51% of investors withdraw their investment from equity mutual funds within less than a year

Almost every investor is familiar with the SIPs (Systematic Investment Plan), where you aim for making a corpus depending on your goals by investing a fixed amount every month in a mutual fund. As per Data from the (AMFI), shows that just 29% of equity assets stay invested for more than two years. A huge 51% of equity assets get withdrawn before a year gets over and more shocker is 10 % invest only for one month.

equity withdrwal

To generate a corpus, equity funds are one of the good options to invest in as they can deliver a fruitful result. But the significant thing to know about equity funds is that one should hold on their investments for at least 5 years or even more to get a worthwhile result.

EMI VS SIP ( Be controlled or take control )

Equity mutual funds not only provide you a beneficial result but also balance your portfolio. Also, depending on your goals, equity mutual funds give you high returns on your investment and tax benefits. They are one of the most profitable and preferable investment methods present in the market these days. People have switched from low-return instruments like bank FDs (Fixed Deposits), PF (Provident Fund), NSC, REAL ESTAE  ( 1% to 2% p.a. rental yield )to mutual funds across the time period. Equity funds help in tax-savings along with capital enhancement. Moreover, equity funds might deliver you the inflation-beaten returns in the upcoming period. There are even some options present in equity funds which are intended to provide you benefits in tax.

These days, investors are attracted towards SIP in mutual funds. They are investing their money in MFs through SIP but they are missing something beneficial and that is holding on for a longer period of time.

A campaign by the mutual fund industry of India named ‘Mutual Fund Sahi Hai’ and the anticipation of economic change has spread a successful awareness in the last two years among the investors. Even the SIP inflows in mutual funds have increased amazingly in the recent years but the investors must understand that if they don’t hold their investments for a longer period, they are slashing their returns by themselves.

One of the several reasons behind people attracted to invest in mutual funds is the diminishing rates of bank fixed deposits. It makes investors invest in their choices of mutual funds, usually in balanced funds and debt funds. The demonetization act happened in 2016 also encouraged investors to switch to mutual funds from gold and real estate investments and this led to a greater proportion of savings. The monthly inflows through SIP have also increased incredibly in the last two years as more than ₹7500 Crores flowed into equity funds in July’ 18. These figures were ₹3122 Crores in April’16.

“Some investors prefer the classical method of investment i.e. staying invested only for one year like people used to do before while investing in 1-year bank FDs. This could be a reason why several investors stay invested only for 1 year. On the other side, some smart investors hold their investments for a very long period of time.”

Do Not Compare Yourself with Other Investors While Making Investment

Most preferred & profitable period to stay invested

According to a research on the efficacy of the returns delivered by the SIPs, the investors who have their running SIPs for more than seven or eight years have hardly any probability of facing any loss while the investors who run their SIPs for a shorter period of time say, between one to two years have a higher probability of suffering losses. Investors must stay invested in equity for at least 5 years to get expected results.

One can see in the chart, how many investors (in %) hold their investments for a short period and how many of them hold it for a longer period.

equity

“One more reason behind investors exiting in short-period is their wrong approach towards investing as numerous investors pool in their money unsystematically and without any proper planning and asset allocation for their long-term goals. They invest their money expecting that they will get higher returns in just 2 or 3 years or a short period of time. And that results in unexpected returns and a bad experience, so they withdraw their investment.” Moreover, one must try to check once in every five or six months that how far they are from the goals now. Making investments by carrying long-term financial goals in mind is the correct way to grow patience.

 

Note: Past performance of fund does not guarantee the future returns.

Mutual Fund Investment are Subjected to Market Risks, Read all Scheme Related Document Carefully.

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 before making any actual investment decisions, based on information published here.

U.S. Student Debt – The Next Financial Crisis?

Higher education has become one of the biggest money-making scams in America.  We tell all of our young people that if they want to have a bright future, they must go to college.  This message is relentlessly pounded into their heads for their first 18 years, and so by the time high school graduation rolls around for many of them it would be unthinkable to do anything else. And instead of doing a cost/benefit analysis on various schools, we tell our young people to go to the best college that they can possibly get into and to not worry about what it will cost.

Real estate rental yield is below one percent

We assure them that a great job will be there after they graduate and that great job will allow them to easily pay off any student loans that they have accumulated.  Of course most college graduates don’t end up getting great jobs, but many of them do end up being financially crippled for decades by student loan debt.

