Tag: mutual funds

Got an appraisal? Don’t let your money sit idle, invest in these 5 ways

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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By now, most corporates would have finished their annual employee appraisal process. Based on your performance, your company may have given you a hike along with a performance bonus. You must use the additional income in a productive manner. Do not let it lie idle in your bank or be splurged on consumption and lifestyle.

As a healthy financial practice, this money must be channelized into avenues that can give good returns, create wealth, and help secure your finances. As a wise investor, you would not want your hard-earned money to depreciate; rather, you want to see it grow. The five options listed below can help in multiplying your extra income.

Start or increase your mutual fund SIP

You should use the hike amount to start a systematic investment (SIP) in mutual funds. This not only helps you be a regular investor but also create wealth while beating the menace of inflation in the long run. In case you already have an SIP, you can increase the quantum of your monthly investment in your existing schemes or you can opt for other schemes after consulting your financial advisor.

Increase your PF contribution

Salaried employees generally contribute 12% of their basic pay to the employee provident fund. However, you can increase this amount as per your convenience. If you are a conservative investor and want assured returns along with capital protection, you should opt for increasing your contribution to your PF whenever you get a raise in your salary. This also helps you get tax rebate under Income Tax Act Section 80C.

Pre-payment of your existing loans

In case you have pending equated monthly instalments or EMIs on your existing loans – personal loan, vehicle loan or for that matter home loan – it is advisable to use some portion of your increased salary to make principal pre-payments towards your borrowings. This helps you get rid of your liability sooner than the actual tenure of loan, thereby reducing your interest outgo as well as lowering your financial stress. However, you should avoid pre-payments if you are nearing the completion of the loan tenure to avail maximum tax benefits on home loan principal and interest outgo.

Buy insurance cover

Since life is unpredictable, it is wise to have financial safety nets to protect your family against any untoward eventualities. It could be your untimely demise or sudden health issues which need to be addressed urgently. One should use the additional surplus as part of premium payment to get a cover under term life insurance ensuring financial health of your family in your absence. You can also utilise your extra income for buying comprehensive family health insurance policies.

Look for tax saving investments

With rise in salary, your tax liabilities too rise. In case you aren’t able to save to the full extent of the Rs. 1.5 lakh available to you under Section 80C, use your increased income to improve your tax-saving investments. This, on the one hand, helps you reduce your tax payout every financial year; and on the other, the investments thus made get you the much needed growth in your investments. You can choose options like equity linked saving schemes (ELSS) offered by mutual fund companies if your risk appetite is moderate. Conservative investors may go for Public Provident Fund (PPF) or National Saving Certificates (NSCs).

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

India’s top 20 distributors manage 24% of total assets under management

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The total assets under management of mutual fund industry is managed by top 20 mutual fund distributors.

According to the data on the Association of Mutual Funds in India, top 20 distributors managed 24% assets of the 43-player Mutual Fund industry’s AUM as on March 2018.

AMFI data shows that these distributors managed close to Rs 5 lakh crore as on March 2018.

In financial year 2016-17, the top distributors managed AUM of Rs 3.94 lakh crore.

“Last year, market had rallied which got robust flows to the mutual fund industry. This helped distributors make handsome commissions,” said a Mumbai-based mutual fund distributor.

During the last financial year, the gross commissions paid to the top 20 mutual fund distributors went up 78% , from Rs 2,971 crore in financial year 2016-17 to Rs 5,279 crore in financial year 2017-18.

Similarly, the assets under management of the mutual fund industry during last financial year rose 22% in financial year 2017-18, from Rs.17.55 lakh crore as on March 2017 to Rs 21.36 lakh crore in March 2018.

Moolah Makers

Of the top 20 distributors, NJ India remained the largest mutual fund distributor, garnering a whopping Rs 787 at the end of financial year March 2018.

NJ India had collected Rs 443 crore in financial year 2016-17 to Rs.787 crore in financial year 2016-17.

