Imagine a platform for investments where you do not need to worry about whether the market or the MF office is still open.
Rohit Ambosta | May 01, 2018 09:28 AM IST | Source: Moneycontrol.com
What are the trading timings for the stock markets in India? When can you walk into a mutual fund office and invest in mutual funds? Obviously, you can only trade when the market is functioning between 9 am and 3.30 pm. Similarly, you can only walk into a mutual fund office and execute transactions when the office is functioning, which is typically between 10 am to 5 pm. What if you want to invest in mutual fund because you just got a credit amount into your bank account at 6 pm on Friday? You will typically have to wait till Monday morning, talk to your advisor and then walk into the mutual fund office and submit your application for an equity fund along with your cheque for the amount. But, what if all these timings could really cease to matter very soon? Here is how…
Welcome to the anywhere and anytime financial market
The legendary investor Warren Buffett rightly said that to be successful you have to work hard for your money but if you really want to be wealthy then you have to make the money work hard for you. Imagine a platform for investments where you do not need to worry about whether the market or the MF office is still open. You just log into an online platform on your computer and execute the buy or sell trade. Of course, the actual execution may happen on the next day but as far as you are concerned you have done your job. You have transcended the constraints of time and place and managed to execute your financial transaction at the time and place of your choice.
This is a dual advantage for you. Firstly, you can execute the transaction at the time of your choice; that is whenever you are free. You do not really have to worry about whether the mutual fund office is open or whether the market is functioning. You just open your system, punch in the details and the order is logged into the system. Execution is then just a matter of formality. You can also execute anywhere. It is immaterial whether you are at home or office or attending a wedding. You do not even need access to a computer or laptop since these days you could download this entire platform on an App and execute all your transactions from your smart phone itself.
How to make an informed decision anytime and anywhere?
That is the logical next question. You obviously cannot talk to your advisor in the midst of the melee. Also, you do not have access to all your existing investment documents. There is a solution which the platform can offer. Imagine that the platform assists you at two levels. Your entire financial plan and the details of investments held by you are clearly documented and stored in the platform itself. That means you can access your portfolio and your plan 24X7 from any part of the world. So, your portfolio reference point is always available with you. Now the bigger challenge is getting the right advice before investing.
That is where machine intelligence comes into play. Did you know that there is a way of getting advice that is entirely free of emotional bias? That is called algorithm driven advisory. This is not some black box program throwing up esoteric solutions based on a methodology you do not understand. The algorithms are designed to help you make an informed decision. It is based on the use of big data and many years of expert research to tabulate all the investment opportunities on one side and then again use big data to mine and create a picture perfect investment-needs profile of yours. When you combine the two you have a neat solution. All that you have to do is to click a button to say OK. That is surely a lot simpler.
Monitoring and rebalancing my portfolio when required…
So you have managed to get advice at the place of your choice and invested at the time of your choice. Can you also monitor your investments at the place and time of your choice? The answer is an emphatic “Yes”. When we talk of monitoring, we not only refer to the portfolio evaluation but also whether the portfolio of investments is in tune with the original financial plan. Has any sector outperformed? Has any sector underperformed? Have valuations become too steep. The beauty of having such a big data driven platform is that it not only helps you with such analytics but also gives you the answers. What should you do if you are overinvested in a sector? Which funds can you shift out of and which funds can you shift into? How to rebalance your entire portfolio mix and then execute with the click of a button? All these can be done from the comfort of your chair!
The big question, therefore, is can this kind of a platform do everything which can be managed by human advisors? The difference could lie in the use of big data. That could be well be the future of investing!
(The writer is CIO, Angel Broking)
By SiliconIndia | Tuesday, May 1, 2018
A Systematic Investment Plan (SIP) is the best investment option for many investors – especially if you’re a young person, just beginning your investment journey. A SIP is a low-risk move, ideal for those who are in it for the long haul because else, the returns tend to be low. A steady investment of even Rs.500 per month has the potential to generate decent returns in the long run without putting a major dent in your pocket. But like all other investment options, it’s never wise to put in your money unless you’re well informed. Here are some things you must keep in mind when investing in Mutual Funds via SIPs.
– What exactly is a SIP?
A SIP lets you invest small amounts regularly in equities, debts and other kinds of mutual funds. It involves you buying units of any (or many) Mutual Funds of your choosing by investing a minimum of Rs. 500 per month. It is then up to you to redeem your units at any point in time. A SIP is ideal for younger investors since it practically guarantees good returns with a lower risk of capital loss. It bridges the gap between high-risk options like equities and low-risk options which may not produce returns.
– The Power of Compounding
There is a thumb rule talking about investments. The truth is that the longer you keep your money in a fund, the more money is likely to be generated over time. This is where young investors have an edge over older ones. If you’re 40 and want to begin investing in a retirement fund, you’re 18 years behind those who began at 22. The 22-year olds are likely to generate higher returnsprimarily because of the compounding effect. Start as early as possible.
– Be Informed
No investment option is completely risk-free and investing in the wrong fund may end up being a grave error. You can never be too careful with where to put your money. It’s always better to look at the past performance of any mutual fund you decide to put your money into. Of course, this is not possible if it’s a new mutual fund. Try to ensure that the mutual fund you pick has been around for a few years at the very least before investing your money. You don’t want to be risking letting it all go to waste, do you?
Your fundsare distributed into a set of pre-decided companies from numerous sectors. These companies are usually mentioned in the prospectus, and you’re free to check up on them. In the interest of staying informed, it is advisable to check out all the companies mentioned.After all, it’s your money that will help fund its future endeavors, and you have every right to know what it’s being used for. Read up on the companies, the industries and the sectors that your mutual fund is investing in, and analyze whether they are ones you’re comfortable with, or if they’re ones you’d like your money to be invested into.
– Your Own Goals
Don’t just start investing because it’s the “in” thing and everyone around you is doing it. If you really want to gain from your investment, align it with your goals. Whether that goal is to buy your dream car after 10 years or to generate enough capital to start your own business in 15 years, or even go to the vacation you always wanted – your end goal and the money it’ll require should be fixed in your mind as early as possible. Once that’s settled, you can go about looking at what exactly to invest in and how much to put into it every month. For example, if your goal is to buy a car costing ?30 lakhs in 15 years, you can’t invest in something that’ll give you any less than that at the given time.
– Market Risks
Mutual Funds Schemes can be considered low-risk and safe to the extent that they are regulated by the Securities and Exchange Board of India (SEBI), and the fact that companies must have a minimum net worth to be eligible for mutual fund investments. However, fraud is a very real possibility and the less informed can easily be ensnared. Technicalities are everything here, so always read the terms and conditions thoroughly. Only pick a SEBI registered investment adviser.
– Choosing the Right Scheme
Mutual fund selection depends on the kind of an investor you as an individual, are. If your goals are long-term and you can handle risk, you could invest in equity schemes. If you’re more of a moderate investor with a lower of appetite for risk, you should consider investing in large cap or multi-cap mutual funds (that is, large companies or multiple companies) which tend to have lower exposure to risks. This is because such funds are channeled into companies which are comparatively stable. If you’re more aggressive and don’t mind the risk, invest in small cap or mid cap funds instead.
– Choosing the Right Bank and Date
This may not look very significant, but it’s actually pretty important. The general practice is for the plan to directly take money from your bank account monthly (or at whatever regular interval you have fixed). So, the date you fix should be keeping in mind that the account isn’t low on funds when the money is cut. Keep your balance at a minimum of at least the investment amount, and make sure you set the date of investment as one which is placed after you get your income (salary, rental income, etc.).
Be careful not to use an account that you hardly use otherwise, sincethere’s a higher chance of it running into issues of insufficient funds around the time your SIP debit is due.
Get Started Now
Once you’ve understood these essentials of mutual fund investments, it gets fairly easy to take a plunge as an investor and start crafting your investment goals. Get started now. The sooner you do, the more the returns! Remember the power of compounding?
Interview with Gaurav Jain, Director at Hem Securities.
Uttaresh Venkateshwaran, Sunil Matkar | Apr 06, 2018 03:19 PM IST | Source: Moneycontrol.com
While the market may have fallen around 10 percent from its peak, experts such as Gaurav Jain, Director, Hem Securities believe that the worst may be over now.
“In the next quarter, the market should settle and then a pullback is likely,” Jain told Moneycontrol’s Uttaresh Venkateshwaran & Sunil Shankar Matkar. He expects largecaps to move ahead and midcaps will play catch-up.
He expects a broad-based pick up in the market going ahead. “In the past few days, a few stocks have risen, which have pushed the market. We should start seeing a pick-up in many more stocks. Essentially, people are not in a panic stage, while retail investors have looked to book profits and are not in a hurry to invest,” Jain further added. Edited excerpts:
The market has been trading off the previous high points. What is the outlook for D-Street going ahead?
Over the last quarter, we saw events such as the Union Budget, which introduced taxes on long term capital gains (LTCG). Global markets reacted negatively, while big IPOs also sucked liquidity from the market, among other factors. As such, the market had a good run up in the past two three quarters.
In the next quarter, the market should settle and then there could be a pullback. Next quarter should be of accumulation and positive movement.
So, what kind of returns are you expecting from this market?
We are in an election year. So, the market could behave differently with results coming on. Overall, for FY18 we are looking at 8-10 percent returns.
What can be seen as triggers for this market?
Firstly, many companies’ results were affected in one quarter on the back of Goods and Services Tax (GST). With new GST Bill coming in full flow, it should give positive flow for most sectors. Even as the e-way bill is introduced, some companies could face some issues at the start and then gradually get comfortable with it.
Secondly, look at growth visibility in the Sensex and Nifty. Several managements are hinting at positive cues. Earnings could improve and several companies have done their expansions on their side.
Lastly, we have to wait for how monsoon pans out. So, overall there is positive momentum and investors are quite bullish on India even at this point.
Does that mean we could go back to the record high levels?
What are you hearing on private capex plans? Are they willing to spend on that front as well?
Most companies, the big ones especially, have done their share of capital expenditure. One important reason why this is happening is due to change in technology that is erupting. For instance, look at telecom sector. In case Reliance Jio comes up with a new technology, rivals also tend to counter those. In case of textiles, many things have happened and firms are adding up more technology and machines. With changing technology, fast-growing companies need to adapt to it and they are deploying resources in those areas.
Could you throw some light on the state of midcaps? How do you expect them to perform going forward?
Largecaps should start moving first, going forward, followed by midcaps. Investors currently are playing conservative as they saw their stocks bleeding all through the last quarter. Hence, the money is going into largecaps right now.
But what about valuations for several segments in the market…how did the IPO market perform in FY18?
Look at the number of IPOs that came up with multiples of 30 and 40 times. Fund managers that we spoke to are talking about large systematic investment plans (SIPs) that have to be deployed into such stocks and that is probably why such high multiples were seen.
In FY17, we saw around 37 IPOs hitting the market and this figure could be higher this fiscal, looking at the prospectuses filed and information available from merchant bankers. Also, IPO sizes are a lot larger now.
But will investors have the appetite going forward?
Institutional investors will have it. They will always look at beaten down stocks and they also do not have issues with funds.
Currently, retail investors are investing less. If they have Rs 100 with them, they are looking to invest Rs 20 right now. In fact, many retail investors have booked profits in the past quarter.
Is there much downside from the current market levels?
I don’t think so. The worst should already be over. In the past few days, a few stocks have risen, which have pushed the market. We should start seeing a pick-up in many more stocks. Essentially, people are not in a panic stage, while retail investors have looked to book profits and are not in a hurry to invest.
