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Falling Interest Rate: 5 Ways to Tackle the Trend

Interest rates in India are headed for a historic low and implications on individual and corporates will be far-reaching…!

Premise for this statement is threefold: demonetisation, low inflationary regime and forthcoming GST. All three being catalyst for reduction of rates in the economy in short term, medium term and long term respectively. As a precursor, SBI has already announced up to 175 basis point rate reductions in its bulk deposit rates and most other banks will follow suit in weeks to come. For a layman, fixed deposit of 1 year which was fetching as high as 8.5% a year back, will potentially fetch 6-6.5% in few months from now.

Let’s understand this scenario in detail. In the month of September, bank deposit base crossed 100 lakh crores for the first time in country (as reported in Financial Express). Current demonetisation drive is expected to get atleast 10-12 lakh crores into bank. The majority of which should remain in bank balances and deposits for a reasonable amount of time. Simply illustrated, if today the entire banking industry put together has a deposit base of Rs. 100, it will swell in the range of Rs. 110-112in next 2 months, because of demonetised currency being deposited by people at large. Surplus funds to the tune of 10-12% in 2 months, will furnish banks with abundant liquidity, so much so that they will not be interested in offering higher rates to mobilise further deposits. Benchmark 10 year Bond yields in the economy have already fallen by almost 9% from 6.8% to 6.2% in last 10 business days itself, since the announcement of currency demonetisation. And it will not be surprising, if Central bank in its next monetary policy review (due in December) cuts repo/reverse repo rate beyond normal expectations. This indeed, is recipe for a new way of living.

Here’s a quick 5 pointers to assess the impact of this new regime of low interest rates which is likely to usher in sooner than we all anticipate and suggestions to cope with the impact thereon:

1)      Tough for savers:

A fall in interest rates is indeed bad for a country which saves 28% of its earnings. As a country, we love to invest (read save) in Fixed deposits, PPF, small savings instruments or just leave our money in Bank savings account. Indians are risk-averse investors and have historically believed in these safe instruments albeit fetching low returns. As per Karvy’swealth survey of 2015, amount invested in these instruments is anywhere upwards of 75 lakh crores. All this will progressively fetch lower and lower returns and is bad news for a nation of savers!

Moral:  Start scouting for better investment options other than deposits.

Suggestion: Retail investors should start looking at Mutual Funds as an avenue to deploy savings rather than relying solely on bank deposits & similar instruments.

2)      Good for borrowers

However, other side of the story is quite rosy. As a country we also love to borrow. Retail loans (home loans, personal loans, educational loans, vehicle loans, consumer durable loans and credit cards) outstanding for Indian banks during Apr’15-Feb’16 stood at a whoppingRs. 13.75 lakhcrore (Pic 1).All this including corporate credit is bound to get cheaper. Banks will be forced to reduce their base rates and prime lending rates. Though new borrowers will benefit more, buteven the existing ones are bound to reap rich dividends. Whether your personal balance sheet will improve or worsen – depends on which side of the fence you are sitting: borrower or saver!

Moral:  Be ready to leverage and start scouting for that dream home!

Suggestion: You are better off today being in a floating rate loan but 6 to 12 months down the line you might want to avail of a fixed rate and lock your outgoing for long-tenor loans.

3)      More consumption:

Basic economics tell you that in a falling rate scenario, as incentives to save money reduces, people tend to prepone their purchases and start consuming more. Simply put if you think you can’t earn enough out of your savings, you would rather spend it to fulfil that long-lasting dream of yours! In economic jargon: propensity to consume increases and propensity to save reduces.

Moral: Be prepared to pamper yourself with that luxury holiday or watch. It will not only get cheaper, you will be psychologically more inclined to go for it.

Suggestion: Always follow the equation ofIncome – Savings = Expenses. And never the other way round i.e. Income – Expenses = Savings.Indulgence may be good now but prudence may prove to be a virtue in hindsight!

4)      Re-investment Risk:

One of the biggest risks on your already invested fixed deposit or Bond, will be re-investment risk. Everything which is likely to mature in next 6 to12 months, will not fetch you the same rate of return in the future, and will put you in a dilemma when it comes to re-deployment. One has to act swiftly on this and calculate cost of shifting from short-maturity instruments to long-tenor ones thereby locking current rates (which are still reasonable). If you wait for another 6 months to let your deposits mature and then scout for an attractive yield, chances of disappointment are high. Compute your switching cost, do your maths and take a long-term plunge. Whether it is locking in a 5 year deposit or moving debt portfolios from short term maturity to long term maturities, the faster you act, the better it will be.

Moral: Be prepared to take tough calls on your Debt investments.