Simultaneously, it’s assets under advisory increased by Rs 19,198 crore to touch Rs 50,157 crore, during the review period.

The second largest distributor was HDFC Bank, which earned Rs 641 crore, followed by SBI Bank at Rs 558 crore and Axis Bank at Rs 538 crore.

Among distributors who registered highest growth in commission earnings in percentage terms were Anand Rathi, HDFC Securities and SBI Bank.

Disclaimer: The views and investment tips expressed by investment experts are their own and not that of the website or its management. Users are advised to check with certified experts before taking any investment decisions.

Source: Moneycontrol.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Finding it hard to spot multibaggers in 2018? 10 stocks that rose 40-70% in the first 6 months

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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After a blockbuster rally in 2017, when the list of multibaggers ran into hundreds, the same has now shrunk to merely two in the smallcap space. Some stocks which did manage to shine belong to IT, retail, FMCG and broking space.

The Sensex had risen 16 percent in the first half of 2017, with over 100 stocks more than doubling investor wealth with returns ranging up to 700 percent.

The big carnage was seen in the smallcap and midcap space. The BSE Smallcap index plunged 17 percent and the BSE Midcap index dropped a little over 13 percent in the same period.

As many as 114 stocks in the BSE 500 managed to buck the trend and are trading in positive terrain. These include: Indiabulls Ventures (up 76 percent), Firstsource Solutions (up 73 percent), V-Mart Retail (up 71 percent), NIIT Technologies (up 68 percent), and Tech Mahindra (up 41 percent).

Technology stocks have performed better thanks to the fall in the rupee, which touched Rs 69 per dollar on Thursday. The currency has weakened against the dollar by a little over 8 percent in the same period.

“FMCG and IT sectors have outperformed the key benchmark index since the start of FY18 as compared to other peer sectors. Stocks that have delivered 50 percent or more returns are generating positive alpha by outperforming the key benchmark index. If you look at the fundamentals of those stocks, they are still strong,” Ritesh Ashar, Chief Strategy Officer at KIFS Trade Capital, said.

“Majority of stocks are moving in a clear uptrend. Once the momentum starts, prices tend to move more or less in the same direction. Momentum of stocks on the list are expected to continue and returns can be expected from these stocks in FY19,” he added.

The broader market, which outperformed every other asset class in 2017, saw major profit booking. Some stocks have corrected up to 80 percent in the first six months of the current calendar year.

High valuations, failure of earnings growth to pick up, fierce selling by foreign investors, auditors resigning and redemption pressure faced by some mutual funds are weighing on small and midcaps but there are plenty of stocks which bucked the trend.

About 104 stocks in the BSE Smallcap index delivered positive returns. These include: Electrosteel Steels (up 204 percent), Nelco (up 103 percent), Excel Industries (up 96 percent) and Merck (up 86 percent). Other smallcap stocks which posted double-digits gains in the first six months if 2018 include: Opto Circuits (India), KPIT Technologies, Zensar Technologies, Take Solutions, Tata Elxsi, HEG and Mastek.

Although most of these names have corrected, the selling pressure was not as fierce as was seen in other stocks. Hence, investors should use the correction as an opportunity to get into quality stocks on declines.

Nilesh Shah of Kotak Mahindra Asset Management Company (AMC) is hoping for a recovery in midcaps. “Quality midcaps will start bottoming out over the next 60 days. A sharp run-up in mid and smallcaps had pushed up valuations ahead of fundamentals.” He also recommends avoiding momentum-driven stocks in the mid and smallcaps space at this point.

Sectors to bet on:

Experts suggest that IT, pharma, FMCG, auto and banks will remain in focus not just for the next 6 months but over the next 2 years.

“If we look at the mass destruction in the banking sector, it seems that things have cooled down and we may see outperformance in coming days in the Bank Nifty. One can add private sector banks in the kitty for investment purposes. In the private banking space, one can opt for RBL Bank and HDFC Bank. Among public sector banks, State Bank of India would be the best pick,” Ashar said.

