The biggest worry for global financial markets is China

China is the 2nd largest economy in the whole world and carries substantial economic hit with its trading partners. However, the slight fall in China’s equity market on 23rd November 2017 has set a fret in financial markets of China.

China Blue-chip stock index, CSI 300 had experienced its worst downfall in 17 months on 23rd of November. CSI 300 index fell by 2.93% as the market became worried about rising bond yields and PBoC deleveraging campaign.

CHINA

The current year, China’s bond yields have risen by 93 bps and are trading at 3-year highs. The sharp rise in China bond yields specifies the government’s determination to control corporate debt, which involves them in a talk that Chinese economy could fall in the coming future.

                                                        China CSI 300 Index

CSIThe top stock on Hang Seng was WH Group Ltd which stood up 1.69% and the stock which suffered loss was AAC Technologies Holdings Inc which sustained a downfall of 4.24%.

The 3 biggest H-shares percentage decliners were China Pacific Insurance Group Corporation Ltd which had a downfall of 4.73%, New China Life Insurance Corporation Ltd which has 4.7% and China Merchants Bank Corporation Ltd down by 4.1% while the biggest stocks which perform well were China Minsheng Banking Corporation Ltd which stood up 2.41%, Great Wall Motor Corporation Ltd which gained 0.98% and China railway Construction Corporation Ltd who stood up 0.77% in the Chinese financial market.

                                                China 10 Years Bond Yields

BONDSThe CSI 300 index is moving smoothly by 3.3% and closed down at 3% which is its biggest loss since June 2016 i.e., within 17 months. The ChiNext Index stood down by 3.2% which is its highest downfall in 4 months. The other two stocks, i.e., Shanghai Composite Index and Shenzhen Composite Index fell more than 2% that day.

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According to the report, China’s five years corporate bond yields had risen by 33 bps in November 2017, which has hit a three year high of 5.3%. In China, there is more than 1 trillion dollar of local bonds which are going to get matured in the coming year 2018-2019, therefore, it is going to be expensive for these firms to roll over financing.

 

What are Dynamic Funds? ( Video )

Every stock market investor wants to buy equities when markets are at their low and sell them when markets are at their peak. But it’s easier said than done as it is always hard to resist temptation when markets are near their peak and it’s always tough to find the courage to jump into equity markets when the markets are falling. But if the investors are willing to take the mutual funds route the above can be easily done with the help of dynamic mutual funds.

Dynamic funds switch between different asset classes, depending on their attractiveness.

Dynamic funds are specifically designed to switch seamlessly between equity and debt, depending on the market conditions. The fund manager of this scheme shifts between the asset classes based on their attractiveness as indicated by certain valuation metrics. Hence, in a rising market scenario, these funds will invest a larger portion of the corpus in equities and hold a lesser amount in debt and cash.

DYNAMIC FUND

In the case of a falling market, the scheme will allocate more money to debt and, perhaps, hold more cash, while slashing the exposure to equities. Even hybrid funds do that, but they can’t switch rapidly between asset classes and they’re typically true to one asset class, such as equity in case of balanced funds and they invest less in other asset classes. Dynamic funds aim to switch aggressively between equity and debt and are more opportunistic. In dynamic funds you can buy on dips and sell when the markets are at high levels. These asset allocation funds act as a shield against market downswings and they typically lose less money when the markets are down.

These funds aims to normally invest in equity but can react quickly to a negative market by moving 100 per cent of its assets into money market instruments, fixed income securities and derivatives with an aim to limit the downside risk, in the event that the fund manager is bearish on the market.

Dynamic funds often have another interesting characteristic. The balance between debt and equity is decided not by the fund manager, but by a formula. To be sure, this is not passive investing (as in an index fund), because the recipe for asset allocation is itself a result of research by the fund house, but there is an element of automation involved. Most funds in the space decide their asset allocation based on a clear formula.

For instance, some funds make equity allotments based on the nifty’s PE while some funds follow the PBV ratio. The goal is always to use indicators like P/E ratio and others to define a time when the markets are ready to fall and to reduce equity allocation at that time and to increase it when the market has fallen enough. Either way, this type of fund brings an interesting element into equity fund investing.

Know more About P/E Ratio and its Significance

Normal equity funds are always supposed to be invested in equities. Conceptually, their job is to do better than the equity market, their job is not to make gains but to do better than their benchmark, even if that means falling less than the markets when the markets are falling.