So, what will your advice be to a 35-40-year old investor?
They must invest in mutual funds. But you could also do it making money by directly investing in equity markets as well.
What sectors are you looking at currently?
We expect pharmaceuticals to perform, while it could be a challenge in case of information technology names.
You can look at infrastructure sector as well. These companies are flooded with orders.
On banks, it is clearly not the case that all PSU banks are bad. Right now, people are not trusting PSU banks and private banks are usually considered more transparent.
It is a play on perception and that could be seen in cases of a recent listing such as Bandhan Bank. The IPO came at a very good multiple and still listed at good returns. These are companies with professional management which are growing along with having fast execution and chasing for business. As such, we were seeing a shift to private sector banks, but currently investors also do not know about hidden concerns in PSU banks too.
LTCG tax on equities has become a reality now. Are you getting queries about it and what are you telling them?
I think the sentiment around it has been already digested in the market. People are taking in the transition in stock market. I feel that this is not an issue at this point.
How much of a risk is political scenario for the market?
The market tends to be very volatile on political instability. As soon as there are chances of dent to existing government, it starts reacting. The question is not about which government, but about a stable one. This is important from a foreign investor perspective. These would have regular impact but not larger level…the market will make a comeback once the elections are over.
As we move into end of this year (and closer to general elections), investors may hold for couple of months to understand what is happening (on the political front).
On the global front, any statement from the US with respect to protection of its own trade boundaries is a major risk for the market.
Lastly, what are your top stock picks for FY19?
Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.
After the recent correction valuations of most of the mid & small caps as well as largecaps have come to more reasonable levels, but are still not in lucrative.
Kshitij Anand | Apr 04, 2018 09:27 AM IST | Source: Moneycontrol.com
So where are fund managers betting your money in FY18? Well, a close look at the funds which outperformed benchmark indices in the largecap space suggested that fund managers are in no mood for experiments.
They stuck to quality stocks despite volatility, according to data collated from Morningstar India database. Five funds which outperformed Nifty include names like Invesco India Growth which rose 18.9 percent, followed by BOI AXA Equity which gained 18.09 percent, BOI AXA Equity Regular rose 17.13 percent, and Edelweiss Equity Opportunities Fund rose 16.46 percent.
A close look at the stocks in which some of these funds have made their investments include names like HDFC Bank, RIL, Maruti Suzuki, ICICI Bank, Graphite India, L&T, IndusInd Bank, IIFL Holdings, HDFC, Avenue Supermarts, TCS, Sterlite Technologies, and Escorts etc. among others.
The rally was not as swift among the benchmark indices which rose 10-11 percent in the last 12 months. After a blockbuster 2017 and FY18, all eyes are on FY19 which according to most experts belong to largecaps.
Mid & smallcaps outperformed largecaps by a wide margin in the year 2017, but for FY19, most analysts suggest investors not to ignore this space. One possible reason is attractive valuations compared to mid & smallcaps.
Street expectations are for at least high-teens earnings growth in large-caps and about 20 percent earnings growth in mid-caps and small-caps. But, for investors, a healthy balance of large and midcap funds would make a strong portfolio.
“Performance of stocks in FY19 will depend on the quality of companies, quality of managements, balance sheet performances and profitability. FY19 will not be as easy as FY18 when markets were at an all-time high,” Jagannadham Thunuguntla, Sr. VP and Head of Research (Wealth), Centrum Broking Limited told Moneycontrol.
“The year 2018 will differentiate men from boys. We recommend that 50-60% of capital should be parked in large caps, 20-40% in mid& small caps and 10-20% in thematic stocks,” he said.
After the recent correction valuations of most of the mid & small caps as well as largecaps have come to more reasonable levels, but are still not in lucrative. The best strategy for investors is to use the mutual fund route to invest in quality largecaps as well as midcaps.
“On a broader portfolio basis, for a person in the age bracket of 35-40 years, the exposure to direct equity should also ideally be around 50-60% while the rest could be spread across other avenues of investments,” JK Jain, head of equity research at Karvy Stock Broking told Moneycontrol.
“A mixture of flagship mutual funds schemes from different segments like Largecap, Midcap, Balanced and Multicap funds, which have delivered in the past must be a part of one’s portfolio,” he said.
Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.
Aim to add incrementally to your portfolio over time particularly when the chips are down.
Dipan Mehta | Mar 05, 2018 10:22 AM IST | Source: Moneycontrol.com
Go for direct equity with the help of an advisor or a portfolio manager because mutual funds have high expense ratio and inherent disadvantages, Dipan Mehta, Director, Elixir Equities said in an exclusive interview with Moneycontrol’s Kshitij Anand.
Q) The tables have turned in favour of bears at least in the medium term. The Indian market has become a sell on rallies kind of market. What is your assessment of the market at current juncture?
A) This the fifth year of a bull market which has been a slow steady one with very little volatility. There have been a few corrections and we are in the middle of one at present. For the long-term investor, this is still a buy on dips market.
Whether this correction will deepen or not will become evident over the next 2-3 weeks. If a lower tops/lower bottoms formation get created and broad market indices trade below their 200 DMA (which they are not at present) then we may be in for an extended sell-off or a mild bear market.
Q) What is your advise to investors who want to put Rs 10 Lakh into markets? He is in the age bracket of 35-40 years. He/she is looking at forming a portfolio with direct equities, MFs, a part of fixed income as well?
A) Go for direct equity with the help of an advisor/portfolio manager. Mutual funds have high expense ratio and inherent disadvantages. Set aside an amount of emergency plus 1 year’s salary/income into debt and put the rest into good quality stocks.
Aim to add incrementally to your portfolio over time particularly when the chips are down.
Q) What should be the ideal strategy for investors in terms of sectors? Do you think PSU banks are a good buy at current levels? What are the sectors which you think are likely to show momentum in the year 2018?
A) PSU Banks, IT and Pharma are to be avoided.
-25-35 percent should be in private sector retail banks and NBFCs.
-15 percent in auto and related ancillaries,
-15 percent in Indian FMCG stocks,
-35 percent rest in domestic consumption stocks such as building materials, appliances, aviation, retail, gaming, entertainment, media, fast food, branded apparels, and innerwear.
Q) The US Fed signalled a minimum of 3 rate hikes for the year 2018. Do you agree the global overhang is likely to weigh on Indian markets for the rest of the year?
A) No, but there will be a knee-jerk reaction whenever there is a global sell-off. With the rise and rise of domestic mutual funds, the influence of the foreign investors has reduced dramatically which means that the co-relation on a medium to long-term has weakened.
Moreover, foreigners have been investing for 2 decades and they have a more mature approach to India. We are a better-understood economy and capital market.
Q) What should be the right strategy for investors right now – sit on cash and wait for a dip or deploy cash incrementally throughout the year?
A) Nibble into the bluest of blue-chip stocks. Companies which have missed in the bull market so far must be targeted for investment. Investors must endeavour to improve the quality of the portfolio.
There are two-fold benefits. If the bull market resurges, then these will be first of the block and gain market leadership. Should a bear market evolve, then the damage will be less and investors will be able to sleep better knowing they have quality stocks in their portfolio.
Q) What will happen in the banking space given the fact that the cost of borrowing is inching higher. The RBI might keep rates on hold in its next policy but may raise rates in 2018?
A) Private sector banks and NBFCs will survive and thrive in every interest rate scenario. Growth and profitability will be temporarily impacted but the process of private sector gaining market share at the expense of PSU lenders will continue and gain traction.
Q) With Dollar gaining strength there is a higher possibility of rupee weakness. Which sectors or stocks likely to benefit the most? What is your target level for the currency?
A) Sectors which will benefit are obvious but be sure to assess the basic underlying fundamentals. No business will create value just because the currency is depreciating. Our view on the Rupee is not so negative.
TIMESOFINDIA.COM | Updated: Jan 10, 2018, 14:44 IST
NEW DELHI: Markets in 2018 are continuing its bull run with both BSE Sensex and NSE Nifty crossing the psychological levels. The 50-share barometer Nifty on Monday breached the 10,600-mark and the 30-share Sensex rose above the 34,350-mark. With the markets outperforming, investments in equity funds are also giving pretty good returns, a data from Value Research showed.
Let us take a look on which funds can be your best bet amid this bull run:
As per the data, these are top bets in equity funds:
Equity: Large cap
* Mirae Asset India Opportunities Fund: With 36.6 per cent return for a year followed by 15.17 per cent and 20.17 per cent in three and five years respectively. (Note: Three-year and five-year returns are annualised.)
* JM Core 11 Fund: 38.91 per cent in the first year along with 14.76 per cent and 17.31 for the third and fifth year.
* Kotak Select Focus Fund: Returns of 31.99 per cent for one year. 14.21 per cent and 19.84 for three and five years respectively.
Equity: Mid Cap
* Mirae Asset Emerging Bluechip: 46.22 per cent for the first year. 23.22 per cent and 30.19 for three-year and five-year respectively.
* L&T Midcap fund: 1-year investment fetched 50.13 per cent returns, while three-year and five-year drew 22.24 per cent and 28.53 per cent returns.
* Aditya Birla Sun Life Pure Value: 52.46 per cent in first year. 20.59 per cent and 29.65 for three-year and five-year respectively.
Equity: Multi Cap
* Motilal Oswal Most Focused: 40.2 per cent returns for a year and 20.06 per cent for three-year.
* Reliance ETF Junior BeES: One-year investment garnered 43.92, while three-year and five-year fetched 18.41 per cent and 20.05 per cent respectively.
* ICICI Prudential Nifty Next 50: 43.3 per cent returns in the first year. 18.06 per cent and 19.77 per cent in the third and the fifth year.
Equity: Tax Planning
* Tata India Tax Savings Fund: 42.95 per cent in the first year followed by 17.9 per cent in third year and 21.17 per cent in fifth year. Also, the fund has given 18 per cent returns in the past three years and its three-year is the highest in the category.
* IDFC Tax Advantage Fund: 51.71 per cent in one-year, while 17.56 per cent and 21.48 per cent for three-year and five-year respectively.
* L&T Tax Advantage Fund: Returns of 42.43 per cent in one-year. 16.36 per cent and 19.47 per cent in the third and fifth year.
* Tata Retirement Savings Fund: 36.56 per cent, 16.09 per cent and 20.05 per cent returns in first, third and fifth year.
* Principal Balanced Fund: Returns of 35.65 per cent, 15.56 per cent and 17.26 per cent for one, three and five-year.
* L&T India Prudence Fund: 26.52 per cent in the first year, while 13.27 per cent and 18.01 per cent returns in three and five-year respectively.
* Franklin India Income Builder: 7.52 per cent, 8.39 per cent and 9.03 per cent for one, three and five years.
* SBI Regular Savings Fund: Returns of 7.35 per cent, 9.28 per cent and 9.56 per cent in first, third and fifth year.
* Invesco India Medium Term: 7.1 per cent, 8.17 per cent and 8.12 per cent for one-year, three-year and five-year respectively.
The high investment by mutual funds could be attributed to strong participation from retail investors.
PTI | Dec 31, 2017 11:15 AM IST | Source: PTI | MoneyControl.com
Domestic mutual funds pumped in a staggering over Rs 1 lakh crore in the stock market during 2017 and remain bullish in the New Year to maximise the returns for investors.
Mutual funds invested Rs 1.2 lakh crore in equities in 2017, much higher than over Rs 48,000 crore infused last year and more than Rs 70,000 crore pumped in during 2015, latest data with the Securities and Exchange Board of India (Sebi) showed.