Most analysts are betting on a recovery in earnings growth in the next two years, which should support valuations in these sectors. At the same time, global growth is expected to remain strong at over 3.7 percent for CY18 and CY19, with the cycle being sustained by strong investment and improving productivity, experts said.

“Nifty consensus earnings growth for the next two year is expected to be over 20 percent. Sectors like automobiles, consumer, financial, industrial, pharmaceutical and metals are expected to grow in double-digits,” Sachin Trivedi, Senior Vice President, Head – Research & Fund Manager at UTI AMC, told Moneycontrol.

Disclaimer: The views and investment tips expressed by investment experts are their own and not that of the website or its management. Users are advised to check with certified experts before taking any investment decisions.

Source: Moneycontrol.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Four investment asset allocation strategies to create wealth

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

To grow one’s capital, it is important to decide how much money is to be invested in equity, debt, etc rather than choosing which equity or debt mutual fund to invest in. This is called asset allocation as it entails where to invest and by how much.

Asset allocation refers to how much of your money is to be parked in different assets: equity, real estate, gold and so on. In the case of mutual funds, asset allocation refers to allocating money between debt and equity mutual funds.

Debt and equity mutual funds have many sub-categories. Equity mutual funds can be categorised as largecap, smallcap, and so on. Likewise, the sub-categories in debt mutual funds include liquid funds, ultra-short term funds and short-term funds.

Each of these sub-categories offer different kinds of returns and are associated with varying levels of risk.

Why is asset allocation important?

If you observe the markets, you will notice that all types of assets rarely perform in tandem. Till recently, the IT sector was doing poorly even though most other sectors were performing well.

When markets as a whole perform poorly, investors start to invest in debt mutual funds. The latter has continued to perform even while equity markets are doing poorly. On the other hand, when equity markets outperform, investors flock to invest in the hopes of earning higher returns.

One might think it best to invest in mutual funds that perform the best. This is called timing the market. Unfortunately, even the best investors are not successful in timing the market.

So, it makes sense to allocate investments in a mix of mutual funds. When one set of funds perform poorly, the others will balance the underperformance.

Investing one’s entire capital in a limited type of mutual fund is a risky strategy. If one had invested only in equity mutual funds around 2008, the portfolio could have suffered losses. But investing in debt mutual funds would have delivered decent returns. At the same time, if one invested only in debt over the past few years, one would have earned far less returns than someone investing in equity mutual funds. The trick is to invest in all types of mutual funds by diversifying.

There are a number of strategies that one can choose for allocating capital to different kinds of mutual funds. But to keep things simple, here are the four most popular strategies.

Coffee can strategy

Coffee can strategy refers to investing a fixed amount in different types of mutual funds for the very long term. This rule is hard to follow as there will be instances when changing conditions will make it unavoidable to keep one’s asset allocation constant.

For example, a few years down the line, one may want to go on an international vacation that was never planned for earlier. If such a big expense comes up, one will be bound to make portfolio changes.

This could, however, work for a part of one’s investments, where one puts a portion of your existing investments in a coffee can portfolio and let it compound that way for a very long duration.

Fixed percentage strategy

As the name suggests, the percentage you invest in equity and debt remains constant and does not change with time.

This means you will need to regularly rebalance: if the value of investments in equity mutual funds increases, one is are supposed to sell some units and invest the same in debt mutual funds and vice versa. The end goal is to keep the percentage of your investment in all types of mutual funds constant.

While using this strategy, one’s future goals, plans, big expenditures, etc all need to be factored in.

One of the biggest hurdles with this investment rule is that it is very hard to decide what percentage to opt for. This is largely because there are always expenses that are hard to predict. One might want to buy a new car in the future that hadn’t been planned for. Or, one may want to shift to a city where the living expenses are higher.

That makes it nearly impossible to keep the decided percentage constant.

100 minus age strategy

Subtract your age from 100. The answer is the percentage of funds that should be invested in equity mutual funds. The rest should be invested in debt funds.

