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)
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.
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?
Balanced Funds have an overall equity spread of almost 65% either in the large, mid or small cap stocks.
Navneet Dubey | Apr 04, 2018 11:27 AM IST | Source: Moneycontrol.com
Balance funds are the funds which have exposure to two main asset classes – equity and debt. This fund gives you exposure to stocks as well as money market instrument. These funds have the equity orientation as around 65% of your monies get invested in equity and remaining 35% in debt funds. The risk associated towards equity exposure is almost of the same amount as the risk is associated with any normal equity fund do have. So, are these balanced mutual funds really ‘balanced’ enough? SEBI has recently proposed to change the name of the balanced fund into three categories – Aggressive Hybrid Fund, Balanced Hybrid Fund and Conservative Hybrid Fund.
We bring you the main features of balanced funds and tell you how to go about making the most of your investment in them:
What does the equity spread consist of?
Balanced funds have an overall equity spread of almost 65% either in the large, mid or small cap which can be extended even towards micro-cap funds. Having flexibility towards too many categorisations, the fund manager gets the liberty to choose stocks, however, that may welcome more risk to your portfolio. Therefore, check the holdings before investing in these balanced funds as the range between mid-caps to micro-cap can be risky if you are a conservative investor.
What are new balanced funds?
As per the regulator (SEBI), the categorization of these balanced funds will get further differentiated into various sub-heads to provide more clarity to mutual fund investors. These can be termed as follows:
The Aggressive Hybrid Fund: It will invest in equities & equity related instruments between 65% and 80% of total assets and debt instruments between 20% and 35% of total assets.
The Balanced Hybrid Fund: It will invest in equities & equity related instruments between 40% and 60% of total assets and debt instruments between 40% and 60% of total assets. However, no arbitrage would be permitted in the scheme.
The Conservative Hybrid Fund: It will invest in equities and its related instrument between 10% to 25% of overall assets and debt instruments between 75% and 90% of total assets.
Other hybrid funds which investors can further look to make investments can be – Arbitrage fund, Dynamic asset allocation fund and Multi-asset allocation funds.
To provide more clarity to investors, these new categories of balanced funds termed as new types of hybrid funds will help investors to understand their funds in a much better way. Not only this, fund managers will also get clarity to structure their fund as per new rules, getting clear direction as to which stocks to select while designing the scheme. Hopefully, in future, there may be no room for confusion while selecting balanced funds for investing and switching between high risky to a less risky portfolio.
Tax treatment: Debt and equity-oriented funds
Currently, all the balanced funds today are having an average exposure of 65% to equities, they come under the ambit of equity oriented fund. However, in future the new conservative hybrid funds can get debt tax treatment as more of the exposure is tuned towards debt asset class.
However, in overall mutual fund taxation structure, equity funds and debt funds are taxed as below:
Equity Oriented Fund
LTCG: There is no long-term capital gain tax on equity funds after one year if gains do not exceed Rs 1 lakh. However, if capital gains exceed Rs 1 Lakh, the realised amount will get taxed at 10%.
STCG: Short-term gains are taxed at 15%. Where gains are realised within one year.
Debt Oriented Fund
LTCG: These mutual fund schemes are taxed at 20% long-term capital gain tax and
STCG: When realised within 3 years, these are taxed at marginal tax rate where a maximum taxation of 30% can be applied to short-term capital gain tax for both Resident Individuals & HUF.
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.
To ensure that all schemes launched by mutual funds are distinct in terms of asset allocation and investment strategy, SEBI proposed categorisation and rationalisation of mutual fund schemes.
Nikhil Walavalkar | Mar 16, 2018 02:24 PM IST | Source: Moneycontrol.com
Mutual funds are busy changing the names of their schemes. Securities Exchange Board of India’s (Sebi) directive on the rationalisation and categorisation of mutual fund schemes has made mutual funds to drop the fancy names and fall in line. The idea is to simplify the process of understanding the mutual fund offerings and choosing schemes for investments by investors. But as the names change, there are some investors who may start worrying about their investments. If the investment you have invested into has disappeared or renamed do not get worked up. Do read on to understand how it impacts you.