Suggestion: If you are booking fresh deposits, try and lock in rates for long tenors quickly or go for medium to long maturity portfolios in Mutual funds.

5)      Believe in Equity:

Take this with a pinch of salt ! History tells you that stock markets do extremely well in a falling rate scenario, as more money starts chasing risky assets. When you know that risk-free assets (read deposits) are yielding you lower returns progressively, marginal utility of investing that extra buck of your saving in such instruments reduces sharply. Its, therefore, time to believe in Equity as an asset class.

Moral: Do your risk profiling. Understand your risk tolerance and take a calculated dip in Equity to reap long term rewards.

Suggestion: Invest via the mutual fund route for long-term and let experts take a call on markets & asset-classes on your behalf!

Falling interest rate scenario on one-hand will render many investment avenues spineless, yet it will throw open a vastarray of fresh opportunities. If you act smart and nimble, you can use this to your advantage. In nutshell, brace up for lower yields (specially in your fixed tenor debt instruments), be prepared to re-align your portfolios and consumption patterns, deploy your savings wisely and look out for avenues with longer maturities and risk-permitting dabble into equities !

“Opportunities are never lost. If we don’t grasp them, somebody else will. So march out boldly, seize opportunities and shirk not from putting your best foot forward.”  - Aditya Vikram Birla

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Top Mutual Funds of 2016

Year 2016 experienced shockers and surprises, which no sweet 16 year should endure. Brexit, Trump, demonetisation, Andy Murray becoming World No.1 and Leicester City winning the English Premier League. In many ways 2016 was a historical year because all deviations are far-reaching changes. None of the events which unfolded could have been predicted. Interestingly, 2016 accordingly to the Chinese calendar was the year of the Monkey, and it behaved exactly that way.

The same current was witnessed in the stock market. The regular heroes; equity and real estate performed well in the first 6 months of the year. But, they pulled of a Houdini act in the last six months. And last 3 months, witnessed a bond rally – thanks to demonetisation. Surprisingly one story which sustained its momentum through the year was commodities - crude, precious metals, agri commodities and natural resources – everything saw a spurt! Ending the year on the podium. It was the year of the commodities.

Hence as expected, all 5 top performing schemes of the year are linked to commodities or natural resources. 4 of these are global funds and 3 are in fact gold based themes. Let us take a look on how they performed.

1. HSBC Brazil Fund(G)-Direct Plan

Brazil’s Bovespa Index is up 39% for 2016 and is amongst the top 3 best performing markets globally for the year. Understandably, a fund which invests solely in Brazilian market turns out to be the eventual winner for the year. In the past one year, it has given 56.14% returns. Although the scheme has given the highest returns in 2016, since inception it has given negative returns of -8.89% and a very low AUM suggests that it has lost the fancy of investors.

2. DSPBR World Gold Fund(G)-Direct Plan

One of the first few global funds to have made a big mark in Indian mutual fund industry, this scheme was back in reckoning after long hibernation. Investing in Gold mining companies who stand to benefit from the cycle of physical commodity, emerged as the second best fund for the year. A fund of funds, the DSP Black Rock World Gold Fund gave returns of 53.51%.

3. DSPBR World Mining Fund(G)-Direct Plan

The DSP Black Rock World Mining Fund gave the 3rd highest returns of 50.56% in the equity mutual fund categories. A relatively niche mutual fund scheme it has only 13.96 crores assets under management. It has not performed well since inception giving -9.73% returns and again is not amongst the very popular picks for investors.

4. Kotak World Gold Fund(G)-Direct Plan

Objective of this scheme is to provide long term capital appreciation by investing in units of Falcon Gold Equity Fund which in turn invests in international securities of gold production, processing and marketing companies. Theme is akin to DSPBR World Gold Fund and so are the returns.

5. DSPBR Natural Res & New Energy Fund(G)-Direct Plan

One of the few India domiciled mutual fund schemes in the top 5 of 2016, the DSP Black Rock Natural Reserves and New Energy Fund gave returns of 44.11% since January. A steady performer of the past, it has given 18.75% CAGR returns for last 5 years and over 12% CAGR since inception. Among the top 10 holdings are conglomerates like Vedanta, Tata Steel Limited, Hindalco Industries Limited, Bharat Petroleum Corporation Limited and Reliance Industries Limited.

2016, yet another year gone by in Indian Mutual fund industry, which no one could call-out at the outset. This however, has been the case in most of the past few years. The golden rule still stands true, the longer you stay invested, better are the returns that you reap.