For example, if your age is 25, then 75% of your total investments should be in equity funds and the rest (25%) should be in debt funds. This rule is extremely popular with investors.

What this rule does is reduce your exposure to risk as you age. As one grows older, one would invest more in debt funds which is a low risk investment.

But this strategy has one major downside as it automatically assumes your risk appetite will reduce with age. However, if you are old but live below your means, you can still afford to take more risk. That’s where the flaw in this strategy lies.

This strategy leads to another problem. Thanks to better healthcare, people are living longer lives. Which means, they will require more funds for their retirement than they anticipated. By investing heavily in debt, you are causing your money to grow at a slower pace. This might result in lesser funds to meet one’s lifestyle.

On the flip side, if you are young, the strategy would imply you invest greatly in equity. If at that time the markets suffer, you could incur losses on your equity investments.

Market dependent strategy

This strategy relies on market conditions to decide one’s allocation to different kinds of mutual funds. What this strategy advocates is constantly rejigging investment allocation based on the market conditions.

When equity markets are moving upwards, one is supposed to increase investments in equity funds. On the other hand, when equity markets are on a downward trend, one is supposed to increase investments in debt funds.

This investment strategy is not for everyone as it involves a great deal of work. One cannot just invest and forget. One will need to constantly keep selling and buying to follow this strategy.

If volatility is high, one stands to lose as the chances of selling and buying right before the market trends reverse is very high.

Not just that, given that one will be needed to make so many changes, one will pay a large part amount as transaction charge.

Which asset allocation strategy to adopt?

With asset allocation, there can be no one rule that fits everybody. Each person’s financial condition is different and requires a different approach.

In fact, I would go one step ahead and say no person’s financial condition remains the same. This means that one would have to change their investment strategy from time to time.

What one can do best is to be aware of their finances and use the asset allocation strategy that suits their financial condition at any given point in time.

Disclaimer: The views and investment tips expressed by investment experts are their own and not that of the website or its management. Users are advised to check with certified experts before taking any investment decisions.

Source: Moneycontrol.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Use Systematic Withdrawal Plan for tax-efficient regular income from mutual funds

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Over the past few years, many investors have opted for dividend plans of equity-oriented balanced funds, for regular cash flows, as they rendered tax-free income. Many equity-oriented balanced funds have a history of paying fixed monthly dividend regularly giving investors an informal assurance of regular income. Also, the annualised returns of these plans are generally between 8% and 12% p.a. The popularity of these schemes may wane as Budget 2018 has announced a 10% dividend distribution tax (DDT) to ensure there is parity between dividend and growth schemes, where taxation is concerned.

Dividend distribution tax on equity mutual funds

The main distinction between capital gains tax and DDT is that DDT is paid by the fund house and not by investors, whereas capital gains tax is paid by the investor. Dividends received from all mutual funds remain tax-free in the hands of the investors. However, investors would be impacted as the AMC pays the tax out of the declared dividends and it will reduce the in-hand return to the investor. The Budget has introduced a 10% DDT on equity-oriented mutual funds. This 10% will be deducted from the dividend announced and then dividend will be paid to the investor. If you include the surcharge and cess, the effective rate of dividend tax is 11.65%.

Effect of dividend distribution tax (DDT)

Earlier, in the absence of DDT, an investor would receive the entire amount of dividend declared. Hence, there was no difference between the amount of dividend declared and the amount of dividend actually received by the investors. Now, with the introduction of DDT, the dividend received by the investors will be reduced to the extent of 11.65%. The fund house will deduct the tax amount from the dividend declared and the net dividend will be received by the investors.

To understand DDT in a better way, let us consider an actual example:

A balanced fund declared a dividend of Rs. 0.12 per unit with a record date of April 23, 2018. In the absence of DDT, the investor would receive the entire amount of Rs. 0.12 as dividend. Now, with the introduction of DDT, the investor received only Rs. 0.1062 per unit (Rs. 0.0138 deducted as dividend).