To ensure that all schemes launched by mutual funds are distinct in terms of asset allocation and investment strategy, SEBI proposed categorisation and rationalisation of mutual fund schemes. The SEBI prescription allows fund houses to offer schemes in 10 types of equity funds, 16 categories of bond funds and 6 categories of hybrid funds. Fund houses are also allowed to launch index funds, fund of funds and solution oriented schemes.
“SEBI has clearly defined norms and the asset allocation and the norms that will specify each category,” says Rupesh Bhansali, head of mutual funds, GEPL Capital. For example, a large cap fund must invest at least 80% of the money in large cap stocks. Large cap stocks are defined as top 100 companies in terms of full market capitalisation. “By introducing these norms the regulator has ensured that the apple to apple comparison of mutual fund schemes is possible,” says Bhansali.
The mutual fund houses too have started responding with change in names and investment strategy of the schemes, wherever applicable. For example, DSP Blackrock Focus 25 Fund is renamed as DSP Blackrock Focus Fund. Analysts used to treat it as a large cap fund so far. However, going ahead it will be placed in Focused Fund category.
The process of aligning with the SEBI norms will go on for a while and more fund houses will make necessary changes. The process however should not stop you from investing in mutual funds.
“Investors should first understand the category of mutual funds as each one of these has distinct characteristics,” says Swarup Mohanty, CEO of Mirae Asset Mutual Fund. Find out where your scheme is going to be placed and see what kind of investment strategy it will employ.
“If the scheme’s investment strategy and portfolio construction changes, then there is a very high possibility of changes in risks and returns associated with investing in that scheme,” Renu Pothen, head of research, FundSuperMart.com. For example, if a fund that was a primarily large cap scheme is shifted to a large and mid-cap scheme, then the risk associated with the scheme goes up as the fund manager invests minimum 35% of the money in mid cap companies. Possible higher returns come on the back of higher risks.
“The investor must assess the risk-reward in the light of his financial goals and his risk appetite before investing in that scheme. If there is a mismatch between the investor’s risk profile and the risk-reward offered by the scheme, the investor will be better off selling out his existing investments. He can look for better options elsewhere,” says Renu Pothen. While exiting a mutual fund scheme, there are implications such as exit loads and capital gains, which investors should not ignore.
“When there is a change in fundamental attribute of the scheme, the investors are given exit option without any exit load,” points out Bhansali. This exit option is not at all compulsory and should be availed if and only if there is a mismatch between your expectations and the offering. However, the capital gains will be payable in case of redemption in bond funds. Though the exits in current financial year from equity funds will lead to no tax on long term capital gains, the same will attract 10% tax after April 1, in case the gains exceed Rs 1 lakh.
Changes in regulatory framework and volatile markets may add to worries of mutual fund investors. However, mutual fund investors must take this opportunity to relook at their investment plans, say experts. If you do not understand the fine nuances of equity funds, better stick to multicap funds and let the fund manager decide what asset allocation should be within equity as an asset class.
“It is time to reassess your risk profile. Do not get carried away with high returns over last couple of years. Instead be realistic with your return expectation while building your financial plans and use short term volatility to your advantage by investing through systematic investment plan,” advises Mohanty.
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.
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.
The primary objectives of ELSS investments are long-term capital growth and tax saving.
Navneet Dubey | Nov 10, 2017 09:47 AM IST | Source: Moneycontrol.com
Most investors who invest in equity-linked savings scheme (ELSS) do so to save taxes under Section 80C of Income Tax Act. However, they tend to forget that the ELSS schemes can also help them to achieve their financial goal if they remain invested for a long time.
“The primary objective of ELSS investment is long-term capital growth and tax saving. Superior long-term growth is facilitated by the power of compounding. Power of compounding works best over a long investment horizon when gains are reinvested every time they accrue,” said Rahul Parikh, CEO, Bajaj Capital.
The schemes under ELSS category also gives you high inflation-beating returns, similar to PPF they also provide you EEE (exempt-exempt-exempt) benefit.
However, make sure you don’t commit the usual mistakes while investing in ELSS. Here are some of the common mistakes investors make while investing in these schemes:
Trying to time the market: Do not try to time the market when you are investing. Unless you have seasoned investors with a phenomenal understanding of the market, the chances are that you might not be able to identify the precise time to invest.