In all of American history, we have never seen anything quite like this student loan debt bubble.  Since 2007, the total amount of student loan debt in America has nearly tripled.

Let me repeat that again.

Since 2007, the total amount of student loan debt in America has nearly tripled.

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But of course the quality of college education has not tripled over that time.  Instead, it has progressively gotten worse.  At this point most college courses have been so “dumbed down” that the family pet could pass them.  If you would like to look into this more, you can find a list of 37 of the most idiotic college courses in America right here.

These days, most college courses do not require any actual writing.  Instead, your performance is judged by a series of “tests” consisting of multiple choice, fill in the blank, and true/false questions.  And the questions are usually ridiculously easy, because most of our high school graduates need to take remedial courses in basic skills when they get to college.

I spent eight years at public universities, and the quality of education that I received was a joke, and that was many years ago.  Now the quality of education has deteriorated so dramatically that most college degrees are essentially worthless from a practical standpoint, but for many professions you still need that “piece of paper” in order to “qualify” for certain jobs.

So the scam continues, and thousands upon thousands of “administrators”, “diversity specialists”, “career counselors” and “college presidents” are taking home massively bloated salaries at our expense.  Beautiful new lecture halls, residential complexes and sports stadiums are going up at colleges and universities all over the country, and textbook publishers are laughing all the way to the bank.

More than 4 lakh Pune flat buyers are victims of the builders

If everything but the basics was stripped away, the cost of actually delivering a college education to students would be quite low.  In fact, most learning could be done over the Internet.

But instead, the “college education industry” has convinced all of us that we desperately need their services, and that we shouldn’t care about the price.

Of course many of our young people are filled with regret once they get out into the real world and they realize that student loan debt is going to financially cripple them for the rest of their lives.

At this moment, America is drowning in more student loan debt than ever before.  The following are 11 rage-inducing facts about America’s wildly out of control student loan debt bubble…

#1 The student loan debt bubble has now grown to 1.4 trillion dollars.

#2 In 2007, the total amount of student loan debt in the U.S. was just 545 billion dollars.

#3 Over the previous ten years, student loan debt has grown by a staggering 176 percent.

#4 Americans now owe more on their student loans than they do on their credit cards.

#5 In 2003, student loan debt accounted for just 3.3 percent of all household debt.  Today, that number has grown to 10.5 percent.

#6 The current student loan 90-day delinquency rate is 11.2 percent.

#7 30 percent of all student loans in the United States are either in “deferment” or “forbearance”.  The most common reason a loan is placed into one of those categories is because the borrower cannot pay.

#8 It is being projected that a whopping 40 percent all student loan borrowers will default on their loans by 2023.

#9 From 2007 through 2017, “college tuition costs jumped 63 percent, school housing surged 51 percent and the price of textbooks by 88 percent.”

#10 In 2001, 18.6 percent of all U.S. households led by someone in the 18 to 34 age bracket were carrying household debt.  Today, that number has jumped to 44.8 percent.

#11 Each year, more than a million Americans default on their student loans.

 

This article originally appeared on The Economic Collapse Blog.  About the author: Michael Snyder is a nationally syndicated writer, media personality and political activist. He is publisher of The Most Important News and the author of four books including The Beginning Of The End and Living A Life That Really Matters.

Secure your Future with the Best Retirement Plan?

The best part of retirement is when you get rid of a daily 9 to 5 job. But the worst part is there is the lack of a salary. To live the same life that you used to live before your retirement requires a substantial corpus which will last till your lifetime. If you will have a shortage of funds, then you will have to cut down your expenses and will have to compromise in every situation. And this is definitely not a solution to this problem. If you start investing wisely from the early stage, then you’ll don’t have to face any of these problems after your retirement.

secure

When we a look at the stats, it clearly says that India has more than 50% of its population below 25 years and 65% of the population is below 35 years. Before Jan 1, 2004, the government of India used to give pensions to their employees after the retirement which was quite important for the employees. Nowadays employees or people have to start Retirement planning their post-retirement from the early stage to make them financially independent.

Review of HDFC small cap fund

We all need money for our living. It is our first necessity. And to earn money a person needs to work. But we cannot work for a lifetime. There will come a day when we will have a loss of stamina to work. A fact says that, in India, average retirement age is 60 years. But, many retire before with their choice and sometimes with some other causes like job loss, disability, etc.

