#MutualFundInvestors

[personalfn-blog]

10 Basics First-time Mutual Fund Investors Need To Know

There is no doubt that mutual fund investors are flooding the market. The Mutual Fund “Sahi Hai” catchphrase seems to have encouraged a new wave of investors. Apart from existing retail investors, there are new and inexperienced investors that are parking their money into mutual funds. The quantum of growth in new investments becomes clear when looking at the increase in mutual fund folios over the past year. As on April 30, 2017, the equity mutual fund folios (accounts) grew by 5.22 million or 14% to 41.41 million from 36.18 million a year ago. On the other hand, balanced fund folios soared by 47% to 3.7 million folios from 2.52 million over the same period. For both categories, the year-on-year growth has been the highest in the past five years.

Year-on-Year Growth In Mutual Fund Folios

(Source: Securities and Exchange Board of India, PersonalFN Research)

Are the new flock of investors acquainted with the volatility in the market? Or will we see money flowing out as soon as the market goes through a correction? If left to their behavioural biases, we may see an exodus of funds from retail investors in the face of volatility. If you are a newbie investor, don’t get lured by the performance of equity mutual funds over the past few years. Instead, invest in lines with your financial goals after drawing up a sound financial plan. Below, PersonalFN has outlined 10 points that a novice investor should keep in mind before investing in mutual funds:

Set SMART goals Before embarking on your investment journey through mutual funds, first set S.M.A.R.T. financial goals. This means that your investment goals should be Specific, Measurable, Adjustable, Realistic, and Time-bound. Investing in an ad-hoc manner without any focus will lead to the sub-optimal utilisation of your savings.

Recognise your risk profile Risk profiling determines your risk taking capacity and the willingness to take risk. It is measured based on various factors such as age, knowledge of financial products, investible surplus, time horizon, and investment objective. Don’t get carried away with the high returns of an investment product, it is vital to consider the risk involved in respective investments and weigh that against your risk appetite. It would be best to first consider your risk appetite and the suitability of the investment for your financial goal, and then decide whether to invest in a particular financial product or not.

Choose funds that suit your risk profile Remember, your investments in mutual fund schemes should always be in line with your risk profile and its suitability for your financial goal; because every mutual fund scheme carries some investment risk. Equity mutual funds are suitable for high-risk investors with long-term goals. As a newbie, you may choose to invest in large-cap funds or balanced funds as these are less volatile. For a conservative investor, opting for debt-oriented funds such as liquid funds or short-term funds may prove worthwhile.

Focus on asset allocation Choosing funds as per your risk profile is not enough. It is pertinent to focus on optimal asset allocation as well. Asset allocation refers to distributing your investible surplus across asset classes such as equity, debt, gold, real estate or even holding cash for that matter. Through proper allocation, you are essentially adopting an investment strategy that can balance your portfolio’s risk and rewards keeping in mind your risk profile, financial goals, and investment time horizon. Certain hybrid funds, like balanced funds, multi-asset funds or monthly income plans (MIPs) may meet your asset allocation needs to an extent. Therefore, while preparing the overall asset allocation for your portfolio, it is essential to pay heed to the fund’s investment allocation.

Diversify your portfolio well Though asset allocation does help in diversification, within each asset class as well, it is essential to diversify over multiple funds. For example, under equity, diversify the portfolio over large-cap funds, mid-cap funds, and multi-cap or value funds. In the debt category, invest in a mix of long-term and short-term debt funds. At the same time, diversification does not mean investing in 20 different funds of the same asset class. Focus on sufficient, not excessive diversification. Therefore, to meet your equity allocation, invest in over 4-5 equity funds from different categories.

Invest Regularly For The Long Term It’s better to have your investment right than timing it wrong. At a time when valuations seem stretched, a staggered approach to investing is a prudent path to take. There’s no point timing the market. No one has derived much success from it. A trader is only as good as his/her last trade; you don’t know what’s in store – good, bad, or ugly. Hence, it is wise to start a Systematic Investment Plans (SIPs) in mutual funds and take advantage of the benefits of rupee cost averaging, while inducing a regular saving habit.

Pay attention to the investment strategy adopted by a fund Funds houses offer a variety of funds to suit the needs of diverse investors. For aggressive investors, who wish to take exposure to specific sectors, there are Sector Funds available such as Infrastructure Funds, Banking Funds, FMCG Funds, Pharma Funds etc. Similarly, foreign fund-of-funds allow investors to take exposure to international markets. There are even funds that focus on specific investment strategies such as Contra Funds or Dynamic Funds. At times, it becomes difficult to judge the type of fund solely by its name. Hence, it is essential to take a deeper look into the investment allocation and strategy adopted by the fund before you invest. Unless you understand the risk involved in such investment strategies, it is best to stay away from such funds.

