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.
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 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, 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.
Nandini Sanyal | May 16, 2016, 08.38AM IST | ECONOMICTIMES.COM
News about progress of monsoon, next batch of quarterly earnings , wholesale inflation data along with outcome of assembly polls in five states and will be key driving factor for the stock market this week.
Here’s a look at seven triggers that may move the market today
Under Mauritius pact, no tax exemption for quasi equity investments: There will be no free ride for those wanting to invest in India through quasi equity investments such as convertible debentures via Mauritius under the recently amended treaty between the two countries, officials said. Those holding such instruments would do well to convert them into shares before April 1, 2017, to enjoy the exemption on capital gains tax, or grandfathering, that’s available until then. There has been some confusion over whether entities making an investment in such instruments before April 1, 2017, can enjoy grandfathering with the full capital gains tax exemption benefit even after the amended India-Mauritius Double Taxation Avoidance Convention comes into effect.
Shareholder base for private banks may be broadened: Wealthy individuals and finance companies can pick up more equity in private banks while non-state lenders struggling to make money could emerge as acquisition targets for those on the hunt, following the Reserve Bank of India’s recent relaxation of rules aimed at shoring up capital and encouraging consolidation. Analysts said lenders of interest may include IndusInd Bank , Yes Bank , Kotak Mahindra Bank , Karur Vysya Bank , Lakshmi Vilas Bank , Tamilnad Mercantile Bank and Dhanlaxmi Bank.
Monsoon over Kerala may be delayed by a week: The onset of the southwest monsoon over Kerala is likely to be delayed from the normal date of June 1, the weather office said, the first negative signal since it forecast above-normal rainfall this season after two years of drought. “The statistical model used by IMD for predicting the onset of monsoon indicates that the southwest monsoon is likely to set over Kerala on June 7, with a model error of ± 4 days,” the India Meteorological Department said on Sunday . Last year, the monsoon arrived six days late on June 5, compared with the forecast onset date of May 30.
FSSAI plans comprehensive recall policy: Almost after a year of no food product being pulled out of the market, The Food Safety and Standards Authority of India (FSSAI) has decided to bring a comprehensive recall policy this financial year. The last big food recall was in June 2015, of Nestle India’s Maggi noodles. In the making for five years, the draft procedure for a food product’s recall was put up for public comment on the body’s website last year by FSSAI. Its latest newsletter lists “final notification of recall regulations” as among the 12 important things it plans for 2016-17.
EPFO may invest over Rs 6,000 cr in equity market in 2016-17: Union Labour Minister Bandaru Dattatreya has said the Employees Provident Fund Organisation (EPFO) may invest more than Rs 6,000 crore in equity market during the current financial year. The minister, however, said a final decision will be taken by the Central Board of Trustees at the next meeting. Last year, EPFO had invested about Rs 6,000 crore through SBI Mutual Fund’s two index-linked ETFs (exchange-traded funds) — one to BSE’s Sensex and the other NSE’s Nifty.
Sebi planning to tighten listing norms: The Securities and Exchange Board of India (Sebi) is planning to attach bank accounts and properties of promoters who repeatedly flout listing and disclosure norms and fail to take corrective steps. The penalty structure may also be changed to deter publicly traded firms from taking listing regulations casually.Sebi’s latest proposals come amid widespread violations of listing and disclosure norms
Employees’ rights to be foremost in Bankruptcy law: The new Bankruptcy Law will fast- track recovery of dues from defaulters and employees will be first in line to get their share from liquidation of assets if a company goes belly-up, says Union Minister Jayant Sinha. Besides, it would also bring down drastically the time taken to wind up a sick company while making the entire process much easier, the Minister of State for Finance said.
Rupee down: The rupee ended weak by 15 paise at 66.77 due to increased demand for the us dollar from importers amid a weak domestic equity market. Rupee sentiment was also hit as the IIP growth plunged to 0.1 per cent in March and retail inflation soared to 5.39 per cent in April.
Bonds: The 7.88 per cent government securities maturing in CG2030 traded value at Rs 300.00 crore at weighted yield of 7.75 per cent, the 7.59 per cent government securities maturing in CG2026 traded value at Rs 225 crore at weighted yield of 7.45 per cent and the 7.72 per cent government securities maturing in CG2025 traded value at Rs. 100 crore at weighted yield of 7.63 per cent. The weighted yield on government securities with a maturity period of 0-3 years, 3-7 years, 7-10 years and more than 10 years was quoted at 7.11 per cent, 7.51 per cent, 7.52 per cent and 7.76 per cent, respectively.
NSE bond auction on May 16: The National Stock Exchange (NSE) will auction investment limits for overseas investors on May 16, for the purchase of government debt securities worth Rs. 3,340 crore. The auction will be conducted on NSE’s ebid platform from 3.30 pm to 5.30 pm, after the close of market hours, the exchange said in a circular today.
Source : http://goo.gl/ntxH8X
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:
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.