We can see that as per some of the norms of the profession, employees can even work till 70 if they are well. And in some professions, people have to retire early like in sports. In these cases, the different situation will have different financial consequences. Therefore, it is required to make a hand full of the corpus live a standard life after retirement.

Following are the factors which make an impact on your retirement corpus:

  • Cost of inflation-

Inflation reduces your purchasing power and also consumes your savings faster since due to inflation, the value of money goes on decreasing year on year.

  • Drop in rates of fixed income-

A few years back, you were able to maintain a particular income level by choosing fixed income instruments for investments, as they were providing high returns. But today, interest rates are dropping down which is the reason why this generation has to manage their income for their better living condition.

Parents are Better Teacher of Financial Planning than School

  • Increase in life expectancy-

Since the medical technologies are being advanced day-by-day and so people are expected to live more than usual. Due to this, more corpus is needed for the people to maintain their living after the retirement.

  • People shifting from joint family to nuclear family-

Earlier, there was the huge privilege of the joint family system in India due to which the younger generation could take good care of the old age person in the family. But due to the better employment facilities at different places, people are shifting from joint family to nuclear family. So, planning for the retirement from the early age has become must these days.

  • Medical expenditure-

When you get close to the old age, there can be several medical issues which require a huge amount of money which get add up on your daily or monthly expenses. And the medical cost is also rising up day-by-day. So, to get rid of this situation in future, you have to invest enough in your medical.

EXAMPLE:

retirement

reitrement 2

From the above example, Mr. X would just need to invest Rs 7,927 monthly. And, Mr. Y won’t be able to achieve the corpus, even if he invests Rs 40,000.

So, to generate a good corpus, early investment is very much required to get a standard living after the retirement.

Disclaimer:

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of any agency of the Indian government. Examples of analysis performed in this article are only examples. They should not be utilized in real-world analytic products as they are based solely on very limited and dated open source information. Assumptions made within the analysis may or may not be reflective of the position of any entity.

Why is equity the most preferable long-term asset class?

It has been an eminent journey for the Indian mutual fund industry since now. The MF industry has made outstanding steps over the past few years. The investors have raised a substantial ₹1.3 lakh crores in equity mutual funds in 2017. But, the percentage of mutual fund assets in household savings is very less in India.

equity

According to the data from RBI, the percentage of mutual funds in financial assets is as low as 13%. The percentage of mutual funds will be even lesser if we add household savings in the physical assets, i.e., gold, petroleum, real estate etc. Even after the immense success of the Indian MF industry, the most selected choice for people is still bank deposits which are approx. 50% of the household financial assets.mutualSource: RBI

One can see that mutual funds savings are even less than 22% of the total bank deposits. The similar percentage in the US (United States) is around 101%. Moreover, almost the top 60 district of India hold the immense percentage of the mutual fund industry AUM. Except for those districts, the penetration of mutual funds in household savings in remaining part of India is appallingly less. One of the numerous reasons behind the low penetration of mutual funds in the country is the deficiency of financial awareness.

Risk factor

Doubtlessly equity is an uneasy and unpredictable asset class. There are sudden fluctuations in the stock market and this is called volatility. If you have invested in equity and your investment generally makes more hike in up-markets than it drops in down-markets, then it is a sign that your probability of getting impressive results are very high than of suffering loss over long investment tenure which is very low.

Mutual funds reached to 21% of total bank deposits

Performance in 5 years

The time period of five years, i.e. from 2014 to 2018 covers uncommon market conditions. 2014 was a year with a rising price. It was the year with a bull market with Lok Sabha elections and BJP coming to authority. 2015 was a good year stock market-wise having a correction worldwide as well as in India. 2016 started with a significant drop within the first 2 months, followed by an improvement. 2017 was a contrary year to a bull market. 2018 started with a volatility period of 3 months in the market, and since then the market is mostly seen as range-bound.

Different asset class

In this exploration, BSE-100 is taken as the proxy for the equities. BSE-100 symbolizes the large-cap province of stocks. Large-cap stocks hold the immense majority of overall market capitalization in the stock markets. CRISIL Composite Bond index represents the long-term i.e. more than 5 years, medium i.e. 3 to 5 years and short-term i.e. 1 to 3 years fixed income investment. CRISIL liquid fund index represents very short-term fixed investments i.e. less than a year and this index is similar to the savings bank.