Ajit Narasimhan, Head – Savings and Investments, BankBazaar said that there is a high amount of uncertainty which makes it next to impossible to correctly predict events or their impact on the market and hence to time the market. Instead, focus on identifying a few good funds. Once you invest, have the patience to ride through the rough and tumble of the stock markets. “Equity investments grow by staying systematically invested for the long run. This is what makes SIP a good option as it averages the cost of investment over time and cancels out the effect of price fluctuation in the market,” he said
Not understanding the fund category: It very important to understand that most of the AMC’s design their ELSS tax saving mutual fund scheme on the basis of large cap, mid cap/small cap and accordingly their risk and returns vary. Here it is vital to first know your risk taking capacity that whether you will be able to risk or not. Take help from your financial adviser to know all holdings mentioned in your scheme and then choose the fund accordingly.
Investing at the last minute: Investment should be a planned activity and not at the spur of the moment.
Narasimhan points out for investments to be successful and provide the required returns, investors should have a financial goal in mind and a plan to work towards it. Leaving it to the last minute can lead to insufficient time to set your goals or create a viable investment plan. “Lack of time may imply that you may have to cut down your research and depend on someone else’s research and opinion to base your investment. This can be very dangerous as the goals, requirements, and risk appetite may not match. It may also cause the investor to invest in one go instead of small regular SIPs. This is an important factor as SIPs provide price averaging and take away the need to time markets,” he said.
Redeeming soon after the lock-in period ends: Minimum investment time period in equities should ideally be for 5-7 years and when you take a decision of redeeming your units before time as mentioned thereon, you may not gain much from it. The longer you remain invested, the more you gain from compounding effect and rupee cost averaging principle. You should always link your investment with a long time horizon financial goal.
Investing in too many funds: ELSS funds have a lock-in of 3 years, If you are investing in too many funds of the same category then it may become difficult for you to review your portfolio since you cannot exit before 3 years. Moreover, too much of diversification may also not help you in proper asset class analysis.
Choosing the dividend option: You should opt for growth option while investing in ELSS mutual fund schemes because if you opt for the dividend, you can lose on gaining from compounding effect. Parikh also said that investing in a growth option ensures that gains are reinvested and grow at the same rate as the principal investment. “However, in dividend payout option, the gains are not reinvested but are paid out and hence not available for compounding, resulting in lower long-term returns. When investing for long-term capital growth in any of the equity mutual fund, one should opt for the growth option,” Parikh said.
By Sanket Dhanorkar, ET Bureau|Updated: Oct 16, 2017, 11.20 AM IST
The Securities and Exchange Board of India (Sebi) has asked fund houses to classify their schemes into clearly defined categories. For long, there were no clear guidelines to categorise mutual funds. Fund houses even launched multiple schemes under each category, making scheme selection a confusing exercise for investors. To introduce clarity, Sebi has now asked fund houses to have just one scheme per category, with the exception of index funds, fund of funds and sector or thematic schemes.Mutual funds which have multiple products in a category will have to merge, wind up, or change the fundamental attributes of their products.
Simplification of choice, fewer options
At the broadest level, mutual funds will now be classified as equity, debt, hybrid, solution-oriented, and ‘other’. Equity schemes will have 10 sub-categories, including multicap, large-cap, mid-cap, large- and mid-cap, and small-cap, among others. The stocks of the top 100 companies by market value will be classified as large-caps. Those of companies ranked between 101 and 250 will be termed mid-caps, and stocks of firms beyond the top 250 by market cap will be categorised as small-caps. Debt and hybrid schemes will similarly be grouped into 16 and six sub-categories respectively.
In particular, people interested in debt and hybrid schemes will now be better placed to identify the right schemes. For instance, duration funds have been segregated into four sub-categories, based on the maturity profile of the instruments they invest in. Debt funds belonging to the broader ‘income funds’ category will now be identified as dynamic bond fund, credit risk fund, corporate bond fund, and banking and PSU fund, based on their unique characteristics. Similarly, segregation of hybrid funds—based on their equity exposure—as aggressive hybrid, conservative hybrid and balanced hybrid, will allow investors to better identify the type of hybrid fund they want to invest in.
