Tagged: Balanced Mutual Fund

ATM :: What should you do if your fund gets a new name and strategy?

Existing mutual fund investors would need to evaluate their schemes if they change their strategies substantially in order to ensure they are still in sync with their financial goals and asset allocation
Kayezad E. Adajania | Last Published: Tue, May 01 2018. 10 30 PM IST | LiveMint


HDFC Prudence Fund (HPF), the country’s largest equity-oriented mutual fund scheme with assets close to Rs37,000 crore, will now be known as HDFC Balanced Advantage Fund and can switch entirely between equities and debt. Until now, it could invest only 40-75% in equities. On 25 April, HDFC Asset Management Co. Ltd announced plans for many of its schemes, as part of the ongoing merger and re-categorisation exercise.

Most other fund houses, too, have announced their plans to re-categorise their schemes. If you don’t agree with your schemes’ new form, you have a chance to exit without paying an exit load. Here’s how you should decide what to do.


Your scheme could change…
If there is no change to your scheme, you have nothing to worry about. But if your scheme is about to change, check how big or small it is. For instance, if you own a large-cap fund that is set to become a large- and mid-cap fund or a multi-cap fund, it won’t matter much. In fact, this particular move is good, said Prateek Pant, head of product & solutions at Sanctum Wealth Management. “Going ahead, it will get difficult for large-cap funds to outperform their benchmark indices. The definition of large-cap fund has narrowed down and benchmarking performances against total returns index would make things tougher for large-cap funds,” he said. Read more here.

If your scheme undergoes a big change, evaluate. For instance, SBI Treasury Advantage Fund, which will be known as SBI Banking and PSU Fund, was meant for short-term investments. Now, its strategy would be to invest in debt scrips of state-owned companies and banks. “If the risk profile of a scheme changes, look at it again. If it no longer meets your purpose, leave it,” said Vidya Bala, head-mutual fund research, Fundsindia.com.

…but do not jump the gun
Don’t blindly go by the change in your fund category. Mirae Asset Emerging Bluechip Fund (MEBF)—an erstwhile mid-cap fund—has become a large- and mid-cap fund. The name remains the same, and, what’s more, the fund remains the same too.

On the face of it, a shift from a mid-cap to a large- and mid-cap fund is a big change. But dig a little deeper and you might not want to worry about it. According to capital markets regulator Securities and Exchange Board of India (Sebi), a large- and mid-cap fund must invest a minimum of 35% each in large- and mid-cap stocks. As it turns out, MEBF has been increasing its exposure to large-cap companies over time; from an average of 20% in 2014 and 26% in 2015 to 38% so far this year, as per Value Research.

“We didn’t want to tamper our existing portfolios too much. So, whichever categories our funds fitted into naturally, we have moved our funds there,” said Swarup Mohanty, chief executive officer, Mirae Asset Global Investments (India) Pvt. Ltd. HPF, too, remains the same. Although a dynamic category fund can switch entirely between equity and debt, a person close to HPF said it can—and will—continue to invest 65-70% in equities like always. Of course, how the fund performs in falling markets in the face of its present equity allocation remains to be seen as the fund will now be compared to other dynamic funds. HPF refused to comment.

The tax implications
If your scheme merges with another or ceases to exist, there are no tax implications. If, however, you choose to withdraw, you may have to pay short-term capital gains tax of 15% (plus surcharge and cess) if you had bought the units in the past one year or long-term capital gains tax, otherwise.

The only respite is you don’t pay an exit load, if any, even if you withdraw within the exit load period.


What should you do?
Each merger and re-categorisation poses a unique situation. How one investor reacts to a change could be different from another investor’s reaction. Sit with your financial adviser to understand the ramifications of your scheme changes. But here are some broad principles you should follow.

* If your scheme’s risk profile increases a little, there is no cause for alarm. For instance, a large-cap fund becoming a large- and mid-cap fund is acceptable. If your scheme’s risk profile increases a lot, take a closer look. For instance, SBI Magnum Equity Fund (a large-cap fund) is now a thematic fund SBI Magnum Equity ESG (Environment, Social, and Governance).

* Just because the fund has changed its category or name does not necessarily mean the scheme has changed. Check if the scheme will continue with its strategy.

* But if the scheme’s objective has changed—especially due to a merger with some other scheme—evaluate it. HDFC Gilt (government securities) Fund – short-term plan will now be merged with HDFC Corporate Bond Fund. Both schemes are different.

* New investors, beware. Past performance is set to become a bit hazier, especially for those schemes that have to alter their strategies, for the next three years. In this case, check who the fund manager is, and go by his track record.

* Debt funds are trickiest to navigate in this exercise. The good news is that they’ve become sharper and each of them now comes with a well-defined objective. Revamp your entire debt schemes portfolio.

Source: https://bit.ly/2HILziu

ATM :: Mutual fund investing: Basic facts to know while investing in balanced funds

Balanced Funds have an overall equity spread of almost 65% either in the large, mid or small cap stocks.
Navneet Dubey | Apr 04, 2018 11:27 AM IST | Source: Moneycontrol.com


Balance funds are the funds which have exposure to two main asset classes – equity and debt. This fund gives you exposure to stocks as well as money market instrument. These funds have the equity orientation as around 65% of your monies get invested in equity and remaining 35% in debt funds. The risk associated towards equity exposure is almost of the same amount as the risk is associated with any normal equity fund do have. So, are these balanced mutual funds really ‘balanced’ enough? SEBI has recently proposed to change the name of the balanced fund into three categories – Aggressive Hybrid Fund, Balanced Hybrid Fund and Conservative Hybrid Fund.

We bring you the main features of balanced funds and tell you how to go about making the most of your investment in them:

What does the equity spread consist of?

Balanced funds have an overall equity spread of almost 65% either in the large, mid or small cap which can be extended even towards micro-cap funds. Having flexibility towards too many categorisations, the fund manager gets the liberty to choose stocks, however, that may welcome more risk to your portfolio. Therefore, check the holdings before investing in these balanced funds as the range between mid-caps to micro-cap can be risky if you are a conservative investor.

What are new balanced funds?

As per the regulator (SEBI), the categorization of these balanced funds will get further differentiated into various sub-heads to provide more clarity to mutual fund investors. These can be termed as follows:

The Aggressive Hybrid Fund: It will invest in equities & equity related instruments between 65% and 80% of total assets and debt instruments between 20% and 35% of total assets.

The Balanced Hybrid Fund: It will invest in equities & equity related instruments between 40% and 60% of total assets and debt instruments between 40% and 60% of total assets. However, no arbitrage would be permitted in the scheme.

The Conservative Hybrid Fund: It will invest in equities and its related instrument between 10% to 25% of overall assets and debt instruments between 75% and 90% of total assets.

Other hybrid funds which investors can further look to make investments can be – Arbitrage fund, Dynamic asset allocation fund and Multi-asset allocation funds.

To provide more clarity to investors, these new categories of balanced funds termed as new types of hybrid funds will help investors to understand their funds in a much better way. Not only this, fund managers will also get clarity to structure their fund as per new rules, getting clear direction as to which stocks to select while designing the scheme. Hopefully, in future, there may be no room for confusion while selecting balanced funds for investing and switching between high risky to a less risky portfolio.

Tax treatment: Debt and equity-oriented funds

Currently, all the balanced funds today are having an average exposure of 65% to equities, they come under the ambit of equity oriented fund. However, in future the new conservative hybrid funds can get debt tax treatment as more of the exposure is tuned towards debt asset class.

However, in overall mutual fund taxation structure, equity funds and debt funds are taxed as below:

Equity Oriented Fund

LTCG: There is no long-term capital gain tax on equity funds after one year if gains do not exceed Rs 1 lakh. However, if capital gains exceed Rs 1 Lakh, the realised amount will get taxed at 10%.

STCG: Short-term gains are taxed at 15%. Where gains are realised within one year.

Debt Oriented Fund

LTCG: These mutual fund schemes are taxed at 20% long-term capital gain tax and

STCG: When realised within 3 years, these are taxed at marginal tax rate where a maximum taxation of 30% can be applied to short-term capital gain tax for both Resident Individuals & HUF.

