Should you invest in a new fund offer of a mutual fund?

Most new fund offers of mutual fund do not offer anything new. It makes sense to know what is unique that the existing schemes do not offer.

Indian equity investors are seen continuing their equity investments in mutual funds, despite recent fall in equity markets. Mutual funds too are keen to attract more retail money and are offering more options to the investors, by launching new fund offers (NFO)– around one theme or the other. While there are hundreds of existing schemes available for ongoing investments, this addition of new fund offers with exotic investment objectives further make the choice difficult for investors. Most experts advise investors not to get carried away by the exotic investment objective and stick to their investment plans. “There is nothing unique offered by most new fund offers. It makes a lot of sense to invest in extant mutual fund schemes with long term track record, in line with one’s financial plan,” says Tarun Birani, founder and chief financial planner, TBNG Capital Advisors.

If you have not heard from your friendly mutual fund broker yet, there are many new fund offers going on in the market. For example, Tata Mutual Fund has five new fund offers of schemes that offer to invest in themes such as banking & financial services, healthcare, consumer India, digital India and resources & energy. Sundaram Mutual Fund recently closed new fund offer of its micro cap fund whereas Axis Mutual Fund closed new fund offer for its Children’s Gift Fund.

Each new fund has an investment objective that offers to make money for investors by investing in a portfolio built around defined theme. Also there are new fund offers that keep hitting the market at regular intervals built around themes such as equity opportunities, economic recovery, capital protection, growth and value investing. Some offer you a ride on the impending economic revival and some offer to extra returns than the market by investing in small cap shares.

Most of these themes may sound very interesting. However, there may not be anything new in it. “One should invest in new fund offer if and only if the investment theme is not available in the existing schemes in the market. Most of the NFO themes are well represented by portfolios of existing schemes, hence one should go for existing open ended schemes with good long term track record,” says Abhinav Angirish, managing director, investonline.in, an online mutual fund distribution entity. Take the example of investing in a new fund offer of a closed ended fund that aims to make money by investing in a portfolio of small and mid cap stocks. There are many schemes that offer a diversified equity portfolio comprising stocks of companies of all sizes. Also there are many good midcap focused open ended schemes. It makes more sense to go with an existing scheme, which has a track record than experimenting with a new one. The next time you hear of a new fund offer, ask the right question – what is there on offer that an existing scheme is not offering?. It does not end here.

“How many retail investors really know which theme to bet their money on?” asks a wealth manager. Most retail investors cannot decide how much of their money should go to each of these investment themes in equity markets. It pays to let the decision to a professional fund manager of a diversified equity fund. If the theme deserves some money, the fund managers of existing diversified equity funds will not ignore it.

A restrictive mandate is another point that makes an exotic NFO unattractive. If you are contemplating an investment in a new fund offer aimed at buying shares in a particular sector, do not forget the fact that you are taking more risk than a new fund offer of a diversified equity fund. Most themes limit the stock universe for the fund manager, as compared to the stock universe of a diversified equity fund. Over a period of time, if the theme fails to take off, there is a high possibility that investors’ money may earn less return than that offered by the broad market.

Not everyone is against investing in NFO. Of course, most such recommendations come with caveats. “If you are an aggressive investor keen to invest in new fund offer focusing on different sectors, conduct a proper due diligence on the credentials of the fund management team with regards to specific themes,” says Renu Pothen, research head – fundsupermart, an online mutual fund distribution entity.

Also conservative investors keen on preserving capital can consider new fund offers of capital protection oriented funds that aim to invest in a mix of debt and equity. However, most experts make it clear that better tax efficient returns can be earned by investing in a combination of an equity fund and debt fund. While the new fund offers will always be there as long as investors are waiting for something new, it makes a lot of sense to write a cheque only after knowing the investment opportunity. Otherwise the good old long term war horse – diversified equity funds with a ten year track record surely make a better investment option. Equity fund Balanced fund -(moneycontrol Bureau)

Balanced funds outperform large cap funds over long term

Balanced funds not only offered better returns than the large cap equity diversified funds but also reduced volatility.

Pocketing higher returns at lower volatility is a dream situation for many equity investors. However, for long term investors in balanced funds it has been a reality. Balanced funds as a category has not only offered better returns than large cap equity diversified funds but also managed to contain volatility. Do refer table to get an idea of the numbers

Over last three years, balanced funds offered 15.75% returns as compared to 12.92% returns offered by large cap equity funds. The large cap equity funds recorded standard deviation (measure of volatility) at 15.42 as compared to 11.98 recorded by balanced funds. Low number means less volatility.

 For the uninitiated, balanced funds offer to invest in a combination of stocks and bonds in the ratio of 3:1. Put simply, the fund manager invests around 75% money in stocks and remaining money in bonds.

“Given the high interest rates in India, high exposure to stocks and ongoing rebalancing by fund managers, balanced funds manage to post such a stellar performance,” says Vishal Dhawan, CEO, Plan Ahead Wealth Advisors. He recommends balanced funds as a core portfolio holding for investors looking for an aggressive equity product with a 75% allocation to stocks. “Many investors believe that balanced funds offer to play equity when the stock markets are in boom phase and invests in bonds when the bonds are doing well, which is not the case,” he explains.

While the balanced funds and large cap equity funds may be seen as vehicles to invest in equities, investors must understand the difference. “Given the bond exposure of balanced funds, this is not an apple to apple comparison,” points out Feroze Azeez, deputy CEO, Anand Rathi Private Wealth Management. He prefers to compare balanced funds with an individual’s portfolio which comprises large cap funds, mid cap funds and bond funds. For retail investors it makes sense to go for balanced funds, instead of spreading their investments in these three separately.

“Given the tax arbitrage that balanced funds offer, even large investors can look at investing in balanced funds,” Feroze Azeez says. The balanced funds though invest in a mix of bonds and stocks, for the purpose of tax they are treated as equity funds. Gains earned on investments held for more than one year in these funds are tax free. Dividends declared by the balanced funds are also tax free. If an individual decides to invest 75% of his money in equity fund and remaining in bond fund, his gains in bond funds are subject to tax. If he opts for a balanced fund the gains earned on the bond component too are tax exempt as mentioned earlier. The tax arbitrage is not the only hook for the balanced funds.