Rebalance at regular intervals In simple words, rebalancing a portfolio is correcting the deviations in the original asset allocation. For example, you invested 70% in equity, 20% in debt, and 10% in gold—after a year, equity accounts for 80% of the portfolio, and gold contributes 12%. You will then need to reduce the exposure to equity and gold by shifting to debt in order to achieve the initial asset mix. Rebalancing helps safeguard investments from a bad market phase not only by booking gains, but also by reducing the exposure to risky assets.

Keep in mind the tax implications The gains on equity mutual funds and debt mutual funds (non-equity funds) are taxed differently. Only schemes that allocate over 65% of their assets to equity qualify as equity funds. Equity mutual funds attract a Short-term Capital Gain (STCG) tax @15% on units redeemed within a year. STCG tax is applicable for debt fund units sold within 36 months. In the latter, the gains are added to income and taxed as per the income-tax slab. Long-term Capital Gains (LTCG) on equity mutual funds is tax-free. For non-equity funds, LTCG tax is chargeable @20% with indexation. Keep this in mind before investing and while redemption of mutual fund units.

Don’t ignore the costs Many tend to ignore the cost of investing through mutual funds. All mutual fund schemes charge an expense ratio (a fee that is charged on a daily basis) towards fund management and distribution overheads. On an annual basis, the fee or expense ratio can range from as low as 0.10% to as high as 3% depending on the type of scheme you choose. Most equity schemes charge an expense ratio in upwards of 1.50% Fund houses also offer a direct plan under each scheme that is devoid of distributor expenses. Hence, the expense ratio of a direct plan is lower than the regular plan of a mutual fund scheme. The cost under direct plans can be lower by as much as one percentage point. Though the difference may seem miniscule, over the long term this gets compounded and can lead to a huge difference in portfolio value. This small difference in costs can result in savings of anywhere between Rs 8-17 lakh over 20 years, on a Rs 10 lakh investment. Always keep an eye on the cost. You do not want to lose lakhs of your hard-earned money over the years.

If all this seems too much of a task to do, it would be prudent to consult with an expert. After all, no one wants his or her hard-earned money to be wiped away because of negligence. Hire a financial planner who is ethical and devoid of any biases. Choose a Certified Financial Guardian (CFG) who will safeguard your financial interests. A financial guardian is trustworthy; an advisor who puts your interest before their own. For novice investors who wish to strategically align their mutual fund portfolio to ride the market waves can subscribe to PersonalFN's Strategic Funds Portfolio for 2025. It consists of a Core and Satellite portfolio, which aims to have the best of both worlds, that is, short-term high-rewarding opportunities and long-term steady-return investing. The core portfolio offers stability by investing in funds that promise sturdy returns and have a strong ability to manage downside risk. The satellite portfolio provides the opportunity to support the core by taking active fund calls determined by PersonalFN's extensive research on mutual funds. Subscribe here to PersonalFN's Strategic Funds Portfolio for 2025 to avail of attractive discounts.

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[wealthfund-blog]

Good News for Investors, India’s Economy is Likely to Double in Next 8 Years: Sunil Singhania

The Indian economy took 68 years to match the USD 2 trillion mark, and is most expected to double in the coming few years, offering massive opportunity to domestic investors, says Sunil Singhania, CIO-Equity-Investment at Reliance Mutual Fund (CNBC-TV18).

With monsoon playing major role in the performance of agri-focused companies, domestic companies could well 18-20 percent earnings growth and with goods & services tax (GST) in the offing will lead to shifting from organized to unorganized will lead to compounding growth in most of the domestic-driven sectors in the next 10 years, says Singhania. “Some of these companies might be 10x their size in the next 10-20 years. This happens to a lot of companies across the world. We are optimistic where we could see a growth rate of 18-20x year after year,” he further adds.

India Meteorological Department (IMD) in its first monsoon forecast expects rainfall to be 96 percent of long-period average with a 38 percent probability of a near-normal season after two successive years of drought before 2016.

Mr. Singhania says, “On the agri side there is some volatility based on monsoon, but thankfully the last year monsoon has been good and the forecast for this year monsoon is also robust. In the next 2-3 years, a lot of subsidies in the fertilizer space will go away which will benefit companies.”