Source: https://bit.ly/2qhYwFj

POW :: 10 top-performing mutual funds to buy for doubling your wealth in the long run

If you want better returns on your investments with relatively less risk compared to directly investing your money in the stock markets, then mutual funds may be a good option for you.
By: Sanjeev Sinha | Published: June 28, 2017 10:31 AM | Financial Express


Despite being subject to market risks, mutual funds are fast emerging as one of the preferred investment options in India. If you want better returns on your investments with relatively less risk compared to directly investing your money in the stock markets, then mutual funds may be a good option for you. Some of the funds, if carefully chosen, even have the potential to double your wealth over the long term.

“This is, however, important to note that every single type of mutual fund category has a different ideal time horizon. And hence, when does your wealth double is a function of the same,” says Vikash Agarwal, CFA, Director and Co-founder, CAGRfunds.

However, for the sake of simplicity we are considering long term as anything above 6-7 years. With that in mind, the following are the best mutual funds across different fund categories:

Large Cap Equity Funds – Invest primarily in large cap stocks.
1. SBI Bluechip Fund: With an AUM (Asset Under Management) of approximately Rs 14,000 crore, this has been a flagship fund of SBI Mutual Fund. “This fund currently has over 75% exposure to large cap stocks with the flexibility to invest up to 20% in mid-cap stocks. While this fund was known for a patchy performance till 2011, it has beaten its benchmark by a substantial margin in the last 5 years,” says Agarwal.
2. Mirae Asset India Opportunities Fund: Launched in April 2008, this is a relatively smaller-sized fund with an AUM of around Rs 3,800 crore. With around 80% exposure to large cap stocks, this fund has given a 17% returns since launch and is known as one of the most consistent funds within the category.

Multi Cap Equity Funds – Have flexibility to modify their exposure to stocks across large, mid and small cap stocks
1. Kotak Select Focus Fund: Despite late entry into the category, Kotak Select Focus has consistently beaten its benchmark with a considerable margin ever since launch. This has resulted in a fast- paced growth and now it has an AUM of approximately Rs 11,000 crore.
2. Motilal Oswal Most Focused Multicap 35 Fund: The fund comes from a late entrant in the asset management industry, but as a management team they specialise in equity research. “With their strategy of taking concentrated bets with a long-term horizon, the fund has beaten its benchmark and category in the last 5 years. They have an AUM of around Rs 6700 crore and the fund is being managed by Gautam Sinha Roy,” informs Agarwal.

Balanced Funds – Have a minimum exposure of 65% to equity and the rest in debt instruments
1. ICICI Prudential Balanced Fund: One of the oldest in its category, this fund has grown to an AUM size of approximately Rs 12,600 crore. With a diversified exposure across various sectors, this fund has consistently beaten its benchmark.
2. SBI Magnum Balanced Fund: With a patchy performance till 2011, the fund has made a strong comeback since 2012. “The fund manager follows a carefully crafted strategy of maintaining a balance between equity and debt exposure. This has helped the fund stay ahead of its peers over the last 5 years,” says Agarwal.

Mid Cap Equity Funds – Invest primarily in mid cap stocks
1. Sundaram Mid Cap Fund: Launched in 2002, this fund is one of the best funds when looked at from a long-term perspective. The fund has outperformed the benchmark across market cycles. The fund manager S Krishna Kumar is an industry veteran and specialises in picking quality mid cap names.
2. Mirae Asset Emerging Bluechip Fund: Though this fund has a shorter track record (launched in 2010), it has been a consistent outperformer within the category ever since launch. The focus of the fund is to select quality stocks which are relatively larger in size.

Small Cap Equity Funds – Invest primarily in small cap stocks
1. Franklin India Smaller Companies Fund: Launched in 2006, this fund has grown to an AUM size of approximately Rs 5,600 crore. “The fund manager is selective about buying growth stocks at reasonable valuations with considerable focus on quality of management,” says Agarwal.
2. DSP BlackRock Micro Cap Fund: One of the favourites in the category, this fund has showcased phenomenal performance since launch. Temporarily suspended for any further inflows, the fund currently has an AUM of approximately Rs 5,800 crore.

(These mutual funds have been recommended by Vikash Agarwal, CFA, Director and Co-founder, CAGRfunds. Although due care has been exercised by them while selecting these funds, readers are advised to consult their financial adviser before investing in any of these funds.)

Source: https://goo.gl/wRmP1f

ATM :: Pick the best NPS funds

Babar Zaidi | May 8, 2017, 03.15 AM IST | Times of India


Though it was thrown open to the public eight years ago, investors started showing interest in the National Pension System (NPS) only two years ago. Almost 80% of the 4.39 lakh voluntary subscribers joined the scheme only in the past two years. Also, 75% of the 5.85 lakh corporate sector investors joined NPS in the past four years. Clearly, these investors have been attracted by the tax benefits offered on the scheme. Four years ago, it was announced that up to 10% of the basic salary put in the NPS would be tax free. The benefit under Section 80CCD(2d) led to a jump in the corporate NPS registrations. The number of subscribers shot up 83%: from 1.43 lakh in 2012-13 to 2.62 lakh in 2013-14.

Two years ago, the government announced an additional tax deduction of `50,000 under Sec 80CCD(1b). The number of voluntary contributors shot up 148% from 86,774 to 2.15 lakh. It turned into a deluge after the 2016 Budget made 40% of the NPS corpus tax free, with the number of subscribers in the unorganised sector more than doubling to 4.39 lakh. This indicates that tax savings, define the flow of investments in India. However, many investors are unable to decide which pension fund they should invest in. The problem is further compounded by the fact that the NPS investments are spread across 2-3 fund classes.

So, we studied the blended returns of four different combinations of the equity, corporate debt and gilt funds. Ultrasafe investors are assumed to have put 60% in gilt funds, 40% in corporate bond funds and nothing in equity funds. A conservative investor would put 20% in stocks, 30% in corporate bonds and 50% in gilts. A balanced allocation would put 33.3% in each class of funds, while an aggressive investor would invest the maximum 50% in the equity fund, 30% in corporate bonds and 20% in gilts.

Ultra safe investors
Bond funds of the NPS have generated over 12% returns in the past one year, but the performance has not been good in recent months. The average G class gilt fund of the NPS has given 0.55% returns in the past six months. The change in the RBI stance on interest rates pushed up bond yields significantly in February, which led to a sharp decline in bond fund NAVs.

Before they hit a speed bump, gilt and corporate bond funds had been on a roll. Rate cuts in 2015-16 were followed by demonetisation, which boosted the returns of gilt and corporate bond funds. Risk-averse investors who stayed away from equity funds and put their corpus in gilt and corporate bond funds have earned rich rewards.

Unsurprisingly, the LIC Pension Fund is the best performing pension fund for this allocation. “Team LIC has rich experience in the bond market and is perhaps the best suited to handle bond funds,” says a financial planner.

The gilt funds of NPS usually invest in long-term bonds and are therefore very sensitive to interest rate changes. Going forward, the returns from gilt and corporate bond funds will be muted compared to the high returns in the past.

Conservative investors
In the long term, a 100% debt allocation is unlikely to beat inflation. This is why financial planners advise that at least some portion of the retirement corpus should be deployed in equities. Conservative investors in the NPS, who put 20% in equity funds and the rest in debt funds, have also earned good returns. Though the short-term performance has been pulled down by the debt portion, the medium- and long-term performances are quite attractive.

Here too, LIC Pension Fund is the best performer because 80% of the corpus is in debt. It has generated SIP returns of 10.25% in the past 3 years. NPS funds for government employees also follow a conservative allocation, with a 15% cap on equity exposure.

These funds have also done fairly well, beating the 100% debt-based EPF by almost 200-225 basis points in the past five years. Incidentally, the LIC Pension Fund for Central Government employees is the best performer in that category. Debt-oriented hybrid mutual funds, also known as monthly income plans, have given similar returns.