The fund managers keep rebalancing the asset allocation of the scheme. That makes them sell stocks at every rise and buy stocks on each fall. This leads to buying cheap and selling dear – the dream mantra for any equity investor. The bond exposure not only cushions the downside but also offers money to buy stocks in prolonged downtrend in equities. More important is the rebalancing does not have tax-implications. Even for the purpose of asset rebalancing, if an investor sells his equity fund unit to buy bond funds and the other way round, it may have tax implications.

Though balanced fund may appear to be the best solution for all investment needs, here is a word of caution. “Balanced funds have done well in the past and they are expected to do well. However, there is a big up move expected in equities as macros improve and earning upgrades come in. In that scenario even large cap equity funds will outperform balanced funds in the medium term,” says Rupesh Bhansali, head- mutual funds, GEPL Capital. “But if you are new to equity markets or looking for a relatively less volatile way to invest in stocks, balanced funds definitely make a better option.”

-Rupesh Bhansali advises investing in HDFC Prudence Fund, SBI Magnum Balanced Fund and L & T Prudence Fund. Vishal Dhawan prefers to place his bets on HDFC Balanced Fund, SBI Magnum Balanced Fund and Tata Balanced Fund.(Moneycontrol Bureau)

Six investment mantras to get higher returns from mutual funds..

If you can follow these tips, you can get higher returns for mutual fund investments. - Suresh KP 
You might be investing in mutual funds for some time now. However, the possibility of underperformance of your scheme may be worrying you. This issue need to be addressed to ensure peace of mind. I have been analyzing mutual funds for last 15 years and found that a few tips can help in getting higher returns in mutual funds. Even if you are investing in top performing mutual funds schemes, sometimes you may not be getting good returns. How to get superior returns in mutual fund investments? How to ensure that you reach your financial goal by investing in mutual fund schemes.

Here are some tips: 1) Invest based on your risk appetite: I have seen many investors who invest in mid-cap funds without even knowing they are risky. When the stock market crashes, these investors would book losses and come out of such mutual funds schemes. If you are a high risk investor, invest in large cap and mid-cap funds. If you are moderate to low risk taker, invest in large cap funds and balanced funds. If you are a low risk taker, just invest in debt mutual funds.

2) Invest in top performing mutual funds: This is your second step in mutual fund investment planning. Analyze various mutual funds based on your risk appetite. Check what mutual fund experts say about those funds. Don’t get dragged by brokers who want to sell funds to get higher commissions. Do your homework, if satisfied, start investing in mutual funds. Don’t care even if it takes a couple of months to analyze.

 3) Invest through SIP: Many of us invest in mutual funds in a lump sum. While this is a good idea to invest in lump sum when the markets are taking deep correction, it is not always wise to go for a lump sum. Mutual funds provide good returns if you invest through Systematic Investment Plan (SIP). A small investment of Rs 500 per month through SIP for 20 years can turn to Rs 5 Lakh assuming a 12% annualized return. Similarly, if you can invest Rs 5,000 per month through SIP for 20 years, you can get Rs 50 Lakh. These small investments can make you rich in the long run.

 4) Invest in diversified portfolio: Many individuals invest in either mid-cap funds or large cap funds or balanced funds. These funds would perform well based on various market cycles. If stock markets are in a bull - run, mid-cap/small cap funds perform extremely well, even though large cap funds provide good returns. However, during the stock market crash, large cap funds provide some support. Mid-cap or small cap stocks tumble quickly in bad time. Hence, you should diversify your portfolio across large cap, mid-cap, small cap and balanced funds. There is no hard and fast rule, about, portfolio diversification and it depends on the individual investor. You can consider investing same amount in each of these segments.

5) Invest for long term: Mutual funds tend to perform better in the long run of over 10 years. If you have any plans to take out your money before that you should re-think about your decision of investing in mutual funds. Invest your money in mutual funds which you don’t need for the next 8-10 years. E.g. Banking funds have given 15% annualized returns for over 10 years, however, they gave just 5% annualized returns in last 5 years.

6) Invest on various dates: You would have diversified your portfolio, however an additional step is, put your SIP investments on various dates. E.g. I purchase 3 mid-cap funds in a month through SIP, 1st one on 10th, 2nd on 20th and 3rd on the 30th of the month. Any political or economic factors that would influence for the short term would not have an impact on all such funds.

The author of this article is founder of Myinvestmentideas.com. He can be reached at suresh@myinvestmentideas.com for any clarifications

Why you should choose mutual funds for wealth creation?

Mutual funds offer you expert hands to invest in stocks and other asset classes. This improves risk adjusted returns.

When Jitesh Panchal got a job with one of the most reputed IT firms in the country, his father’s joy knew no bounds. All his life Mr.Panchal had harbored dreams that his son, unlike him, would not have to join their small family business. This has largely come true as Jitesh is now a professional with a well-paying job. Mr.Panchal is the typical Indian parent who is involved in every aspect of his son’s life including finances. Of late, he is concerned that his son wants to invest in equities instead of putting his money in safe and traditional saving instruments which provide assured returns. As a result, there have been some disagreements with his son that has left Mr.Panchal a worried man. After all, he wants his son to have a good life and save for his future judiciously without losing money.

There is a family history behind Mr.Panchal’s phobia for equities. His elder brother had lost a large part of his savings in the 1992 Harshad Mehta scam owing to which he feels that anything to do with the equity market is risky. Jitesh, a new age aspirational Indian, is at his wits end trying to explain to his father that markets have changed drastically since the 1990s and have also grown multi-fold. Besides, there are enough regulatory checks and balances in place to protect the interest of investors now. The biggest difference between his uncle’s case and his personal stand is that the former had directly invested in equities without any professional guidance while Jitesh would invest through mutual funds – which are professionally managed, well-regulated entities that invest in capital market instruments on behalf of retail investors.

As an option of the last resort, Jitesh invited his cousin Aman, an investment expert to speak to his father on this matter. Mr.Panchal had high regard for Aman as he had done reasonably well for himself at a young age. With a good job in a financial services firm, Aman moved out of his family home in 2015 to shift into an apartment that he purchased merely after five years of employment, at the age of just 28 years. Jitesh, therefore, felt that Aman was the perfect advocate for his cause.