Performance in 2014

2014Source: CRISIL, BSE, Goldprice.org

As mentioned 2014 was a year with a rising or a bull market year. All the asset classes performed well in 2014 except gold. And BSE-100 was outperformed.

Performance in 2015

20141Source: CRISIL, BSE, Goldprice.org

2015 started amazingly for equities but there was a great rectification in the month of March and there was high volatility in the stock market for the rest of the 9 months period with a downward bias. Predictably, equity not performed so well in such market-conditions but still is the best performer if we combine the 2014 and 2015 performance of all asset classes.

Warren Buffett that may help you to create wealth in long-term

Performance in 2016

2016Source: CRISIL, BSE, Goldprice.org

2016 started with under-performance by equity, driven mostly because of the slowdown in economy on the back of dropping prices of crude oil. But the stock market made a recovery in the month of March and maintained it or the remaining year.

Performance in 2017

2017Source: CRISIL, BSE, Goldprice.org

2017 was the great year for the stock market. Equity performed exceptionally well in 2017 and after the under-performing period of 2 years, BSE-100 provides more than 30% returns.

Performance in 2018

2018Source: CRISIL, BSE, Goldprice.org

2018, as many investors know, saw a lot of volatility and the market has been range-bound over the last few months. Let us how different asset classes have performed so far this year.

Large-cap equity vs. mid and small-cap

According to the data, mid-cap and small-cap stocks have dropped 20% to 30% in 2018. Even though mid-cap and small-cap funds are capable enough to provide high returns in the long-term period but large-cap funds and stocks are less volatile than them. Large-cap funds deliver balance to the investment portfolio and these funds should contain the core of the portfolio.

Conclusion

CONCLUSIONSource: CRISIL, BSE, Goldprice.org

Equity seems to be the worst performing asset class in 2018 but the outstanding performance between the period of 2014 and 2017 ensures that equity shows itself as the best performer over the entire period.

 

Note : Past performance of fund does not guarantee the future returns.

Mutual Fund Investment are Subjected to Market Risks, Read all Scheme Related Document Carefully.

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 before making any actual investment decisions, based on information published here.

What are Indian Bond Fund Managers Purchasing Despite Inconstancy?

A rapidly increasing trade war and an escalation-focusing RBI (Reserve Bank of India) is thrusting the local fund and money managers into low-risk and shorter debt securities. Take a look at their plans and what they said about it –

Choose the 3-year segment

Mahendra Jajoo, Head of India Fixed-Income (Mirae Asset Management)

  • “The most appealing segment is the three-year segment because after that there are a lot of riskiness and challenges to face.”
  • The most beneficial thing about the three-year segment is that if you are to manage in a situation where you predict that the macros are somewhat risky and uncertain, but probably have ended being worse, what you think you do in that situation? I things started being worse from here, then you are not freaking out much because, at the very end of 3 years, you will get the capital back.

DEBT

Being defensive is a good option

Lakshmi Iyer, Chief Investment Officer for Debt (Kotak Asset Management)

  • “As there are a plenty of riskiness and uncertainties regarding policy decisions and macros, make your portfolio defensive. By being defensive, I mean purchasing two or three-year sovereign bond i.e. short-duration.”
  • “Short-end of curve provides the most comfort at this point. The delta risk to take for maturities which are long-term is not equivalent to the available return.”
  • She said that she suggests state bonds of the same duration rather than AAA and sovereign bonds.

Want to invest your FD proceeds in mutual funds? Here is how to do it

Liquidity is the key

Suyash Choudhary, Head of Fixed Income (IDFC Asset Management)

  • “Target on sovereign bonds and AAA bond is extremely sharp this year as does not desire illiquidity risk.”
  • “Shifted to standard paper as much as possible. Want to be as much AAA as possible.
  • Stop disclosure to some of the less-rated bonds in some of the portfolios between frights of refinancing shocks.
  • “Government bond return curve is very precipitous until five years and then very flat after that.”
  • The noted correlative value in front-end of the return curve- mostly 4 to 6 govt. bonds, which is the core excessive holding.

Accrual & liquid funds

 Killol Pandya, Head of Fixed Income (Essel Finance)

  • Stick to the briefest possible end of the duration curve like accrual, ultra short-term funds, and liquid.
  • September-October is the month of fund cut duration. Have not included it yet.
  • Wish that investors constantly move towards liquid funds else it will turn out to be a mistake.