However, this performance may not be sustained in future. The equity markets could correct and the debt investments might also give muted returns.

Balanced investors
Balanced investors who spread their investments equally across all three fund classes have done better than the ultra-safe and conservative investors. The twin rallies in bonds and equities have helped balanced portfolios churn out impressive returns. Though debt funds slipped in the short term, the spectacular performance of equity funds pulled up the overall returns. Reliance Capital Pension Fund is the best performer in the past six months with 4.03% returns, but it is Kotak Pension Fund that has delivered the most impressive numbers over the long term. Its three-year SIP returns are 10.39% while five-year SIP returns are 11.22%. For investors above 40, the balanced allocation closely mirrors the Moderate Lifecycle Fund. This fund puts 50% of the corpus in equities and reduces the equity exposure by 2% every year after the investor turns 35. By the age of 43, the allocation to equities is down to 34%. However, some financial planners argue that since retirement is still 15-16 years away, a 42-43-year olds should not reduce the equity exposure to 34-35%. But it is prudent to start reducing the risk in the portfolio as one grows older.

Aggressive investors
Aggressive investors, who put the maximum 50% in equity funds and the rest in gilt and corporate bond funds have earned the highest returns, with stock markets touching their all-time highs. Kotak Pension Fund gave 16.3% returns in the past year. The best performing UTI Retirement Solutions has given SIP returns of 11.78% in five years. Though equity exposure has been capped at 50%, young investors can put in up to 75% of the corpus in equities if they opt for the Aggressive Lifecycle Fund. It was introduced late last year, (along with a Conservative Lifecycle Fund that put only 25% in equities), and investors who opted for it earned an average 10.8% in the past 6 months.

But the equity allocation of the Aggressive Lifecycle Fund starts reducing by 4% after the investor turns 35. The reduction slows down to 3% a year after he turns 45. Even so, by the late 40s, his allocation to equities is not very different from the Moderate Lifecycle Fund. Critics say investors should be allowed to invest more in equities if they want.

Source: https://goo.gl/oUp9FP

ATM :: Best balanced funds to invest in for medium-term financial goals

By Babar Zaidi | ET Bureau | Aug 22, 2016, 01.56 PM IST


Investors saving for goals that are 4-6 years away are advised to go for balanced funds. These funds invest in a mix of equities and debt, giving the investor the best of both worlds. The fund gains from a healthy dose of equities but the debt portion fortifies it against any downturn. They are suitable for a medium-term horizon. Mumbai-based Koyel Ghosh has been investing in a balanced scheme for the past two years for funding her entrepreneurial dream. She will need the money in about 2-3 years from now.

“I want to save enough to be able to start my own business in 2-3 years.”

What she has done
She has been investing in an equity-oriented balanced fund for the past two years. She should redirect future SIPs in a debt-oriented scheme to reduce the risk.

Balanced funds are of two types. Equity-oriented have a larger portion of their corpus (at least 65%) invested in stocks and qualify for the same tax treatment as equity funds. This means any gains are tax-free if the investment is held for more than one year. These schemes are more volatile due to the higher allocation to stocks.

On the other hand, debt-oriented balanced funds are less volatile and suit those with a lower risk appetite. However, the price of this relative safety is that they offer lower returns and the gains are not eligible for tax exemption. If the investment is held for less than three years, the gains will be added to your income and taxed at the normal rate. The tax is lower if the holding period exceeds three years. The gains are then taxed at 20% after indexation benefit, which can significantly reduce the tax.

Balanced funds have done very well in recent months because both the equity and debt markets have rallied in tandem. But this performance might not sustain, so investors should tone down their expectations. Also, investors might note that the one-year returns of debt-oriented balanced funds are more than those from equity-oriented schemes. But this changes when we look at the medium- and long-term returns. The five-year returns of the top five equity-oriented balanced funds are significantly higher than those of debt-oriented balanced schemes. This statistic should be kept in mind if the investor plans to remain invested for 4-6 years.

Beware of dividends
Balanced funds have attracted huge inflows in recent months, but some of this is for the wrong reasons. Some fund houses are pushing balanced schemes that offer a monthly dividend. This might sound attractive because dividends are tax-free, but in reality this is your money coming back to you. Unlike the dividend of a stock, the NAV of the fund reduces to the extent of the dividend paid out.

Also, experts view this as an unhealthy practice and point out that the dividend payout might not be sustainable. “The dividend is not guaranteed, and the fund is under no obligation to continue paying a dividend,” points out Amol Joshi, Founder, PlanRupee Investment Services. “If the market declines, the chances of dividend payout and the quantum of dividend will be lower.”

Even so, several fund houses are using this gimmick to attract investors. In some cases, fund houses have even told distributors to alert clients about future dividend announcements and reel them in. This is also an unhealthy practice aimed at garnering AUM by mutual funds.

What the investor wants
*Moderate risk to capital
*Higher returns than debt
*Flexibility of withdrawal
*Favourable tax treatment

Best balanced funds to invest in for medium-term financial goals
Source: https://goo.gl/xdvMoG

POW :: Franklin India Balanced: Keeps its balance in volatile markets

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.

Portfolio choices
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.

Source: http://goo.gl/0OZ5nq

ATM :: Balanced funds, right way to invest

Prashant Mahesh, ET Bureau | May 12, 2016, 06.45AM IST | Economic Times


Timing the market or deciding how much to allocate to debt or equity at any point of time is a difficult decision for most investors to make. Investors not willing to invest in a basket of products, could choose balanced funds which automatically rebalances your portfolio .

1. What are balanced funds?

Balanced funds, as the name suggests, are hybrid funds which typically invest in equities and debt instruments. There could be equity oriented as well as debt oriented hybrid plans.

Typically, equity-oriented balanced funds have a 65%-75% exposure to equities with the balanced 25-35% being invested in debt-oriented instruments. Many financial planners suggest firsttime investors into mutual funds begin their journey by investing in balanced funds.

2. What is the advantage of investing in a balanced fund?

Balanced funds offer benefits of asset allocation model in a single structure. The equity component seeks to deliver long-term returns, while the debt component provides stability to the portfolio.

This diversification limits the portfolio from downside risks if either equity or debt enters a bearish phase. When the markets are high, the fund manager has to compulsory sell equity to maintain the maximum level and likewise when the markets are low, the fund manager has to buy equities to maintain the minimum level of equity investment. This is a regular process which a retail investor can’t do because of lack of knowledge and expertise.

3. What taxation benefits do equity oriented balanced fund investors enjoy?

Since balanced funds have an average exposure of 65% to equities, they are taxed as equity funds. These funds enjoy tax-free returns if the holding period is greater than a year; otherwise, they are subject to short-term capital gains tax. Many investors opt for the dividend option in such schemes, as the dividends are tax-free (without any dividend distribution tax) in the hands of the investor.

After the new tax laws where debt funds are taxed as short if held for less than 36 months, the balanced fund is one option where the entire debt holding is tax free if the fund is held for more than one year. If you invest in debt funds of mutual funds, you get advantage of long term capital gains taxation with indexation only after three years.

Source: http://goo.gl/6AAFGr

ATM :: Mutual Funds: Keeping an exit strategy ready is as crucial as making the investment

Written by Adhil Shetty | Published:Sep 18, 2015, 2:59 | Indian Express
The important factor in judging the performance of a mutual fund is the investment horizon. One needs to look at longer periods to assess the performance.


Investment literature is full of ‘how to buy’, ‘how to invest’, and ‘when to buy’ theories. However, very little focus, if at all, is given to the selling part of the investment cycle. After all, you make money only when you sell. This makes selling as important as making the investment, if not more.

There are four major aspects that help one decide when to sell your mutual funds.

Analyse the past returns of the mutual fund.

The performance of a mutual fund is the most important criteria of an investment decision. If the mutual fund does not perform well, it is time to sell. However, one should be realistic about assessing the performance. The most important way to judge a fund on its performance is to compare it with similar types of funds. For example, a midcap equity fund should be compared with other midcap equity funds. A sectoral fund from a fund house should be compared with other similar sector funds. Similarly, a bond fund or balanced fund should be judged against the performance of other bond funds or balanced funds.