Alternative of Dividend Option – Systematic Withdrawal Plan (SWP)

The SWP route now becomes more relevant for fetching regular income from equity funds. Investors will be able to optimize their tax on long-term capital gains accrued on the amount withdrawn under as a SWP (provided it remains below the Rs 1 lakh threshold).

For example:
Amount Invested: Rs 25 lakh
Withdrawal: 12% per annum
Amount received per month: Rs 25,000
Amount received per annum: Rs 3 lakh
Exemption on profit per annum: Rs 1 lakh

Considering, the rate of return of 12% p.a., an investor would be liable to pay a nominal tax of 2% of the amount withdrawn in the first year as short-term capital gains tax. Long-Term Capital Gains tax liability will arise somewhere in the 4th-5th year as at that time the profit amount would be more than Rs 1 lakh. Here, the liability will be approx. 1% of the amount withdrawn. The investor will be liable to pay tax only on gains over and above Rs 1 lakh.

Post LTCG tax and DDT, both the options give almost the same returns. However, leaving the returns criteria aside, SWP is still a better alternative to dividend plans on the following parameters.

Disclaimer: The views and investment tips expressed by investment experts are their own and not that of the website or its management. Users are advised to check with certified experts before taking any investment decisions.

Source: Moneycontrol.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Four important tips to make the most of close-ended mutual funds

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Ever since the Securities and Exchange Board of India (SEBI) announced re-categorisation of open-ended mutual funds in October 2017 into 36 schemes under equity, debt, hybrid etc, funds houses have been restricted from having more than one scheme under each category, subject to certain exceptions. As per a report by The Association of Mutual Funds in India (AMFI), fund houses have launched 12 new close-ended equity schemes in the January to March quarter, leading to growing eagerness among investors to invest in them.

But before you decide to invest in a close-ended mutual fund, here are some important points to keep in mind before arriving at any such investment decision:

Lack of past records and real time comparison

Close-ended mutual funds do not have any track record and aren’t open to investors after their initial offer period. Most agencies do not rank them in their rating exercises. Lack of a track record implies that past performance cannot be reviewed or scrutinised. Such schemes can neither be compared with their peer schemes and benchmarks, nor can their performance be tracked or compared real time. Moreover, sporadic disclosures also make analysis of close-ended funds difficult and lack of scrutiny often leads to complacency for close-ended fund managers.

Unlike open-ended schemes where the performance of the fund is traceable over different market cycles, investors may have to rely on the fund manager’s past performance and experience when it comes to investing in close-ended schemes.

Concentrated portfolio and high expense ratio

Close-ended mutual funds involve small sized portfolios. This leads to higher expense ratio for even the smallest of funds, which usually rises to 3% per annum. Majority of close-ended schemes have a relatively higher expense ratio than open-ended funds. Although SEBI has placed a limit on the maximum expense ratio chargeable from investors, the slab structure of close-ended fund allows them to charge the highest expense ratio from their smallest sized funds. As the fund size increases, this expense ratio decreases.

Levying high expense ratio on close-ended funds means fund houses can offer higher commissions to distributors and therefore maximize the income of both asset management companies and distributors.

Low liquidity

Close-ended schemes do not provide the option to exit funds in case of non-/underperformance of funds in the portfolio. Funds invested in these cannot be redeemed or sold when such a need arises. Due to lack of past records and absence of a facility to exit the fund, the working of close-ended schemes is sometimes referred to as black box as it lacks scrutiny.

Before maturity, the only mode to sell a close-ended scheme bought in demat form is on the stock exchange. On the latter, your fund units would be bought by another investor who is interested in purchasing units of that fund. Moreover, absence of portfolio rebalancing or an asset allocation option adds to the rigidity of close-ended schemes.