Indian government is also looking forward towards enhancing rural income, raise agricultural productivity along with ensuring that India is self-sufficient, with promising future for fertilizer and agro-chemical sector.

“Global companies want to diversify their sourcing out of China as there is a huge clampdown of pollution as far as Chinese manufacturing is concerned. And, as far as knowledge based chemical space, India has an advantage over China. “We are also positive on the shift of physical savings to financial savings. Hence, companies which are engaged in asset management, life insurance, as well as NBFCs should also benefit.” said Singhania.

[personalfn-blog]

5 Things SEBI Needs To Do Right Away For Mutual Fund Investors

The Securities and Exchange Board of India (SEBI) has safeguarded investors’ interest by making mutual fund houses more accountable.  Guidelines governing the industry are strict, clear, and one of the best in the global context.

But there is still more to do.

Although instances of mis-selling have been curbed, they haven’t stopped completely. Every time the capital market regulator comes out with stricter regulations, mutual fund houses and their channel partners find a way to achieve their objectives, perhaps, compromising the investors’ interest.

What should SEBI’s next action plan be?

1. Tighten the noose around close-ended schemes

Soon after the capital market regulator issued strict guidelines for open-ended mutual fund schemes for equity and debt both, fund houses floated more close-ended schemes.

New Fund Offers (NFOs) in the form of close-ended schemes not only help mutual fund houses grow their Assets Under Management (AUM), but also help escape the stringent rules applicable to open-ended schemes.

This is a major lacuna in the regulatory framework, and in the investors’ interest, the regulator must fix it with appropriate guidelines.

PersonalFN has highlighted the drawbacks of close-ended schemes on numerous occasions. Recently, it published a couple of articles to create awareness among investors:

5 Reasons To Avoid Close-ended Mutual Funds

Close-ended NFO Factories: Should You Invest?

The capital market regulator should take strict action against the irresponsible behaviour of mutual fund houses and their channel partners.

When the equity indices hit new highs, it’s relatively easy to convince, new investors. Mutual fund houses have mastered the art of playing with investors’ psyche to grow their AUM. They launch close-ended schemes, at a time, when valuations are stretched and committing more money to equity is risky.

As a result, most of the close-ended schemes underperform compared to their open-ended counterparts. In the name of offering stability to the scheme’s operations, “close-ended” nature of the schemes makes them less accountable and lethargic.

2. Do away with the dividend reinvestment option

Dividend reinvestment option, in our view, is a fool’s choice!

Those who do not want regular income should select growth option and those prefer to have occasional pay-outs, should choose dividend pay-out option.

Let’s first understand how these options work. Under growth options, the gains are accumulated and automatically retained and reinvested. In dividend option, at the discretion of the fund house, the gains are distributed among investors.

But under dividend reinvestment options, when the dividend is announced and paid, the proceeds are utilised to buy the units of the same fund at ex-dividend Net Asset Value (NAV).

(Image source: freeimages.com)

What’s the loss?

Dividends are tax-free in the hands of investors. But the mutual fund houses have to pay the dividend distribution tax before paying any dividend. Therefore, dividends aren’t totally tax-free.

Even as far as equity-oriented mutual fund schemes are concerned, the dividend option has become less attractive. As you may know, the Union Budget 2018 introduced dividend distribution tax @ 10% on equity-oriented mutual fund schemes.

Do you still think, dividend reinvestment option should stay?

Hopefully, the capital market regulator would also think on the similar lines.

PersonalFN has always encouraged investors to select their options carefully. Read some of the pertinent articles by clicking on the links below:

Should You Opt For Dividend Option Offered By Equity Funds Now  

Choose between dividend and growth option wisely

4 Myths About Dividends Declared By Mutual Funds Debunked

3. Discontinue monthly dividend options in balanced funds

As interest rates fell substantially over last three years, and sharply post-demonetisation; mutual funds started to attract conservative investors to balanced funds backed by a skewed narrative.

Since conservative investors have a strong preference for dividend-pay-outs, a few mutual fund houses launched monthly divided options.

(Image source: freeimages.com)

Recently, before the new financial year, many of mutual fund schemes paid dividends before dividend distribution tax on equity-oriented mutual funds being applicable. They were able to do so with huge gains made over last three-four years.

But such options are always misleading.

Under challenging market conditions, how many of these fund houses will be able to sustain the quantum of dividends they have distributed every month till now?