The other important factor in judging the performance of a mutual fund is the investment horizon. One needs to look at longer periods to assess the performance. For example, many investors invest based on just the one-year performance of mutual funds. Even fund houses and brokers focus on the previous year’s performance. A fund’s supernormal returns in the previous year might have been supported by macro-economic factors that may not reoccur this year. A fund must be evaluated based on 5-10 years’ CAGR. Longer investment horizon minimises the impact of external factors and presents a better picture.

Study the market levels

When the market is at a high, it is time to liquidate an equity mutual fund. One can find out how sustainable future growth is by looking at the overall Price-to-Earning (PE) ratio of the market. PE ratio is a fairly good indicator of the market’s position.

A PE ratio of 22 or higher is a sign that market may not sustain its upward momentum for much longer.

At the same time, it is very difficult to say when the market will start falling from the high. Hence, instead of waiting for the market to touch its peak and get a few rupees more, one should make an exit. It is impossible to time the market.

Many fund houses offer dynamic funds that work on a similar principle. When the market is high, they reduce the equity holding and increase the bond holding. Similarly when market PE is low, the equity holding increases and bond holding decreases.

Monitor the interest rate before taking a decision on bond funds

Bond funds are funds that invest in fixed income securities such as government bonds, corporate bonds, and bank deposit schemes. Return on bond funds is inversely proportional to the prevailing interest rate. When the rates go down, the bonds prices appreciate and vice versa. Hence, in cases where the interest rates have already bottomed out, one should redeem bond funds and find other investment choices unless one is very risk-averse.

Determine whether the portfolio still supports one’s investment needs

Over time, the portfolio may no more be right for one’s investment needs. This happens when the expectation from investment changes and the current mutual fund does not serve one’s purpose anymore. For example, suppose you had invested heavily in equity funds in your 30s. The investment may have given fabulous returns in your 40s too. However, is it wise to remain heavily invested in equity in your 40s? This is a question you have to answer, especially if you cannot afford to take much risk. Hence, this could be the time to sell a few of your equity mutual funds and divert the proceeds to debt or balanced funds.

Careful and systematic investments in mutual funds can yield high returns. However, one must be canny not just while selecting the right time and type of fund to invest in, but also while choosing the right time to exit the investment to get maximum benefits.

The writer is the founder and CEO of BankBazaar.com

Source: http://goo.gl/GeaxUA

ATM :: Six best investment avenues in the current scenario

By Sanjeev Sinha | 7 Jul, 2015, 12.38PM IST | ECONOMICTIMES.COM


Markets in 2014-2015 have been rife with fluctuations. The run up to the elections and its aftermath were great for the stock market. There was new optimism about the economy, industry, and business. Oil prices went down and inflation subsided.

A year later, there are prospects of less than normal monsoon, a world economy belabouring its way to marginal growth, and industrial production showing sluggish to incrementally better performance month by month. Markets too have reacted similarly and have gone down by around 6% from their record high hit in March. In such a situation, investors tend to get confused about how and where to invest. In this article, we will look at 6 avenues of investment that can still give you good returns. Here they go:

1. Equity mutual funds (especially comprising blue chip companies)

Though the market has gone down, there is not much downside in blue chip companies and mutual funds comprising of these companies. The government is clear about manufacturing and is providing faster clearances for factories to be set up, production to start, and energy to be given to the industry.

“This may take a few months to operationalize, but the trend is clear. The projects that were in limbo for the last couple of years have started getting approved. This will create significant momentum and wealth for large firms and their investors. Blue chip equity funds are offered by HDFC Mutual Fund, Birla Sun Life, Reliance and many more,” says Adhil Shetty, founder & CEO of BankBazaar.com.

2. Balanced fund (funds made up of equity and debt)

Many investors are not comfortable with pure equity funds because of high risk associated with the fund. Hence, they look for an avenue that is less risky and also takes advantage of market movements partially. Balanced fund is a good choice for such investors.

“Balanced funds invest a part in equity and a part in debt. The equity part moves up and down as per the market and the companies they represent, while the debt part is relatively consistent in returns. The overall return is determined by the weighted average return of equity part and debt part,” informs Shetty.

3. EPF (Employee Provident Fund) and PPF (Public Provident Fund)

EPF and PPF are risk-free investments offering returns of about 9%. There are many advantages of investing in EPF and PPF. They are risk free because they are backed by the Government of India. Moreover, the interest earned is also tax free. You can also save taxes on PPF and EPF investment, subjected to the limit of Rs 1.5 lakh under 80C.

Generally, EPF is done by your employer, and you and your employer both pay equal amount towards your EPF account.

Apart from the post office, PPF account can now be opened in any bank. Walk down to the nearest branch of BoI, Bank of Baroda, ICICI Bank or any other bank to open your PPF account. The maximum amount that can be invested in PPF in a year is Rs 1,50,000. This can be done in a maximum of 12 deposits in a year, and not necessarily each month. The minimum amount required is Rs 500. PPF has a tenure of 15 years, though you can withdraw it before 15 years, subject to certain conditions.

According to financial experts, conservative investors can still bank on EPF for creating their retirement corpus, but for investors with low or moderate risk profile and limited or no other retirement benefits, PPF currently appears to be the best option as returns are to a large extent guaranteed and the withdrawals after the mandatory holding period are tax-free.

4. Bonds offered by the Government and Corporates

Bonds are another avenue that is risk free. The bonds offered by the government are risk free because the government usually doesn’t default on the payment. If everything fails, they can always print new notes and pay the bond holder (at the cost of inflation though).

As far as corporate bonds are concerned, bonds offered by large firms with sound business models are preferable. There is a small risk in corporate bonds in case the company goes bankrupt. However, bonds by Tata, Mahindra, Reliance, L&T etc. are almost risk free.

“The best way to identify a good bond offering is to look at the rating. All the bonds offerings have to go through a mandatory rating by a rating agency. The rating agency decides the rating based on the company’s ability to honour its obligations to bondholders, i.e. whether it can pay the interest and principal on time. A high rating is an indication that the risk is low,” says Shetty.

5. Real Estate

For the last couple of years, the real estate sector has disappointed investors. The market is not showing any discernible trend in this sector. Additionally, the real estate sector is mired in many controversies, corruption, and injurious practices. However, the main contributing reason for the prevailing widespread scepticism was low economic growth and even lower expectation of future growth.

However, with the new government focused on economic growth, the real estate sector will bounce with the first hint of an uptick in growth. Moreover, projects such as smart cities will provide ample opportunities to investors in the real estate sector. But investors should be careful of a few companies which are embroiled in controversies and legal battles with the government and consumers.

6. Foreign or overseas mutual fund

This is another area that investors usually don’t consider due to minimal or zero awareness about foreign companies and markets. However, many mutual fund companies such as DSP Black Rock, Franklin Templeton and others offer mutual funds focused on foreign countries.

These funds invest in many countries based on the nature of the fund. For example, an emerging market fund may invest in China, Indonesia, Vietnam and Brazil, while a fund focused on oil exploration may invest in US shale oil companies, Saudi oil field companies, among others.

A brief overview of returns offered by the above-mentioned entities:

Six best investment avenues in the current scenario
Important points to consider

While investing is important, assessing your investment periodically is vital for your wealth. Even if you don’t check stock prices or mutual fund NAVs every week or every month, it is vital to take a comprehensive look at all your investments every 6 months or a year. During such assessments, it is important to avoid impulsive decisions to sell or buy. The purpose of assessing your investment is to find new avenues of investment and discard an existing one if things have gone bad.

“You also need to know a few key parameters of any asset that you want to invest in. For example, if you are considering a particular mutual fund, look for annualized returns for the last 5 – 10 years instead of just the previous year’s returns. Look for the expense ratio, which is the percentage of investment charged to you. Look for sectors and companies where the mutual fund is investing. All these data is available on any of the numerous financial websites that give out such information,” says the CEO of BankBazaar.com.

