Tagged: SIP

ATM :: The advent of mutual fund SIPs in India

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

ATM

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

Source: https://goo.gl/Y5WWs8

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Interview :: Invest cautiously, stocks over-valued: Nimesh Shah

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

ATM :: Seven steps to your first home

RAJEEB DASH | October 8, 2016 | The Hindu BusinessLine
A property buying guide for millennials by Rajeeb Dash

ATM

For a millennial, the decision to buy a home can be a life-altering one.

For young individuals or couples, getting into a long-term debt commitment such as a home loan can be a daunting task.

However, as financial advisors would agree, buying your first home in your 20’s or early 30’s can be one of the smartest moves you can make financially, as it gives you a great head start in more ways than one.

Firstly, unlike rent payments, a mortgage payment (though it may seem overwhelming in the first few years), goes a long way in asset building and increases your home equity.

Secondly, it restricts you from making unnecessary purchases and keeps from accumulating credit card debt. Thirdly, a secured loan such as a home loan early in life and making timely repayments on the same gives your credit score a boost and paves your way for further access of credit when you require it.

Now that we have established the advantages of a millennial attempting purchase of property, here is a comprehensive guide for first-time home buyers:

1. Getting over the initial fear

Those who have just about completed hefty student loans may develop cold feet at the thought of skimping once again and preparing to take a home loan.

At this stage in your lives, it is important to see the bigger picture.

In a few years from now, a roof over your head that you can call your own before you reach your middle years will feel like a great achievement.

2. Invest with a specific goal

If you have firmed up your mind to purchase your first property, the first thing you must do is begin investing with this specific goal in mind.

Set a budget and pick an investment option that will help you meet your goal in a specific number of years.

While setting a budget, do not be too hard on yourself and try to stretch limits.

Your first home need not be your only home and you can always graduate to a bigger place when you can afford one.

While saving for your first home, equities may be your best bet as they offer you the best inflation adjusted returns as compared to other instruments despite the risk factor.

If you do not have the expertise or the time to invest in equities yourself, you can choose the systematic investment plan (SIP) route of mutual funds.

By investing in equities through the SIP option of mutual funds you also get the advantage of compounding, which means your returns are reinvested over the term you choose to remain invested in the fund, thus helping you achieve your financial goal of saving up enough for the down payment of the property.

3. Home loan options

Do enough research before you decide on a lender.

Many lenders want young and dynamic home owners as customers and have specific loan products that make it easier for you to make repayments in your initial years and increase the quantum with the rise in your career.

Checkout such options and read in between the lines to understand each nuance carefully.

4. Begin with clean credit records

One of the most important factors that will decide whether or not you are creditworthy, is your Credit Information Bureau (India) Limited (CIBIL) score.

Your CIBIL score is a three digit numeric between 300-900 that is assigned to you by India’s premier credit bureau.

This score is based on your credit behaviour or how you have serviced your credit lines you have availed of thus far.

In order to maintain a good CIBIL score (750 and above) it is necessary for you to have serviced debt regularly and well before applying for a fresh loan.

One of the best ways to ensure that your CIBIL score remains intact is by making a habit of not building up credit card debt.

Spending very small amount and ensuring that you make a habit of properly repaying your credit card bills before the end of each and every billing cycle is a good way to ensure that you do not get into a debt trap and also maintain a fairly good CIBIL score.

5. The quest for your first home

In this world dominated by the internet, the search for your first home must necessarily begin online.

There are a host of websites such as 99acres.com, magicbricks.com, indiaproperty.com, makaan.com that have made it easy to filter searches according to your requirements, budget and location preferences.

It is a good idea to go through all of these portals and shortlist properties that you would like to see personally.

Besides using such websites, make the best use of the internet and social media to reach out to actual buyers and check the reputation of the builder, the living experiences and the problem areas if any.

A thorough virtual search gives you a firm footing before you start visiting the properties personally and finally zero in on a choice that is best suited to your needs and budget.

6. Be aware of your rights

The real estate market can turn out to be a head spinner when you are out there on a house hunt.

It is important to be mindful of what your requirements are and be aware of your rights when seeking out a home.

7. The final step

Once you have taken possession of your new house, the first thing to do is store all your property documents.

Make a few photocopies and keep them in at least three different locations.

It is a good idea to get all your property documents digitized and locked in an e-safe.

Next, update all your official documents with your new address and finally transfer all property related paperwork such as water and electricity meters, society membership and property tax records in the local municipal body in your name.

Once you have taken possession, the first thing to do is store all your property documents safely.

The author is AVP-Marketing, Tata Housing

Source : https://goo.gl/W6aXJn

ATM :: Should you invest your money or use it to prepay home loan?

By Narendra Nathan, ET Bureau| 9 May, 2016, 12.29PM IST | Economic Times

ATM

If you have an outstanding home loan, and happen to have just received an annual bonus or any other lump sum payment, should you use it to prepay your loan? Or, should you invest it to meet some other goals? Assess the following conditions to arrive at the right decision.

The first variable to be considered is psyche: some people may not be comfortable with a large housing loan and to reduce their stress they may want to get rid of the loan burden at the earliest. For them, settling the question of how to use their bonus is simple: just pay off the loan. Gaurav Mashruwala, Sebi-registered investment adviser, categorically states: “You should pay off the home loan at the earliest. Several unfortunate happenings— job loss, death of the earning member, serious illness, etc—can cause trouble during the 10-15 year loan period. Treat it as a mind game and not a numbers game.”

Tax benefit is the next variable. If a home loan does not seem like the sword of Damocles hanging over your head, it makes sense to continue with the regular EMI schedule. This is because of the tax benefits that a home loan offers. The principal component of the EMI is treated as investment under Section 80C. The interest component is also deducted from your taxable income under Section 24. The annual deduction in respect of the interest component of a housing loan, for a self occupied house, is limited to Rs 2 lakh per annum.

You won’t be able to claim deduction on interest paid above Rs 2 lakh. So, if your annual interest outgo is higher than Rs 2 lakh, it makes sense to prepay the loan, and save on future interest payment. For example, the annual interest on a Rs 70 lakh outstanding loan, at 9.5%, comes out to be Rs 6.65 lakh. After taking into account the Rs 2 lakh deduction under Section 24C, the interest component will fall to Rs 4.65 lakh, and bring down the effective cost of interest from 9.5% to 8.64%, even for the people in the 30% tax bracket.

You can, however, optimise the tax benefits if the loan has been taken jointly, say, with your spouse. “If joint holders share the EMIs, both can claim Rs 2 lakh each in interest deduction,” says Harsh Roongta, Sebi-registered investment adviser. In case of joint holders share the EMIs, both can claim Rs 2 lakh each in interest deduction,” says Harsh Roongta, Sebi-registered investment adviser. In case of joint holders, there is no need to prepay if the outstanding amount is less than Rs 40 lakh.

Should you invest your money or use it to prepay home loan?

Should you invest your money or use it to prepay home loan?

There is no cap on deduction in lieu of interest paid on home loan, if the property is not self-occupied. “Since there is no cap for interest on loan against second or rented out homes, there is no need to prepay it,” says Naveen Kukreja, CEO and Co-founder, Paisa Bazaar. Bear in mind, by prepaying your loan, you may also forego future tax benefits. For instance, if by prepayment, you bring down your outstanding loan amount to Rs 20 lakh, your annual interest outgo for subsequent years may fall below Rs 2 lakh. Thus, you won’t be able to avail of the entire tax-deductible limit and, in such a scenario, prepayment may not be a good strategy. Also, building an emergency fund, if you don’t have one, should take a priority over prepaying the housing loan: “Make sure that you have a contingency fund in place before opt for prepaying your home loan,” says Roongta.

The third key variable is returns from investment of the lump sum at hand. As a thumb rule, you should go for investment, instead of prepayment, only when the post-tax return from the investment is likely to be higher than the effective cost of the housing loan. For investors in the 30% tax bracket, and whose outstanding home loan balance is less than Rs 20 lakh, the effective cost of loan is only 6.65%. Since there are several risk-free, tax-free debt options such as PPF, Sukanya Samruddhi Yojana and listed tax-free bonds, which offer higher annualised return than this, it makes sense to invest in them.

All the debt products mentioned above are long-duration products. If your risk-taking ability is higher and time horizon is longer, you can consider investing in equities, which can generate better returns “It’s sensible for long-term investors (five year-plus holding period) to go for equities, provided they are savvy and understand the risks involved there,” says Kukreja.

There are some home loan products that provide an overdraft facility of sorts and help you maintain liquidity. All you have to do is to park the surplus money in these products and not bother with whether it’s a prepayment or not. It’s like prepayment with the option of taking out that money, in case you need it in future for personal use or for investment purpose. The strategy of maintaining the housing loan interest close to Rs 2 lakh per annum can also be managed by these special loan products. And even if you are going to invest, the SIPs can go from this account.

“I park my bonus and do SIPs in equity from the loan account,” says Kukreja. Most banks charge more for these special loan products. “Though the stack rate differential is more, you can bring it down by bargaining with the banks,” he adds.

Source : http://goo.gl/3ce3eL

ATM :: Stick with SIPs through markets’ ups & downs

K V Vardhan | Aug 11, 2015, 06.07 AM IST | Times of India

ATM

I’m 40 years old and work as an insurance adviser . I want to build a Rs 1 crore corpus through SIP in equity mutual funds over the next 20 years.Kindly guide me about how much I have to invest monthly and the type of funds I should invest in. –Sathish Kumar D, Chennai

K V VARDHAN REPLIES

The first step to wealth creation comes from planning and one needs to have the conviction to stick to the plan through the journey. Like the ups and downs associated with investing in the stock market, SIP investments using the mutual fund route is also expected to give you volatility . However, investors who have the conviction to remain invested and continue with their SIP investments through these ups and downs, are bound to achieve their financial goals.

In the past decade, the average yearly sensex return was 13.9%, while well performing mutual fund schemes have returned between 13.4% and 22.7%, and SIPs in the same funds returned between and 13.7% and 25.3%. Hence SIP ,a rupee cost averaging method in a volatile market, has the potential to deliver better return than lump sum investments.

Case 1: Let us considering you require of Rs 1 crore equivalent to today’s value, after 20 years.At 6% per annum rate of inflation, on an inflation-adjusted basis, after 20 years you will require approximately Rs 3.20 crore. To achieve this corpus size, you may consider investing Rs 35,000 per month in equity mutual fund SIPs with an expected annual return of 12%.Alternately , you can invest Rs 24,000 per month in mutual fund SIPs with an expected annual return of 15%. If we have to do asset allocation and create a financial plan for the above case with 70% of your investments going into equity funds and 30% nto debt funds, you may have o invest Rs 44,000 per month. In case you plan to have a 50%-50% ratio with equity and debt mu tual funds, you may have to invest Rs 50,000 per month.

Case 2: Let us considering you require of Rs 1 crore at the end of 20 years. In that case you may consider investing Rs 11,000 per month per month in equity mutual fund SIPs with an expected annual return of 12%. Alternately , you can consider investing Rs 7,500 per month in equity mutual fund SIPs with an expected annual return of 15%. With asset allocation of 70% equity and 30% debt you may have to invest Rs 14,000 per month, while with a 50%-50% equity and debt allocation, you have to invest Rs 15,500 per month.

Here, we assume that annually SIPs in debt funds would return 6% post tax, and equity returns are expected at 12%, also post tax. For an equity investor who is aggressive and has higher risk taking ability , 40% of the corpus should be in midand small-cap funds, 30% in multi-cap funds and the balance in large cap investments.For moderate risk taking ability, the combination should be 30% in midand small-cap funds, 35% in multi-cap funds and the balance in large cap investments. And for a conservative investor, with low risk-taking ability, it should be 20% in midand small-cap funds, 30% multicap funds and the balance in large cap investments.

K V Vardhan is CEO, Ultimate Wealth Managers, Bengaluru

Source : http://goo.gl/FILYlm

ATM :: Get rich without real estate

AARATI KRISHNAN | April 26, 2015 | Hindu BusinessLine

ATM

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Source : http://goo.gl/NNgy6P