Absence of an SIP investment option

Many investors, especially the salaried class, usually prefer regular investments (in the form of systematic investment plans) over lump sum equity investments. This ultimately leads them to investing in open-ended schemes, since close-ended ones don’t offer the flexibility of regular investments. Even if a lump sum amount is invested in a close-ended scheme, the concept of rupee cost averaging isn’t present if the market trends lower. Performance of close-ended schemes and investor returns are therefore solely dependent on timing of the investment, i.e. the opening and closing dates.

Benefits of investing in close-ended mutual funds

Investors don’t sell in panic: Since close ended equity schemes have a specified term such as 36 months, 5 years etc, those aiming to build a corpus without worrying about day-to-day market fluctuation can invest in these schemes. Investors cannot exit whenever the market turns unfavourable. This provides a more stable asset base to fund managers to manage the fund throughout the term.

Moreover, only the opening and closing date of scheme affects returns which an investor would earn.

With a closed-ended fund, the fund manager has the advantage of managing the money pooled without any redemption pressure during the lock-in period. Although investors cannot redeem or sell their schemes, they can exchange them on stock exchange, by selling to a buyer who seems interested in the close-ended fund.

Invest in funds which offer differentiated income/objectives: Another benefit of investing in close-ended funds is that investors are able to invest in funds that offer differentiated objectives/income, which may not be offered in open-market funds or schemes. Close-ended funds can be unique and possess niche strategies which require a finite life and hence need to be properly timed. The strategy could be for a new or different idea meant only for select investors who are willing to look at a different risk profile and invest accordingly in such funds.

How much to invest in close-ended funds?

Ideally, investor should invest 5-10% of the desired corpus amount in each close-ended scheme, keeping in mind the risk of timing the investment properly for generating adequate returns on the closing date. Since close-ended funds require lump sum investment, investors should invest small sums in different schemes of close-ended funds, instead of putting the lump sum into a single scheme. But before investing in close-ended schemes, ensure that they offer something unique, when compared to the flexibility and benefits of open-ended funds.

Disclaimer: The views and investment tips expressed by investment experts are their own and not that of the website or its management. Users are advised to check with certified experts before taking any investment decisions.

Source: Moneycontrol.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Robo advisors: The modern face of investing

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

India’s stock market capitalisation is nearing Rs 147 trillion, of which the assets being managed by equity mutual funds have topped Rs 8.5 trillion. This means equity mutual funds now account for 5.7 percent, an all-time high.

Clearly, retail investors are hoping to ride the market wave, thus giving rise to new avenues which can offer them maximum bang for the buck.

This is exactly the sentiment that Robo Advisory funds hope to exploit.

So, what exactly is a ‘Robo Advisory’ and how does it work?

Robo-advisors are digital platforms or apps which offer automated, algorithm-driven financial planning services with negligible human interference. Talk about removing the emotional aspect of investing!

A typical robo-advisor collects information from clients about their goals or investment objectives, risk profile, investible surplus and so on, analyses it according to hundreds and thousands of pre-defined parameters and offers tailor-made solutions-all in a matter of minutes.

Post the initial asset allocation, robo services also continue to monitor the health of the portfolio and suggest changes.

In many ways, these companies can be called the modern face of investing. They offer customised goal-based investing platforms, zero or almost nil commission models, 24×7 connectivity and transparency for ticket sizes as small as Rs 500.

Many of them offer institutional quality analytics, which has only been available to high networth individuals till now.

The process has even been called “easier than signing up for Facebook”.

Rohit Paul Mascarenhas, an investor with ‘scripbox’, says he got interested by the quality of research and the suggestions on funds, but was hooked by the hassle free process.

While robo advisors are still fledgling in India, they seem to be gaining quite a bit of traction across the world. Vanguard’s robo platform crossed $100 billion in assets under management (AUM) earlier this year. Betterment, Wealthfront and others collectively managed as much.

Back home, the key players seem quite focused on the growth potential. In a country with an ever expanding middle class, the need for cost effective, customised solutions is also exploding.

Subramanya SV of Fisdom, a digital investment platform with over 60,000 customers, says digital advisors who now account for 5 percent of the market could see their footprint expanding to 25-30 percent in mere five years.