And let’s not forget, even if you as investors earn dividends and make losses on your capital, due to fall in the NAV post dividend distribution, the net effect is not positive.

4. End ‘copy-and-paste’ of liquid and liquid plus schemes

Observe carefully, many fund houses have similar liquid funds and liquid plus schemes (also known as ultra-short term schemes) in their product bouquet. It is challending to figure out the difference in their mandate and portfolio preferences.

But in this regard we are hopeful that the regulator will prudently regulate, as it did for scheme mergers of similar equity-oriented funds from the same mutual fund house.

5. Need to cap expense ratio of arbitrage funds

Arbitrage funds are classified as equity-oriented schemes for taxation purpose, but their return profile is comparable to that of liquid and liquid plus schemes (also known as ultra-short term schemes).

But their expense ratio is often near 1% –––rather high. Large commissions are paid to distributors to sell these funds.

(Image source: freeimages.com)

Until now, they were marketed as the tax-efficient alternatives to short-term debt schemes.

But soon after the government imposed dividend distribution tax and the long-term capital gains tax on equity-oriented schemes, they have lost their appeal.

PersonalFN has written some enlightening articles on arbitrage funds—comparing them with other available alternatives and explaining pros and cons of investing in them. Read:

Arbitrage Funds vs. Liquid Funds vs. Savings Bank A/C: How to Park Your Short-Term Funds

Arbitrage Funds: Do they work too hard for too little?  

The capital market regulator is playing a critical role in creating a fostering environment for all stakeholders: mutual fund houses, distributors, and investors.

Nonetheless, it is essential things that are beneficial for investors’ are done. If investors are happy, educated about invested, money will continue flow into mutual funds. Keeping this in mind, the regulator’s action on all the above mentioned issues would be crucial.

PersonalFN has always placed investors’ interest first!

We advise clients backed by thorough independent research, recognising their: risk profile, investment objectives, financial goals, and the investment time horizon before goals befall, among many other facets.  

PersonalFN believes, mutual fund investing is a serious business. At PersonalFN, our research team tests every mutual fund scheme through extensive scrutiny by a set exhaustive research process, consisting of both quantitative and qualitative parameters.

If you are looking at superlative research backed unbiased guidance to build a solid mutual fund portfolio, PersonalFN’ mutual fund research services are for you.

We recommend that you subscribe for our popular premium research service — FundSelect NOW!

FundSelectwill offer you honest and unbiased recommendations on which equity and debt mutual funds to Buy, Hold and Sell.

We will reveal: The 6 Ultimate Secrets that Helped Beat the Market By A Whopping 75%!

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Happy Investing!

The ideas in this article are inspired by Mr Pankaaj Maalde, and first appeared on ET and his blog.

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Sell-In-May-And-Go-Away: How Sound Is This Advice For Mutual Fund Investors?

Disciplined players follow the rules of the game.

That's so true about the experienced Wall Street traders.

Some of them follow this strategy: sell-in-May-and-go-away (and buy again in November)

They believe this strategy is highly profitable as it helps avoid the seasonal weakness in the U.S. economy. Apparently, there's some historical evidence to support this argument.

According to Investopedia, average returns generated by Down Jones Industrial Average for May-October period between 1950 and 2013 have been just 0.3%. In contrast, those for the November-April period have been 7.5%.

Does this hold true in the Indian context?

If you followed this strategy in Indian markets, you would have failed miserably. Between, 1979 and 2018 — i.e. over last 39 years, BSE Sensex generated an average return of 7.9% every year for May-October period, whereas, the average return for the November-April period has been 10.0%.

Moreover, there have been 14 years wherein BSE Sensex generated negative returns for the May-October period. As far as the performance of the index for November-April is concerned, there have been 12 instances of negative returns.

So, no clear evidence for the effectiveness of the sell-in-May-and-go-away strategy.

Did you know?

Between May 1990 and October 1990 and May 1991 and October 1991, BSE Sensex jumped 61.7% and 44.6% respectively.

During May-October period in 2003, 2006 and 2007, BSE Sensex clocked the returns of 54.3%, 24.7% and 36.4% respectively.

Between November 1992 and April 1993, BSE Sensex lost 15.7%. Between November 1994 and April 1995, November 2000 and April 2001 and November 2002 and April 2003, the index dropped 24.0%, 12.0%, 8.3%.

Do you still need evidence for the ineffectiveness of sell-in-May-and-go-away (and buy again in November) strategy?