Top performers in 2016, perhaps are a reflection of the year itself – so unpredictable and under-owned. Not many retail investors participated in the above funds and hence, it is easy to assume that an average equity investor has not tasted super-normal returns for the year that went by.  Debt investors laughed their way to banks at the fag end of the year, thanks to demonetisation and yields crashing dramatically.

Will 2017 mark the return of traditional equity funds, will debt continue to surprise us and will investors make those fancied returns – only time will prove. All one can safely say is - to stay invested across asset classes, perhaps remains the best strategy to ensure healthy long-term returns.

[vijay761-blog]

[vijay761-blog]

Top Mutual Funds of 2016

Year 2016 experienced shockers and surprises, which no sweet 16 year should endure. Brexit, Trump, demonetisation, Andy Murray becoming World No.1 and Leicester City winning the English Premier League. In many ways 2016 was a historical year because all deviations are far-reaching changes. None of the events which unfolded could have been predicted. Interestingly, 2016 accordingly to the Chinese calendar was the year of the Monkey, and it behaved exactly that way.

The same current was witnessed in the stock market. The regular heroes; equity and real estate performed well in the first 6 months of the year. But, they pulled of a Houdini act in the last six months. And last 3 months, witnessed a bond rally – thanks to demonetisation. Surprisingly one story which sustained its momentum through the year was commodities - crude, precious metals, agri commodities and natural resources – everything saw a spurt! Ending the year on the podium. It was the year of the commodities.

Hence as expected, all 5 top performing schemes of the year are linked to commodities or natural resources. 4 of these are global funds and 3 are in fact gold based themes. Let us take a look on how they performed.

1. HSBC Brazil Fund(G)-Direct Plan

Brazil’s Bovespa Index is up 39% for 2016 and is amongst the top 3 best performing markets globally for the year. Understandably, a fund which invests solely in Brazilian market turns out to be the eventual winner for the year. In the past one year, it has given 56.14% returns. Although the scheme has given the highest returns in 2016, since inception it has given negative returns of -8.89% and a very low AUM suggests that it has lost the fancy of investors.

2. DSPBR World Gold Fund(G)-Direct Plan

One of the first few global funds to have made a big mark in Indian mutual fund industry, this scheme was back in reckoning after long hibernation. Investing in Gold mining companies who stand to benefit from the cycle of physical commodity, emerged as the second best fund for the year. A fund of funds, the DSP Black Rock World Gold Fund gave returns of 53.51%.

3. DSPBR World Mining Fund(G)-Direct Plan

The DSP Black Rock World Mining Fund gave the 3rd highest returns of 50.56% in the equity mutual fund categories. A relatively niche mutual fund scheme it has only 13.96 crores assets under management. It has not performed well since inception giving -9.73% returns and again is not amongst the very popular picks for investors.

4. Kotak World Gold Fund(G)-Direct Plan

Objective of this scheme is to provide long term capital appreciation by investing in units of Falcon Gold Equity Fund which in turn invests in international securities of gold production, processing and marketing companies. Theme is akin to DSPBR World Gold Fund and so are the returns.

5. DSPBR Natural Res & New Energy Fund(G)-Direct Plan

One of the few India domiciled mutual fund schemes in the top 5 of 2016, the DSP Black Rock Natural Reserves and New Energy Fund gave returns of 44.11% since January. A steady performer of the past, it has given 18.75% CAGR returns for last 5 years and over 12% CAGR since inception. Among the top 10 holdings are conglomerates like Vedanta, Tata Steel Limited, Hindalco Industries Limited, Bharat Petroleum Corporation Limited and Reliance Industries Limited.

2016, yet another year gone by in Indian Mutual fund industry, which no one could call-out at the outset. This however, has been the case in most of the past few years. The golden rule still stands true, the longer you stay invested, better are the returns that you reap.

Top performers in 2016, perhaps are a reflection of the year itself – so unpredictable and under-owned. Not many retail investors participated in the above funds and hence, it is easy to assume that an average equity investor has not tasted super-normal returns for the year that went by.  Debt investors laughed their way to banks at the fag end of the year, thanks to demonetisation and yields crashing dramatically.

Will 2017 mark the return of traditional equity funds, will debt continue to surprise us and will investors make those fancied returns – only time will prove. All one can safely say is - to stay invested across asset classes, perhaps remains the best strategy to ensure healthy long-term returns.

[vijay761-blog]

9 benefits of investing in Direct Plans

When we are asked to pick between two options, swaying towards the side with more benefits is a common human tendency. Furthermore, when the choice is between money and more money the winning option is obvious. So, here’s listing down 9 benefits of investing, that will make us the obvious option. 

