Existing mutual fund investors would need to evaluate their schemes if they change their strategies substantially in order to ensure they are still in sync with their financial goals and asset allocation
Kayezad E. Adajania | Last Published: Tue, May 01 2018. 10 30 PM IST | LiveMint
HDFC Prudence Fund (HPF), the country’s largest equity-oriented mutual fund scheme with assets close to Rs37,000 crore, will now be known as HDFC Balanced Advantage Fund and can switch entirely between equities and debt. Until now, it could invest only 40-75% in equities. On 25 April, HDFC Asset Management Co. Ltd announced plans for many of its schemes, as part of the ongoing merger and re-categorisation exercise.
Most other fund houses, too, have announced their plans to re-categorise their schemes. If you don’t agree with your schemes’ new form, you have a chance to exit without paying an exit load. Here’s how you should decide what to do.
Your scheme could change…
If there is no change to your scheme, you have nothing to worry about. But if your scheme is about to change, check how big or small it is. For instance, if you own a large-cap fund that is set to become a large- and mid-cap fund or a multi-cap fund, it won’t matter much. In fact, this particular move is good, said Prateek Pant, head of product & solutions at Sanctum Wealth Management. “Going ahead, it will get difficult for large-cap funds to outperform their benchmark indices. The definition of large-cap fund has narrowed down and benchmarking performances against total returns index would make things tougher for large-cap funds,” he said. Read more here.
If your scheme undergoes a big change, evaluate. For instance, SBI Treasury Advantage Fund, which will be known as SBI Banking and PSU Fund, was meant for short-term investments. Now, its strategy would be to invest in debt scrips of state-owned companies and banks. “If the risk profile of a scheme changes, look at it again. If it no longer meets your purpose, leave it,” said Vidya Bala, head-mutual fund research, Fundsindia.com.
…but do not jump the gun
Don’t blindly go by the change in your fund category. Mirae Asset Emerging Bluechip Fund (MEBF)—an erstwhile mid-cap fund—has become a large- and mid-cap fund. The name remains the same, and, what’s more, the fund remains the same too.
On the face of it, a shift from a mid-cap to a large- and mid-cap fund is a big change. But dig a little deeper and you might not want to worry about it. According to capital markets regulator Securities and Exchange Board of India (Sebi), a large- and mid-cap fund must invest a minimum of 35% each in large- and mid-cap stocks. As it turns out, MEBF has been increasing its exposure to large-cap companies over time; from an average of 20% in 2014 and 26% in 2015 to 38% so far this year, as per Value Research.
“We didn’t want to tamper our existing portfolios too much. So, whichever categories our funds fitted into naturally, we have moved our funds there,” said Swarup Mohanty, chief executive officer, Mirae Asset Global Investments (India) Pvt. Ltd. HPF, too, remains the same. Although a dynamic category fund can switch entirely between equity and debt, a person close to HPF said it can—and will—continue to invest 65-70% in equities like always. Of course, how the fund performs in falling markets in the face of its present equity allocation remains to be seen as the fund will now be compared to other dynamic funds. HPF refused to comment.
The tax implications
If your scheme merges with another or ceases to exist, there are no tax implications. If, however, you choose to withdraw, you may have to pay short-term capital gains tax of 15% (plus surcharge and cess) if you had bought the units in the past one year or long-term capital gains tax, otherwise.
The only respite is you don’t pay an exit load, if any, even if you withdraw within the exit load period.
What should you do?
Each merger and re-categorisation poses a unique situation. How one investor reacts to a change could be different from another investor’s reaction. Sit with your financial adviser to understand the ramifications of your scheme changes. But here are some broad principles you should follow.
* If your scheme’s risk profile increases a little, there is no cause for alarm. For instance, a large-cap fund becoming a large- and mid-cap fund is acceptable. If your scheme’s risk profile increases a lot, take a closer look. For instance, SBI Magnum Equity Fund (a large-cap fund) is now a thematic fund SBI Magnum Equity ESG (Environment, Social, and Governance).
* Just because the fund has changed its category or name does not necessarily mean the scheme has changed. Check if the scheme will continue with its strategy.
* But if the scheme’s objective has changed—especially due to a merger with some other scheme—evaluate it. HDFC Gilt (government securities) Fund – short-term plan will now be merged with HDFC Corporate Bond Fund. Both schemes are different.
* New investors, beware. Past performance is set to become a bit hazier, especially for those schemes that have to alter their strategies, for the next three years. In this case, check who the fund manager is, and go by his track record.