“Now that scheme labelling is clearly linked to a fund’s strategy, the investor will clearly know what he is getting into. The fund category will define the scheme, and not its name,” says Kunal Bajaj, CEO, Clearfunds. Fund houses will also not be allowed to name schemes in a way that only highlights the return aspect of the schemes— credit opportunities, high yield, income advantage, etc.
Adherence to fund mandate
With strict classification of schemes, fund houses may not be able to alter the investing style or focus of their schemes, as they did earlier. For instance, mid-cap funds stray into the large-cap territory or across market caps, in response to market conditions, which dramatically alters their risk profile. Now, funds will be forced to maintain their investing focus. Any drastic change in style will constitute a change in the fundamentalattributes of the scheme, which would have to be communicated to the investors. For investors, this means they won’t have to worry about their chosen schemes altering mandates to something which doesn’t suit their needs or risk profile.
Better comparison with peers
Distinct categorisation of schemes will also enable a better comparison of funds within the same category. While the earlier largecap funds category had schemes with pure large-cap focus as well those with a sizeable mid-cap exposure, now such distinctly varied schemes won’t be clubbed together. This will further help investors identify the right schemes by facilitating a like-for-like comparison of funds. “All schemes of different AMCs within a similar category will have similar characteristics, which will enable customers to make a better ‘apples to apples’ comparison,” says Stephan Groening, Director, Investment Solutions, Sharekhan, BNP Paribas.
These schemes may be reclassified or merged
The new Sebi norms require funds to have only one scheme per category.
Note: This is only an indicative list. All schemes mentioned may be retained by the respective fund house. There may be other duplicate schemes from other fund houses also. Source: Value Research.
Sharp rise in fund corpus
Since fund houses will now be forced to merge duplicate schemes within the same categories, it may sharply increase the size of certain funds. This could hurt the scheme’s performance. “Some larger fund houses with multiple schemes will have to opt for mergers. This may lead to a sudden, sharp rise in the corpus of schemes, which could dent the fund’s returns,” says Vidya Bala, Head, Mutual Fund Research, FundsIndia. “There could also be an impact cost on the investor, as fund may rebalance or churn the portfolio to ensure the fund aligns with the category norms,” adds Bala. For instance, both HDFC Balanced and HDFC Prudence are aggressive hybrid funds, with a corpus of Rs 14,767 and Rs 30,304 crore. Merging the two will create a Rs 45,000 crore fund. However, it is more likely that the fund house may instead reposition one of the schemes in another category.
Possible fall in outperformance
While the new norms are likely to lead to better adherence to the fund style and mandate, it may result in reduction in alpha—outperformance compared to the index—for some schemes. Funds often tend to stray away from their chosen mandate in the pursuit of generating excess return over the benchmark index. Now, with limited flexibility to stray into another segment, some funds may find alpha generation more difficult than before, reckons Bala.
Need for portfolio review
Since fund houses will now have to align their product suite with these norms, there is likely to be a flurry of activity related to recategorisation of funds. In order to avoid merging certain duplicate schemes, these are likely to be renamed or reclassified into another fund category. Some funds may witness a change in scheme attributes to facilitate its repositioning. As such, over the next 5-6 months, several schemes may change colours. Investors would then have to undertake a thorough portfolio review to ensure their funds continue to meet their requirements, insists Bajaj.
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
Sarbajeet K Sen | Sep 14, 2017 11:37 AM IST | Source: Moneycontrol.com
Poor performance of a fund must set the investor thinking on whether to continue with the investment.
When did you last review your mutual fund portfolio? Maybe a long time ago. Many investors might feel relaxed after investing in mutual funds with the thought that their money is safe with experts trained in investing and stock selection.
However, the mutual funds landscape is a mixed lot. There are good, high-performing funds and there are laggards who are unable to keep up with performance of the leaders.
Did you check which of these category of fund you have invested? If it is one of the top-performing ones, giving you good returns, you need not worry. But if it is one of the funds that have not performed well in comparison, it might be time to think of a switch to another fund.
So when did you last review your mutual funds investment portfolio to know whether it needs a change? If you do it periodically, well and good, but if you have not reviewed for a long time, you should assess how your various fund investments have been performing.