“We are seeing a clear shift in preference for financial assets over physical assets such as real estate and gold, which is likely to continue even going forward.
“Apart from this trend, the consistent delivery of returns by the mutual fund industry, prudent risk management and increasing initiatives on enhancing investor awareness assisted in increasing the penetration of mutual fund products,” Kotak Mutual Fund CIO Equity Harsha Upadhyaya said.
The high investment by mutual funds could be attributed to strong participation from retail investors.
In fact, retail participation is now providing the much needed liquidity to the stock markets that have been largely driven by Foreign Portfolio Investors (FPIs) for the past few years.
The investment by mutual funds in equities have outshone those by FPIs.
FPIs have infused close to Rs 50,000 crore this year after putting in over Rs 20,500 crore last year and nearly Rs 18,000 crore in 2015. Prior to that, they had pumped in over Rs 97,000 crore in 2014.
“This year the domestic institutional investors have pipped FPIs on net inflows, thus making the market less dependent on FPI money.
“This has also provided greater stability to the market as during the times when FPIs were pulling money out of the Indian equity markets, the stock market continued its upward march with the support from the flows by domestic institutional investors,” Morningstar India Senior Analyst Manager Research Himanshu Srivastava said.
Retail money flew into equities through mutual funds supported the benchmark indices — Sensex and Nifty — that surged by 28 percent and 29 percent respectively this year. Further, retail investor accounts grew by 1.4 crore to 5.3 crore.
The spike in bank deposits and consequent decline in interest rates following demonetisation on November 8, 2016 has also helped mutual funds.
“Mutual fund distributors too have played a key role in connecting with their existing and new customers. This has not only resulted in his increasing wallet share of customer, it has also helped the distributor in getting new customers to the industry,” Amfi Chairman A Balasubramanian said.
“It is also believed that investors are no more interested in buying into traditional asset classes such as real estate and gold, thus moving to financial asset class,” he added.
Mahesh Patil, Co-CIO, Aditya Birla Sun Life AMC on how he is creating alpha in the large cap space, his contra calls and more.
By Morningstar Analysts | 27-12-17 |
The asset size of Aditya Birla Sun Life Frontline Equity Fund has crossed Rs 20,000 crore. Do you see size posing an issue to manage this fund going forward?
We maintain a good diversification in this fund by having exposure across sectors. We aim to beat the benchmark consistently and incrementally rather than taking very large sectoral bets. Given that the fund invests at least 80% of its assets in large cap stocks, we don’t see size posing as a challenge. Besides, the core of the portfolio has very long term holdings. That said, as the fund size increases it becomes slightly more difficult to build or unwind positions in stocks and needs more effort. But it is part of the process and does not affect the performance significantly.
We have a large number of stocks (60-70) in the portfolio as compared to other similar funds in the industry. Before deciding the quantum of exposure warranted in any stock, we take a close look at the liquidity of the stocks. This strategy allows us to manage large size.
It is becoming difficult for managers to generate alpha in the large cap space. How do you overcome this challenge?
We are seeing a huge rally in the mid and small cap stocks and large cap funds obviously can’t take exposure to such stocks. So multi-cap funds have been able to generate decent alpha by maneuvering where the opportunities are.
As markets mature and price discovery happens across stocks its going to become difficult to generate alpha in large caps. The alpha generation which we saw in the last three to four years would compress going ahead. This is because the alpha was high as compared to the historical average, especially during calendar year 2014-16.
We never target to generate superlative alpha in large cap funds. Instead, we endeavor to find some new stock ideas every year which keeps the portfolio fresh. If there is a serious underperformance, we are nimble enough to take corrective action. While everything is fairly priced in the market at this juncture, we try to continuously look out for undervalued companies. Some amount of contrarian investing and moving away from the crowd helps to spot early turning points in stocks/sectors. Similarly, we maintain a discipline to trim exposure in certain stocks that have overshot their valuation target. This strategy enables us to buy stocks which are relatively cheap in terms of valuation. So some amount of active management is also required at this juncture to generate alpha in the large cap space.
In which sectors/themes are you deploying the steady inflows coming in equity and balanced funds?
We have been overweight on banking and financial services. Financial services sector has had a good run and the valuations have moved up. Hence we are more discrete now in choosing the right segments that offer better growth. While we prefer private retail banks, we are slowly warming up to corporate banks because of some clarity emerging on resolutions of bad debts and a cyclical recovery in economy.
Besides, we are positive on consumer discretionary space. We are seeing a higher demand for discretionary consumption as the per capita income is moving up in India. Further, the implementation of GST will benefit players in the building material, consumer durables and retail space. Rural consumption is also starting to improve with normal monsoons and government focus on stepping up rural spending.
We are fairly overweight on metals. Metal prices are steady as China is cutting down capacity on the back of environmental issues which is supporting price. Indian companies are also deleveraging which will increase their equity value.
Another sector where we are taking a contrarian call is telecom. We are seeing consolidation happening faster than we expected in this sector. While there is still some pain for a few quarters, over a three-year time frame it could be a good time to look at some leading telecom companies.
We are selective in the infrastructure space. Road, railways and urban transport are some pockets where there is significant traction. Companies positioned in this sector are expected to see good increase in their order books.
Post SEBI’s diktat on scheme categorization, how are you restructuring your funds? Are you planning to merge smaller schemes?
Fortunately, we have been working on consolidating schemes much before the SEBI circular came out. Most of our equity funds are aligned as per SEBI categorization. We would look to merge some thematic funds.
Overseas fund of funds category is seeing continuous outflows. What are the reasons for the waning demand for this category.
The awareness level about this category is low. Domestic market has been doing well so people are preferring to invest in India. Overseas fund of funds have done well though.
As markets mature and you see enough ownership of domestic funds, people would look to invest outside India. There are a lot of new generation companies which investors can take exposure through these funds.
Though taxation of this category is an issue, you need to realize that if you are making good returns it should not be a problem. HNIs who already have a high exposure to India can look at these funds. Also, those wish to send their children overseas for education can consider these funds because the underlying returns are dollar based. To some extent, you are taking the currency hedge through these funds.
When do you see private-sector investment picking up?
Private sector investment has been elusive. But there are a couple of factors which indicate that investment will pick up one year down the line. Firstly, capacity utilization has bottomed out and is showing early signs of improving. Secondly, while a lot of large corporates in metals and infra space are saddled with high debt were are seeing the deleveraging cycle has started for some companies. Corporate debt to GDP which peaked out in 2016 is starting to come off. Finally, bank recapitalization would enable corporates to re-leverage and begin the next capex cycle. Sectors like Steel, Oil and Gas, fertilizer and auto are the first to see a revival.
During every budget we get to hear about suggestions to reinstate long-term capital gains (LTCG) tax on equity investments. Some say that exemption of LTCGT can lead to market manipulation. What are your views? If the government introduces LTCGT what would be the impact on markets?
The exemption of LTCGT has helped attract investors in equities. But that’s not the only reason why people invest in equities. They invest because they expect better returns. If there is money to be made in markets, I don’t think it would deter investors from this asset class. So introduction of LTCGT would not have an impact on long term investors. However, it could hurt the sentiments in the short run. We could see some curb in short term speculative money moving in stocks having weak fundamentals.
How has your investment philosophy evolved over the years?
While our broad philosophy has remained the same, we have started giving more attention to management quality while evaluating companies. Our time horizon of owning stocks has also increased and we are evaluating companies with a three-year perspective. There is a larger focus on how companies are generating free cash flows and how it is being utilized. These factors impact the PE multiples. So we are willing to pay a premium if these factors are favorable. To sum up, we have been incorporating these factors in our philosophy.
Your favorite book
One book which I found interesting is ‘Good to Great’ authored by Jim Collins. The book gives good insights into building an organization and focuses on what really matters to not only to survive and endure but to excel.
Everyone wants to be financially secure and well off by the age of 35-40. However, when we are in our 20’s, we tend to live life in the moment and forget saving for the future.
By: Sanjeev Sinha | Updated: November 27, 2017 2:25 PM | Financial Express
All of us have various financial goals in life. Everyone wants to be financially secure and well off by the age of 35-40. However, when we are in our 20’s, we tend to live life in the moment and forget saving for the future. This is not the right approach towards creating wealth. Therefore, to ensure that you are financially secure and on the right track with your money, here are 5 important investments that you must make before you hit your 30-year milestone:
1. Investment towards tax saving
Considering that you are working and earning, it is important for you to assess your tax liability and take advantage of tax deductions available under Section 80C of the Income Tax Act. “By proper tax planning, you can not only reduce your tax liability but also save some more to invest towards your other goals. One of the best tax-saving instruments is Equity-Linked Savings Schemes (ELSS). It is a type of open-ended equity mutual fund wherein an investor can avail a deduction u/s 80C up to Rs 1.50 lakh for a financial year,” says Amar Pandit, CFA and Founder & Chief Happiness Officer at HapynessFactory.in.
2. Investment towards emergency corpus
There are various events like accidents, illnesses and other unforeseen events that we may encounter in our lives. These events should never occur, but if they do, one needs to be adequately prepared for the same. In critical cases, such events may hamper one’s ability to work and may even lead to a loss in earnings for a few months or years. Hence, “it is advisable to build a contingency corpus, which is equivalent to at least 5-6 months of living expenses. Further, your emergency fund should be safe and easily accessible (liquid in nature) at short notice, in case of an emergency. Hence, savings bank accounts and liquid mutual funds are two options for setting aside the emergency corpus. However, considering that liquid and ultra-short term mutual funds are more tax efficient in nature, it is advisable to park a major portion of your corpus in the same,” says Pandit.
3. Investment towards long-term goals
It is very important to save and invest towards your long-term goals such as marriage, buying a house, starting your own venture, retirement, and so on. You must start with determining how much each goal will need and the savings required to achieve the goal. Once the corpus is fixed, you can invest towards the goal regularly. As an investment strategy, start fixed monthly investments – SIPs (Systematic Investment Plan) in mutual funds. Always remember, the earlier you start investing towards your goals, the longer time your investments will have to grow and the more you will benefit from the power of compounding. Equity mutual funds which are growth oriented are a preferable investment option for long-term goals.
4. Investment towards short-term goals
There are many short-term goals that are recurring in nature, such annual vacation, buying a car or any asset in the near term and so on. For such goals, you are advised to park your funds in liquid or arbitrage mutual funds rather than a savings account. “Mutual funds are more tax efficient than savings accounts and also there are different funds for different time horizons. For example, for goals to be achieved within a year, you can opt for liquid or ultra-short term funds whereas for goals to be achieved post one year, you can opt for arbitrage funds,” advises Pandit.
5. Investment towards health and life cover
Life and health insurance typically are not supposed to be considered as investments. However, both are very important and must be considered as one of the priority money move to be made before turning 30. If you are earning and have a family dependent on you, you must assess and buy the right life insurance term cover for yourself. Further, with costs of health care and medical on the rise, any untoward illness without sufficient cover will have you dip into capital which is unnecessary. Hence, there cannot be any compromise on health insurance. Thankfully, there are various health covers available in the market today. You should opt for the right cover for yourself, depending on your needs and post considering all the options.
By pooling a lot of stocks or bonds, mutual funds reduce the risk of investing.
By ZeeBiz WebTeam | Updated: Wed, Nov 29, 2017 12:59 pm | ZeeBiz.com
Both stocks and mutual funds market are booming in India, but as an investor, we are often confused to choose between the two for our investment plans.
Investment in equity, bonds or funds comes with higher risk and higher reward, therefore, it is always better to first study about the scheme we plan to invest.
Mutual fund scheme is a pool of savings contributed by multiple investors. The term ‘mutual’ fund means that all risks, rewards, gains or losses pertaining to, or arising from the investments made out of this savings pool are shared by all investors in proportion to their contributions.
There are wide-range of mutual funds in India like – equity, debt, money market, hybrid or balanced, sector-related, index funds, tax-savings fund and lastly fund of funds.
Stock market are usually interesting source of income for both companies and share holders. Under the stock market, anyone can buy stakes of a company in whom they have faith.
Companies which have received better ratings by agencies are generally preferred the most. No matter what may be the circumstances, an investor holds on to the company’s stake for their regular source of income.
Which one is better for investment?
According to Motilal Oswal, if you are typically in your 20s to 30s belt, you can start building your investment portfolio with the help of mutual funds. You need to start off with a very minimum capital and you can find that your investment keeps growing at a gradual space.
The agency believes that for first-time investors, the mutual funds offer a tremendous scope for growth as your funds are invested in diversified forms of revenue generating sources.
On the other hand, Motilal believes that if an investor belongs to late 40s up until 70s of their age and are also seasoned investors, then investing in stocks is a good idea.
It further said that decades of exposure to the financial market helps you gauge the right type of equities, shares or stocks, you need to invest your money in.
Among many advantages of investing in mutual funds is that you can appoint fund managers to select funds, track performance, make appropriate asset allocations and cash-in your profits for you.
These managers try to ensure that an investor’s portfolio consists of well-performing funds, rather than those that might drag down the overall investment returns.
In case, you are stock market investor, and sell your holding within a period of one year, then you have to pay 15% as short-term capital gains tax.
As for mutual funds, there are no gains tax levied on the stocks that are sold by the fund. But one needs to remember that an investor must hold equity funds for a minimum of one year (the longer, the better, really) if they want to avoid paying capital gains tax on the investments.
If you venture into stock investments on your own, brokerage costs of 0.5-1% will be a common expense. Apart from this, you will also have to pay for demat charges.
BankBazaar stated that mutual funds pay only a fraction of the brokerage costs compared to what is charged to individual investors. Investors in Mutual Funds do not need demat accounts.
A well-diversified investment portfolio ideally has around 25-30 stocks, and this kind of portfolio is only achievable with a sizable corpus.
With investment in mutual funds, an investors can buy a certain number of funds which can be invested in various stocks.
Kshitij Anand | Sep 01, 2017 08:15 AM IST | Moneycontrol News
Stocks which have zero debt/equity ratio include names like Jubilant FoodWorks which gained 59 percent, and Bata India rallied 50 percent so far in the year 2017.
The word ‘leverage’ as a term has become more of a worry for investors especially after the recent crackdown of the Reserve Bank of India (RBI) on companies with excessive debt on the books.
In the month of June, RBI identified 12 accounts accounting for 25 percent of gross bad loans in the system for immediate bankruptcy proceedings. And, earlier this week, media reports suggest that the central bank is coming out with another list.
The Reserve Bank of India has sent the second list of over 40 large corporate defaulters that include Videocon, JP Associates, IVRCL and Visa Steel, among others, to be referred to the National Company Law Tribunal (NCLT), CNBC-TV18 reported earlier this week quoting sources.
The term ‘debt’ is not essentially bad because to run operations companies do require money to invest into assets, working capital, buy new machinery etc. which would help in improving margins, increase productivity and boost profit.
“Having high debt on the books is not a negative as long as the cash generation out of the usage of the borrowed funds is sufficient enough to service the debt and leave something for the equity shareholders (to compensate them for the risk),” Deepak Jasani, Head – retail research, HDFC Securities told Moneycontrol.
“Typically debt borrowed for investment in commodity sectors at boom times (no distinctive product) or in a Govt subsidised (subsidy on capex/tax or on interest) sector has a chance of creating servicing issues for the borrower (and NPA issues for the lender),” he said.
The S&P BSE Sensex rose by about 20 percent so far in the year 2017 and plenty of small and midcap stocks have more than doubled in the same period.
Among the S&P BSE 500 stocks, we have taken 15 stocks with zero debt across various sectors which have given up to 60 percent return so far in the year 2017. 12 out of 15 companies outperformed Nifty in the same period.
Stocks which have zero debt/equity ratio include names like Jubilant FoodWorks which gained 59 percent, and Bata India rallied 50 percent so far in the year 2017.
Other stocks which rose between 20-40 percent include names like Colgate Palmolive which rose 22 percent, followed by Greaves Cotton rose 22.2 percent, and Whirlpool India gained 31 percent in the same period.
“Debt is an important component for companies to expand its business beyond geographic reach which finances the capital expenditure. It provides an opportunity for companies to increase its productivity as well as revenue share through its boom,” Dinesh Rohira, Founder & CEO, 5nance.com told Moneycontrol.
“But, with increasing loan defaulter at realm coupled with broadening size of NPA in the economy, the financial health is currently at the edge of eruption. Further, a recent crackdown by RBI on companies with huge debt obligation has escalated concerns for investors to realign its portfolio,” he said.
Things to know when you invest in a Zero debt company:
Ideally, a part of your portfolio should be invested in zero debt or companies which are low on leverage because they might withstand any crisis. They may not turn out to be great when you compare the performance with companies which have slight leverage on their books.
Hence, a part of your portfolio should be in zero debt companies while the rest should be in growth stocks. The strategy will act as a hedge against volatility.
“Low debt or debt free company is not always a good option for investment as there are certain factors which are on backend such as sector growth, economic growth, and credibility of the promoters,” Ritesh Ashar – Chief Strategy Officer, KIFS Trade Capital told Moneycontrol.
“Using conservative approach on interest expense the company may be sacrificing the growth prospects & this can be a disadvantage to its competitors which tap the growth opportunity in the sector by pumping debt,” he said.
Other parameters to track apart from D/E ratio:
There are various other parameters which investors should track before putting money in companies apart from just looking at the debt and equity ratio.
“Investor should scrutinize that every borrowing is aimed at improving fundamental rather than meeting an old obligation. Few financial leverage ratios such as debt-to-equity, interest rate coverage and debt service coverage should be compared with an industry standard to arrive at a logical conclusion,” said Rohira of 5nance.com.
Ashar of KIFS Trade Capital said that investors’ attention to a level is acceptable which can be seen through Interest Coverage Ratio, Debt Equity ratio & ROCE vs Interest rate charges.
“Leveraged companies face issues of cash crunch and repayment of loans whereas zero debt companies are free from these hassles. As the interest rate increases the lending becomes expensive and dilutes profitability,” he said.
Despite the red flags staring at most Indian banks, mutual fund managers do not seem to bother about them. Reports say that the allocation to the banking sector by mutual funds has reached an all-time high of Rs 1.47 lakh crore at the end of June.
Shishir Asthana | Moneycontrol Research | Jul 28, 2017 06:14 PM IST | Source: Moneycontrol.com
In a recent survey conducted by Moody’s Investor Service, 70 percent of market participants pooled said that India’s banking system was the most vulnerable in South Asia. Stress in the banking system has made headlines for over three years now. Analysts, experts, and economists have all predicted doomsday which has not yet come. However, to be fair to experts the balance sheet numbers of the banks have continuously deteriorated in most of the cases.
Despite the red flags staring at most Indian banks, mutual fund managers do not seem to bother about them. Reports say that the allocation to the banking sector by mutual funds has reached an all-time high of Rs 1.47 lakh crore at the end of June.
Why would funds like to invest in banks which everyone fears will implode? Here are five reasons we think banks are on mutual funds’s radar.
Valuation: Given the current valuation in markets, very few sectors offer a good risk-reward bet. With Nifty over 10,000 and market price-to-earnings in the top quadrant, there are few sectors and stocks that offer value. While Bank Nifty has touched a new high of 25,030, there are stocks in the sector, especially in the public sector space, that offers better valuation but higher risk.
Liquidity: Mutual funds in India are witnessing heavy inflows. New investors and higher investment through systematic investment plan (SIP) is compelling mutual funds to take more risks. Despite record investments in the banking sector, mutual funds are still sitting on cash levels of 5.7 percent on an aggregate basis. Some funds have cash positions ranging between 8-18 percent. Peer pressure and rising markets compel them to invest.
Index weightage: One parameter that every fund manager is ranked on is his performance with respect to the index. As weightage of banking stock in the index is high at near 30 percent, fund managers are compelled to buy banking stocks in order to be close to the index performance.
Too precious to fail: Though asset qualities of most banks are questionable these banks are all too big to fail. For the government and the central bank, it will be very embarrassing to allow a bank to fail. Both the central bank and the government have been trying to recapitalise banks, tweaking the rule books, bringing in new schemes to help banks clean up their books. Bankruptcy law is now cleared and cases are registered. This is expected to go a long way in recovery and solving the problem with bigger non-performing assets. Apart from these measures, the government has also initiated merging of weaker banks with the stronger ones, in turn, creating a bigger and stronger bank.
Proxy for growth: The banking sector has traditionally been considered as a proxy for the economy. Every activity in the economy requires money. Banking sector credit growth has historically been between 2-2.5 times GDP growth. However, with the toxic asset problems and other sources of non-banking finance available in the market, the ratio has fallen to nearly 1.6 times the GDP. This ratio is expected to improve as banks start lending again in line with the growth in the economy.
NIMESH SHAH | Wed, 12 Jul 2017 – 07:35 am | DNA
Dynamic asset allocation funds is a smart way to invest in markets without worrying about market highs or lows
The stock markets are at all-time highs, and it’s understandable if you are confused whether to invest or wait for correction. Timing the market is not easy. And while piling up your savings or putting them into traditional investment options seems like an easier option, it lacks the growth opportunities which capital markets could present.
A smart investor would look to participate in the growth of capital markets but in conservative manner. Introduce yourself to dynamic asset allocation funds, a smart way to invest in markets without worrying about market highs or lows.
Investing in mutual funds which follows the principle of dynamic asset allocation gives you the flexibility of investing in both debt and equity depending on market conditions. These funds aim to benefit from growth of equities with a cushion of debt. Such funds work on an automatic mechanism switching from equity or debt, depending on the relative attractiveness of the asset class.
In a scenario when the equity market rallies, the fund is designed such that profits are booked and the allocation would shift towards debt. On the other hand, if the markets correct, the fund will allocate more to equity, in order to tap into the opportunities available. The basis for this allocation is based on certain models which takes into account various market yardsticks like Price to Book Value amongst several others for portfolio re-balancing.
This model based approach negates the anomaly of subjective decision making, thereby ensuring that the investment made is deployed at all times to tap into the opportunities of both debt and equity market. The other added benefit is that one gets to follow the adage – Buy low, sell high. For an equity investor, this is one maxim which is the hardest to execute, but this fund effectively manages to achieve this objective.
Also, investing in such funds renders an added benefit of tax efficiency as 65% of the portfolio is allocated to equities. Since this category of fund is held with a long tern view, capital gains on equity investment (if invested for over one year), are tax free, as per prevailing tax laws.
So, while the markets are soaring high, you can consider investing in dynamic asset allocation fund to keep you well footed in the market, even during volatile times.
The writer is MD & CEO, ICICI Prudential AMC
By Yogita Khatri, ET Bureau|Jul 17, 2017, 06.30 AM IST
The Metropolitan Stock Exchange of India (MSEI) is keen to extend trading hours to 5 pm. This might force top exchanges NSE and BSE to follow suit.
However, will the move benefit small investors? ET Wealth reached out to market participants to know their views.
Rahul Jain, Head of Retail Advisory, Edelweiss Wealth Management, says Yes
Extension of trading hours will help drive volumes, which helps market liquidity, increasing confidence of smaller participants.
For secular retail participation in the capital markets, two things are important. One, education about the asset class and two, the confidence in the markets. While institutions are investing in educating the clients, confidence of small investors in markets will be boosted by growth in volume and more broad-based participation.
Longer trading hours will benefit traders and expert participants in multiple ways. Benefits will accrue to smaller participants as well. Here’s how:
A. It will increase time overlap with global markets, thereby reducing, to some extent, open gap shocks. Minimising such shocks is good for retail and small investors as it helps reduce the volatility of returns. In a country like ours where retail investors have traditionally invested in FDs or physical assets like gold and real estate, low equity market volatility will be a confidence booster.
B. Extension of trading hours will also help drive volumes which is good for the overall market liquidity, thereby increasing the confidence of smaller participants in the equity markets. As it is evident that more overlap with global markets and increased volume is good for all market participants, extending trading hours is an idea worth exploring.
Sudip Bandyopadhyay Group Chairman, Inditrade (JRG) Group of Companies, says Yes
If India is to become a global financial powerhouse and if exchanges are to become truly international, we need to have extended trading hours.
The Indian capital market is significantly influenced by the global markets and global investors. No market participant can deny this influence and co-relation. The most influential global market is the US market. It starts trading long after the Indian markets close.
This creates a peculiar situation which leads to “gap-up” or “gap-down” of opening of Indian markets post any major global event. For the health of any market and its investors and in particular the retail investors, this is definitely detrimental. Extending Indian market hours to align with at least the opening of the US market, will prevent some uncertainties.
Further, Indian financial markets, systems and processes are now robust enough to support long market hours. Both back office processes and banking activities even in normal course, continue far beyond the present market closing hours. Thus, adopting extended trading hours should not pose any operational or banking issues.
If India has to become a global financial powerhouse and if Indian exchanges aspire to become truly international, we need to have extended trading hours. However this can be done over a period of time in phases. At this stage, extending trading hours up to New York opening time, should at least be considered.
Deepak Jasani, Head, Retail Research, HDFC Securities says No
Impact of moves in global stock exchanges do impact the opening levels of Indian markets but in most cases, that effect is overcome in a couple of hours.
For small investors, extended trading hours will not help in any way. The six hours available now for trading are sufficient for price discovery and execution. With mobile trading on the rise, even investors who are occupied at work till evening can track the markets and trade within the trading timings.
Though currency and commodity markets are open till late, this is mainly to allow hedgers/traders to track forex markets or commodity prices abroad. As far as equity markets are concerned, Indian stocks prices do not track any other prices on a minute-by-minute basis. Impact of moves in global stock exchanges do impact the opening levels of Indian stock markets but in most cases, that effect is overcome in a couple of hours.
Exchanges would like to extend time to offer differentiation, gain market share and boost income. Compulsive traders would like extended hours to get more opportunities to trade. Brokers would welcome extended hours provided the incremental revenues are more than the cost in terms of manpower and other running costs.
However, they currently feel that extending trading hours would bring more pressure on them and may not result in much higher volumes and revenues. Markets are trending for 25-35% time and are range-bound/trendless for the balance period. In the latter period, extending the trading hours could prove to be discomforting for all participants.
Sandip Raichura, Head, Retail, Prabhudas Lilladher, says No
A small trader has a defined risk appetite and that doesn’t change because more time is available. He will be looking at price levels, not the time.
Proponents of the benefit of longer trading hours have often justified this by giving examples of the commodity exchanges etc., which work for longer hours. While it may benefit certain segments of investors and traders, I don’t see any direct benefit to smaller investors, at least not immediately.
The small trader has a defined risk appetite and that doesn’t change just because more time is available. The small investor will typically be looking at price levels, and not necessarily the time of day to take decisions. Self-driven clients trading online may possibly do more trades, but that is a conjecture at this stage.
It might negatively affect relationships between small traders and sub-broker or RMs who typically meet in the evenings. This can affect fund flows with cheques not collected in time or that client feeling a deficiency in services if not met regularly.
In fact, brokers might desist from offering sit in or walk in services at low brokerage rates due to the enhanced costs of an extended day and attempt to pass on these costs. What’s most likely is that the same trades are likely to now get staggered over a longer period.
The benefits of an internationally aligned market are more likely to accrue to bigger investors. While European and Asian markets get factored into our markets adequately, the US markets open much later than 5 pm and therefore, it is unlikely that volatility would reduce due to the additional hours.
While the early-launched closed-end mutual funds ones delivered, some seem to be lagging behind their peers and benchmarks
Kayezad E. Adajania | First Published: Tue, Mar 14 2017. 05 40 PM IST | LiveMint.com
It has been almost 3 years since the first wave of closed-end funds was launched. From the first such scheme—IDFC Equity Opportunity Fund-Series 1 (IEOF1)—which was launched in April 2013, the Indian mutual funds industry has launched over 100 closed-end funds till date. Collectively, they have collected Rs18,000 crore. Closed-end funds came with a promise of giving better returns than open-ended funds. Although most of the closed-end funds are still serving time, we think it’s a good time to check how they have done so far.
Mixed bag performance
At a broader level, closed-end funds have failed to impress. Over the past 2 years, closed-end funds in the mid-cap space returned 3.23%, while open-ended schemes returned 4.72% (see table). Over the last 2 years, many closed-end funds too have completed 2 years.
Some managers of these funds could claim, with some justification, that their mandate—as defined by the Scheme Information Document—is to beat their benchmark index, not their peers. But did they score on this count?
About 65-85% of the large-cap, multi-cap, mid-cap and small-cap schemes have beaten their benchmark indices. But these numbers aren’t so great numbers if you dig a little deeper. Schemes like Sundaram Select Micro Cap – Series I, Sundaram Select Micro Cap – Series III and Reliance Capital Builder-Series A outperformed their benchmark indices, but came in the bottom quintile of the small-cap category.
Sunil Subramaniam, chief executive officer, Sundaram Asset Management Co. Ltd, said: “I am not sure if our schemes have been compared to the correct set because our micro-cap funds have been very thematic. For instance, our first few series focused on multinational companies, the next few focused on cyclical industries and so on.”
Then, there are schemes that have underperformed their benchmark indices as well as their category averages. “Our scheme’s benchmark index consists of larger-sized mid-cap scrips, while the fund itself goes for small-sized companies. The share prices of underlying companies of the benchmark index have risen (more), as compared to the companies that our fund holds,” says a fund manager of one such scheme who did not wish to be named because he says the closed-end tenure is not yet over and comparing the fund at this juncture ‘wouldn’t be fair.’ He justified the stock selection saying: “Our set of companies do well, typically, when there is a secular bull run, as opposed to flat markets that we’ve seen recently.” Time will tell if his claims come true.
Experts say that closed-end funds have performed in pockets. “Schemes that focus on mid- and small-cap scrips can adopt a ‘buy and hold strategy’ as there is no continuous inflow or outflow,” says Kunal Valia, director, Credit Suisse Securities India.
The challenge of timing
In 2013, when equity markets were at low on the back of policy paralysis, and little government- and private-sector spending on the back of corruption allegations at the time, some fund houses saw an opportunity.
The anticipation was that a new government in the Centre would revive the economy. True to expectations, the Nifty50 went up 29% between June 2013 and 16 May 2014, the day election results were announced.
Most of the schemes launched until then did well. ICICI Prudential Value Fund – Series1 (launched in October 2013) and ICICI Prudential Value Fund – Series2 (launched in November 2013) have returned around 22% and 23% respectively over the past 3-years and are in the top quintile of multi-cap funds. But getting the timing right was not the only factor in their favour. “The outperformance is mainly on account of skill of the fund manager, ability…to identify under-researched and under-owned ideas…and no pressure due to inflows or outflows,” says Valia.
The dividend promise
Some closed-end funds, particularly the earliest ones, aimed to pay dividends as regularly as possible. “During 2007-09, equity markets went up and then crashed. People made profit, theoretically, but never encashed them. The ensuing fall eroded their profits. So when we launched closed-end funds, we decided to book profits and pay dividends as much as we can,” said S. Naren, chief investment officer, ICICI Prudential Asset Management Co. Ltd.
Did they live up to their promise? A Mint study of open-ended and closed-end funds between 2013 and now shows that many of the closed-end funds did pay dividends (see table). If you rank the funds in terms of the dividends paid between 2013 and now, top 13 out of the 20 funds were closed-end.
What should you do?
Manish Gadhvi, head (Mumbai operations), NJ India Invest Pvt. Ltd, one of India’s largest retail mutual fund distributors, says that closed-end funds makes sense if picked well. “Retail investors tend to misbehave on both sides of volatility—upside and downside. If, say within 6 month, markets go up by 30-35%, they redeem. If markets drop by 25%, they redeem. But if you follow a micro-cap stock-picking strategy, your stocks can go up by 200-300%. Hence, closed-end funds aren’t totally a lost cause,” he says.
A big drawback in closed-end funds is the absence of track record, says a senior research analyst at a bank, whose bank had launched some of these closed-end funds, though he claims to have not recommended any: “There is no fundamental research on how this fund has performed. There is no evidence of its performance because there is no past performance.”
It’s too soon to decide whether the current breed of closed-end funds have worked out or not, as the evidence so far is patchy. It’s safer to stick with the tried and tested open-ended funds, which come with a track record—unless a closed-end fund offers something that no existing fund offers.
Source : https://goo.gl/PAJGx7
The business leader said said investing in mutual funds should be as easy as buying smartphones on Internet.
PTI | MUMBAI, JUN 29, 2017 | The Hindu Business Line
Urging regulator Securities and Exchange Board of India (SEBI) to simplify investment and advertisement norms for mutual funds, business leader Anil Ambani today said investing in them should be as easy as buying smartphones on Internet.
He said only one in 25 Indians invests in these products at present, but the investor base can be expanded 10-fold to 60 crore in five years. “India’s mutual fund industry is today poised for its Jan Dhan moment,” Ambani said here at an event of the Association of Mutual Funds in India (AMFI).
Reeling out figures, the Reliance Group chief said while 9 out of 10 Indians have a mobile connection and 3 out of 10 have a smartphone, only 1 in 25 Indians has an investment in a mutual fund. “The comparisons in a global context are even more staggering. There are as many as 58 asset management companies in the world which manage more money than India’s entire MF industry put together,” said Ambani whose group firm Reliance Capital runs one of the biggest fund houses of the country.
He said India’s mutual fund industry is a relatively young industry. “In fact, I would claim it has barely moved out of its teens!” he added.
Recalling that the erstwhile UTI started India’s first mutual fund way back in 1964, Ambani said no private player was there for the next 30 years. “And it is fitting that the man who is widely regarded as the father of capital markets and the equity cult in India — my late visionary father, Dhirubhai Ambani — was among the first to sense the potential that lay ahead.
“We at Reliance, together with my late brother-in-law, Shyam Kothari, shared the exclusive privilege of launching India’s first-ever private sector mutual fund in 1993 — Kothari Pioneer Mutual Fund. Our own offering followed soon afterwards with the launch of Reliance Mutual Fund in 1995,” he said.
