advisers/algorithms. In fact, they face a glut, rather than a drought, of information. Hence, parents may often be behind the curve.
Today, wealth managers are increasingly viewing such youngsters as an economically viable segment. Hand-holding newbies, with the hope of growing with them as they uptrade, is a strategic choice.
Should children listen to their parents? In most cases, the advice received from parents is well-meaning. That may not necessarily be true in case of advice from outsiders. However, good intentions alone are not sufficient to render it suitable. While certain home truths like avoiding borrowing for consumption or maintaining a high savings rate are worth heeding, others are better ignored.
For instance, many parents dissuade their children from investing in stocks and suggest they opt for fixed deposits or gold. This may stem either from their own poor experience in the stock market or a belief that stocks are risky and another form of gambling. However, by blindly heeding such advice, youngsters may do themselves a great disservice since they forego the power of compounding that equities offer.
Similarly, parents may consider real estate as a great investment option even if they have to avail of a heavy mortgage. Children should follow such advice only after considering the repercussions of paying EMIs for long tenures of 25-30 years. Also, some parents are averse to their children purchasing insurance policies, fearing that this is an invitation to disaster. Such superstitions should not stand in the way of protecting life, limb and health. In a nutshell, when it comes to parental advice, trust them, but verify the advice.
(By Jayant Pai, CFP & Head, Marketing at PPFAS Mutual Fund)
Source : http://goo.gl/iECSwU