Finally, don’t wait for the right time. The most important thing in investing is to start it, no matter how small your investment is. Begin with a small amount and grow the investment, thereby gaining in experience about the markets.


ATM :: Get rich without real estate

AARATI KRISHNAN | April 26, 2015 | Hindu BusinessLine


It’s a myth that real estate guarantees pots of money. If you’re young, here’s why equity funds may suit you better

There’s an abiding belief among Indians that the only investment that can make you rich is real estate. Such is the allure of getting rich through property that many people in their twenties and thirties want to take on a large home loan and sign up for their first apartment as soon as they receive their first pay cheque.

But if you’re in your twenties or thirties, it makes more sense to invest in equity or balanced mutual funds instead. Not convinced? Here’s why.

EMIs are compulsory savings. Without it, I will just spend the money.

The Equated Monthly Instalment (EMI) on your home loan is not an investment. It is a loan repayment where the lender earns interest off you. Let’s say you have booked a ₹50-lakh apartment and taken a 10-year home loan at 10.5 per cent to fund it. The EMI will amount to ₹67,467. At the end of 10 years, you would have paid a total of ₹80.96 lakh to the bank, of which ₹30.96 lakh will be the interest component alone!

For the apartment to be a truly good investment, it will have to generate a return over and above the ₹80.96 lakh you paid for (not the ₹50 lakh that most people assume). Instead, investing the same money in good equity or balanced funds will earn you a return on your capital, without incurring interest costs.

But I get to create an asset. With equities, after ten years, I may be left with nothing.

If this is your first home and you are actually living in it, it is not an asset at all, because it does not earn you any return. There has been no ten-year period in Indian stock market history when SIPs in equity or balanced funds have delivered nothing.

Between June 1992 and June 2002, which was among the worst ten-year periods for Indian markets, an SIP investment in an equity fund like UTI Mastershare delivered a 13 per cent annualised return. Again between September 1994 and 2004, a flattish period for the markets, SIPs in Franklin India Bluechip earned over 20 per cent CAGR.

That’s not enough. My friends say their property investments have gone up five or six-fold in the last seven years.

Translate that into compounded annual returns, and you will find that the returns aren’t much higher than that earned by good equity funds. To give you an example, Annanagar has been a booming locality in Chennai in the last ten years.

If you bought an apartment there at ₹40 lakh in 2001 (the previous real estate downturn), it is now worth ₹2.4 crore. That’s only a 13.6 per cent CAGR (compound annual growth rate). This is true across markets.

Data from the National Housing Board show that of 26 cities tracked, Chennai delivered maximum appreciation between 2007 and 2014, with the Residex for the city going up 3.55 times.

That’s a CAGR of 19.8 per cent. Markets such as Pune (241 per cent), Mumbai (233 per cent), Bhopal (229 per cent) and Ahmedabad (213 per cent) were other top ones. Their effective returns were 11.4 to 13.3 per cent.

Doing an SIP with a middle-of-the-road equity fund like the Sundaram Growth Fund for the same period would have fetched you a return of over 17 per cent; top performers would have earned you 20 per cent plus.

That’s all-India data. Some localities would have delivered bumper returns.

True, but how would you identify those localities in advance? This is the disadvantage of investing in real estate.

To make sufficient gains, you have to know not just the right state to invest in, but also the right city and locality within it. The same NHB data, for instance, shows that property prices in Hyderabad and Kochi have declined in seven years. Even in a locality, different transactions may yield different prices. To be sure, selecting the right mutual fund to invest in is difficult too. But with funds, you can invest based on the fund’s three-year, five-year or 10-year track record and can be assured that the price you are paying is right.

If you could diversify your property investments across many markets, your results would be better.

But given the large ticket sizes of property investments, most people end up betting much of their monthly pay cheque on just one piece of property. That’s concentration risk.

But I’ve never heard of anyone who became a millionaire by investing in equity funds.

Because mutual fund NAVs are available to you on a daily basis, there’s a temptation to over-trade. Most people who haven’t made money on equity funds are those who haven’t stayed on for ten years or more. They’ve bought funds, sold them and bought them again trying to time markets.

If you did the same with property investments (they have cycles too) you would lose money. Even long-term investors in equity funds invest too little in them.

A 15 or 20 per cent return from equity funds will seem small if only a fraction of your wealth is invested in it. While EMI commitments typically run into ₹30,000-₹70,000 a month, most people don’t venture beyond ₹1,000 or ₹5,000 SIPs.

We’re not recommending that you commit half or three-fourths of your monthly pay to SIPs in equity funds. But if you are in your twenties or thirties, you can certainly afford to commit 20 per cent.

Remember, once you sign up for a home loan, you can’t vary your EMI or stop paying it, if the property doesn’t appreciate or if you quit your job.

With an SIP, you can take a rain check in an emergency.

Source : http://goo.gl/NNgy6P

ATM :: Warren Buffett’s Success: What You Can Learn From it

Creditvidya.com | Updated On: March 28, 2015 17:56 (IST) | NDTV Profit
Warren Buffett is undeniably the most successful investor in history. His success is attributed by some to his sharp acumen and understanding of business while others call it luck. Numerous books have been written in an attempt to analyse the factors behind his extraordinary success. However, replicating similar results is no cakewalk.

Success at Mr Buffett’s rate is not a result of following a set formula. It was a continuous process which was followed. Discipline, perseverance and effective execution play a pivotal role in his success story.

Here’s a list of key factors which led to Warren Buffett’s coveted success:

Chalk up a plan

While making an investment, it is important to set a goal. Invest in value and be patient. Quoting Buffett’s famous words, “The stock market is a device for transferring money from the impatient to the patient.” So once your homework is done and a choice is made, stick to your plan.

Invest in value

“Price is what you pay, value is what you get,” Mr Buffett has said. Whether it is going in for an investment or making any other purchase, these words ring true. Looking for value is the underlying principal to be followed.

‘Plough back’ to reap benefits

Retain the earnings and invest them back into the business. The idea is to make the business grow and sustain. If earnings are taken home as dividends from a flourishing business, it does not help the very business which helps your earn and grow. Dividends are popular but they shouldn’t be the only thing one must have an eye on. It is important to track the utilisation of funds back into the business to continue growing.

Strategize and execute

When it comes to investments, figure out the cash in hand and the fixed income sources you may invest in. The returns must be enough to sustain your current lifestyle. After this is sorted, money can be invested in other options which have a possibility of high returns against high risk. The strategy adopted must ensure that investment options are balanced. As Mr Buffett has said, do not put all your eggs in the same basket.

‘Time is money’ and has to be managed accordingly

Warren Buffett has said: “The rich invest in time and the poor invest in money.” Time indeed is one commodity equally distributed to everybody. Tasks which were not related to his investment process were either delegated or eliminated. Time and energy spent on trivial tasks can be channelised on the ones topping the priority list.

Develop managerial skills

A manager sets goals for the team and drives them to achieve the goals. Keeping the team motivated, providing appropriate financial incentives and addressing any other concerns to the team’s satisfaction are few things one’s where managerial skills are put to the test. Not everybody is born as a good manager, but these skills can definitely be developed.

Learn, read, think

Warren Buffett has said investing in self is the best thing one can do. Nobody can take away talent from a person. Irrespective of economic conditions, talent will always fetch proportionate returns. The value does not deteriorate. Hence, it is important to invest in developing one’s skills. Staying updated helps one make intelligent decisions. In Mr Buffett’s wise words: “You can’t reach success in investment if you do not think independently.”

Everyday advice

Create more than one source of income. Do not depend on your job alone. Make investments to create a second source of income. Think twice before buying anything. Retail therapy does not really help in the long run. If one continues to buy things that are not needed, there will be a stretch situation someday for making necessary purchases.

Investment advice

Diversify the portfolio. It is important to balance investments on basis of fixed income, returns and risks. Also, tread cautiously while taking risks. In Mr Buffett’s words: “Never test the depth of river with both feet.” This means you should only invest in the businesses you understand completely.