BI Intelligence estimates that the Asia-Pacific region will record $2.4 trillion in robo-advisory assets under management by 2020.

Sharad Singh of Invezta, a leader in direct mutual funds, says a few companies like theirs could well land-up in the top 200 companies over the next decade.

Many of the apps have shut down in their gestation periods – blame it on bad planning, cash flow mismanagement or even the lack of funding.

But the truth is, the sailing isn’t smooth for anyone who wants a piece of the pie and competition is flooding in from all corners.

This is not to suggest that independent financial planners are not fighting back. Platforms like NJ Fundz or Prudent offer online aggregator services for mutual fund distributors, independent financial advisors (IFA) and PFAs, giving them the top of the line tech advantage.

Can Indians who have traditionally relied on neighbourhood PFAs ever truly trust an automated platform? Could these digital warriors pose a threat to the established AMCs?

Taking the Vanguard example, even in India, the established players are building their own robo platforms. So, it certainly looks like a change that was indeed needed.

Like with all major movements, which start small, struggle to gain traction and then suddenly snowball into your living room, robo advisors too are certainly shaking things up.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

How does debt fund’s maturity roll-down help manage market risk

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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When we say passive fund management, we normally refer to index funds, which mimic a given index such as Nifty or Sensex. However, the index itself can be volatile and the fund, even though there is no active fund manager intervention, can be as volatile.

There is another kind of passive fund management in fixed income funds. The difference between equity and bonds is that in bonds there is a maturity date, and with the passage of time, the residual period to maturity comes down. This is known as maturity roll-down as the remaining maturity period is rolling down. The market risk in debt instruments, also known as interest rate risk, is proportionate to the residual maturity of the bond or in case of a bond fund, to the composite maturity of the fund. A bond fund with a lower portfolio maturity will have a lower market risk than a fund with a longer maturity. By extension of this logic, if a bond fund is managed passively, with passage of time, the market risk or price risk will come down proportionately.

This passive debt fund management is practiced in fixed maturity plans (FMPs) as a rule, where the asset management company (AMC) can buy bonds with maturity up to the maturity of the product. Hence in a three years FMP, the fund manager buys 3 year maturity bonds when the initial portfolio is constructed. After say 1 year, the remaining period for the FMP is 2 years and the residual maturity of the portfolio is also 2 years. On maturity of the FMP, the instruments mature and there is no market risk. There is no legal restriction on churning the portfolio in an FMP as long as the fund manager is sticking to the maximum maturity of the instruments and the composition /credit rating mentioned in the scheme information document (SID). FMP portfolios are passively managed as that is the essence of the product.

In mutual funds, most open ended funds are actively managed. Hence a short term bond fund with a portfolio maturity of say 2 years will remain a 2-year maturity fund at any point of time going forward: the portfolio maturity will be as per the view of the fund manager. If there is an open-ended bond fund that is passively managed with maturity roll-down, investors may opt for it to gradually reduce interest rate risk. This kind of open-ended funds with maturity roll-down are rare. As an exception, one or two AMCs have passively managed debt funds with a portfolio maturity roll-down.

So far, no AMC had an open-ended product of very long portfolio maturity with a roll-down. Now a leading AMC is coming out with a new fund offering (NFO) in June, with the objective of buying very long dated government securities (G-Secs). The fund will buy G-Secs of around 30 years maturity and would leave it there, so that residual maturity comes down gradually. What does the fund manager do with fresh subscriptions in the fund? Since this is an open-ended fund, fresh investments in the fund will happen. The fund manager will purchase similar instruments as in the existing portfolio, whose residual maturity has come down by that time, so that maturity roll-down in maintained. The whole purpose of doing this strategy is akin to you buying a portfolio of very long maturity G-Secs and holding the instruments till maturity, through the vehicle of a mutual fund rather than you doing it directly.