Aman began by agreeing to Mr.Panchal that investing in equities was indeed risky if done without adequate knowledge and research. This needless to say made Mr.Panchal feel good and got him listening to Aman though Jitesh felt that his last resort too had backfired. However, Aman was smart and knew how to handle such situations and veer them in his favour. He then told Mr.Panchal that if investments were managed by full time professional portfolio managers, the potential to invest in wrong stocks reduced substantially. This was the biggest difference between a professional manager like mutual funds and an individual as the former is backed by research and strong processes while the latter may not have this wherewithal. Mutual funds help to invest across equity, debt and gold (called asset classes) based on one’s risk appetite and aim to create wealth in the long run. For example, if someone was not comfortable with equity, he/she can invest in a combination of debt and equity in varying proportions as per one’s comfort. The ticket size is also low and is as little as Rs.500 per month.

Aman used a nice analogy to push the case of equities. He said that people say good things about many companies (gave a few names) and regularly use their products as well. Some even aspire that their sons and daughters may be employed with such companies. However, when it comes to purchasing shares of these companies, they don’t have faith in their stock. Isn’t that a contradiction? Aman now had the attention of Mr.Panchal and could even see him nodding his head, as if in agreement. Jitesh, on the other hand, had a faint smile on his face, as if wanting to thank Aman.

Aman also explained diversi¬fication in a nice way. He said that we have different meals in a day where we taste variety of food like dosas, rotis, rice, bread, subjis, curds, milk, fruits, ice-creams, etc. In the same way, it is prudent to diversify and invest across investment products to meet one’s life goals. A mutual fund is like a “thali” where one can taste a variety of food (products) at an affordable price (based on one’s goals and risk appetite). Mutual funds offer different products for near-term and far-term goals that too with good liquidity. For example, with products like liquid funds, one can park money even for a week-end without any penalties for early withdrawal.

Aman also assured Mr.Panchal that mutual funds are closely regulated by the capital market regulator (Securities and Exchange Board of India or SEBI) which reports to the Government of India. Mutual funds are very transparent with all their disclosures which are readily available on the respective fund’s website. A daily per unit value of the investment portfolio is published by the name – Net Asset Value or NAV - besides releasing monthly details of where the money has been invested and in what proportion, on its website. Mutual funds also offer an investment structure similar to the popular ‘recurring deposit’ called ‘Systematic Investment Plans’ or SIPs which can be bought for Rs.500 per month. Imagine investing in the shares of top notch companies at such a small price.

Aman pointed out that besides aiming to beat inflation, mutual funds are also tax-ef¬ficient in many ways which helps to improve post tax-returns like - i) One need not pay tax until mutual fund units are redeemed unlike traditional investments which are taxed every year based on accrued returns ii) Returns from equity funds are tax free after one year iii) Dividend received from equity funds are tax free iv) returns from debt funds post three years of investment are taxed only for returns earned over and above the inflation rate that too only on redemption and not every year, v) Section 80C benefits up to Rs.1.5 lakh is allowed for Equity Linked Savings Scheme (ELSS) and approved pension funds.

Being young, it was possible for Jitesh to invest for longer periods of time and create wealth. Aman explained that an investment of Rs.10,000 over 20 years has potential to generate a corpus of Rs.1 crore if a fund generates 12% returns per annum. If one extends the period to 35 years, i.e. till retirement, one could create wealth of about Rs.6.5 crore at 12% expected rate of return. Aman said that his secret mantra of buying a house at a young age was his consistency and longevity with his mutual fund investments. Thus, if one starts investing from his first pay cheque and continues till his retirement, the quantum of wealth generation could be enormous.

Aman had a final word for Mr.Panchal where he mentioned that falling interest rates may not benefit traditional instruments but would benefit companies by lowering their borrowing cost and in turn benefit the economy or equity markets as companies may turn more profitable.

After having listened to Aman’s story, Mr.Panchal was now convinced about Jitesh’s decision and in fact felt proud of his son’s new way of investing. Thanks to Aman, yet another family understood that mutual funds offer a host of advantages. The Panchal family has converted to being mutual fund investors, whose turn is it next?
 
                                                       -Harshendu Bindal Franklin, Templeton Investments

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MF Utility - Better & Easy way to transact MF

We have seen frequent changes in mutual fund forms and kyc norms recently. It’s really painful to approach all the AMC’s separately and complete the formalities. After Fatca now new NACH form is introduced wherein one time bank mandate is required to be registered for future SIP. These frequent changes not only disturbed the distributors but also investors are also not happy with this type of changes. Undoubtedly the mutual fund investment is much better way of investment avenue which is not only transparent but also tax friendly. The procedure and frequent changes are cumbersome and block to its growth. There are online platform available to transact but still it’s not that much popular and large number of investors invest offline by filling up physical forms.

So is there any better way to transact mutual fund wherein you can reduce the paper work. The answer is Yes. Year back MF Utility is launched to reduce the paper work and I think its best way to transact in mutual fund. MF Utilities India Pvt Ltd (MFUI) is the Shared Services initiative formed by the Asset Management Companies (AMCs) of SEBI registered Mutual Funds. The prime objective of MFUI is to consolidate all “Transaction Requests” received by the industry from multiple sources and transmit it to the “Fulfiller” of the request (Transfer Agent), thereby bringing in operational efficiency by reducing multiplicity and duplication of activities. MFUI is equally owned by the AMCs of SEBI registered Mutual Funds in India The important features are as under which can help us to reduce the paperwork.

1) Common Account Number:

MF utility provides opening of CAN to manage all mutual fund investment across all the AMCs. Investor has to open once the common account number and after opening this account they can transact across all the mutual fund houses under one account number. Investor can open CAN under single, either or survivor or joint folio similar to common practice while opening the new folio with any AMC. The investor needs to submit copy of PAN card, KYC details and cancelled cheque of sole/first investor while opening the account. After opening CAN there is no need to open separate folio with every AMC. There is standardise forms and process already in place which not only reduces the paper work but also saves time and energy.

2) Multiple bank account possible:

 CAN allows investor to register five different bank accounts while opening the account. This can help investor to decide in which bank they want redemption amount to come. Surely five accounts are more but it is not compulsory to give five bank account details. Investor can register even one bank account while opening the account, but if anybody wants to register more bank account it is possible at the initial stage only.

3) Multiple Transactions Possible:

After opening account investors can initiate multiple transactions for purchase, Switch and redemption. At present five schemes can be transacted in single form. Similarly multiple STPs and SWPs are also possible through single form. So if any investor wants to invest in five different schemes of different fund house this new option allows him to open CAN and transact with single form instead of opening five different folios in each AMCs. The same way five SIPs can be started by filling single form or five switch or redemption can be done with single form. Investor need to sing and draw a single cheque for transacting in five schemes instead of five cheques which are required if you approach all the AMC separately.

4) Existing folios mapped to CAN:

After opening common account number all the existing folios of the investor matching the CAN criteria is mapped to the CAN. Investor will also get all earlier and future investment details on his/her mail regularly or can ask for the details whenever investor wants from MF Utility. Distributor through whom investor has transacted can also give all the required information whenever needed.

It is also important to note that CAN application form and all transaction forms can be submitted to either MF Utility, CAMS or Karvy centers instead of approaching multiple AMCs. All future changes in procedures can be easily done at single point. Distributors can also see all the transaction online which will help them to review investor’s portfolio easily and recommend suitable changes. I think this platform is very much timely and can help both distributors and investors to reduce the paper work and come to single point of contact for all future transactions in mutual fund. Distributors need to shift to this platform at earliest to reduce the paper work and also time and energy. This will also add value to go green initiative in our country.

What does the PE ratio tell you about a mutual fund?

Investors tend to attach much importance to the price-to-earnings (PE) ratio and market capitalisation of a stock while buying. When used in conjunction with other metrics, these numbers can help in picking the right stock at the right time. But can they also help select the right mutual funds?? You may find it difficult to ascertain the investing style and preferences of the fund manager only by looking at the fund portfolio. This is where the fund's PE ratio and average market capitalisation become good reference points. You can make more informed decision using these numbers. In mutual funds, the PE multiple of a scheme is arrived at by using a weighted average of underlying stocks. In other words, it is the average of the PE of all the stocks that make up the fund's portfolio, in proportion to their allocation within the portfolio. A high portfolio PE would indicate that the scheme mostly holds stocks that are quoting a valuation premium. This indicates a preference for growth oriented businesses. In a growth based approach, the fund manager does not shy away from paying a high price for stocks that are exhibiting healthy growth in profitability. On the contrary, if the PE of the mutual fund is on the lower side, it signifies a value-conscious approach. Here, the fund manager is more comfortable looking for stocks that are currently out of favour or where the stock price has been beaten down disproportionately to the fundamentals of the company. Growth oriented funds tend to exhibit strong returns within a short span of time but are more volatile. Value conscious funds typically yield great results over a longer period of time and come with lesser volatility in returns. But the PE ratio is not of much use if used in isolation. Experts suggest using it in conjunction with the average market capitalisation to truly gauge the investing style of the fund. Both metrics should be evaluated within the broader context of its strategy. "The valuation metrics in a mutual fund should not be used as an indicator for timing entry or exit, but for relative comparison," says Vidya Bala, Head, Mutual Fund Research, FundsIndia. Check where the fund's PE stands in comparison to says Vidya Bala, Head, Mutual Fund Research, FundsIndia. Check where the fund's PE stands in comparison to its peers. Typically, schemes in large-cap category will carry a higher PE multiple compared to mid-cap and small-cap funds.

One should compare within the category to ascertain how the fund manager is positioning the portfolio as also how much risk he is taking on to deliver returns. Bala explains, "If a mid-cap fund is carrying a lower market capitalisation than its peers, it suggests the fund manager has dug deeper into mid-and-small cap universe of stocks and is indicative of higher level of aggression." Similarly, a large-cap fund with a much higher average market capitalisation relative to peers implies the fund is more of a pure-play large-cap fund. Take for instance the Motilal Oswal MOSt Focused 25 Fund, which is a large-cap offering. This top performing fund currently has an unusually high portfolio PE of nearly 25 compared to the category average of 19. This clearly suggests an emphasis on selecting high growth businesses. However, the fund's average market capitalisation stands at nearly half the category average of Rs 1.03 lakh crore. This shows the fund has chosen more nascent large-cap stocks rather than pure-play large-caps. A completely different approach is visible in Franklin India Blue chip, another solid large-cap offering.

This fund carries a much lower PE ratio of 18.3 but the portfolio's average market capitalisation stands at Rs 1 lakh crore. This suggests the fund follows its large-cap mandate to the hilt and refrains from paying a high premium for growth. Similarly, a higher average market capitalisation within the mid-cap funds category would suggest the fund manager's preference for nascent large-caps rather than pure mid-caps, while a lower valuation would imply a value-driven strategy. The Franklin India  ..

Read more at:
http://economictimes.indiatimes.com/articleshow/52183313.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

This fund carries a much lower PE ratio of 18.3 but the portfolio's average market capitalisation stands at Rs 1 lakh crore. This suggests the fund follows its large-cap mandate to the hilt and refrains from paying a high premium for growth. Similarly, a higher average market capitalisation within the mid-cap funds category would suggest the fund manager's preference for nascent large-caps rather than pure mid-caps, while a lower valuation would imply a value-driven strategy. The Franklin India Prima Fund, for instance, has a market capitalisation closer to its category average but a lower PE, suggesting a valuation conscious approach.

Renu Pothen, Research Head, Fundsupermart. com, says the average market capitalisation is useful in finding out if a fund is following its mandate. "We have examples of funds whose mandate is to select stocks from the mid-cap space. However, an analysis of the average market capitalization shows more than 50% of the portfolio is concentrated in large-cap stocks." Such violations of the mandate defeat the purpose of investing in mid-cap funds, which is to create alpha.