Be your own adviser

Many people make investment decisions based on other people’s opinions. This kind of an investment is the most risky investment irrespective of the option chosen here. The investment option chosen by a friend may be best suited for his/her lifestyle and future plans. But that does not necessarily make that option a good fit for you. So think for yourself, seek clarity on your goals and then make a wise investment choice. Like Mr Buffett has said, “A public-opinion poll is no substitute for thought.”

These rules inspired by Mr Buffett should help you in making your money-related choices. There are two golden rules quotes by Mr Buffett: “Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.”

Disclaimer: All information in this article has been provided by Creditvidya.com and NDTV Profit is not responsible for the accuracy and completeness of the same.

Source : http://goo.gl/i9zdpt

ATM :: Equity MFs give high payouts on market rally

M Allirajan, TNN | Mar 25, 2015, 12.18AM IST | Times of India
Dividends in mutual fund (MF) schemes are getting bigger. The strong rally in markets has prompted fund houses to offer higher payouts for investors — as high as 85% — with even balanced funds that invest a portion of their corpus in fixed income giving payouts.

Equity-linked savings schemes (ELSSs) have been the most prolific in offering dividends as they compete to garner funds from investors who rush to buy tax-saver instruments just before the close of the financial year to lower their tax burden. As many as ten ELSSs, or tax-saver equity MFs, have declared dividends since early March.

Religare Invesco’s Growth Fund has declared a dividend of Rs 8.5 per unit, or 85%, the highest for the 27-month-old fund. HDFC Taxsaver Fund has offered a dividend of Rs 7 per unit, the highest since 2008. SBI Magnum Taxgain Fund has given a similar payout, which is also the highest in seven years. These funds have gained 50.4-53.2% in the last one year.

“The ability to pay dividends is quite high as there has been a significant increase in NAVs (net asset values) in the last one year,” says Chandresh Nigam, MD & CEO, Axis MF.

Vetri Subramaniam, chief investment officer, Religare Invesco MF, adds, “We have seen good profits and are distributing it to investors. Most funds were not able to pay dividends properly in the last few years because there were no incremental profits.”

In fact, equity MF dividends had dried up between 2010 and 2014 as the markets remained tepid. Several schemes did not pay dividends during this period because they did not have enough incremental profits.

Equity-oriented balanced funds, which have seen strong growth on the back of surging markets, are also rewarding their investors. While Kotak Balance Fund is giving a dividend of Rs 3 per unit, HDFC Balanced Fund is offering Rs 2 per unit. This category of funds has gained 41.1% on an average in the last one year.

Source : http://goo.gl/nL7LBZ

ATM :: Use mutual funds to diversify with small amounts

TNN | Mar 23, 2015, 03.17PM IST | Times of India
Investors and even some of the financial advisers often talk of a mutual fund as an investment product, as if that is an asset class in itself. They hardly realize the fact that mutual fund schemes are actually tools to invest in several other asset classes. So on a standalone basis, a mutual fund scheme is never an asset class.

For example, shares are an asset class. So are bonds, gold, real estate, commodities, etc. Now if you want to invest in shares, you can directly invest in the market through a broker and after opening a demat account. An almost similar process is followed if you want to invest in bonds and commodities. And different approaches are taken when one wants to invest in gold or property.

While investing in stocks, rather than investing directly through a broker, you can also invest through the mutual fund route by buying units of equity mutual funds.

Similarly, to invest in bonds and other debt instruments, you can buy units of debt funds, and for gold you can buy into gold funds or gold exchange traded funds (ETFs). Even if you want the liquidity that cash offers, you can avail of the same by investing in liquid funds or ultra short-term funds. Although not yet available in India, but in most of the developed countries you can also invest in real estate and commodities through the mutual fund route.

So you can see that a mutual fund scheme can work as a bridge to investing in various asset classes. This is because such a scheme is more like a pass-through vehicle for your investment in an asset class, but that scheme itself is not an independent asset. This characteristic also brings in flexibility for investor to diversify even with a small amount of money. “Mutual funds offer simplicity, affordability, risk diversification along with professional management,” says Sanjay Mehta, associate financial planner, Sanjay Mehta Financial Services.

In short, according to Mehta, for cash you can use liquid and/or ultra short-term funds which are very close to bank deposits. For investing in debt, you can use medium- and long-term debt funds, income funds or fixed maturity plans. They give you a steady income and tax efficiency too. For investing in gold, you can go through a gold fund of funds or take the ETF route. And for investing in stocks, depending upon your risk-taking ability, you can invest in diversified equity funds, or large-, mid- or a small-cap fund and also in sectoral funds or index ETFs.

Financial planners and advisers also say that other than just being an investment vehicle, mutual funds also offer a variety and choice to investors. As an investor, one can choose to invest his/ her money in funds from over thousands of funds managed by about 40 fund houses. “When an investor chooses to go with equities, he/she can opt for a growth fund or a value fund or even a fund which combines both. For those who prefer dividends, he/she can select income funds. The opportunities are limitless,” says a financial planner.

One can also use mutual fund schemes for asset allocation. For example, allocation funds include equity funds and debt funds simultaneously by investing in equity and fixed income instruments in different proportions. And since Indian investors have a fascination for gold, fund houses have smartly tapped into this long-standing fascination by introducing funds that can simultaneously invest in equity, fixed income and gold (via the ETF route), the financial planner added. Although here the fund manager decides in what proportion the allocations would be made to various assets while remaining within the broad contours of the scheme, “in effect, such funds are a one-stop shop for asset allocation”, the financial planner says.

The last but not the least is the tax efficiency that mutual funds offer. If one invests in debt instruments directly, he/ she may not enjoy all the tax benefits that can (indirectly) come to him/her if he/she takes the mutual fund route. In equity funds, however, the scope for tax advantage is limited compared to direct investing.

Source : http://goo.gl/bzbkl3

ATM :: Best ways to invest for your child’s education

Sanjay Kumar Singh, TNN | Feb 2, 2015, 06.42AM IST | Times of India
Inflation may be down but a major expense of the average Indian household is growing at a fast clip. The cost of higher education is already high and rising at 10-12% a year. Children’s education is one of the biggest cash outflows that families must plan for. A four-year engineering course costs roughly `6 lakh right now.In six years, the cost is likely to touch `12 lakh. By 2027, it would cost `24 lakh to get an engineering degree.

Lifestyle inflation, too, has affected the cost of children’s education. “As your standard of living rises, it affects the decision about where you send your children for higher education,” says Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisors.

The question worrying Indian parents is: will they be able to fund their children’s higher education? They can, if they plan ahead and take the right steps. We look at the challenges parents face while saving for their child’s education and how they can be overcome.

Be an early bird

One obvious solution is to start saving early. The individual will not only be able to amass a larger sum, but the money will also gain from the power of compounding. A corpus of `1 crore may seem daunting, but it’s possible to save this amount with an SIP of `9,000 for 18 years in an equity fund that gives a 15% return. “Since the rate of education inflation is so high, you need compounding to work for you over a longer period,” says Vidya Bala, Head of Research at Fundsindia.com.

A delayed start not only yields a smaller corpus but can also jeopardise other financial goals. If you start investing for your child’s education in your 40s, you are likely to fall short of the required amount. Often, parents dip into their retirement savings to fill the gap, but this can be a risky move.

Choose the right option

Parents must also invest right to get optimum resturns. Equity mutual funds, for instance, have delivered average annualised returns of 16.5% in the past 10 years. However, equity investment is not everybody’s cup of tea. This year’s DSP BlackRock Investor Pulse survey shows that though Indians have a high propensity to save and invest, they still seek safety. Almost 52% of the 1,500 respondents said they wanted guaranteed returns from investments.

However, if you have 15-18 years left before your child starts college, equity funds should be the preferred invest ment for you. Over such a long period, the volatility in returns is flattened out.If you have the risk appetite, your allocation to equities can be as high as 75%. The balance 25-30% of the portfolio can be in safer options like the PPF, bank deposits and tax-free bonds.