What are Dynamic Funds? ( Video )

Upmost corporate paper

 R Sivakumar, Head of Fixed Income (Axis Asset Management)

  • Suggests short-end bonds which are less than 5 years tenor in sovereign and also the corporate space because they provide more value. Prefers AAA-rated paper above sovereign bonds.
  • Sees a more combative RBI and an upright number of rate hikes proceeding.
  • Does not see any onward remarkable selloff in sovereign bonds with markets being much more stable.

Shorter-maturing liabilities

 Rajeev Radhakrishnan, Head of Fixed Income (SBI Mutual Funds)

  • “Rates are only predicted to go up in the upcoming seven to eight months, would be properly conservative in position over a period, liquidity.”
  • “Credit spreads- corporate returns vs. govt. bonds- are fixed and probably remain so in the very near term because of demand and supply issues.”
  • The fund’s portfolio is suddenly changed toward shorter-maturity AA & AAA note, he said.
  • Probably there will be two or three more rate hikes as per recent pricing followed by relatively long pause after that. Additional policy action is on the cards with clarity.

 

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.

Refrain these mistakes while rebalancing the portfolio

Rebalancing portfolio has its own compulsion as rebalancing can help you to return on the route if you have deviated away from your primary asset allocation. Also, rebalancing can secure your portfolio from the volatility of the market in the case you want to minimize your investment risk. There can be several reasons that may lead you to rebalance your portfolio like a change in your financial situation or in the case if you have acquired your goals, rebalancing the portfolio is a must.

portfolio

But there is a set of rules while rebalancing the portfolio otherwise you will end up going beyond the defined level for your debt as well as an equity component. There are a lot of consequences and implications in terms of taxes, the effect on goals etc. while rebalancing the portfolio.

There are some common and avoidable mistakes that one must not do while rebalancing.

Focusing on the losers only rather than current winners

While rebalancing, it is a most important thing to keep in mind that it is necessary to take a look at the investments that are performing well while it’s alright to replace the investments that are leading you to lose your money otherwise you will end up exposing yourself to a big risk. It’s always a better plan to take a step back if you are willing to reorganize things throughout your portfolio.

LONG TERM AVERAGING OF EQUITY SIP’S IS RAPIDLY BUILDING WEALTH

To manage rebalancing by presumptions

Rebalancing is too important to be done only by one’s presumptions as you may assume that rates are going to get down in upcoming months and you move your debt portfolio in favor of funds that are long-dated. Reversely, you may have a feeling that the equities are going to get overpriced and a result of that you may want to shift more into low beta equities. Both views are based on just presumptions and may vary in reality. So, it is good to do rebalancing according to the rules.

Disregarding the tax factors

It’s very important to rebalance carefully when it comes to the tax bill. One must be attentive to how it might affect. You need to know while rebalancing that even the equity funds have to pay the LTCG tax on profits more than ₹1 lakh per year which is 10%. When you are exiting out of debt funds, tax bills can be higher. The taxes can be at the highest rate that is 20% after evaluating the benefit of indexation if you are selling out in less than 3 years. The tax costs can change the economics of rebalancing the portfolio.

Rebalancing without any supervision

It’s always a great decision to be on yourself and to do things on your own but sometimes a little guidance can take you out of the future risks. Like in rebalancing, it is always a better decision to take an advice of any expert while rebalancing your portfolio. An expert can help you in making quick and fruitful decisions and may tell you the do’s and dont’s of rebalancing. Those will make more comfortable for you to make further decisions about your long-term goals.

Rebalancing without any particular investment goal

One of the most common mistakes is rebalancing without any particular investment goal. Also, It is always a better decision to stay in liquid funds and not to rebalance it when you are close to your goals. Rebalancing is an important decision concerning the portfolio, the only thing is it must always be linked with your long-term goals and the costs do not exceed your benefits of rebalancing.

Conclusion –

Rebalancing portfolio is not as hard as it seems but if one is willing to take proper gains from the benefits it gives, then there is a necessity to follow some rules and take some guidance in order to maximize the returns of your investments and minimize the risk factor.

 

Why too much cash is bad for a mutual funds scheme’s health

With the stock market going through volatile times, many fund managers seem to be moving to cash. According to data from Ace Mutual Fund database, more than 20 diversified equity funds currently have a cash allocation of above 10 percent in their portfolios. While it may seem like a safe call, Many fund manager say that it should depend on the fund’s mandate. Many fund houses have in-house rules that forbid their fund managers from going into cash above five-six percent.