While it is possible that you buy G-Secs directly, there are advantages of doing it through MFs. Tax efficiency is one major reason. When you buy a G-Sec yourself, the interest is taxable at your marginal slab rate, which is 30 percent (plus surcharge and cess) for most investors. In the growth option of a debt MFs, for a holding period of over 3 years, taxation is at 20 percent (plus surcharge and cess) after the benefit of indexation. The benefit of indexation reduces your tax quantum significantly, hence the effective tax impact on returns is that much lower. Indexation is the relaxation given by the government on long term capital gains (LTCG) tax, which is the 3 year holding period for debt funds. The term indexation in this context refers to inflation. The increase in price of the asset, on which you are paying LTCG tax, is in part due to inflation, apart from pure price appreciation. Indexation is the concession given for (most of) inflation over that time period.

The other advantages of the MF route are the practical ones – it is difficult for you to do it yourself. There are issues of secondary market liquidity since the G-Secs market comprises institutions who trade in very large lot sizes. Moreover, it is difficult for you to manage the operational aspects of buying G-Secs.

To conclude, maturity roll-down helps manage the market risk in a debt fund, provided you have the horizon to hold it till the intended ‘maturity’ date. The advantage of locking in very long maturity G-Secs is that you are buying into today’s available interest rates for a long horizon. As the economy grows from a developing to a developed one over the next 30 years or so, interest rates are expected to ease as per the theory of economics.

Disclaimer: The views and investment tips expressed by investment experts are their own and not that of the website or its management. Users are advised to check with certified experts before taking any investment decisions.

Source: Moneycontrol.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Factors to consider before you invest in mutual funds

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

As shown in the advertisements you must have heard mutual funds are subject to market risks, and you must read the offer document carefully before investing. Well you heard it right, they come with their own risks and rewards. And some one wisely said, the devil always lies in the details. So here is a little insight on mutual funds.

 What are mutual funds? 

Mutual funds simply mean, collecting money from individual investors and then collectively investing it in stocks, bonds and other money market instruments depending on which scheme and objective you have chosen to invest in, during the purchase. Here the trades which are held in diverse holdings of companies and are professionally managed.

 Playing it safe

It is best to avoid pitfalls of commission, incentives or gifts offered on a certain scheme, if you invest your capital, it is not necessary that the name of a scheme will do exactly what it says. Let’s take for argument sake, a retirement scheme. As the name suggests it is meant to create corpus for your retirement. But there will be other schemes who can optimise the same objective, for this you need to be well informed or researched about the schemes you are looking to invest in. Getting carried away with the name will not necessarily achieve the objective. So caution needs to be maintained before capitalising.

When you are undecided of investing in a certain scheme, a decision should not be purely based on the schemes past performance, there could be many reason for the funds spur for performance. Past performance is a good indication but sometimes an up spur could be in just for the moment which may not be sustainable, due to geographical or economic reasons. At times it could mean it’s a larger risk to your investment and you need to be careful before you access a fund based on its past performance. The NAV or Net Asset Value also can help you understand where the fund is headed and you can keep track of the account statement and redeem your investments, if required.

Also putting your capital away in a fund or scheme purely based on past performance is not the right way to go about creating your portfolio.

 Optimise your investments

In order to optimise your investments, keeping your investment objective and risk appetite in mind before you pick your debt or equity scheme is significant. Investing in well performing high-risk funds are likely to give you better-returns. You need to be cautious of your investment as certain risks could force your capital to go dry.

Allocating your assets strategically and tactically will help optimise returns, but these should be reviewed regularly. A check on the changing market cycle, performance and outlook on various asset classes, availability of new attractive investment opportunities will help you optimise your returns and be one step ahead of the rest.

To sum up

Optimising your investments will make your money work for you and help get better returns. Mutual funds are a risky-business and you need to be very careful in what scheme you are putting your money in. It is best to allocate your assets across various asset classes rather than put your money in any one. An NAV will help you understand better to keep track of the fund as investing in a fund based on past performance will hold high-risk to your capital.

This is a partnered post.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow