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Sunset sky. Too good to be true. https://www.instagram.com/p/CJBn-ePFabf2CdVi8vTgHAfesHuJ4Paoagrb340/?igshid=1p2vvri7ge0gz

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A perfect sunset. https://www.instagram.com/p/CJBmb-Pl0yl9PTdR_7jFMwhyhZdQzoJq8WyKMs0/?igshid=1dfrr7gk5qg45

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6 things to keep in mind while selecting mutual funds

You may have your finances in place, your goals checked out along with the monthly investment required to achieve these goals. Mutual funds are your preferred avenue but how do you select a suitable funds from this vast universe. Selection of a wrong fund can put you off the path of achieving your corpus.

Each year there are some mutual funds that beat the overall market, and there are years when the majority of mutual funds are not able achieve the same feat. Trying to pick a mutual fund ahead of time that will beat the market is extraordinarily difficult task. There is no best way to select the right fund, but the factors mentioned below could help ease the process of shortlisting a fund.

Determine your financial goals

There could be some financial goals which have a long investment horizon and others have a short one. The time period by when you require money plays an important role.

For growth of capital or long term goals, consider equity oriented funds. These funds invest heavily in stocks. Do keep in mind that the stock market is volatile. The market movement can be up and down. This will result in fluctuations in the value of your fund. This inherent risk results in the prospects of high returns.

A Debt fund is utilized for medium / short term goals. These funds provide a steady stream of income. There can be fluctuations based on the interest rate, credit ratings etc but fixed-income investments are generally steadier than stocks and returns are often lower as compared to equity mutual funds.

If you’re seeking to preserve your principal / corpus amount, look at money market funds, as these funds are stable but typically generate less income than debt or equity funds. Such funds are relatively safer than debt and equity mutual funds. These funds generate income without greatly increasing the risks.

Expense ratio

Every fund incurs costs for it’s day to day activities. Expenses related to administration, portfolio management, salaries, etc. have to be taken care. The percentage of assets that go toward these things—the management advisory fee and basic operating expenses—are known as the expense ratio. Its is the minimum amount a mutual fund has to earn to break even.

All else being equal, you should select funds that have the lowest possible expense ratio. If two funds have expense ratios of 0.50% and 1.5%, respectively, the latter has a much bigger hurdle to beat before money starts growing. Over time, this difference in expense ratio would cause a big dent in your accumulated wealth. Do not Select schemes with stringent exit load criterion. Always select the schemes with minimal exit load requirement. Usually, schemes with higher assets have lower expense ratio than that of a small sized fund.

Assets under management. (AUM)

Best performing schemes of fund houses have a large AUM base. This is due to the confidence portrayed by the investors in the fund manager’s ability to achieve superior returns or alpha. This confidence is built over a period of time. While shortlisting a scheme, opt for a higher AUM as compared to lower ones. Funds with higher AUM are able to manage liquidity concerns efficiently. Furthermore as the funds grow larger in size, the fixed expenses associated with the fund get spread out over more investors, reducing the expenses and leaving more funds for investment.

Consistency in performance

Past performance may not be replicable in the future. But selecting funds which have surpassed many market cycles with decent performance can help us dump the outliers. These outliers could be funds who would be benefiting from the ongoing bull cycles or a particular flavored trend in the economy. They may not be able to maintain similar performance during market downturns. You should identify fund houses that have a strong presence and provide funds that have reasonably long and consistent track record. You must look for consistency in performance over tenures like 3, 5 and 10 years rather than the short-term returns. The rationale should be to select schemes that have consistently beaten benchmarks (index to which a fund’s returns are compared) and their peers’ over the same time frames.

Lower turnover ratio

Many investors only care about returns and simply think they have to get the highest return possible. Instead of returns, your real intention should be to end up with the most money after taxes. The turnover ratio is the percentage of the portfolio that is bought and sold each year. You should be wary of funds that habitually turnover more of their portfolio. These fund managers are speculating stocks instead of buying businesses. High turnover ratios tend to convey that fund managers are extraordinarily unsure of their investment philosophy and have little solid reason for owning the investments they do.

Fund management team

Due to advancement in technology and regulations governing mutual funds, information is easily available. This availability of information should be used to find the details regarding the fund house, their management team, the objective of the schemes etc. The ideal scenario should be fund houses with strong investment analysts / portfolio managers along with a team of talented and disciplined individual. You should also take into consideration the quantum of money invested by the fund managers in the fund itself. This not only implies fund manager’s confidence in his investment strategy but also reassures others, as he is exposed to the same risk.

The selection of right funds can help you reach your target. Thus, as a prudent investor it is advisable to balances cost, risk and performance while choosing a mutual fund. The goal should be to build wealth rather than eroding it.

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Honest confession by Udayan Mukherjee

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Investing through Banks

This happened in front of me. I was at Vadodara and visited one of the most respectable private banks of our country. On the table next to which I was waiting for my banker to respond, an HNI client invested Rs. 2Lakhs in a balanced mutual fund. His banker asked her assistant whether she shall choose Dividend or Growth option in front of the client itself. 

This had upset me to a very large extent for following reasons:

Insensitivity of Investor:

How an investor could be so insensitive towards his own hard-earned money? The moment an investor learns of such unaware personnel, he should have immediately stopped furtherance of his investments. Moreover, he might have even spoken to the branch manager of the incident. But to my dismay the investor was more interested on something flashing on his hi-end mobile screen than his own hard-earned money. I request all such investor to make an effort to identify a deserving advisor, only then this kind of not so deserving candidates will learn a lesson.

Channel: 

Banks being such responsible channel as a distributor of Mutual Funds, how could they be so irresponsible by not properly educating their highly paid personnel? Channels of this stature shall take the responsibility to educate their valued personnel first and then allow them a seat to interact with clients. But such arises out of a process called ‘Cross-Selling’. A banker has access to all the financial transactions and thus the banker knows how much money could be managed. But aghast! The banker neither knows where to invest and seemingly nor s/he is interested. In this case again, is ‘Cross-Selling’ a concern or the knowledge of the banker.

Government:

There is a lot of hullaballoo about investor awareness by various Government agencies. If this is the result, then they strictly need to overhaul the entire system of 'Investor Awareness Program'. Is there any program or check point to see whether the investor is guided properly or not? I assume, there are none and hence I profess that there must be some activity devised to keep a check on such notorious activity by so-called reliable banking system. There needs a lot to be done. But the first step, I propose, must be from investor.

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Capital Management

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If you are not planning for Success...You are planning to Fail !

Routinely we plan for short term like a day, week, month or an event, but we fail to develop a long term goal/vision and hence fail to plan for it as well. Some of such long term goals are – meeting education expenses of children, marriage expenses of children, retirement expenses. These three listed here are most crucial. These are one’s responsibilities rather than goals. We will discuss here planning Retirement expenses which encapsulates planning for your children’s education and marriage expenses.

View 1: An average individual lives for almost 15-20yrs as post-retirement life. Flow of income becomes nil-to-negligible. Responsibilities of children are for a brief period of post-retirement in some cases. But referring to 6% of average inflation for 25yrs hence, Rs.15000 p.m enough for a household today may scale up to Rs.64,000. Also expenses for kids today will be replaced by other legitimate expenses during post retirement. So there may not much reduction in the expenses. Due to increase in medical facilities, years of life expectancy has also increased.  

View 2: Higher education avenues like Engineering or Medical Science, Management courses from elite business schools, foreign education etc.  are today shaving off pockets of many wealthy people and is dream of lower/middle income group. Same will happen to today’s generation. If one’s child is not potent enough to acquire higher education on merit, much of retirement funds may be shelved off to fulfil such needs. Also referring to increasing cost of education one’s income may not be rising to match. In absence of proper planning, situation arises where one borrows and increases debt burden either on one’s own self or on child.

Absence of planning may lead you to a financial disaster. Lived a self-dependant life throughout, but absence of planning may make you dependant on your kids later. Absence of planning could render you with very small amount of money which may be just enough for you to sustain healthily while a big medical expense may empty your pockets. An aid to help your parents financially or for medical treatments during your mid-career may affect your overall cash-flows.

Best way to avoid such situation is to keep aside an amount regularly for a specific purpose.

Keeping aside an amount is tricky. How much to save? Where to invest the saving? What should be the return on my investment to meet a financial need after stipulated time?

An average Indian starts working at age 25yrs with average earning of Rs. 20000 p.m. He is easily able to save Rs.5000 p.m which he further invests in a financial instrument with an average Return On Investment(ROI) of 20%. He increases his savings by only 5% every yr and hence his investments at 5% as well. Eg Rs. 60,000 in first yr, Rs.63,000 is second yr, Rs. 66,150 in third yr and so on…

At the end of 25yrs of this process he is able to invest Rs. 28,63,636. This amount was invested in a Systematic Investment Plan mode in a mutual fund with only 20% of average yearly ROI. At the end of 25yrs he gets a jaw dropping Rs.27,31,79,079.5.(Rs.27.31Crs).

Even if you don’t increase your investment every year by 5% as mentioned above following will be the result:

It’s well mentioned by Mr. Robert T Kiyosaki, author of Rich Dad Poor Dad: If you are young and poor you are a struggler, but if your retire poor you’ve done nothing in your life. Let’s put it another way: If you are born poor, it’s not your fault … if you die poor, who is at fault?

What if your retirement kitty is further invested in risk free investment avenue generating only 6% of annual return or higher and allowing you to withdraw on monthly basis?? We have solutions to all queries related to Pension. Contact us for detailed discussion.  

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India is poised to Grow.

There is set of Indian population which says India is poised to growth by riding on its consumption story, while there is set of population which says India would NOT grow. Every statement has its own set of reasons.  

Let us first understand the basic terms of this article – GDP and Market Capitalisation:

GDP – Gross Domestic Product: 

The basic definition is – the total monetary value (Price) of finished goods and services produced in a country’s border. It is even commonly understood as barometer of a country’s growth.

A car valued at Rs. 10Lacs is to be multiplied by it number of units is GDP. 10,00,000 x 10(units produced) = 1 Crore. (10 Millions)(GDP)

Market Capitalisation:

The basic definition – is total number of shares available to public so as to buy and sell multiplied by its price. A company named ABC Ltd. has 1,00,000 shares and public is ready to buy it at Rs. 100. The market capitalisation of that company is 1,00,000 share x Rs. 100 = Rs. 10,000,000 (Rs. 10 Millions)

Relationship of GDP and Market Capitalisation:

Increase in GDP signifies increase in production, increase in production signifies rise in employment which induces rise in demand due to more people earning disposable income as well as savings. Rise in demand fuels consumption and increase in profits. Increase in profit, rises intrinsic value of the shares and also induces companies to increase production of goods and services (Economics-101). Rise in intrinsic value results in the rise of Market Value of the share and thus, Rises Market Capitalisation.  Increase in GDP, thus flags off a chain reaction which results into Rise of Market Capitalisation.  

Following graph shows how the India’s market capitalisation has risen in past 15 years in accordance with its GDP.

The way forward:

Considering the relation between the GDP and market capitalisation, we extrapolate that by 2025 our GDP and Market Capitalisation will surely cross Rs.348 Lac Crore mark.

The question now is, have you been part of the phenomenon rise? If your answer is YES... Congratulations!!! If your answer is NO... You are welcome!!!

Our confidence:

Today, in 2015, there are several listed companies whose market capital is equivalent to overall Market Capital of the entire country in 1995.

This indeed is very encouraging and injects great confidence in many other countries, then why  not us? 

Eg. TCS’s today’s Market Capitalisation is Rs. 5.25 Lacs Crore which is higher then total market’s Market Cap in 1995 which was Rs. 4Lacs crore. If in 2025 India’s Market Cap. reaches to Rs. 350Lacs Crore there would be several TCSs, ITCs, SBIs would be trading around Rs. 30Lacs crore Market Cap.

According to IMF and World Bank India is Second Fastest Growing Economy in the World.

“With you, without you, it will happen.”

Watchword:

Today, world over, confidence in India’s economy has risen to dizzying heights. The reasons for such confidence are several to enlist here. Few decades ago, we thought ‘IS INDIA POISED TO GROWTH’, today we confidently say ‘INDIA IS POISED TO GROWTH’. We thus see a sea-wave of growth and we are very clear that an individual alone will not be able to ride the wave. S/He will have to invest the savings to take the benefit of this wave and create wealth for generations to come. We suggest to invest the savings wisely in the avenues which are engines in generating such sea-wave of growth.

We are a powerhouse of research to identify such avenues; advise on how to channelize the savings and then facilitate the process of investment.

Give us a Chance... Give Yourself a Chance !!!

Resources:

Ministry of Statistics and Programme Implementation India:  mospi.nic.in

Bombay Stock Exchange: bseindia.com

NITI Aayog India: niti.gov.in

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Celebrating Financial Independence: "Those who start with too little money are more likely to succeed than those who start with too much.Energy and imagination are the springboards to wealth creation."

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Longest Holiday

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“Goods and Services Tax” - Now or Never?

With the positive development at Europe regarding Greece bailout, the market has put aside the international worries at present. Back home, the people and the market are now feeling the importance of reforms undertaken by The Modi government. As such, we have become too negative to appreciate the steps being taken and reforms being introduced by the government. A much awaited policy for composite FDI, FII and FPI has been cleared by the cabinet last week and we have seen the effect of the same in the market. Approval for composite FDI cap is a significant reform for the economy as a whole as there will be more capital flow into the system and significantly easing the procedural investment decisions by foreign investors. Two factors will drive the market from here on. Corporate results and the progress of monsoon. The most positive development is the revival of appetite for Indian equities by FIIs. Since last one week, FIIs are buying Indian stocks with renewed aggression and if the above two factors help the market positively, the previous high can be conquered. Considering the stance of different political parties, the chances of passing of the GST bill in the current parliament session is very high. The market is discounting the same at present. Even the confidence expressed by The Fed about the rise in interest rate in the current year itself has not come in the way of the market.

Under the circumstances, the market has become “buy in the dips market” subject to good progress of monsoon. Technically, any sustained rise above 8650/28600 will take the Nifty to 8872/28900. On the down side, there is a strong support at 28200-27700 / 8477-8400.

Stocks to watch in dips are Kirloskar Brothers, Escorts, MBL Infrastructures, State Bank of Travancore, Balmer Lawrie & Company, Gabriel India, Tourism Finance Corporation of India, Axis Bank, Bajaj Corp, South Indian Bank, Karnataka Bank, Inox Wind, LIC Housing Finance, HDFC Bank.

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Greece referendum and effects on markets

Originating in the 1990s, the derogatory term PIIGS usually refers to the economies of Portugal, Ireland, Italy, Greece and Spain, four economies in southern Europe.

The term became popularised during the European sovereign-debt crisis of the late 2000s and expanded in use during this period. Initially, Ireland was not included in this term, having debt significantly below the Eurozone average, and a government surplus as late as 2006. However, taking on the guarantee of banks' debt, the government budget deficit rose to 32% of GDP in 2010, which was the world's largest. It then became associated with the term replacing Italy or changing the acronym to PIIGS. Sometimes a second G (PIGGS or PIIGGS), for Great Britain, was also added. In 2012, Patrick Allen writing for CNBC suggested that France should be added to the list.

The term is widely considered derogatory and its use was curbed during the period of the European crisis by the Financial Times and Barclays Capital in 2010.

“In nutshell, world know them very well, so don’t panic.”

The Greek people will decide on Sunday by voting that, what they want to do? Whether they want to remain in Euro zone or not will be decided by Sunday evening IST.

If the referendum verdict is 'No', Grexit, or exit from the European currency union, is almost a certainty. Leading up to the referendum, financial turmoil is inevitable.

The European Central Bank must take a call on what it does in the event of default since the current bailout package is also scheduled to end on Tuesday.

India's markets will also be in the line of fire, even though the Indian economy has relatively few linkages to Greece.

Any exit by Greece from Euro zone will have negative effect on the world market including India and positive node by the people of Greece will open the gates for fresh negotiations and another bailout by the developed world. In any scenario, there will be chaos, uncertainty and pain for the people of Greece at least for short term.

A Greek default could tempt other highly indebted economies such as Italy and Portugal into considering abandoning the euro.

Given the circumstances, there may well be a massive exit from the euro, with investors headed for the haven of US Treasury bills, or other hard-currency assets. Greece has shut down its banking system to prevent capital flight. This is a short-term measure. If there is Grexit, and a return to the drachma, the Greeks must figure out normal capital controls. The troika of the IMF, the ECB and euro zone creditors such as German banks is prepared to extend the bailout by five more months and to throw an additional euro 15.5 billion into the pot. In return, the Greeks must embrace more reform, which will also require more austerity. Unemployment is already at over 25 per cent. Staying with the euro will prevent monetary stimulus via currency depreciation.

It is also very hard to predict what the troika will do if Greece says "No" to this package. Will they offer easier terms? Or will they finally bite the bullet and write off all the losses?

So far as Indian market is concerned, Greece itself contributes less than two per cent of the euro zone's gross domestic product and India's direct exposure is not high. But Indian corporations with exposure to the euro zone could see revenues impacted by currency volatility. Foreign portfolio investors may also choose to cut exposure to high-risk emerging market assets such as rupee bonds and stocks, until the crisis resolves one way or another. The Union finance secretary has made reassuring noises, which helped to talk the Sensex up.

FIIs have turned net buyer since last two days and the data suggest that the upcoming result season will be slightly better off. It is also interesting to note that India’s debt to GDP ratio is at 67% which is very low compared to some of the developed countries of the world and that too with GDP growth of 7.5%.

The Reserve Bank of India has a record level of foreign exchange reserves at its disposal, so it should be able to manage currency volatility, unless that goes absolutely off the scale.  This crisis may actually create an opportunity for long-term investors in India, and maybe also in China, whose markets, too, saw a three per cent decline on Monday. In such a scenario India will be a preferred destination for investment for medium to long term. Any event like Greece crisis or Fed rate hike will be a temporary halt to the ongoing rally in the market. Initiatives like DIGITAL INDIA will go a long way in shaping and developing the Indian economy. It is interesting to note that after implementation of direct benefit scheme, the subsidy for LPG cylinders is reduced by whopping 25%. So give some time for the scheme to be implemented fully and wait for the fruits.

The indications from the economy are showing that the revival is started and will get the momentum with the progress in monsoon. The data of core sector growth in the month of May suggests the same. The figure of stuck up infra projects are reducing gradually. Under the circumstances, select the right script, invest and wait with conviction. Technically any rise above 8500 will take the market to 8600 with the strong support of 8450-8340.

Neither economy should be badly affected in fundamental terms. But the respective stock markets have seen sharp corrections and the corrections could continue until this situation is resolved. If equity valuations drop to healthy levels, a price recovery could be driven by bargain hunters.