These metrics can also be used for delving into funds belonging to the disparate multicap and ELSS categories. Given their multiple flavours, investors may struggle to make an informed choice based only on the return profile of the funds. A closer look at the PE ratio and market capitalisation reveal how the funds are placed in terms of investing preferences. Take for instance the top two performing funds in the ELSS category. With a PE of 29.3 and average market capitalisation of Rs 47,444 crore, Axis Long Term Equity is clearly into growth-oriented businesses.

Reliance Tax Saver on the other hand has a PE of 22 and market capitalisation of Rs 18,771 crore, indicating preference for mid-sized businesses and a blend of value and growth approach. Investors should pick funds suiting their risk profile and needs, after filtering based on long-term return profile.

Read more at:
http://economictimes.indiatimes.com/articleshow/52183313.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Reliance Tax Saver on the other hand has a PE of 22 and market capitalisation of Rs 18,771 crore, indicating preference for mid-sized businesses and a blend of value and growth approach. Investors should pick funds suiting their risk profile and needs, after filtering based on long-term return profile.

When investing in mutual funds, here's what you should know

Volatility and uncertainty are part and parcel of equity investing. Equity mutual fund (EMF) investors too cannot remain unscathed when the movement of indices becomes range-bound. In times like these the performance of indices as well as mutual funds (MF) takes a beating. The Sensex's 1-3-5 year returns have been negative 6.55 percent, 9.88 percent and 5.82 percent, respectively.

Investors can use this as an opportunity to review and build a robust EMF portfolio. After all,if an investor has invested in an equity fund with a specific long-term goal in mind, returns from the equity asset class in the short-to-medium term need to be ignored.

The MF scheme's performance, however, should be monitored on a regular basis. Reviewing of an EMF portfolio could entail scanning the schemes in the portfolio, including various diversified schemes, thematic or sector funds and even the large, mid, and small cap funds. Here's how and what it takes to review a fund's performance.
Measuring performance...
 While looking at a fund's performance, do not be led by the fund's return in isolation. A scheme may have generated 8 per cent annualised return in the last 24 months, but then, even the market indices would be strolling around that figure. Under-performance in a falling market, i.e. when the NAV of the fund falls more than its benchmark (or the market), could still be a reason to review your investment.

Therefore, compare the scheme's return as against its benchmark return. A scheme not being able to beat its benchmark on a consistent basis need not be in one's portfolio. If there are consistent under-performers, replace them with front runners after carefully evaluating the new buys. Importantly, identifying under- and over-performers need a longer time horizon. In addition, one may also consider evaluating the 'category average returns'. Even if the scheme has outperformed the benchmark by a decent margin, there could be better performers in the peer group. A look at the category average returns will tell you how good or bad is your investment against its peers. There could be reasons for that and you need to explore before switching. Considering category average returns in case of mid-cap and multi-cap funds could be more effective than large-cap funds as the universe of stocks is large in the former.

How often to review 
 Avoid the temptation to review the fund's performance every time the market falls or moves up 500 points. For an actively-managed equity MF, one needs to give some time to the fund manager to generate returns in the portfolio. There is no tried and tested time-frame but reviewing the performance of the fund anywhere between 18 and 24 months could be effective. Sanjiv Singhal, Founder & Head of Product Strategy, Scripbox, says, "If you have taken care to analyse the last 4-5 years'performance of the fund while selecting it for your portfolio, you don't need to start reviewing it before one year."

performance of the fund while selecting it for your portfolio, you don't need to start reviewing it before one year."

The review may become more pronounced in case of thematic or sector MF schemes as they are more prone to the changing economic environment. The same may hold water for a new-fund offering (NF0). Srikanth Meenakshi, Co-founder and COO, FundsIndia.com, says, "Unless it is an NFO, if an investor has invested in funds with a good track record, an annual review comparing the fund with the benchmark and then with category peers will do. For an NFO, a quarterly watch may be needed, especially in the initial years."

Factors to look at
Although it will be not be an easy task for a lay investor to get to the reason of under-performance, one of the primary reasons could be a change in portfolio holdings. Such a move by the fund manger may have a negative impact on the fund's NAV in the short term but may bear fruit over the long term. Anil Rego, CEO & Founder, Right Horizons, says, "One needs to even check the reason for the under-performance, which may be expressed in the fund manager's commentary. This could be a realignment of the portfolio and be expected to provide out performance in future."

Therefore, taking a call merely on under-performance might also not help. Bring the laggards under the radar and keep a close watch. Meenakshi suggests, "An investor has to make a separate watch list of funds that he or she finds underperforming their benchmark or their comparable peers. From this list, over the subsequent 2-3 quarters, one should look for any improvement in performance. A sustained under-performance over 3-4 quarters may warrant a switch to another scheme." Do not take hasty decisions in showing the door to the under-performers while reviewing the MF portfolio.

The underlying stocks in the portfolio of an MF scheme keep changing and along with it change the associated risks. Rego says, "An important factor would be risk metrics. If the risk profile of the fund has skewed further towards "High" risk with the returns being the same or being lower, then it would be advisable to exit the fund."

Therefore, a look at the fund's risk-adjusted return, i.e. a measure to find how much return an investment will generate given the level of risk associated with it, could be more helpful. As an investor, high return at low risk is always preferred. So MF schemes with high risk-adjusted returns are most sought-after. Risk-adjusted returns are well captured by several rating agencies.

The downside
 The winners of today may not continue with the winning streak year after year.  Therefore, decisions based on reviewing may not be fruitful always. Also, tracking and reviewing of a scheme's portfolio is a different ball-game compared to reviewing one's own portfolio. Meenakshi says, "As far as fund portfolio is concerned, unless an investor is active in the markets and understands sector prospects, taking a call on whether the fund manager is invested in the best sectors may be tough. It is best left to the experts."

 So, while reviewing, what factors specific to the fund portfolio should the investor be looking at? "None! A mutual fund investor should not concern themselves with the portfolio of a fund. That's the fund manager's job and they get paid to do it," says Singhal. To know what a mutual fund manager earns,

Watch out ...
Exiting from equity-based MF schemes may disrupt the overall portfolio allocation. Try to maintain the original levels unless allocation needs a change. The proceeds may have to be deployed in another MF scheme which will require re-visiting the process of choosing the right scheme to invest in. Rego informs, "The fund you are choosing to reinvest must be from a similar category. For instance, it may not be a good idea to exit a large-cap fund and enter a midcaps As far as possible, make like-to-like category switches to avoid mis-timing in different categories."