* Debt funds are trickiest to navigate in this exercise. The good news is that they’ve become sharper and each of them now comes with a well-defined objective. Revamp your entire debt schemes portfolio.
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.
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.
On an average, the gross returns by active funds exceed returns from Nifty by more than 11%. This outperformance is after accounting for the costs of managing an active fund
Nilesh Gupta & G. Sethu | First Published: Mon, Oct 02 2017. 01 59 AM IST | Live Mint
In 1975, John Bogle launched the first ever passive fund, Vanguard 500 Index Fund, and heralded an era of passive investing. Bogle was influenced by Eugene Fama’s view that the capital market was informationally efficient and that sustained success in stock picking was impossible. Since then, trading has increased; more and better investment research is being undertaken; high-speed communication networks have taken away the advantages to a privileged few; and most importantly, institutional investors dominate the markets. In this environment, it is not easy to pick stocks or enter and exit the market successfully and consistently. The torchbearer for passive investing today is the exchange-traded fund (ETF).
In the US, during FY 2003-16, total net assets of equity index funds increased by 3.5 times (from $0.39 trillion to $1.77 trillion), while that of active equity funds increased by just 0.7 times (from $2.73 trillion to $4.65 trillion). More importantly, during this period, a net amount of $1.29 trillion moved out of active equity funds while $0.46 trillion moved into index equity funds. Why is passive investing gaining over active investing? It’s because active investing has not been able to deliver returns (net of costs) that are more than from passive investing. Passive funds posted an expense ratio of 0.09% in 2016 while active equity funds were seven times more expensive with an expense ratio of 0.63%.
The FT reports that over a period of 10 years, 83% of active funds in the US underperform their benchmark, with 40% funds terminating before 10 years.
This global trend prompted us to examine the India story. Since 1992, Indian stock markets have seen many developments. Trading has increased; there are more institutional investors; regulations have improved; transactions have become faster; settlements have become shorter; number of analysts covering the market has increased; communication networks are good. We should expect active funds to struggle to beat the market, right? You could not be more mistaken.
We examined the returns and expense ratios of 448 actively managed mutual fund schemes from the period of FY 1996 till FY 2017, a total period of 21 years. We used their net asset values (NAVs) to compute the returns from holding these schemes for each financial year. Remember that the NAVs of mutual fund are published after deducting all the costs incurred in running the scheme.
In most of the years, when the market booms the active funds beat the index (such as Nifty) by a wide margin. When the market is bearish, their performance is mixed. In some bearish years, they beat the index, but often they lose much more than the index.
On an average, the gross returns by active funds exceed returns from Nifty total returns index by more than 11%. Remember that this outperformance is after accounting for the costs of managing an active fund. What about the costs of managing a mutual fund? The expense ratio for active funds from FY 2008 to FY 2017 averaged 2.32% per annum and for ETFs it was 0.61%, leading to a difference just greater than 1.7%. On an average, in India the extra returns provided by actively managed mutual funds have been much higher than the extra cost charged for delivering the return.
This is in contrast to the data from the US. Even in the halcyon 1960s, active funds in the US beat the market only by about 3%. What are the possible reasons for this outperformance? Some market experts argue that several quality stocks are not part of the index and hence index funds or ETFs cannot invest in them. Some note that the evolving nature of the market is not reflected in the index.
It may also be possible that the relatively smaller size of the mutual fund industry in India could be helping active fund managers get such high returns. In India, the mutual fund industry has only 13% of market capitalization as compared to 95% in the US. It is possible that in the past, mutual fund managers had better information available. If either of the reasons turn out to be true, we might find that, in the future, the actively managed mutual funds do not outperform the market by such large margins.
So, should Indian investors invest their savings in actively managed mutual funds? Irrespective of what the data says, the answer is not so simple. Here we have only considered the average returns of all actively managed mutual funds. A retail investor who is likely to invest only in a limited set of schemes would be concerned about choosing those schemes that give better returns in the future.
This analysis has not considered the risks taken by the mutual funds to get returns. A fund can easily beat the market by taking more risks. We need to compute the risk-adjusted returns to answer this question. On doing that, we may understand how the active funds in India generate such high returns compared to the market index. Is it a story of great fund management skills? Or is it inefficiency of the market? Or is it a case of taking high risks? Investors and the regulator have a responsibility to understand this.
Nilesh Gupta is assistant professor and G. Sethu is professor at the Indian Institute of Management, Tiruchirappalli