“From an AUM of under Rs. 60 crore in 1995, and Rs. 2,200 crore in 2002, we have grown our asset base over 100 times to reach Rs. 2.25 lakh crore. As an AMC, we currently manage Rs. 3.58 lakh crore. In the same timeframe, India’s mutual fund industry, with 5.7 crore individual accounts, has expanded its AUM to reach Rs. 20 lakh crore,” Ambani said.
The industrialist said SEBI has historically played a hugely important and proactive role in the development of the capital markets while safeguarding the interest of the small investor. “It is to our regulator’s immense credit that India is today widely perceived as among the most efficiently run markets in the developing world.
“Going forward, we in the industry need to work closely with you (SEBI) to further simplify the on-boarding process for new investors,” Ambani said while suggesting some steps for the the next 100 days.
His suggestions included making MF investment even simpler, allowing anyone with a legitimate bank account to invest in financial products since their bank KYC is already in place and ensuring better utilisation of technology to improve penetration and facilitate faster transactions.
He also urged SEBI to simplify advertising norms to help communicate the value proposition of mutual funds better. “These steps will bring in a new class of investors to the mutual fund industry,” he added.
Ambani urged the industry to give the nation an increase in the number of individual investor folios from 6 crore currently to 60 crore in five years when India will celebrate 75 years of Independence.
He also termed the GST (Goods and Services Tax) as India’s ‘economic freedom’ while noting that it would make “a borderless world of 1.3 billion people — producers and consumers engaged in a seamless exchange of goods and services, skill sets and capital, labour and ideas”.
He said the world has seen nothing like this before as “in less than 48 hours, India will emerge as the biggest free and democratic market in the history of humankind”.
“In tandem with its policy precursor — demonetisation — GST will forever change the ground rules of doing any kind of trade, commerce or business in India,” he added.
(This article was published on June 29, 2017)
Source : https://goo.gl/z2jxjo
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.)
Equity investing have always been associated with high riskiness and the proverbial doom and crash in India
ANUPAM SINGHI | Fri, 16 Jun 2017-07:25am | DNA
Systematic investment plans (SIPs) were first introduced in India about 20 years ago by Franklin Templeton, a global investment firm. SIPs entail recurring disciplined investing via experienced portfolio managers. By necessitating fixed periodic (monthly, quarterly etc.) investments, it makes the timing of the markets, which can be risky, irrelevant, and at the same time, it typically provides above average market returns over a long period. Therefore, SIPs can be relatively less risky and also offer a hedge against inflation risk.
The top SIP funds have consistently given annualised returns of about 20% over the last two decades. The return from SIPs are calculated by a methodology called XIRR, which is a variant of internal rate of return (IRR). In the recent times, SIP fund managers usually tend to invest not more than 2% of the total capital available in a single stock. Portfolios are usually well diversified.
Currently, there are scores and scores of SIP funds to choose from. Different types of SIPs are available to suit an individual’s risk appetite, ROI goals, the time period of investment, and liquidity. Unlike PPF or Ulip, there are no restrictions and penalties on regular SIP payments and withdrawals. Investment can be as low as Rs 500 per month. Retail investors can look to invest in small-cap SIP funds initially, and once their capital builds up significantly, can shift to the less risky large-cap SIPs.
Equity investing have always been associated with high riskiness and the proverbial doom and crash in India. However, the trend is changing in recent times. Increased availability of information about investing, and greater digital marketing, has led to more and more individuals taking the SIP route. The number of SIP accounts has gone up by about 30% in the last 12-15 months alone. SIP monthly inflow volume now stands at about 3,000-3,500 crore, as opposed to about 1,000-1,500 crore in 2013. Retail participation is low India but is bound to increase at an accelerated rate.
Several brokerages are now waking up to the fact that higher P/E ratios are the new normal, as they are warranted by a fundamentally strong economy. Currently, the Indian stock market capitalisation to GDP ratio is approximately 98%, compared to 149% in 2007. With only about 250 Futures and Options (F&O) available out of approximately 4,200 individual securities, shorting opportunities are limited. Increased inflow SIP money could very well drive and support quality stocks in a growing economy.
The writer is COO, William O’Neil India
Sidhartha | TNN | May 5, 2017, 06.22 AM IST | Times of India
ICICI Prudential Asset Management Company managing director & CEO Nimesh Shah believes in speaking his mind. While most market players are euphoric about the recent rise in stock market indices, Shah cautions investors against chasing high returns, given that the valuations are high. But he is optimistic about the medium term prospects and insists that mutual funds will be the preferred mode of investment, given the “repair work” in real estate. Excerpts:
What should someone looking to enter the stock market either with cash or via SIP do at this time?
On a price-to-earnings basis, market is over-valued at current levels. Because of the persistent flows from both foreign and domestic portfolio investors, the market is currently running a year ahead given that earnings per share (EPS) is expected to improve significantly by 2018-19. This is because we believe that over the next twothree years, capacity utilisation can increase and so can the return on equity . Currently , the macros are strong but Indian companies are facing various pockets of challenges. But consumption across the spectrum is likely to hold strong. Given this expected improvement, it is likely that there could be a consistent flow of investment from institutional investors, thereby lending a reasonable investment experience over next twothree years. But since the market is already slightly over-priced, one cannot expect abnormal returns.
For those investing via SIP , they can continue with their investments because over the next three years, the investment price will average out, thereby yielding better returns. For someone who is coming in when sensex is at 30,000 level, can consider dynamic asset allocation funds which result in lower equity exposure when the equity level is up and vice versa.
But it gives you conservative returns…
Yes, it does. But it is good to opt for conservative returns when sensex is at 30,000 level.Even if the index were to head higher say 33,000 level, the only limitation here would be that the entire upside is not captured. But when market turns volatile at higher levels, this class of funds can limit downside. As we all acknowledge, there is more pain in losing Rs 5 than the joy in gaining Rs 30.
If you are investing in equity MFs, one should consider large-caps because mid-caps are over-valued at present. Continue investing but invest with caution because returns may not be too high from current levels. Just because banking funds as a category has delivered 40% plus returns, it does not mean everyone should invest in it based on past one-year return.
A few years ago, the government was worried about the huge inflows from FIIs and feared the impact post withdrawal. But now mutual funds seem to have emerged as an effective counter-balance. Has the domestic MF industry matured?
To a certain extent domestic institutions have emerged as a strong counterbalance. Over the last few months, mutual funds and foreigners have pumped in money into stock markets, thereby pushing up benchmark indices. However, even if foreign investors were to withdraw tomorrow, Indian MF and insurance industry which is putting in over $3 billion a month, will be able to balance it out, thereby limiting any adverse shocks. Today , people refrain from investing in real estate, gold and bank FDs, which is currently yielding 6-7% return pre-tax. In such an environment, equities are becoming a TINA factor -there is no alternative. So, we believe that steady inflows may continue.
How much of small investor money is coming into the market?
Mutual fund in India is all about small investors; high net worth individuals form a very miniscule portion. We are opening nearly 120 offices across smaller towns such as Nadiad (Gujarat) and Arrah (Bihar) because we believe that MF is a viable business. We have ensured that we are present pan-India, including North East. If we can give a better alternative to unorganised investment avenues, people can invest. While people in Gujarat who are more evolved investors can move to value investing, in the East, money can be moved into mutual funds from unorganized sector, there by giving us an opportunity to show the importance of well-regulated businesses.
Will the recent change in regulations push MFs?
We are in an infinite market as the MF penetration is hardly 4% in the country . The one major challenge now is simplified onboarding process for investors. Today, 85% of our business comes from existing consumers and this shows that the market is not expanding adequately . As a fund house, we receive several queries on our website, but the conversion rate is disheartening. We have come to realize that investors are wary of the entire KYC process. Like insurance, AMCs too should be allowed to use the bank KYC details, thereby eliminating the duplication of paperwork.
The reason why bank KYC should suffice is because entire industry does not deal in cash transactions. MFs receive funds via bank accounts and at the time of redemption the funds are transferred to the same bank account. So there is absolute transparency .
Source : https://goo.gl/y2MtpW
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.
Kshitij Anand | Mar 26, 2017 06:11 PM IST | Source: Moneycontrol.com
A detailed study by Karvy Stock Broking reveals that if somebody who would have invested just Rs 5,000 per month for the last 20 years in these five funds, you would have earned you more than Rs 1 crore now.
This can’t be true! That would be your first reaction. Making money in the stock market is tough especially when you are a working professional and can’t devote much of your time to read company balance sheets, track quarterly results or learn complicated futures & options.
The simpler way is to give that money on a regular basis via systematic investment plan (SIP) to a fund manager who would use it to invest in stocks, bonds or other fixed income instruments depending on the choice of plan you have taken.
A detailed study by Karvy Stock Broking reveals that if somebody who would have invested just Rs 5,000 per month for the last 20 years in these five funds, you would have earned you more than Rs 1 crore now.
The math behind it is simple. If you had done a monthly SIP of Rs. 5,000 for the past 20 years, your total investment would be Rs 12 lakh according to Karvy estimates, and your money would have multiplied by:
Reliance Growth Fund 18.27x: Rs 2.19 crore
HDFC Equity Fund 15.68x: Rs 1.8 crore
Reliance Vision Fund 11.81x: Rs 1.4 crore
HDFC Top 200 Fund 11.5x: Rs 1.3 crore
Birla SL Equity Fund 7.58x: Rs 0.9 crore
“We believe SIP is a wonderful tool available for investors who wish to create wealth in the long-run. Investors are already aware of the numerous benefits that it offers to them,” AV Suresh of Karvy Stock Broking told Moneycontrol.com.
“It makes the best use of the power of compounding and creates huge wealth for investors. Apart from this, it also helps one to sail through different market cycles by investing at different market levels,” he said.
If you believe in the power of compounding, then equity markets offer you the best tool to harness such a strong force via mutual funds, which let you create wealth in the long-term.
Einstein once said that ‘Power of Compounding is 8th Wonder of the World. He who understands it, earns it … he who doesn’t … pays it.’ Compounding is the first step towards long-term wealth creation.
The idea is to remain patient and allows your wealth to grow. When you buy a mutual fund, compounding allows you to earn interest on your principal and then again when you reinvest the interest it helps you build a huge corpus over a period of time with the small amount of initial investment.
“You just planted a mango tree and you want fruit tomorrow. Oh no. You just can’t. Similar to your investments. A tree undergoes challenges like pest attack, drought etc. before it yields the first fruit. Similarly, business entities are succumbed to internal and external growth barriers,” Vijayananda Prabhu, Investment Analyst at Geojit Financial Services told Moneycontrol.com.
What type of funds should you consider?
To generate wealth over a period of time, selection of funds is very necessary. If you get stuck with a wrong fund then chances of wealth creation reduce significantly.
Equity funds need a holding period of at least 5 years to avoid negative returns. But the next question is how much to expect from them in the long term. After all, you don’t invest in equity to just preserve capital.
“You invest in building wealth. High return expectations, arising from very short-term abnormal rallies in markets, make investors miscalculate what equity funds can deliver. The result? They save less, hoping that high returns will make up for it,” Vidya Bala, Head, Mutual Fund Research, FundsIndia.com told Moneycontrol.com.
“Large-cap and diversified equity funds deliver superior returns over prolonged time frames. As seen about, there is a 43 per cent chance of this category delivering returns of over 15 per cent over any 7-year time frames in the past 10 years (rolled daily),” she said.
Bala further added that this is simply because, over longer periods, they contain down markets (that would have happened during the period) better than midcap funds. Mid-cap funds’ ability to sustain steady periods of high returns is low at 26 per cent.