 Here's a piece of advice from Meenakshi, "Constant review and tracking of fund returns may push you into taking impulsive decisions. Keep a calendar of review to be done and stick to it. When there are market falls, at best, see if you can plough more, and do so. Do not let a single month or quarterly fall in NAV push you into stopping SIPs or exiting a fund."
Conclusion...
 Reviewing of the EMF portfolio doesn't merely help you rejig schemes in terms of performance but may also throw up surprises. You may be holding a too little or too much-diversified portfolio. Even the expense ratio of some of the schemes that you could be holding may be high compared to others within the same category. Most importantly, the review helps you validate if the investments are aligned to your goals. So, get a review process in place and reap its its benefits before the next big market wave

Mutual funds approach Sebi with 35 new proposals in 2016

NEW DELHI: To tap the growing demand from retail investors , mutual fund houses have filed draft papers with markets regulator Sebi to launch as many as 35 New Fund Offers (NFO) in the first four months of the year.

Retirement, fixed maturity plan (FMP), equity and debt are some of the themes for which mutual fund houses have filed the applications.

In addition, mutual fund houses are eyeing overseas stock exchanges for investment purpose.

Sundaram Mutual Fund filed papers for a scheme (Sundaram World Brand Fund) that will invest in equity and equity related instruments listed on overseas stock exchanges across the world, while Reliance MF approached Sebi for launching a Korea-focussed fund in Indian markets.

Interestingly, many mutual fund companies submitted papers with Sebi for launching plans with Hindi names so that investors in rural areas understand the objectives of the schemes in a better manner. The move is seen as moving away from the old tradition of English names for investment schemes.

Bal Vikas Yojana', a scheme aimed at saving for children's future, Kar Bachat Yojana, a tax saving fund, 'Bachat Yojana' and 'Nivesh Lakshya' both fixed income schemes, are some of the launch schemes filed with Sebi by Mahindra MF and Reliance MF.

"Our idea is to explain the investment opportunities to customers in our priority markets in their own language starting with the product names," Mahindra AMC MD and Chief Executive Ashutosh Bishnoi said.

Since the beginning of the year, draft documents for 35 NFOs have been submitted with the Securities and Exchange Board of India (Sebi). Of these, 16 draft offers have been filed in last month alone.

According to market participants, MF houses are rushing towards Sebi to launch new schemes on account of growing demand from retail investors for such products as well as robust response received from investors in the recent fund launches.

There has been a growing demand from retail investors for mutual fund products as the investors base touched a record high of 4.76 crore at the end of March. A total of 191 draft papers were filed last year with the capital markets watchdog.

How NMIMS is helping family businesses to evolve and expand

The NMIMS, SBM Centre of Family Business and Entrepreneurship management being a pioneer and in the segment for more than a decade, understands the emerging needs of Indian family run businesses in these challenging and turbulent times.

For couple of years initially, we debated whether entrepreneurship can be taught or issues like successful inheritance, succession planning etc. can be addressed. But today, we believe it can definitely be. And Since last 15 years, we have been successfully mentoring, transforming and creating global perspectives. Our alumni base of 1500 plus entrepreneurs ranging from the turnover of 30 crores to 3500 crores, speaks volumes of our effective delivery mechanism.

The focus of the courses offered at the Centre of family business, ranging from 32 weeks (FMBA a weekend program for family business practitioners), going to 2 years full time MBA E&FB (for next generation family business managers) and recently launched Integrated MBA, i-mba (dual degree program for 5 years post 12th std.), remains on deeply understanding and appropriately delivering to Indian Family Businesses a strategic path to transform and scale their businesses.So in short our focus is to help our students to Evolve, Elevate and Expand their businesses.

Our balanced curriculum keeping in mind the Indian family businesses, their values and professional challenges has been designed in such a way that it offers students a blend of skills and capabilities needed to face national and International Business environment. The Intensive International exposure at the right time of their career while they are academically geared, helps them to build global perspective and thereby lead their scalability strategies.
As an Institution, we believe that entrepreneurship can be a powerful force within organizations of all types and sizes, in established businesses as well as new ventures. In any industry, in any position, it takes Entrepreneurial thinking and relative action to solve problems and make an impact. helps them to build global perspective and thereby lead their scalability strategies.

As an Institution, we believe that entrepreneurship can be a powerful force within organizations of all types and sizes, in established businesses as well as new ventures. In any industry, in any position, it takes Entrepreneurial thinking and relative action to solve problems and make an impact.

The Centre has a vision to be amongst the top 50 in the World at enabling the development of leadership skills, for sustainability and scalability of their respective family run businesses.

We feel accomplished when our students often quote "I am not afraid of storms for I am learning how to sail my ship." - Louisa May Alcott

-Prof. Seema Mahajan, Director, Centre of Family Business and Entrepreneurship Management

Mutual fund AUM crosses Rs 14 trillion mark in April

MUMBAI: Buoyed by fresh inflows into debt as well as equity plans, total assets under management (AUM) of mutual funds has surged 15% to touch Rs 14.22 lakh crore in April 2016, according to data released by the industry body AMFI.

While some investors pulled out money from gold ETFs , there were fresh inflows of Rs 170,000 crore into debt and equity categories.

There were inflows of Rs 134,000 crore into liquid and money market funds, Rs 31,448 crore into income funds and Rs 4500 crore into equity funds. There was marginal outflow of Rs 69 cr from gold ETFs.

The sudden rally in stocks in March revived investor confidence with many stepping up equity exposure through systematic investment plan (SIPs) .and small lumpsum investments.

"Money which moved from mutual funds to banking system and subsequently to government taxes came back in April," says Nilesh Shah , Managing Director, Kotak Mutual Fund.

"Many investors believe we are in a low interest rate environment and further rate cuts are expected. Hence we saw a rise in allocation to liquid and income funds," said A Balasubramanian, Chief Executive Officer, Birla Sunlife Mutual Fund.

When interest rates fall, bond prices go up, giving investors capital appreciation on their investment. Also when the economy grows, more upgrades are expected which is likely to increase bond prices.