To reduce the mid-cap pain

The ongoing correction in mid- and small-cap stocks has forced many fund managers to seek refuge in cash. “Many funds with a mid- and small-cap mandate and even others that had taken large exposure to these stocks during the rally have been hit in a big way. These funds have moved into cash to reduce the pain from the correction.” Funds that have booked timely profits in mid- and small-cap stocks too have been left holding high levels of cash.

Many funds are still adjusting their portfolios to comply with Sebi’s new categorisation norms. If, for instance, large-cap funds had taken high exposure to mid-caps to boost their returns, they are now selling those stocks to turn compliant with the new norms.

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Another reason is that political uncertainty is affecting sentiment. “Several state elections are due this year, and then we have the general elections next year. Many fund managers are sitting on cash because of the current volatility in the markets, and to see how things shape up politically. Some funds, such as value funds and dynamic asset allocation funds, allocate to equities based on market valuations. When valuations move high, they move into cash.

How to choose the best mutual fund for your portfolio

Steady inflows, but few opportunities

Many fund managers are also facing the problem of plenty. While the industry is receiving monthly inflows of Rs 75 billion through systematic investment plans, there aren’t many opportunities due to the high valuations in the midcap and smallcap segments. Even many large-cap stocks seem overvalued.

1530117850-1841There are risks too

During the financial crisis of 2008, many fund managers had gone heavily into cash to prevent their funds from correcting deeply. However, when the markets rebounded in 2009, these funds were left on the sidelines. Their performance took a knock, and it took them several quarters to catch up with peers who were fully invested. After this, many fund houses introduced internal rules stipulating that fund managers should not gain more than five percent exposure to cash. When fund managers take high cash allocation calls, it implies that they are trying to time the market, a tricky thing for any fund manager to pull off consistently.”

When funds take large cash calls, it also skews the investor’s asset allocation. A simple example will help illustrate this point. Suppose that an investor wants 50 percent equity and 50 percent fixed income exposure in his portfolio. He invests the 50 percent in an equity fund. But the fund manager invests only 70 percent of his fund portfolio in equities. As a result, the investor’s equity allocation falls to 35 percent. This is a more conservative allocation than he desires and could affect his long-term returns. Asset allocation is best left to investors themselves.

Exceptions to this rule

While most equity funds should stay almost fully invested, dynamic asset allocation funds and value funds are exceptions. Dynamic asset allocation funds, as their name implies, take asset allocation calls, often based on a formula. When markets become expensive, as indicated by price to earnings (P/E) or price to book value (P/BV) ratio, they reduce allocation to equities, and vice-versa.

What are Dynamic Funds? ( Video )

Value-oriented funds are the other exception. Quantum Long Term Equity Value Fund, for instance, doesn’t shy of parking a considerable portion of its portfolio in cash if the situation warrants. Says Atul Kumar, head-equity funds, Quantum Asset Management: “If we find value in stocks, we stay invested. But many of the stocks that we held reached the sell limit we had set for them, so we were forced to sell them. We are also finding fewer new opportunities. That is why our cash level has gone up. It is not a tactical call. It comes out of our bottom-up, process-driven approach.”

PPFAS Long Term Equity Fund currently has a cash allocation of 23.28 percent. Explaining the fund’s approach, Rajeev Thakkar, chief investment officer and director, PPFAS Mutual Fund says: “We don’t start off with any target cash position. Our objective is to deploy everything in equities. But if we find stocks worth investing in only up to 77 percent of our corpus, then 23 percent will be the residual cash that will lie around till we find suitable opportunities.”

Going into cash can prove advantageous in certain situations. Says Thakkar: “If there is a significant correction, the cash position could become a significant factor responsible for outperformance.” He adds that being in cash also gives the fund manager opportunities to buy stocks at attractive valuations when the markets or select stocks correct.

According to Radhika Gupta, CEO edelweissamc taking large cash calls in long only funds … something to avoid because it distorts the asset allocation of an investor, given they are investing in a relative return fund.

Want to invest your FD proceeds in mutual funds? Here is how to do it

Most individuals can’t think beyond bank deposits when it comes to deploying their savings. However, fixed deposits do not pay much, and the interest is added to the income and taxed as per the Income Tax slab applicable.

This is the main reason why many investors investing in debt mutual funds instead of parking money in bank deposits. Debt mutual funds may offer market linked returns, which could be marginally higher than bank deposits.

If invested with a horizon of more than three years, debt mutual funds may offer better after-tax returns. Investments in debt mutual funds held over three years are taxed at 20 percent with indexation benefit. The indexation helps to bring down the actual taxes to a single-digit in an inflationary scenario.

graph2

If you are investing for less than three years, both bank deposit and debt mutual funds are taxed similarly. Returns or interest would be added to the income and taxes as per the income tax slab applicable to the investor.

If you would like to explore debt mutual funds, here is some help.

Point to note: there are several kinds of Debt mutual funds. You should choose a scheme that matches your investment horizon and risk profile.

Liquid Funds are very low-risk funds. They invest in highly liquid money market instruments. They invest in securities with a residual maturity of upto 91 days. Investors can park money in them for a few days to few months. These funds may offer marginally higher returns than bank deposits.

For eg. Portfolio of Aditya Birla Sun Life Floating Rate ST

Download (PDF, 113KB)

Floater funds are mostly invest in floating rate instruments. These schemes will invest at least 65 per cent of the total asses in floating rate instruments.

For eg. Portfolio of Kotak Floater ST
 

Banking and PSU funds are predominantly invest (80 percent of assets) in debt instruments of banks, public sector undertakings and public financial institutions.

For eg. Portfolio of ICICI Prudential Banking PSU Debt

Manage your portfolio and enter into the next level of your financial status

Fixed Maturity Plans (FMPs) are a good alternative to fixed deposits for investors in the higher tax bracket. These are closed-ended debt mutual funds with defined maturity. FMPs usually invest in securities which match their tenure and follow buy and hold till maturity strategy. This makes it free from interest rate risk. An FMP may match the yield offered by its portfolio constituents with minute deviations. FMPs also have credit risk, which means that its returns will be hit ..

For eg. Portfolio of Reliance FHF XXXV S16

Download (PDF, 116KB)

Short-Term Funds invest mostly in debt securities with an average maturity of one to three years. These funds perform well when short-term interest rates are high. They are suitable to invest with a horizon of a few years.

For eg. Portfolio of Franklin Templeton Franklin India Low Duration

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Dynamic Bond Funds have an actively-managed portfolio that varies dynamically with the interest rate view of the fund manager. These funds invest across all classes of debt and money market instruments with varying maturities. They are ideal for investors who want to leave the job of taking a call on interest rates to the fund manager.

For eg. Portfolio of IIFL Dynamic Bond

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Income Funds are highly vulnerable to the changes in interest rates. These funds invest in corporate bonds, government bonds and money market instruments with long maturities. They are suitable for investors who are ready to take high risk and have a long-term investment horizon. The right time to invest in these funds is when the interest rates are likely to fall.

For eg. Portfolio of Baroda Pioneer Dynamic Bond

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Mutual fund Strategy: Time to invest in accrual and short-term bond funds

Credit Opportunities Funds are the debt funds which invest in corporate bonds and debentures of credit rating below AAA. The idea is to invest in low-rated securities with strong fundamentals which are expected to see a rating upgrades in the future, benefiting the portfolio and investors. These funds involve high credit risk. A default or a downgrade in a rating of the scheme’s portfolio holdings may hit the returns badly. Their portfolio consists government securities and T-Bills ..

For eg. Portfolio of IDFC Credit Opportunities

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Gilt Funds invest in government securities. They do not have the default risk because the bonds are issued by the government. However, these funds are highly vulnerable to the changes in interest rates and other economic factors. These funds have very high interest rate risk. Only investors with a long-term horizon should consider investing in them.

For eg. Portfolio of HDFC Gilt Short Term

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Debt-oriented Hybrid Funds invest mostly in debt and a small part of the corpus in equity. The equity part of the portfolio would provide extra returns, but the exposure also makes them a little riskier than pure debt schemes. Investors with a horizon of three years or more can consider investing in them.

For eg. Portfolio of Tata Retirement Savings Conservative

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RATING

Note: Past performance of fund does not guarantee the future returns.

Mutual Fund Investment are Subjected to Market Risks, Read all Scheme Related Document Carefully.

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 before making any actual investment decisions, based on information published here.

 

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.

Three finance lessons for your child

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.