Top five funds to consider for next 20 years:
How to pick up a fund is critical. Some analysts advise investors just to choose a fund manager and the rest will be all taken care of. The market always rewards risk and we know that risk and return always go hand in hand; hence, any short terms should not lead you to discontinue your SIPs.
“In mutual funds, it’s not the fund that performs but the fund manager. Just hand pick the top 5 fund managers and choose their consistent funds,” said Prabhu of Geojit Financial Services.
“A few things to look for is the ability to protect the downside during volatility, their information ratio (consistency in beating the benchmark) and market experience,” he said.
But, we all are aware of one fact that all past performance is not an indicator of future performance. Moreover, with ever changing markets, it becomes quite difficult to predict the best performers for the next 20 years.
However, Karvy lists out five funds which have the potential to deliver consistent returns. ICICI Pru Top 100 (G), Birla SL Frontline Equity (G), Canara Rob Emerging Equity (G), Franklin India Prima Plus (G), and ICICI Pru Value Discovery (G).
Just like its predecessor, 2017 promises to be a rollercoaster ride. A curtain-raiser on how to navigate the investing landscape
BY SAMAR SRIVASTAVA | Forbes India | PUBLISHED: Feb 20, 2017
2016 held an important lesson for investors—that surviving volatility is as important as making the right investment.
It was no ordinary year. The sharp market swings following Brexit, the election of Donald Trump as America’s president and Prime Minister Narendra Modi’s surprise demonetisation announcement singed investors. What is significant is that those who stayed put were none the worse off. Each time, each jolt later, the markets recovered.
This much is certain: 2017 promises to be no different. Brace for volatility, make it your friend, stay the course and profit from it.
It is against this uncertain investing backdrop that large Indian companies are looking attractive once again. Over the last three years, their smaller counterparts have delivered superlative returns. Could it be their turn now? Our story (page 58) points to an informed yes as a faster global growth forecast, rising commodity prices and lower relative valuations mean this is likely to be the year of large-caps.
Large-caps have propelled Birla Sun Life Frontline Equity Fund to the top of the fund size table. The story of how fund manager Mahesh Patil went back to the drawing board after the 2008 financial crisis and overhauled its investing process is a compelling one.
Rapid growth companies, such as those the Birla fund has invested in, are facing a peculiar problem—identifying investible opportunities with the cash they’ve generated. What should companies ideally do with this cash and how should an investor view the cash on the books of a company? There’s no one answer with different investors offering various suggestions.
While equity markets have outperformed other asset classes, real estate remains a sound bet for those wanting to buy a house to live in. “Just as you can’t time the top of the cycle, you can never time the bottom of the cycle,” says Srini Sriniwasan of Kotak Investment Advisors. We also ask him why he believes residential demand could come back faster than expected.
Commodities have been on a tear this past year. Those who took a contrarian call in 2015 were rewarded handsomely in 2016. While the first leg of the commodity rally has played out, investors are now waiting to see whether the new US president follows up on his promise of infrastructure spending. This could provide a further fillip to prices of iron-ore, zinc and copper. Any hint of fiscal expansion will be greeted cheerfully by commodity markets.
Gold, a safe haven asset, had a good year in 2016 as investors took shelter from political shocks like Brexit. The approach tends to be to not invest in gold to beat the markets as over long periods, it tends to underperform. But in 2017, gold should do well if the US dollar remains weak and investor demand climbs up during times of volatility.
The more cautious investor, who typically invests in fixed income, had a happy 2016 as bond yields fell rapidly. Their returns outpaced a large-cap index fund. For most, this was a pleasant surprise. At the same time, nothing lasts for too long and investors wanting to do better in bonds would be better off shifting to shorter maturity bonds. They’ll also have to keep a close eye on India’s credit rating as a cut could see yields spike.
To round off this special package, we bring you two interesting trends. One, on bottom-of-the-pyramid businesses where returns have been steady: Equity funds who invested in them have done well as a column by Viswanatha Prasad, CEO, Caspian Advisors, an impact investing fund, points out.
And two, on HNI investors, with a greater appetite for risk, who are investing in startups as a new asset class, seeing themselves as partners in their progress.
Suresh KP | Feb 15, 2017, 05.48 PM | Source: Moneycontrol.com
Investing in tax saving ELSS mutual funds would help you to save tax u/s 80C as well as giving superior returns.
Many of the tax payers are looking for various options to save income tax u/s 80C. While there are several options to save tax, one of the attractive ways is to invest in tax saving funds, technically known as ELSS.
What are tax saving funds?
Equity Linked Saving Scheme (ELSS) or tax saving funds provide tax exemption u/s 80C along with higher returns compared to any other tax saving option. Investments in ELSS upto Rs 1.5 lakh bring in tax deduction under section 80C.
Compared to other tax saving schemes like Tax saving FD, PPF, NSC etc, ELSS offers higher returns. However, a point to note is that these returns are not guaranteed. These ELSS have low lock in period of 3 years. Other instruments have lockin period ranging between 5 years to 15 years.
After taking into account these benefits lets look at five ELSS that can be considered as good investment options to save tax and create wealth.
1) Reliance Tax Saver Fund
This MF scheme objective is to generate long term capital appreciation from a list of stock portfolio and invests predominantly in equity and equity related instruments in India. This scheme has provided 20.3% annualized returns in last 5 years. Even in last 3 years, this scheme provided 30% annualized returns. This scheme is ranked by Crisil as Rank-3 (1 is vergy good performer and 5 is weak performer)
2) Axis Long Term Equity Fund
This tax saving scheme aims to generate regular long term capital growth from a diversified portfolio of equity and equity related securities in India. This mutual fund scheme is the top performer in the ELSS funds over five years time frame. This scheme has provided 21% annualized returns in last 5 years. Even in last 3 years, this scheme provided high returns of 24.9% annualized returns. This scheme is ranked by Crisil as Rank-4 (1 is vergy good performer and 5 is weak performer)
3) DSP BR Tax Saver Fund
The mutual fund scheme aims to generate medium to long-term capital appreciation from a diversified stock portfolio of equity and equity related securities along with tax savings. This mutual fund scheme is the top performer in the ELSS funds.This scheme has provided 20.4% annualized returns in last 5 years. Even in last 3 years, this scheme provided good returns of 26.6% annualized returns. This scheme is ranked by Crisil as Rank-1 (1 is vergy good performer and 5 is weak performer)
4) Birla SL Tax Relief 96 Fund
This mutual fund scheme aims for long term capital appreciation by investing upto 80% in equity and balance in debt related instruments. This scheme has provided 19.1% annualized returns in last 5 years. Even in last 3 years, this scheme provided good returns of 25.6% annualized returns. This scheme is ranked by Crisil as Rank-2 (1 is vergy good performer and 5 is weak performer).
5) Franklin India Tax Shield Fund
The MF scheme aims medium to long term growth of capital along with income tax rebate. This scheme has provided 17.5% annualized returns in last 5 years. Even in last 3 years, this scheme provided good returns of 24.3% annualized returns. This scheme is ranked by Crisil as Rank-3 (1 is vergy good performer and 5 is weak performer).
Smart investors would invest in a good ELSS mutual funds which helps them to save tax and also provides high returns compared to any other tax saving options.
The author of this article is founder of Myinvestmentideas.com.
NALINAKANTHI V | January 28, 2017 | Hindu BusinessLine
The fund has contained market downsides well while making the most of rallies
As we enter the final quarter of the current fiscal, tax saver funds are now in focus. If you haven’t made your tax saver investment yet, you could use the next two months to invest in tax saver mutual fund schemes.
If you are looking for a fund with a consistent track record, old warhorse Franklin India Taxshield is an option to consider. Of course, equity tax saver schemes are only for those with a moderately high risk appetite and investment horizon of at least three years, since you cannot redeem your investment before that. Even though the lock-in period is three years, this fund will better suit investors with a minimum time frame of five years. Lumpsum investment may be a better option, given the lock-in period.
Launched in 1999, Franklin India Taxshield is among the most consistent performers in the equity linked saving schemes (ELSS) category. Over the last five years, the scheme’s daily one-year return has been higher than its benchmark, the Nifty 500 Index, almost 90 per cent of the time. It scores well on a risk-adjusted performance basis too, with a Sharpe ratio of 0.93. While this is a tad lower than that of peers such as Axis Long Term Equity (1.05) and Birla Sun Life Tax Relief 96 (0.97), it is higher than the average of funds in the category of 0.8.
While the fund has delivered benchmark-beating returns across three, five and ten-year time frame, its performance over a one-year period slipped due to the correction in banking and pharma stocks during September-October 2016. The fund has marginally reduced exposure to these two themes.
Strategies that worked
The fund has been able to contain downsides well during market falls and this has been on three counts.
One, higher large-cap slant compared to other funds in this category cushioned it during turbulent phases.
Second, the fund’s focus on quality stocks and strategy to stay away from momentum stocks also possibly aided performance during down cycles. Moving into defensive themes such as pharma and IT also shielded the fund from volatility.
Likewise, during recovery rallies too, the fund has managed to beat the benchmark by a considerable margin. Right sector shifts aided performance during the pull-back rallies.
Consider this — during the August 2013-March 2015 period, the fund gained nearly 110 per cent. This is higher than the 80 per cent gain for the benchmark during the same period.
Increasing exposure to cyclical themes such as financials, automobiles and industrials provided a leg-up to the fund’s performance.
The fund has managed good returns despite a relatively high expense ratio of 2.48 per cent. Peer funds such as Axis Long Term Equity (1.98 per cent), ICICI Prudential Long Term Equity (2.3 per cent) and Birla Sun Life Tax Relief 96 (2.29 per cent) have had a lower expense ratio.
Over a nine-month period, the fund has increased exposure to cyclicals such as financials, oil and gas, power and auto.
Stability in the economy post remonetisation and recovery thereafter should aid the fund’s performance. It has also reduced exposure to pharma stocks, which have been bogged down by regulatory woes.
By Madhu T | ECONOMICTIMES.COM | Updated: Dec 26, 2016, 02.34 PM IST
The prime minister has spoken and the finance minister has clarified. It seems, long-term capital gains on your equity mutual funds are not likely to be taxed in the budget. Still, there are so many theories floating around: short-term capital gains tax may be hiked; holding period to qualify for long-term capital gains tax may be raised, and so on. Now, the big question: should equity mutual fund investors be worried?
The answer is a big no. Sure, taxes would take away a part of your returns. However, taxes are never the sole reason for making an investment, including equity mutual funds. If there is a change in taxation of your gains from your equity mutual funds, you will have to alter your investment plan to ensure that you meet your various financial goals without any difficulty.
Let us see why equity mutual fund investors should not unduly worry about a likely (or real) change in taxation. First, consider what will happen if the short-term capital gains tax rate is increased? Or the holding period is increased?
Well, it would hardly have an impact on your investments. Surprised? It seems, you have forgotten that you don’t invest in equity mutual funds for a short period.
Short-term capital gains tax of 15 per cent comes into the picture when an investor sells his equity mutual funds before a year. Since individual investors are expected to invest with an investment horizon of at least five years in equity mutual fund schemes, this change will not have any impact on them. Sure, they will take hit if they are forced to sell their investments due to an unforeseen event.
Now, what about the likely reintroduction of long-term capital gains tax? Or likely increase in holding period to qualify for long-term capital gains tax?
If equity mutual funds are sold after a year, the gains are treated as long-term capital gain. At the moment, the long-term capital gains on equity mutual funds are not taxed in India. As said before, if the holding period is raised to two or three years, it will not have an impact on your investment life, as you anyway invest in equity with a minimum holding period of five years.