1. Earn more from investments

Direct plans, where no trail fee/commissions are charged. For example,if you invested ?10,000 monthly in Equity funds for 25 years assuming an average compounded annual growth rate (CAGR) of 15% you would earn 328 lakhs in 25 years in regular plans, whereas in direct plans you would earn 436 lakhs. A direct 108 lakhs difference in your returns.This difference is owing to the difference in expense ratios between regular and direct plans which varies from 0.7% to 1.25% in equity funds. To calculate the difference in earnings from direct v/s regular plans and work with your own return assumptions, you can use our saving meter tool. 

2. Save time and energy

All of us sometime, somewhere in our lives have suffered from the documentation related rigmarole. The numerous trips to the photocopiers, countless forms to fill up, and sometimes you had to do the process all over again because you forget a specific document. At MoneyFront we have done away with this headache and gone 100% paperless. All you need to do is sit in your lounger, sip coffee, upload scanned copies of your documents, fill in a few details and voila! you are ready to invest.

3. Improve existing investments

 MoneyFront ensures that the benefits of direct plan of mutual funds is not limited to new investments. Investors who have already invested their hard-earned money in regular plans and are unknowingly paying commissions, can switch their portfolios to direct plans via MoneyFront in easy clicks. Please be rest assured, we will guide you through each step including information about exit & tax implications (if any) incurred from the switch. 

4. Selecting the right scheme made simple and reliable

Direct plan of Mutual Funds is perceived to be only for those who have in-depth knowledge of the mutual fund and stock market. However, MoneyFront simplifies the entire investment process by recommending model portfolios that helps you with correct asset allocation and right schemes based on your risk appetite and financial needs. 

5. Plan your child’s future

The price of professional education has increased by a whopping 96% from 2008 to 2014. In such times of rising responsibilities MoneyFront gives you a chance to plan for your child’s future methodically, well in advance. You can open a Minor account for your child and lay a strong foundation for his/her dreams. Plan early and allow ambitions to take flight at the formative stage.6. Unite all family investments A family that invests together flourishes together. You can now consolidate every family member’s portfolio under one account using the “Family Accounts” option, rather than making separate logins for each member. This enables you to scrutinise all your family finances at one go, ensuring there are no hassles related to managing and maintaining all portfolios separately.

7. Track liquidity

 We know that you’d like to be in complete control of liquidity always. Hence, we’ve made this unique yet simple tool to give live update of what can be anticipated from your investments through the financial year! Keep a tab of liquidity with our Income Estimator.

8. Own & invest jointly

We understand mutual funds are long term investment tools and most of us want to hold investments jointly with our loved ones. That is why we have the provision of joint accounts, to safeguard you and your loved ones’ interests.  Your dependants can access, manage and benefit from your prudent investments and be a co-partner in your journey of wealth creation

9. Get more, pay minima

lOur monthly charges are lesser than a cup of cappuccino at Starbucks. One coffee a month is what it will cost you to get paperless investing, model portfolios, automated advice, customised reports, varied analytics, and comfort of anywhere-anytime investing!Apart from the features listed, there are many more. Live saving meter is integrated in our platform that can be used to calculate savings earned via investing in direct plans as compared to regular plans. There are many other calculators incorporated to help you plan finances in a better way. Wide array of reports and analytics are available to guide every step of an investor. We are a SEBI registered investment advisor and to us, client’s interest comes above everything else!Money saved is money earned.

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Moneyfront

MoneyFront is a brand claimed by MoneyMap Investment Advisers Pvt. Ltd. The possibility of MoneyMap was considered in summer of 2015 by three school companions - Mohit Gang, Anil Bang and Puneet Mehta. Every one of the three working in various organizations, yet joined with their energy for ventures and markets!

The speculation stage essentially offers monetary admonitory administrations to its customers through an extensive portfolio approach utilizing a completely robotized and paperless stage. Moneyfront utilizes a savvy calculation to profile the customer and proposes the best Direct Plan suited to the financial specialists' persona.

Moneyfront trusts in the logic that an 'Upbeat customer is your best supporter,' thus, as a cognizant call, the organization offers just Direct arrangement of common reserve plans, which has bring down cost proportions as against the customary arrangements.

In this way, Moneyfront will be a one-stop computerized arrangement offering thorough consultative to its customers. The stage offers conspire proposals that have the most reduced cost proportions (as a result better returns) when contrasted with what some other agent or counselor offers in the commercial center. This is ensured by offering just Direct Plans. While the whole dispersion industry offers a normal arrangement and makes a commission out of customers' speculations, Moneyfront will obviously avoid this approach and work towards a customer driven model of counseling.

Moneymap Investment Advisers Private Limited is enrolled with the Securities and Exchange Board of India ("SEBI") as an Investment Adviser.