“Investors should review their mutual fund portfolio at least once in 6 months. They should look at the performance of the fund, the sectoral allocation that they chose and whether there have been any big changes,” S Sridharan, Business Head, Financial Planning, Wealth Ladder Investment Advisors
Sridharan says if the review shows that the fund has performed poorly, it should signal a possible exit and switch to another fund. “Poor performance of a fund must set the investor thinking on whether to continue with the investment. However, exit decision should not be based only on performance of the fund. Investors should look at other parameter like what went wrong and whether the fund manager has the capability of revising the portfolio to the positive side in the near future,” he said.
Vikash Agarwal, CFA & Co-Founder, CAGRfunds, says one should avoid unnecessary churn in portfolio. “The essence of money-making is regular investments in well-managed diversified equity mutual funds. One should avoid unnecessary churns in the portfolio which may enhance cost in terms of exit load and tax implications,” he said.
However, Agarwal says there can be multiple reasons which might merit a review and change of one’s mutual fund holdings. Some of these are:
–Continued underperformance of the fund such that the fund is unable to beat its benchmark
-The fund is able to beat the benchmark but the returns are not commensurate with the levels of risk being taken by the fund
-A particular stock/debt instrument holding which forms a significant holding of the fund is likely to underperform due to a fundamental issue. Example: If a fund has significant exposure to a company which has acquired a loss making company, it might merit a deeper review of the fund
–Change of fund manager: In case there is a change in fund manager, then it is useful to review the fund as the fund style and philosophy might undergo a change and it might not be suitable to investment objective anymore
“If your fund is showing such characteristics then it is ideal for you to exit and switch to a better managed fund,” Agarwal said.
Navneet Dubey | Sep 19, 2017 04:18 PM IST | Source: Moneycontrol.com
Equity mutual funds can give you good returns if you keep your money invested over a long period of time to overcome market cycles.
Your dream of becoming a ‘crorepati’ may seem difficult. But in reality, if you plan your finances and invest in the right instruments someday you will have your dreams realised someday. One of the best ways to try and achieve the crorepati dream could be investing in equity mutual funds for good returns over a long period of time. There is a definite correlation between the time and money. If you have less money to invest then you have to wait for a longer time to get your goal accomplished and if you have more money to invest you might reach your goal earlier if you plan and invest properly.
However, before investing in mutual funds, especially –equity MF’s, you should ask yourself two questions:
how much you have to invest and over how long to reach your Rs 1 crore destination.
Here we try to get you answer to both the questions.
How much to invest monthly?
As a young investor, you may easily take a higher risk by saving less amount and gain more returns to achieve your financial goals. While being in the middle of the age, you can take the moderate risk to head toward becoming a crorepati.
Thus, at an early age even if you have less money to invest, you can become crorepati by investing Rs 700 per month (which is the least amount) for 35 years, at an assumed 15% rate of return to accumulate the desired amount.
However if you start later, you need to invest more money to reach your financial goal. For instance, you will need Rs 5500 per month for 25 years, at an assumed 12% rate of return, you will be able to make Rs 1 Crore approximately.
A larger amount of Rs 13,500 per month for 20 years, at an assumed 10% rate of return, will enable you to make Rs 1 Crore.
How to select a fund?
To earn 12-15% of return on your investment, you need to select good equity stocks or one can go for equity mutual funds to mitigate the risk to an extent. While selecting, equity MF, you need also check that your portfolio should have mid-cap/small-cap funds for around 30-40% and the remaining 60-70% should have a diversified fund, a large-cap fund, etc. to maintain an aggressive portfolio with right asset mix.
Whereas to maintaining a return of around 10-12%, you should invest in balanced fund/hybrid fund, etc. to maintain a moderate risk portfolio. In such case, one can avoid or reduce the investment amount in mid-cap/small-cap funds or avoid making investments in risky stocks.
Are there alternatives?
Investing money in pension plans, NPS can also help you achieve this financial goal. However, the returns offered under such schemes are not stable and market linked. Moreover, in some instruments, returns are subject to change as per the government rules. Also, investing in an instrument like fixed deposits, national savings certificate, etc. may not help you achieve the goal within the maximum time period as mentioned thereon.
One should also have to remain invested for a longer time period and follow proper asset allocation strategy to achieve the target amount. It is must to take the help of a financial adviser before making such financial decisions.
In the grid given above, make sure you know that any investment made in equity mutual fund or equity stocks are not guaranteed. The returns are also volatile and not fixed as they are dependent on the financial market.
While debt funds, unlike fixed deposits and small saving schemes are also subject to market risk, though less than equity funds, the return expectation is commensurately higher than traditional products over the same tenure.
Kirtan Shah | Aug 24, 2017 10:19 AM IST | Source: Moneycontrol.com
Lately I have been meeting a lot of relatives, friends & acquaintances, grappling about a common concern of what to do now with the new normal of low interest rates on fixed deposits & small saving schemes. It is very disturbing for many because of their investment style and return expectations from the past. Invest in mutual funds, I said. ‘Don’t mutual funds invest in stocks?’, ‘Aren’t mutual funds risky?’, ‘Will I get fixed returns?’ they asked. Mutual Funds as a product offering which can invest in equity, debt, commodities and even a combination of them depending on the objective of the fund and hence investors across risk profiles, goals & time horizon will find a suitable product, I said.
Why Debt Funds
(1) Tenure of investment – Regardless of your time horizon, there is a suitable debt mutual fund available.
(2) Tax Efficiency – This is the reason why most FD investors will appreciate debt mutual funds. If you invest for less than 3 years, the gains are taxed at the income tax slab rate like in an FD but if you hold the investment for more than 3 years, the gains are taxed at 20% (even if you are in the 30% tax bracket) and that too not on the full gains but only on the gains that exceed inflation. So if you earn 8% on the debt fund and inflation (measured by CII) increases by 5% in the same period, you pay 20% tax only on 3% (8%-5%), which is 0.6% (20%*3%) versus 2.4% (8%*30%) 4 times higher in an FD investment. The post tax return on a debt mutual fund is far superior to a FD, even when we are assuming that the debt fund will generate returns similar to the traditional products.
(3) Possibility of higher returns – Return is a function of calculative risk taken. It is not that FD does not have any risk. It is presumed to have no risk, which may not be entirely true.
Let me highlight a couple of risks that all fixed income instruments have.
(a) Interest Rate Risk – Lets assume you have invested in a FD paying 7.5% return over 3 years. What if interest rates in the market move up? The same institutions will then pay 8% to the new depositor vs you still receiving 7.5%.
(b) Reinvestment Risk – In the same case above, if the interest rate moves down, you will get a lower rate from the same institution, when you try and reinvest after 3 years. This is the challenge most traditional product investors are currently facing and will continue to face in the future. Over the last 15 years, investors have seen bank FD’s paying as high as 12% as well but the average over the last 15 years is 8.5% on the bank FD.
(c) Inflation Risk – While the above investment matures after 3 years, you realize that inflation has moved up by 5% in the same period. The net result on your investment is not 7.5% but only 2.5%, which we call as the real rate of return. Most of the times you will observe that inflation is increasing at a pace faster than the returns offered on the FD, generating negative real return.
All the above are risks that one has to take irrespective of the fixed income instrument they invest in. While debt funds, unlike fixed deposits and small saving schemes are also subject to market risk, though less than equity funds, the return expectation is commensurately higher than traditional products over the same tenure. In the below chart you will see how various debt fund categories have performed over the last 3 years.
Risks in a Debt Mutual Fund
Interest Rate Risk – Debt funds invest in various fixed income instruments issued by the government, banks & financial institutions, RBI, corporates etc., which are mostly traded on the exchange helping the fund to generate higher returns over the interest (coupon) committed. The price of the traded fixed income instrument is inversely proportional to the market interest rate. Lets say the debt fund bought a government bond paying a coupon (interest rate) of 8% and is now trading in the market. In the future when interest rates drop, government would issue a new bond at a lower interest rate, say 7.5%. Everything else kept constant, it’s logical to buy the old listed bond, which pays higher interest rate of 8% than the new bond and hence the price of the old bond increases because of higher demand, generating capital gains for the debt fund over and above the 8% coupon. Interest rate risk in the bond fund is captured by modified duration. Higher the modified duration, higher is the risk and higher are the return expectations. If a fund has a modified duration 2, it means for every 1% drop in market interest rate, the debt fund will generate positive 2% returns over and above the YTM (investors can understand this as the coupon/interest rate). The table below will help you understand the interest rate risk profile of various debt funds.
Conclusion – If you want to take lower risk, select funds with lower modified duration.
Credit Risk – The fixed income instruments in which the debt funds invest are credit rated. Credit rating agencies give a rating to all these instruments showcasing the credit worthiness of the issuer to pay interest and return the principal. Higher the credit rating, lower the risk and hence lower is the coupon the issuer pays and vice versa. So let’s say, if the debt fund buys an instrument, which is highly credit rated at AAA, fund will receive a lower coupon rate, as the risk is low. Unfortunately, in the future if the credit rating agency reduces the credit rating to AA, the debt fund will still receive the same coupon that was committed earlier but the risk has increased and hence this fixed income instrument will start trading at a lower price on the exchange, incurring capital loss to the debt fund. The inverse is also true. The point to be noted is that the capital loss is only notional. If the debt fund does not sell the fixed income instrument in the market and continues to hold, it still receives the coupons committed as normal. The table below will help you understand the credit risk profile of various debt funds.
Conclusion – To reduce the risk, select funds, which invest in high credit rated products.
The right debt fund for you
The answer to which debt fund you should invest in, depends on your goal and risk profile. If your investment horizon is less than 3 months, the most ideal option is investing in a liquid fund. Having said that, you can invest in any other scheme from the list below, but the risk profile of the fund may increase if invested for less than the ideal investment horizon. Lets say you choose to invest in corporate bond funds for 3 months to generate higher returns, you have to understand that the risk will be higher than normally holding the corporate bond fund, which is medium if held for more than 2 years. The below table will give you a clear snapshot of which fund debt fund suits your requirement.
The writer is CEO – Sykes & Ray Financial Planners
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.
Global Fund investment options albeit limited have been around for a decade, with options to invest into US, Europe, ASEAN, country specific funds like Brazil & China and even funds investing into natural resources companies like Gold mining companies or Energy companies.
By Kaustubh Belapurkar – Morningstar India | Jul 15, 2017 11:02 AM IST | Source: Moneycontrol.com
International Funds from an Indian investor’s perspective have been a little bit of a hit and miss.
Global Fund investment options albeit limited have been around for a decade, with options to invest into US, Europe, ASEAN, country specific funds like Brazil & China and even funds investing into natural resources companies like Gold mining companies or Energy companies.
The greatest amount of investor interest has typically been in Gold mining funds and US funds. In fact in 2013, when the Indian equity markets where going through a prolonged lull phase, domestic equity funds too were witnessing stagnating growth.
At the time investors increased allocation into US Funds on the back of strong 1-year historical returns of these funds. Post that, though the story has been very different, with the start of the domestic equity market rally in 2014, domestic fund flows are reaching new highs, but Global funds are witnessing a slow trickle of redemptions.
As an effect of this global funds currently forms a minuscule proportion of investor’s portfolio at 0.28 percent from a high of 1.56 percent in Jan 2014.
Why Invest in International funds
Investors should consider adding international funds in their portfolios from the perspective of diversifying risk in their portfolios.
Investments should be made for the long term on an overall portfolio allocation basis rather than a decision based on short term historical performance.
By adding international funds in your equity portfolio, you can potentially reduce the overall volatility in your portfolio by as much as 5-10 percent.
It is important to acknowledge that markets go through cycles and no market will be a top performing market year after year as is visible in the table below.
In addition, Indian markets display a lower correlation with developed markets like the US, thus the addition of such exposures helps reduce overall portfolio volatility.
The calendar Year Index Returns (INR)
Another factor to consider is the ability to take exposure to sectors or companies that you would ordinarily not have exposure to.
Global Companies like Amazon, Google, Facebook, Coca Cola, etc. are widely known and used brands in India, they derive a fair share of the revenues/users from countries such as ours. By investing in these funds, you can potentially gain exposure to such stocks.
Investors should certainly think about adding an international flavor to their portfolio and stay invested for the long term. You can consider investing 15-20% of your overall equity exposure into global funds.
Disclaimer: The author is Director of Fund Research at Morningstar Investment Adviser. The views and investment tips expressed by investment experts on Moneycontrol are their own and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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).
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:
Households are putting more money into financial assets as slowing inflation reduces the value of gold
Rajhkumar K Shaaw and Santanu Chakraborty | Tue, Oct 04 2016. 07 19 PM IST | LiveMint
Mumbai: Indian investors are shifting savings into stocks like never before.
Mutual funds showed net buying of shares for a record 10th straight quarter in September, data from Bloomberg show. Households are putting more money into financial assets as slowing inflation reduces the value of gold, a traditional favourite.
Shibabrota Konar exemplifies the shift. He’s stopped buying exchange-traded funds backed by gold and now invests at least 15,000 rupees ($225) a month into stock funds. A jump in industry-wide accounts to a record 50 million at the end of August show he’s not alone.
“Gold has eroded wealth in the past three years, while stocks have taken off,” says Konar, a 43-year-old telecom engineer who lives in Mumbai. “Equity funds offer the best way to create long-term wealth. And I can invest in small amounts.”
Retail investors like Konar have been the main contributors to mutual funds’ growth since Prime Minister Narendra Modi took office in May 2014 with the biggest mandate in three decades. Assets with money managers swelled to an unprecedented 16 trillion rupees ($241 billion) in August, with stock plans making up 32% of the pie. The proportion was 20% in April 2014, data from the Association of Mutual Funds in India show.
Analysts cite several reasons for the trend:
The gush of money into funds has sent the nation’s small- and mid-cap stocks to a record, while providing companies with a growing pool of capital to tap for their initial share sales and helping the market weather events such as the U.K. vote to leave the European Union. Early signs suggest investors are looking past last week’s military offensive too. The S&P BSE Sensex has risen 1.7% in two days, recouping more than half of last week’s 2.8% tumble spurred by India’s attacks on Pakistan terrorist camps.
Optimism that slowing inflation may prompt the central bank to lower borrowing costs from a five-year low is also pulling investors toward stocks, says Mirae Asset Global Investments (India) Pvt. The new central bank governor Urjit Patel led a united monetary policy panel to cut interest rates at its first review on Tuesday. The Sensex closed with a third day of gains after the policy decision.
“It’s time to back up the truck for stocks,” said Gopal Agrawal, chief investment officer at Mirae Asset, which manages $600 million. “The migration to moderate-risk equity products like mutual funds is growing at a phenomenal pace because of their relative attractiveness” over alternatives such as bank deposits, he said.
Equity funds have attracted 1.63 trillion rupees from April 2014 through August this year, according to AMFI data. That’s more than the 934 billion rupees that Deutsche Bank AG estimates funds got between January 2002 and April 2014.
The market benefits from a regular stream of money flowing from savers setting aside a fixed amount every month as part of their mutual fund investment plan. The industry takes in 35 billion rupees monthly from 11 million investors aiming to smooth out market swings through averaging, according to AMFI.
“People have begun to invest with maturity,” said Nilesh Shah, chief executive officer of Kotak Mahindra Asset Management Co. The Mumbai-based money manager, which has $9.5 billion in assets, got new inflows on Thursday when the financial markets were jolted after the nation announced it attacked terrorist camps in Pakistan.
Demographic trends are also helping, said Navneet Munot, chief investment officer at SBI Funds Management Pvt., which has $18 billion in assets.
“The bulk of our population is under 35 years of age and this generation has a much higher risk appetite,” he said. “The millennials will drive the equity boom over the next five years.”
The optimism among Indian investors contrasts with skepticism from savers elsewhere. Inflows into Japan’s stock funds fell in July to the lowest since November 2012, and stayed near that level in August, data from the Investment Trusts Association in Japan show. Almost $90 billion was pulled from US mutual and exchange-traded funds for the year through August, even as the S&P 500 Index gained almost 20% from a February low, according to data compiled by Investment Company Institute and Bloomberg.
Indian families will probably buy $300 billion of equities in the next decade, six times as much as they did in the past decade, Morgan Stanley said in a May 2015 report.
“You will be surprised with the amount of money that will come into the markets over the next three to five years,” Anand Shah, the chief investment officer at BNP Paribas Asset Management India Pvt., said in an interview in Mumbai. “The incentive to buy real estate and gold is diminishing by the day.” Bloomberg
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