With Nifty moving up 11%, in March, the sentiment turned positive for equities. Distributors believe many retail investors flocked to equity mutual funds using the SIP route, which led to higher inflows into equity mutual funds. Many investors are also using SIPs to meet their long term financial needs for retirement planning and children's education and wedding.

"Retail investors believe that equity as an asset class will help them beat inflation in the long term. They are nibbling at equities using the SIP route, where we have seen a surge in registrations in April," Sambath Kumar, Head - Distribution, HDFC Securities.

Mutual fund houses to pay 0.01% of AUM to Amfi for investor awareness drive

MUMBAI: Heeding to the regulator Sebi's direction, the ouses have agreed to contribute 0.01 per cent of their total asset under management ( AUM ) to the industry body Amfi for investors awareness programmes -- a move that could entail contribution of over Rs 140 crore.

The fund houses, however, are yet to decide whether this contribution is to be made on a monthly basis or on a quarterly basis.

Moreover, Amfi is likely to form a committee to decide how to utilise the fund and the issue may come up for discussions during the forthcoming monthly board meeting scheduled later this month.

"Fund houses have already started contributing 50 per cent of the two basis points corpus meant for the IAP to Amfi from April 1. We are likely to form a committee to decide how to utilise the fund during the board meeting slated for the later month," Amfi chief executive CVR Rajendran told PTI.

Sebi has asked AMCs to invest 2 basis points of their AUMs on investor awareness activities and half of that should go to the Amfi.

"Asset management companies have already shared 50 per cent of their unutilised IAP corpus accrued until March 2016 to Amfi, though this is a very small amount," Rajendran said.

He further said the issue was already discussed at the last board meeting in which it was felt that the Amfi panel on financial literacy will not be able to manage

such a huge fund and hence the need to form another committee to decide on fund utilisation.

Taurus Mutual Fund's chief executive Waqar Naqvi said his company has "already contributed Rs 1 crore of unspent IAP corpus for the last fiscal to the Amfi and we will be contributing the same amount from April 1 onwards in a similar manner. However, we are yet to decide if it has to be done on a monthly or on a quarterly basis."

Mutual funds witness net inflow of Rs 1.7 lakh crore in April

NEW DELHI: Investors pumped in a staggering Rs 1.7 lakh crore into various mutual fund (MF) schemes in April with liquid or money market segment contributing the most.

In comparison, a total of Rs 1.10 lakh crore was invested in April last year.

Generally, liquid funds witness heavy outflow towards the end of the March and the trend gets reversed in April as banks and corporates reinvest the surplus, which they had withdrawn to pay their financial and advance taxes.

According to the data from the Association of Mutual Funds in India (Amfi), investors poured in a net of Rs 1,70,161 crore in MF schemes last month as against an outflow of Rs 73,113 crore in March.

The inflow was mainly driven by contribution from liquid funds or money market category. Besides, inflows have resumed in equity schemes on strong retail participation

Liquid or money market segment witnessed Rs 1.34 lakh crore being poured in last month while equity and equity- linked schemes saw net inflows of Rs 4,438 crore. In addition, net inflow in balanced fund stood at Rs 31,448 crore.

"Every year in March, high outflow is a routine phenomenon and we should not read much into it. It happens due to high redemptions in liquid funds by big corporate for the year closing. Like the trend of many years, ever this year also, more than 90 per cent of
the redemptions for the March is in liquid funds.

"These funds generally come back in the month of April as per the trend," Bajaj Capital Senior VP and National Head-Mutual Funds Anjaneya Gautam said.

Money market fund's portfolio comprised short-term (less than one year) securities representing high-quality, liquid debt and monetary instruments.

Overall, the asset base of the country's fund houses surged to an all-time high of Rs 14.22 lakh crore last month from Rs 12.33 lakh crore at March-end.

Mutual funds folio count rises 4 lakh to 4.8-cr

NEW DELHI: Driven by addition in equity fund folios, mutual fund (MF) houses have registered a surge of more than 4 lakh investor accounts in April, taking the total tally to 4.8 crore. This is on top of an addition of 59 lakh folios in 2015-16 and 22 lakh in 2014-15. In the last two years, investor accounts increased mainly due to robust contribution from smaller towns. Folios are numbers designated to individual investor accounts, though one investor can have multiple folios. According to the data from the Association of Mutual Funds in India ( Amfi) on total investor accounts with 43 fund houses, the number of folios rose to 48,071,814 at the end of last month from 47,663,024 in March-end, a gain of of 4.09 lakh Growing participation from retail investors, especially from smaller towns and huge inflows in equity schemes have helped in increasing the overall folio counts, experts said The equity category witnessed an addition of nearly 1.6 lakh investor folios to 3.62 crore in the first month of the current fiscal. Mutual funds have reported a net inflow of Rs 4,438 crore in equity schemes in April, making it the highest in five months. Overall, funds have seen an infusion of Rs 1.7 lakh crore. The inflow is in line with BSE Sensex rising 265 points or 1.04 per cent during April. Mutual funds are investment vehicles made up of a pool of funds collected from a large number of investors. The funds are invested in stocks, bonds and money market instruments, among others.

Unions to oppose increased investment in equity

An analysis by EPFO found that it has earned a negative return of 9.54 per cent on its Rs 5,920-crore investment.

Arindam Majumdar | New Delhi May 24, 2016
 

Trade unions are unanimous on opposing any proposal changing the investment pattern in equity market. All trade unions including Bhartiya Mazdoor Sangh (BMS) which is the trade union wing of the ruling Bharatiya Janata Party (BJP) said that any proposal to increase the quantum of investment in equity markets According to unions, during the last meeting of the Central Board of Trustees (CBT), the ministry had produced figures which clearly showed that the return on equity was going down.

"Since the return was going down, we demanded a complete roll back of the decision, the ministry promised there will be an enquiry by the Financial Audit and Investment and Committee (FAIC), in spite of that if they go for increasing the quantum now, it will be foolish," said D L Sachdeva. An analysis by EPFO found that it has earned a negative return of 9.54 per cent on its Rs 5,920-crore investment in exchange traded funds (ETFs) since August last year, prompting labour unions to demand rollback of the decision to park funds in stock markets. A spanner in the government's plan could be the vehement opposition from Bharatiya Mazdoor Sangh.

"We are totally against it. In the first phase too we opposed the decision as equity is a risk market, as and when any such proposal will come up we will oppose it," said Virjesh Upadhyay, national secretary, Bhartiya Mazdoor Sangh. However, when asked about it Shankar Agarwal, secretary, Ministry of Labour said the ministry of the view that returns on investment in equity gives healthy return on a long term. "

A decision on this respect will be taken only after consultations with the CBT but decisions should not be taken based on such short time," he said.Yesterday minister Bandaru Dattatreya, said that EPFO may increase the quantum. "Naturally it will go higher. We have called portfolio managers and stock analysts and seen their presentation. We will put forward their recommendations in the CBT meeting," he said when asked if there will be any change in investment pattern by EPFO.

The finance ministry had last year notified a new investment pattern for EPFO, allowing the body to invest a minimum of 5 per cent and up to 15 per cent of its funds in equity or equity-related schemes. However, the EPFO management decided to invest 5 per cent of its incremental deposits in ETFs only during the last year, the minister added. But an analysis by EPFO found that it has earned a negative return of 9.54 per cent on its Rs 5,920 crore investment in exchange traded funds (ETFs) since August last year, prompting labour unions to demand rollback of the decision to park funds in stock markets.

The market value of investments of Rs 5,920 crore in the ETFs in the current fiscal was Rs 5,355 crore on February 29, 2016, as per an analysis of equity investment by the Employees' Provident Fund Organisation (EPFO).

Star Health launches new plan under super top-up products

Claims payable when hospitalisation costs exceed customer's 'defined limit'; Plan also pays for Air-ambulance, second opinion and 405 day-care procedures.
BS Reporter | Mumbai May 24, 2016
Standalone health insurer Star Health and Allied Insurance has introduced a new variant, Gold Plan, under the Super Surplus Insurance Policy and Star Super Surplus Floater Insurance. A top-up policy provides the comfort of wider protection at affordable cost.

Under the new Gold plan, the claim becomes payable when hospitalisation expenses exceed the 'defined limit' as opted by the customer. This defined limit can be from one single hospitalisation or multiple hospitalisations, at different points of time, during the policy period.

In addition to this, the Gold Plan comes with other benefits like air-ambulance (up to 10 per cent of the sum insured), medical second opinion and 405 day-care procedures.

The plan has coverage limits up to Rs 25 lakh and there is no capping on the room rent. The plan can be taken by persons up to 65 years of age with lifelong renewal benefit. Importantly, the plan does not require any pre-insurance medical check ups for any age.

Anand Roy, Joint Executive Director, Head of Sales and Marketing, Star Health and Allied Insurance, said, "The Super Surplus Insurance Policy-Gold Plan is for the benefit of the insuring public who may want to have a top-up insurance plan for a reasonable premium rate. The plan has been tailored to meet a wide array of medical insurance needs. We have designed this product based on customer feedback received by our claims and marketing teams. At Star Health, we constantly try to enhance our products & services based on the evolving needs of our customers."

Should you invest in index funds like Warren Buffett?

Only if you are a conservative investor satisfied with index returns; but over long term actively managed funds give better returns in Indian markets
Priya Nair | Mumbai 

At Berkshire Hathaway’s Annual General Meeting last week, Warren Buffett said that investors can make good returns by investing in index funds, which are passive funds. Citing the example of Vanguard Group index fund that tracks the S&P 500 index of large American companies, Buffett said that passive, unmanaged or ‘no energy’ investments can do just as well, or better, than ‘hyperactive’ investments handled by consultants and managers who charge high fees.

Does this principle of making good returns from passive index funds or Exchange Traded Funds hold good in the Indian markets too? Can Indian investors too follow this investment philosophy of Buffett?

Not entirely, says according to Vidya Bala, Head of Mutual Fund Research at FundsIndia.com. The big difference is that in the USA most indices are available to investors. But India is still more of an emerging equity market, where new companies are still being discovered and are yet to be listed or become part of the index.

“We do not have dynamically managed indices or innovative indices. While there may be indices within the stock exchanges, these are not available for investing. Because we have so much scope of investing outside of indices, investors are able to make money by investing in actively managed funds,’’ she says.

Kaustubh Belapurkar, Director - Fund Research, Morningstar India agrees that index funds are more relevant for the US markets than India.

“In Indian market any fund manager provides lot of alpha over the index. In case of actively traded large-cap funds, the returns could be higher than the index by 200-300 basis points over a five year period. While in case of mid-cap funds the returns could be even more higher. That is why over the long-term actively adjusted funds will give better returns,’’ he says.

The biggest advantage of index funds is the low cost. The expense ratio of most index funds is less than 1%. In case of Exchange Traded Funds the expense ratio is lower than 50 basis points. As against this in case of active funds the expense ratio is around 1% in case of direct funds and can be above 2%. But as both Belapurkar and Bala point out, returns for actively managed funds are already adjusted for the expense ratio and justify the higher charges.

Another advantage of index funds is the low volatility. While active funds may give higher returns, they can also be extremely volatile. For instance, an active fund may give 5-10% higher returns, but returns could also fall by the same margin. That is why index funds are suitable for those investors who wish to avoid volatility in their investments, say a fund manager.

“In the longer run active funds do give higher return because of the exposure to mid-cap stocks and mix of stocks. However, investors in index funds can enhance their returns by investing more when the indices are trading lower, say 11 or 12 Price/Earning ratio and exit when the indices gain," the fund manager adds.
 

According to data from Value Research, five-year returns from the top five large cap equity funds have over a five-year period have been in the range of 8.18 to 12.26%. While the returns for index funds have been in the range of 6.37 to 7.16%.

Another factor to watch out for is the tracking error, which is a measure of how closely the fund follows the index which it is benchmarked to. In index funds, tracking error can be bother higher and lower than the index.

“Ideally, the tracking error should be one where returns are higher than the index. Why should investors invest in anything that compromises the returns? Occasionally, returns can be lower than the index by 10-20 basis points, in some quarters. But a good fund manager should always ensure that tracking error is minimal," says Bala.