Dynamic funds, on the other hand, implicitly make the promise of being absolute return funds. They define their job as making gains with their equity investments just like non-dynamic equity funds, but additionally as also getting out of equities when the markets are not going to do well.

Typically, dynamic funds underperform as compared to pure equity funds in continuously rising equity markets because these funds sell equities and get into cash as equity markets go up. But when the markets going down or when there are many fluctuations in the market these funds will often perform better than the normal funds.

A well-managed dynamic fund can absolve you of the headache of timing the markets and investors can earn good returns if they remain with these funds for long term. You could consider such a fund for stability in your investments in a volatile climate. However, remember that aggressive rebalancing may not always work in the fund’s favor. It is also not advisable to go by the short-term performance of these funds alone. They can provide good results if they are held for a reasonable time, at least three to five years. These funds are able to make the most of the market ups and downs given adequate room to work.

Note : Mutual fund investments are subject to market risks read all scheme related documents carefully.

Past Performance is Not A Guarantee Of Future Returns.

DISCLAIMER

No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here.

Know the Portions of Your Rs.100 Bank Deposit.

In all the noise about rising bad loans, a deposit deluge in the aftermath of demonetization and the collapse of credit growth, it’s time to take stock of where public funds are lying right now in the economy.

In a report from the Reserve Bank of India, the credit-deposit ratio as of the month of May was 72%, which means that out of Rs.100 deposited in the bank, Rs.72 used for lending and the rest Rs.28 was used to buy government bonds. In the same time of the previous year, banks have used Rs.76 out of Rs.100 deposit for lending and had left the rest Rs.24 in bonds. This is as per the stock of deposits on the 30th of the month.

1001Source : Centre for Monitoring Indian Economy

Taking a look at the additional credit-deposit ratio, which shows what portion of the new flow of deposits, is getting placed in the credit. And this reflects the slump in credit growth in 2016-17.

By the time of March-end the additional credit-deposit ratio was 42%, this shows that more than half of the deposits that came in were placed in government bonds. These are low-yielding and very safe assets. This could be easily understood by the fact that the deposit stream following the demonetization of Rs.500 and Rs.1000 currency bills left a little choice to the banks to buy nothing but the government bonds as the loan demand is very less. Moreover, during the demonetization period, this was even lesser in the month of November, it was 1% only which aroused to nearly 13% in the month of December.

Trouble in India’s Credit System of banks having foremost NPAs

Now, if we talk about the month of May where the credit-deposit ratio was 72%, the large amount of share is still placed with industry through the loans accompanied by credit to services as well as individuals.

Share/Portion of Rs.100 Deposited

Out of every Rs.72 lent, nearly Rs.17 only went to personal loans and services each, and approximately Rs.28 or 29 went to build or run the factories. A share of Rs.10 went to agriculture. The share of personal loans has aroused in one year to approximately 25% of total non-food credit from 21%. On the other side, the industry has dropped to 38% from 41% while farming maintained its portion of nearly 14%. Basically, only Rs.25 of every Rs.100 deposited in a bank comes back to the people in the form of loans like home loans, car loans and other credits.

It is known that the banks are burdened with a big heap of bad loans. Approximately Rs.14 of every Rs.72 lent is now classified as stressed portion, which means it neither originate any income for the banks or due to the late payments by the borrowers to lenders.

What are the Long-Term Debt Funds and How to use It?

The long-term bond fund is the simplest type of debt and is varied across various kinds of fixed income tools and is usually meant for long-term investments only. Perhaps, it has a common structure but making money out of it is a bit tricky.

What is it about?

A long-term bond fund is meant for investors who wish to make money over the long term, typically over a period of 3-5 years. Like we have always said, debt funds are to be chosen based on your investment tenure.

The average maturity of these funds is in excess of 3 years most of the times.

bonds1

A long-term bond fund invests in a mix of corporate bonds and government securities (g-secs).

There are two types of long-term funds. One type of funds stay invested in long-tenured bonds and G-secs. The other type of funds are dynamic funds.

In a falling-interest-rate scenario, their average maturities go up to around 7-10 years. When interest rates rise, they stock up lower-tenured instruments and keep the portfolio’s average maturity low.long term bonds

Long-term bond funds are meant to provide you more return than the bank fixed deposits. And if held for longer time period, say more than 3 years, the returns are also tax efficient. These funds can give 8 to 10% returns over a 5 year time period.

But it’s not always as easy as it seems. Due to holding for long time period, these funds can get volatile when there are ups and downs in the interest rates of the economy. Also, in an assisted rising interest rate rule, long-term bond funds give moderate results as they can’t sell long-holding bonds and change to shorter holding bonds.

Amtek auto MF Holdings

According to a research analysis of a chain of 5 year returns over the previous 10 years, debt funds have returned 2 to 12% returns. That’s a broad range, but a lot also depends on your fund manager.

Dynamic bond funds are more volatile. Here, your fund manager may extend or minimize the fund’s average maturity extremely depending on his perspective of the interest rates.

For example, as per Crisil, RDBF (Reliance Dynamic Bond Fund) raised its average maturity period from 12.86 years to 13.49 years in 2016 as to set a standard security, 10 year g-secs’ production went down to 6.24% from 7.78%. When the 10 year production rose to 6.96% in April 2017 from 6.51% in December 2016 then in the same time RDBF’s average maturity fell to 9.69% from 12.22%.

Moreover, long-term bond funds were one of the few authentic debt funds when there were very few debt funds available in the market. There were great chances for the long-term investors to originate long-term income with minimal instability. But changing with the time, there are short-term funds and corporate bond funds that have proliferated providing similar income originating chances but with much less instability. Although, If one wants to stay invested with long-term bond funds for about 5 years or more to get better results, then substitutes like balanced funds and large-cap funds could give better results to you.

DISCLAIMER

No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here.

Is your MF holding an Adani power Debenture ?

The Indian Rating agency Crisil specified and accused Adani Power Ltd. of not proving the details of operations of the company for the rating action while conforming again its stable stance towards the company and BB- rating (3 scores below the investment point). Crisil said the bank loan facilities of Rs.6559 Crores are specified as non-cooperative. Also, it said that it is based on the ultimate information which is available as the Adani Power Ltd. has not provided the required information essentially needed to perform the rating action.

adani power

Crisil said that ‘the lenders, investors and all other market entrants should practice due caution while making use of the rating evaluated with the suffix ‘issuer not cooperating’. These ratings lack a progressive element as it is showed at without any management interaction and is based on the ultimate available or limited or dated facts and figures of the company.’

adani

Why Tata Group stocks are not attracting Mutual Funds anymore?

The investors must not take it at a face value. Including short-term and long-term loans Adani Power Ltd. has a total debt of approximately Rs.54000 Crores.

Following the Supreme Court judgment, Adani Power had to overturn Rs.3650 Crores of CT (compensatory tariff) in FY17 booked on the Mundra power plant of the company, on pass through of hike in Indonesian coal prices.

Amtek auto MF Holdings

Adani Power which could not be in the position to do any comment recorded company’s profit of Rs.1,012.19 Crores in the comparison of a net loss of Rs.4960.53 Crores.

In the recent past weeks, it is like downgrades are becoming a basic part of debt mutual funds’ investments and this is making the investors with low-risk appetites to take care of their selection of investments. Recently, the rating companies have issued the downgraded ratings to IDBI Bank BSE 0.33% and Reliance Communications and the Oriental Bank of Commerce and the latest one that includes in this list is Adani Power Ltd.

Can the ideal equity portfolio beat inflation substantially?

With every passing year, inflation tends to erode the purchasing power of your money. However,by staying invested in equity for a longer period of time; you could beat inflation.

Let’s assume that your equity portfolio has delivered 10%,of which, inflation will consume 7%;leaving you with only 3% which would be your inflation-adjusted return. At the onset, it seemed lucrative but when you adjusted it against the inflation, it was nominal. This is how inflation impinges on your investments in the long run. Equity as an asset class has outdone the inflation in the past, for instance, Sensex has delivered 16.06% CAGR in the last 38 years, beating inflation by 8.09%.

INFLATION1Source : MOSF

The above chart depicts that if you had invested Rs.100 in the year 1979 in to 3 different a venues i.e. Fixed Deposit, Gold and Sensex, today the Value of Rs.100 after adjusting for inflation would have remained almost at the same level in FD,would have merely been just above double in Gold, but in Sensex,it would have been almost 15 times.

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YOU COULD also beat inflation through investing directly in equity, provided you have the time and expertise to study the stock/company before you buy and monitor them periodically or simply leave it to an expert by investing in Mutual Funds.

DISCLAIMER

Past Performance is Not Indicative of Future Results.

No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here.