Play it safe in the short term

If you have a time horizon of less than five years, you will have to rely primarily on fixed income instruments, which are likely to offer a lower rate of return. However, these offer guaranteed returns and safety of capital. In the short term, these factors become very important.

Investment Options Available
How much time you have will define your investments and asset allocation
Age of Child Time Available Instruments to choose from Cost of Education Investment Required
0 – 2 years Over 15 years 1. Diversified Equity Funds 2. Low cost ULIPS 3. Stocks MBA Degree to cost 75lacs in 2033 SIP of 9800 in equity fund will grow to 75lacs
3 – 6 years 12 – 15 years 1. Diversified Equity Funds 2. Low cost ULIPS 3. Stocks Medical course to cost 35lacs in 2030 SIP of 7550 in equity fund will grow to 38lacs
7 – 10 years 8 – 11 years 1. Diversified Equity Funds 2. Equity oriented balanced funds 3. Debt Oriented balanced funds Law degree to cost 9.3lacs in 2023 SIP of 6300 in balanced fund will grow to 9.3lacs
11 – 14 years 4 – 7 years 1. Debt Oriented balanced funds 2. Debt funds 3. Recurring Deposit Engineering course to cost 8.8lacs in 2020 Recurring Deposit of 11600 in balanced fund will grow to 8.8lacs
Over 15 years Less than 3 years 1. Recurring Deposits 2. Debt funds 3. MIP funds MBA Degree to cost 20lacs in 2018 SIP of 48500 in debt fund will grow to 9.3lacs

Review the portfolio

Once your portfolio is in place, you need to review it at least once a year.You should also check whether the amount required for meeting the goal has changed. “Education goal has two components: tuition fee and cost of living. Any of these could rise faster than anticipated. You need to find out whether the 12% inflation rate that you have assumed is realistic,” says Dhawan.

Next, check whether your portfolio is on track to meet the goal. Bala suggests using step-up SIPs. “Raise the amount invested in line with your salary increments,” she suggests.

If a fund is lagging, do not sell it immediately. Stop your SIP in that fund and start it in another better performing fund. Watch the performance of the laggard for 3-4 quarters and only then decide to sell it. Rebalance your portfolio at the end of each year. Rebalancing essentially entails selling an outperforming asset and investing the proceeds in one that is underperforming. By doing so, you curtail the risk that your portfolio could face due to over-exposure to a particular asset class.

Approaching the goal The investment process is never static.We have suggested equity funds for those with an investment horizon of over 12-15 years. However, five years before your goal, you should start shifting money out of equities to the safety of debt. Start a systematic transfer plan from your equity fund to a short-term debt fund (average maturity of 1-3 years).

Keep in mind that the date of your child’s admission to college is fixed.You can’t let a downturn in the stock markets jeopardize your child’s college education.

Source : http://goo.gl/RnnnlC

ATM :: Should you invest based on past performance?

Equity funds have made a comeback with strong returns. Here is how to select the right fund.
Tanvi Varma | Edition:February 2015 | Business Today
Haven’t your equity funds given handsome returns in the past one year after underperforming for a sizeable period? The change in fortunes of these funds can be attributed to the sharp run up in the stock market over the period. But did you invest in UTI Transportation and Logistics Fund, Sundaram SMILE (Small and Medium Indian Leading Equities) Fund, DSP Blackrock Micro Cap Fund or Birla Sun Life Pure Value Fund? If the answer is no, then you may have missed a trick.

UTI Transportation and Logistics Fund topped the equity fund category in the last one year with returns of 121% compared to 38% returned by the BSE Sensex, followed by Sundaram SMILE (Small and Medium Indian Leading Equities) Fund (119%), DSP Blackrock Micro Cap Fund (115%), Birla Sun Life Pure Value Fund (114%) and the Canara Robeco Emerging Equities Fund (110%).

Winners and Losers: How various indices have performed over 7 years

What worked for these funds, some of which are not the top-of-the-mind schemes in the Source: Ace Equity mutual fund universe? For UTI Transportation and Logistics, it was the sharp run-up in auto stocks. As the name suggests, the fund invested large amounts in companies in the transportation and logistics sector. Though a large-cap fund, it takes specific sector calls (74% investment in the automobile sector) and, hence, also qualifies as a sectoral fund. The commonality between UTI Logistics and the other funds mentioned above is that they all invest in mid- and small-cap stocks, again a specific theme. The run up in these funds performances can be attributed to the rise in mid-cap stocks in general.

The mid-cap index, for instance, has returned 65% in the last one year compared to a 38% return delivered by the BSE Sensex. Small- and midcap funds typically outperform in an upward trending market owing to the marginal incremental risk they take. The small- and mid-cap stocks come with high beta (an indicator of their relative volatility) and, hence, their returns can be multifold, which is difficult for large-caps to mimic.

In terms of market cap, the midcap and small-cap indices returned an astounding 69% and 96% respectively during the bull run from January 2007 to January 2008 leaving behind the BSE Sensex’s 46% return. This was mimicked by funds investing in these stocks like the SMILE Fund, which returned 82% during the period. Thereafter, came the market bust (January 2008 to January 2009) and the smallcap and mid-cap indices lead the race to the bottom, losing 66% and 72%, respectively, compared to the Sensex’s fall of 51%.

According to Anil Rego, CEO and founder of Right Horizons, small- and mid-cap funds are a ‘high-risk high-return’ strategy and, hence, during a bull run they tend to do well. However, when the markets are down, mid-caps tend to fall more than large-caps because of their high beta (usually more than one). Since they are less liquid than large-caps, they are inherently more volatile.

Financial planners say midcaps should not be part of your core portfolio at any point of time. There is good reasoning behind this: from 2007 till date the BSE Sensex has returned a 9% a year, the Mid-cap Index has returned 7% while the Small-cap Index has returned only 6%.

Sectoral funds have higher risk than mid-cap funds but they could also have periods of extreme outperformance. The infrastructure sector was touted as the star during the bull run of 2006 and 2007 and the Infrastructure Index retained the top slot for about two years owing to a roaring economy and the government’s thrust on the sector. Hence, funds based on the infrastructure theme delivered returns of 85% (in 2007) but were also among the biggest losers (their value eroded 56%) when the sector went out of favour in 2008.

On the other hand, diversified equity funds didn’t make a killing in the bull run but ended up with a limited downside compared to the fall in the Sensex. Further, diversified funds help deliver higher riskadjusted returns in the long term by mitigating risk by spreading across different sectors.

With the economy back on track, the focus is now likely to shift towards investment. Capital goods and infrastructure have already started doing well. But only focusing on infrastructure funds would entail quite a bit of risk in case investment activity does not pick up. Only if you have the research expertise and conviction on a certain sector should you consider investing 15-20% money into sectoral funds.

According to Raghvendra Nath, MD, Ladderup Wealth Management, it would be improper to come to a conclusion on the basis of a year’s performance. Such performance can be due to a few chance allocations to certain stocks or sectors. Rego adds that Sundaram SMILE Fund’s performance is not consistent with its peers and returns in the short term can be like a flash in the pan. He instead suggests funds with consistent returns. Even though they may offer lower returns in the short-term, they don’t get stuck on the down side.

Past performance is only one of the indicators for evaluating a fund. “Developed markets deploy many ways to evaluate fund performances. However selective data display and ‘cherry picking’ can harm investors,” says Tushar Pradhan, CIO, HSBC Global Asset Management, India.

Comparing a fund’s performance against others over a stipulated period can be hazardous. “Risk parameters, expense ratios, fund manager’s track record, turnover ratios and many other fund metrics can help provide a much more balanced view. We encourage investors to look at the performance in conjunction with the risks undertaken,” says Pradhan. Risk statistics like beta, for instance, will tell you the stock’s relation to the general market. A beta of one indicates that the stock will move with the market while a beta of less than one means that the stock will be less volatile than the market. A beta of greater than one indicates that the stock will be more volatile than the market.

While selecting a mutual fund, analysts also use other ratios such as Sharpe ratio, which helps gauge how much of the extraordinary returns generated by a fund are a result of extra risk taken by the fund manager. A higher ratio indicates that the investor is earning a good return despite low risk. A combined rank encapsulating these can be a better measure than comparing performance alone. It is also important to ascertain whether the fund is being run in accordance with its investment objective and the investment strategy is transparently communicated to investors.

Research companies like Value Research and Morningstar assign ratings to funds based on certain parameters. However, they may not all be the same. “Ratings should not be the only criteria; investors should also look at the overall outlook and also compare performance of funds in a similar segment,” says Rego.

The best approach is to take an equal exposure in large-cap and midcap funds. “Large caps give stability to the portfolio and mid-caps provide extra returns in the long term,” adds Nath. Once the market has gone up, invest via SIPs which will help generate higher returns by reducing the average purchase cost.

Source : http://goo.gl/R1elX6

ATM :: Should you concentrate or diversify portfolios?

Uma Shashikant | Dec 29, 2014, 06.13AM IST | Times of India


Investors can be adamant. Some of them refuse to accept that it is not easy to get wealthy with equity. Many are simply lucky with equity and fail to see the strategic choices they need to make to be successful equity investors. A diversified portfolio is the simplest way to participate in equity markets and earn average returns, which are not bad. For those seeking more, one critical factor matters: the extent of concentration in the portfolio.

The promoters of a business hold the finest form of a concentrated equity portfolio. The list of the world’s richest people is made up primarily of equity investors, inspiring so many of us to see equity investing as the most democratic and legitimate way to build wealth. But for every entrepreneur that succeeds, there are many that fail. It may be enough to hold the stock of just one company to build a fortune, if the company has built a valuable business. But should that business fail, you may face bankruptcy. That is why concentrated portfolios are most suitable for someone with the orientation to create, build and run a business, than for someone choosing to be a dormant equity shareholder.

The nicest thing happening at present in India is that a large number of youngsters are choosing to create a business than pick up a job. This shows the swing away from fixed income seeking behaviour to preference for a concentrated strategy to build wealth. This significant modification in risk profile of people while choosing careers should bring great benefits to equity investors.

Angel investors, private equity investors and venture capitalists are the next rung of investors with a concentrated investment strategy. They seek high returns and are willing to invest in a small number of businesses to earn that. They are also ‘inside’ investors (as against public shareholders) who seek more information and a more significant role in running the business. Many of them are on the boards of companies they invest in. They mentor the business to achieve scale and size. They have large and significant holdings in a few businesses and take on the risk that some of them may fail. But a few good ones make up for such losses.

It is common for successful entrepreneurs to use their wealth to seed and fund new businesses. The objective is not merely altruistic. There is tremendous business sense in investing significant stakes in a few businesses, without having to actually run them from the front. These investors are only doing what they know to do best, but earning a higher return from being strategic investors. Institutional investors such as sovereign wealth funds, hedge funds, pension funds and endowments also take on strategic investments in growing businesses. This is the institutionalised form of concentrated investing, where the involvement in the business is not as deep as that of the inside investor, but the stakes are significant.

When individual investors choose DIY (do it yourself), they should look at the approach of these professional investors who hold a large stake in a few stocks. The approach is intense and driven by a high level of information and involvement. Institutions invest in research, data and talent to choose and invest strategically. If there is a clear vision about where the business should go, the investor is willing to work towards making it happen in return for a significant stake. If the involvement is as a strategic investor, they work with the management and will be willing to process and analyse information about the business on an ongoing basis.

A concentrated equity portfolio is a choice that lies at the opposite end of the diversified portfolio. I have noticed with amusement how investors eulogise Warren Buffet and then mindlessly buy multiple stocks. Buffet is the world’s most successful investor, because his investing style is concentrated and strategic. He buys stakes in businesses he understands, and holds them with patience. He also specialises in picking them up when the going is not good.

Where does that leave the retail investor who likes DIY? A few with the penchant for business and research do well. They go beyond tips, news and media quips, to understand how a business is doing. They work in groups, analysing businesses thoroughly. They invest after careful selection, in a few stocks, usually not over 15-20, and stay invested for the long term. This is a high-return, high-involvement concentrated investment strategy, not in the mode followed by most investors.

Those who simply buy this and that, hold a large number of stocks, and brag about the few that have done well, might be misleading others. The more a portfolio holds, the more diversified it gets and, therefore, it gets closer to average performance. When it comes to investing, there is nothing right or wrong. There is only risk, return and diversification— or the lack of it, if you will.

Source : http://goo.gl/IvX7Sm

ATM :: Diversified MFs give better returns at lower risk

Partha Sinha, TNN | Sep 30, 2014, 07.25AM IST | Times of India
Among the equity schemes available in the market in India, diversified equity funds are the ones in which the highest amount of funds are deployed.These are the schemes which invest their corpus in stocks from across various sectors.Here, the fund manager takes the call on the portfolio of stocks, irrespective of sector, and invests accordingly . Within diversified equity funds, there could be funds segregated according to market capitalization like largecap, mid-cap and small-cap funds.

In addition, there are sector funds which invest in stocks of a particular sector and thematic funds which invest according to some given themes. There are also passive funds and exchange-traded funds.

According to Ramalingam K, chief financial planner, holisticinvestment.in, a financial planning and wealth management firm, a diversified investment model is put in place with the prime objective of avoiding the risks that come with the single sector investment model.

According to a note by Hena Nagpal, MD, Quantum Leap Wealth Advisors, in the risk reward matrix relating to equity and equity oriented schemes, diversified funds come around the middle. The most risky ones are the thematic funds, then the mid-cap and small-cap funds and then the diversified funds.Funds which are less risky than diversified funds are the tax-saver schemes, large-cap, index and then the balanced funds, in that order, the note said.

“Predominantly , diversified equity funds invest across various sectors and their mandate is more based on the market-capitalization of the companies they invest in,” said Juzer Gabajiwala, director, Ventura Securities. “Even among diversified funds, there are plans which are riskier than others. For example, a small cap fund would be riskier than a large cap fund,” he said.

According to Gabajiwala, in large-cap funds generally the portfolio allocation towards large-cap companies is more than 90%. “Investors prefer these funds as they tend to be relatively stable since a majority of their exposure is to blue-chip stocks, which are well established and rank among the best within their own industry . The main advantage of large-cap funds is that they are considered to be in the low return-low risk segment of diversified equity funds. This ensures that the investments of investors remain relatively safe,” Gabajiwala said.

Another category is the multi-cap funds, also called flexi-cap funds. These funds invest in stocks from across sectors and also in across market capitalizations. “The fund managers of such schemes can follow the strategy of dynamically changing their allocations to stocks or sectors as per prevalent market conditions, with the aim to invest in sectors which are currently doing well,” Gabajiwala said.

According to Gabajiwala, mid-cap and small-cap funds are the other categories among diversified schemes in each of which at least 60% of corpus is invested in mid-cap and small-cap companies. “The mid and small companies are expected to grow at a faster rate than bigger ones. However, investment in mid and small-cap funds should be undertaken with caution since these funds are more prone to volatility than large-cap funds as they are hit harder when markets fall,” he said.

There are several benefits of investing in a diversified scheme. “The key benefits brought in by the diversified equity funds are lower risk because of their diversified nature, broadened and diversified investment options, managed by a professional fund manager so that mistakes are avoided, and easier for the fund manager to move from one sector to another and one industry to another,” said Ramalingam.

Another reason for investing in a diversified equity funds is “under different market conditions and market scenarios, different sectors perform differently”, said Nagpal of Quantum Leap Wealth Advisors. “Since a diversified equity fund has the flexibility to invest across the spectrum, it tends to perform better than thematic funds over the longer horizon,” Nagpal said.

These funds also score on the taxation front. “Dividends received by unit holders of equity-oriented mutual funds are tax free.Short term capital gains tax is 15%, while there is no long term capital gains tax for these schemes. Long term, here, is defined as more than 12 months,” said Nagpal.

Source : http://goo.gl/GMCT65