What if long-term capital gains are taxed? Sure, that would hurt. You will have to part with a large chunk of your returns at the time of selling your investments. This would call for you to revisit your calculations done at the time of fixing various financial goals. Since the tax is likely to take away a part of your corpus, you will have to increase your investments to make up for it.
For example, if you have to part with 10 per cent of your gains as tax at the time of withdrawal, you will have to invest more to create the target you had in mind. Or pray you earn more than your return projections. Kidding, it is always better to err on the side of caution. So, check whether you can make extra allocations.
Similarly, if the holding period is changed, you will have to take that into account while deciding on the investment to meet your financial goal.
Now, should you fret about long-term capital gain taxes and pull out money from equity mutual funds? Well, that is not even an option for you. Remember, you have decided to put money in equity to build a corpus for your various long-term goals because equity has the potential to offer superior returns than other investments over a long period. That hasn’t changed even now. That means you will have to bet on it irrespective of the taxation.
Remember, long-term capital gains on equities were taxed earlier. It was abolished in 2004 and Securities Transaction Tax (STT) was introduced by the government because STT was easier to enforce and boost tax collections.
CY2017 begins after a chain of events that has changed the investment landscape for Indian investors. It is better to take an informed decision than just chasing winners in the past.
Dec 16, 2016, 04.25 PM | Source: Moneycontrol.com | Nikhil Walavalkar
Uncertainty remained the buzzword for most investors throughout CY2016. Issues such as Brexit, presidential elections in USA, interest rate decision by US Federal Reserve along with OPEC’s changing stance on crude oil production ensured that the global investment climate remained volatile. The demonetization decision by the Indian government added some local flavor to the uncertain investment environment.
“Barring the rate hike decision by US Federal Reserve, CY2016 has seen many events worldwide unfolding contrary to what was expected,” says Ashish Shanker, head- investment advisory, Motilal Oswal Wealth Management Services. “These black swan events, including demonetisation have led to a lot of disruption caused to investments. In CY2017 investors have to focus on opportunities keeping in mind this changed environment, than just chasing winners in the past.”
Equity has given tepid returns in last one year. Benchmark CNX Nifty has given 2.38% returns in CY2016. The numbers for the large cap funds and the midcap funds as category for the same time frame stand at 4.34% and 6.02%, respectively. Though mid cap and small cap funds have been flavor of the season and have ruled the performance charts for last two years, it is the time to revisit your allocation.
“Large cap funds should do well in CY2017 given the relatively attractive valuations of large cap stocks. Though mid and small cap funds have done well over last two years, it makes more sense to avoid fresh bets on them now due to their swollen sizes and the possibility of mid and small sized companies getting hit more due to demonetization as compared with their larger counterparts,” advises Ashish Shanker.
Most investment experts have been advising investing in stocks either through systematic investment plans or on dips given the fair valuations Indian stocks enjoy. Though the diversified equity funds always form the core part of aggressive investors’ portfolios, savvy investors prefer to take some extra risk in search of higher returns through sector funds.
Infrastructure is one such theme experts are bullish about. Investors have not seen much action after the initial bull-run went bust in 2008. However, last two years have seen changes in the government policies and the scenario has improved due to increased government support. “Infrastructure spending should go up in India which should benefit companies in infrastructure space,” says Feroze Azeez, deputy CEO – private wealth management, Anand Rathi Financial Services. He recommends investing in ICICI Pru Infrastructure Fund and DSP Blackrock TIGER Fund. “Infrastructure sector is beaten down and it offers a good opportunity to invest. Correction in market can be used to invest in this space. Invest if the NAV of the funds you want to invest fall by 10% from current levels,” he advises.
Rupesh Bhansali, head of mutual funds at GEPL Capital says, “Demonetisation has ensured that the banks have high levels of CASA. This situation should continue for at least couple of quarters. Focus on digital payments and cashless economy should benefit banks.” Government has invested capital in public sector banks and banks too are going after non-performing assets. Interest rates are on their way down which should revive private sector’s capital expenditure. This should ensure that banks make a strong come back. Bhansali recommends investing in Birla Sunlife Banking and Financial Services Fund.
Feroze Azeez is optimist about the fortunes of banking sector and recommends investing in Reliance Banking Fund.
Pharmaceuticals and healthcare is one more sector that is back on investor’s radar. Pharma and healthcare funds as a category has lost 4.3% in the last one year. If you have been holding these funds for last two years, you have earned 3.5% returns. “Pharma sector has been under pressure for last two years and is attractively valued,” says Ashish Shanker. Over last two years regulatory issues cropped up for Indian pharma companies in USA. Some companies have faced temporary bans and some were forced to withdraw products. Market has taken note of these developments and punished the companies, which is evident in the price erosion these stocks have seen. However, the companies too have taken right steps to take corrective measures and brought in changes in their business to comply with the norms.
“On the one hand there are pharma companies that have taken corrective steps and can do the same amount of business worldwide quoting at much lower prices compared to a year ago and on the other hand there are new investment opportunities by ways of new entrants in the listed space by way of recent IPOs that make pharma funds an investment opportunity worth exploring,” explains Rupesh Bhansali. He likes Reliance Pharma Fund and SBI Pharma Fund.
Information Technology is another sector many savvy investors prefer to invest into. However, most investment experts prefer to wait for the clarity on visa issues before taking any fresh bets on this sector.
Sector funds though offer an opportunity to make some extra return they face concentration risk. “On an average sector funds are 1.5 times riskier than the average diversified equity funds. To make money in sector funds, you have to get both – your entry as well as your exit right,” warns Feroze Azeez. If you are not one of those who can keep a track of sectors and markets, it is better to go with diversified equity funds with long term track record.
Find out in the ET Wealth RICS report
Updated: Dec 16, 2016, 05.37 PM IST | Economic Times
ET Wealth Survey Series is an effort to bridge the gap between industry, marketers and consumers. It is a well-researched effort to identify the vacuum that exists in the consumer personal finance space. With ET Wealth Surveys, we want you to know better how your audience earns, spends, invests and saves.
Of the universe of 156 million urban internet users, given here is the estimated size of each investment product:
By Kshitij Anand, ETMarkets.com | Updated: Nov 02, 2016, 11.09 AM ISTPost a Comment
NEW DELHI: If you believe in the power of compounding, then equity market offers you the best tool to harness this strong force via the mutual fund route, which can let create good long-term wealth.
Compounding interest separates the haves from the haven’ts. Compounding is the first step towards long-term wealth creation. When you buy a mutual fund, compounding allows you to earn interest on your principal and on the interest that you reinvest. It helps you build a large corpus over time with the smallest of initial investment.
“Einstein said the power of compounding is the eighth wonder of the world. One who understands it, earns it and the one who does not, pays it. Please exploit the power of compounding for long-term wealth creation through equity mutual funds,” Raamdeo Agrawal, Co-Founder & JMD, MOFSL, said in an interview with ETMarkets.com
“God and the government have come together to make you rich in the Indian market this year. Rs 10,000 a month invested in any equity growth fund for 25 years (Rs 30 lakh) can earn you between Rs 3 crore and Rs 25 crore,” he said.
The prerequisite for creating serious wealth is to start early, have patience and not get swayed by daily market movement. Give your investment some time to yield fruits, say experts.
You don’t have to be rich to create wealth. Many salaried people have been able to create wealth just with the magic of compounding and by following a disciplined approach towards investing.
“I know many salaried investors, who have created significant wealth than their remuneration over time. The key is to remain invested without monkeying and attempting to time the market,” said Porinju Veliyath, MD & Portfolio Manager, at Equity Intelligence India.
“Equity Intelligence has changed the financial profile of hundreds of middle-class professionals through value investing in equities,” he said.
Veliyath said India’s capital market system has evolved to world-class standards, enabling even small savers to invest conveniently, thanks to our efficient regulators and institutions.
Making money in the market has never been easy, but mutual funds have made the job a lot easier.
Stock markets never move in one direction.
There will always be some concern and fear – if not domestic then global – which will keep the market on the edge. But with a disciplined approach towards investing, investors can use volatility to buy quality stocks on dips.
“In my career spanning 25 years, there has never been a quarter where everything has gone perfectly well for India. If I go back to 1989-1990, the year 1991 was of crisis, the BOP crisis, we had the Babri Masjid demolition, Bombay bomb blasts, fall of a government, something or the other had always been missing,” Rashesh Shah, Chairman, EdelweissBSE 0.13 % Group, said in an interview with ETNow.
“To use a cliché, it is a glass half full or half empty, but the half full is actually fairly good, because in the same 25 years, the index has given you more than 18 per cent return CAGR and that was after tax,” he pointed out.
Shah said even if investors just bought the index, complete passive investing has given investors more than 18 per cent return. “As you know, the index started in 1984 or around it, and it was 100 at that time and the 100 is close to 28,000 now.”
HARSH ROONGTA | Tue, 13 Sep 2016-06:35am | dna
Despite all this, the detractors of NPS are many and the reasons are fairly significant.
On paper, National Pension System(NPS) has everything going for it. It is an extremely low-cost retirement mutual fund with fund management fees at very low levels. It also allows equity participation up to a maximum of 50% and requires the balance money to be invested in government and debt securities. This provides a healthy mix of high return equity with safe debt instruments. NPS also effectively locks in the investors’ money till they reach the age of retirement. This ensures that the investor does not take any short decision for this investment. It also allows the fund manager to invest with a longer-term horizon in mind, thus allowing better returns. The star advantage, of course, is the exclusive tax deduction of Rs 50,000 for investing in NPS which is over and above the Rs 1.50 lakh limit available under section 80C for other investments and expenses. For salaried employees, the employer can contribute up to 10% of the basic pay into the NPS without payment of tax. What should clinch the argument is the fact that the average return over the past 5 years is a creditable 12% per annum even if you had chosen in the worst-performing equity and debt funds available in the NPS.
Despite all this, the detractors of NPS are many and the reasons are fairly significant. First is the requirement for compulsory investment in buying an immediate pension plan from a life insurance company with at least 40% of the accumulated fund. The immediate pension plans available from life insurance companies are very limited and offer very poor returns around 7% p.a., which is also taxable. Second is the fact that out of the balance 60% (left after investing in compulsory pension plan) only 40% of the accumulated fund can be withdrawn tax free. The balance 20%, if withdrawn, will be taxable, thus reducing the return. Questions have also been raised about the very low fees that fund managers get which may affect the performance of the fund in the long run.
The argument for or against NPS thus rallies around whether the exclusive tax benefit provided initially outweighs the disadvantages of NPS at maturity. Proponents of NPS (and I am one of them) argue that the fears of taxation on the pension income are overstated as the income is spread over many years and you are likely to have low income in your retirement years leading to low or nil taxation rates. Also, the immediate annuity market cannot remain underdeveloped forever and should start offering competitive returns by the time you retire in a decade or more. Also, given the government’s commitment to promoting the NPS, the tax disadvantages of NPS are likely to reduce or disappear over time. The biggest advantage for unsophisticated investors is that the initial tax benefit will ensure that they diligently invest year after year which they may not otherwise do in a regular investment product.
Of course, I think both sides agree that investing in NPS over and above the exclusive tax benefit available for it makes no sense whatsoever currently. So invest in NPS, but only to the extent of the exclusive tax benefit available.
The writer is a chartered accountant and Sebi-registered investment adviser
Source : https://goo.gl/hd8xbA
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