Some commentators suggest that in the Indian context, one should change the set of stocks one buys during May-October and November-April period. They say monsoon-related stocks, pharma, and IT stocks will be bought during May-October; while the cyclical companies such as cement, auto, construction and other infrastructure-related companies will be favoured during November-April period.

You might also meet traders who advocate a stock-specific approach throughout the year.

All of them could be right or wrong.

But before you fall for any such strategy, you should answer a question: are you a trader or an investor?

If you're a trader, you might continue to try and test the strategies until you find one suitable for you.

But, if you are an investor, you should not bother about any trading strategy. After considering your risk appetite, you should devise a personalised asset allocation plan that aims to help you in achieve your financial objectives and goals.

If you want to invest for the long term, mutual funds may be a good option for you.

If you are a mutual fund investor, please remember the famous quote by Mark Twains—October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.

Over last 39 years, i.e. since its inception, the BSE Sensex has generated a little over 16% compounded annualised returns, which are phenomenally higher than those made by a trader following sell-in-May-and-go-away (and buy again in November) strategy.

Simply put, Rs 100 invested in BSE Sensex in 1979 has grown to more than Rs 34,000 in 2018. Actively managed mutual funds, if chosen correctly, can outperform the benchmark indices such as BSE Sensex.

Learn here how to select winning mutual funds:

[Download PersonalFN's guide:

10 Steps To Select Winning Mutual Funds

]

Therefore, more than finding the best trading strategy to invest in stock markets, you should spend more time on finding the right mutual funds for your portfolio.

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To invest in winning equity-oriented mutual funds, Systematic Investment Plan (SIP) is the best strategy, whereby you can accomplish your long-term financial goals.

Disciplined mutual fund investors should never disturb their SIPs based on the market swings. In fact, when markets are down, SIPs help you accumulate more units which proves to be rewarding  when equity markets resumes the upswing.  

A SIP of Rs 10,000 every month started in May 2011 would have fetched 11.3% compounded annualised returns in May 2018. The total worth of this SIP investment in May 2018 would be 12.67 lakh.

As against that if you bought units of the same mutual fund scheme worth Rs 8.5 lakh (which the total cost of your SIP) in May 2011, your investment would have been valued at Rs 15.90 lakh in May 2018. But still, that would have fetched you a lower return of 9.35%; that's because you locked your money in one go and it did nothing until August 2012. As against that, you accumulated more units during this phase which increased your percentage returns.

SIPs—Super Intelligent Path to handle volatilityMonthNAVUnits accumulated

Get out of the trader’s psyche Stop timing the market; instead focus on ‘time in the market’ with regular SIPs instead.

Start a SIP this May and let the fear of losing the opportunity go!

Read here:  All You Need To Know About SIPs

Happy Investing!

PersonalFN Content & Research Team

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Why Mutual Fund Investors Should Tone Down Their Return Expectations

When the market is at record highs, returns over multiple periods look extraordinary. The 1-year, 3-year and 5-year returns of the S&P BSE 200 index as on January 12, 2018 works out to 31%, 12%, and 14% respectively.

The top mutual funds delivered returns in excess of 40%-50% in the 1-year periods. Over 15%-20% compounded in the 3-year periods and above 20% compounded in the 5-year periods.

Looks impressive, but can you expect the same kind of returns from mutual funds over the next 1-year, 3-year and 5-years?

Many nascent investors expect to achieve this kind of returns in just three to five years. If you are expecting to achieve double-digit returns from

mutual funds

within this time-frame, you may be in for a rude shock.

What most investors overlook and what most advisors fail to highlight, in layman terms, is the probability of scoring mediocre returns or suffering even a loss of capital.

For those whom investing is not a profession,

price risk

measured in terms of volatility, standard deviation or other risk metrics, will seem like Greek and Latin.

So let us take a look at volatility from a different perspective.

How often has the stock market returns over a particular period actually aligned itself with the long-term average?

PersonalFN takes a look at the data for the S&P BSE 200. Most

equity diversified mutual funds

benchmark their performance against this index. Hence, the insights from this analysis will be applicable for mutual funds across the board.

The study reveals that the long-term average return of the S&P BSE 200 is 14% compounded annualised over a 20-year period.1-Year Returns of S&P BSE 200

Returns in percentage. Data as on December 31, 2017

On viewing the returns based on 1-year periods taken at a periodicity of every three months, the volatility is clearly visible in the chart above. But what’s more revealing is that the S&P BSE 200 was able to return over 14% only on 42 occasions or 53% of the time. In as many as 22 occasions of one-year period, the index delivered a negative return.

We conduct a similar study for 3-year and 5-year periods. For the 3-year periods, there were just 32 occasions or 40% of the time when the index generated a return in excess of 14%. The index dipped in to the red on as many as 13 occasions or 16% of the time. The statistics for investors improved in the 5-year periods. The index delivered a return above 14% on 33% of the 5-year periods, while providing a negative return on just 10% of the times.

Clearly, increasing your investment horizon can move you closer to the long-term average return mark. But more importantly, the volatility in returns reduces. The chance of you losing capital shrinks.

Hence, when investing, don’t get carried away with the supernormal returns of the market. Tone down your expectations on return and always invest for the long term.To conclude…When it comes to picking the right mutual fund schemes, you need to be extra cautious in an euphoric market. As the saying goes, a rising tide lifts all boats, similarly, in a bull market, even the worst performing mutual funds deliver double-digit returns.

Hence, investors should prudently pick schemes after comparing the performance with the benchmark and other similar schemes. More importantly, investors need to remain patient and focused on their long term goals.

Staying the course with mutual funds is easy in periods of above average market returns. We are in such a period right now. But, when faced with periods of disappointing returns, it may test an investor’s faith in the equity markets.

Being aware of the potential outcomes can help you remain disciplined. This in the long term can increase the odds of a successful investment experience.

How should you deal with the ups and downs of the market? While there is no straight solution, one of the best ways to deal with market volatility, is to

invest in mutual funds via a Systematic Investment Plan and yes, keep a long-term focus. Setting the right asset allocation will help align your risk tolerance with your investment goals.

SIP is only a method of investing in mutual funds. To support this investment method, you also need to pick the right mutual funds. PersonalFN offers a report titled "

The Super Investment Portfolio – For SIP Investors.

"After a rigorous shortlisting process, PersonalFN goes a step ahead to select funds that are SIP-worthy. Under this, PersonalFN conducts a detailed analysis on how SIPs in the top shortlisted funds have performed across multiple market conditions and timeframes. Only those funds that successfully pass this evaluation are suggested.

You can read more about the report and the subscription details here:

The Super Investment Portfolio – For SIP Investors

. Don’t miss out on special discounts. Subscribe Now!

Try our SIP Calculator to find future value of your SIP contributions.

This post on " Why Mutual Fund Investors Should Tone Down Their Return Expectations " appeared first on "PersonalFN"

[personalfn-blog]

Why Mutual Fund Investors Should Tone Down Their Return Expectations

When the market is at record highs, returns over multiple periods look extraordinary. The 1-year, 3-year and 5-year returns of the S&P BSE 200 index as on January 12, 2018 works out to 31%, 12%, and 14% respectively.

The top mutual funds delivered returns in excess of 40%-50% in the 1-year periods. Over 15%-20% compounded in the 3-year periods and above 20% compounded in the 5-year periods.

Looks impressive, but can you expect the same kind of returns from mutual funds over the next 1-year, 3-year and 5-years?

Many nascent investors expect to achieve this kind of returns in just three to five years. If you are expecting to achieve double-digit returns from mutual funds within this time-frame, you may be in for a rude shock.

What most investors overlook and what most advisors fail to highlight, in layman terms, is the probability of scoring mediocre returns or suffering even a loss of capital.

For those whom investing is not a profession,

price risk

measured in terms of volatility, standard deviation or other risk metrics, will seem like Greek and Latin.

So let us take a look at volatility from a different perspective.

How often has the stock market returns over a particular period actually aligned itself with the long-term average?

PersonalFN takes a look at the data for the S&P BSE 200. Most

equity diversified mutual funds benchmark their performance against this index. Hence, the insights from this analysis will be applicable for mutual funds across the board.

The study reveals that the long-term average return of the S&P BSE 200 is 14% compounded annualised over a 20-year period.1-Year Returns of S&P BSE 200

On viewing the returns based on 1-year periods taken at a periodicity of every three months, the volatility is clearly visible in the chart above. But what’s more revealing is that the S&P BSE 200 was able to return over 14% only on 42 occasions or 53% of the time. In as many as 22 occasions of one-year period, the index delivered a negative return.

We conduct a similar study for 3-year and 5-year periods. For the 3-year periods, there were just 32 occasions or 40% of the time when the index generated a return in excess of 14%. The index dipped in to the red on as many as 13 occasions or 16% of the time. The statistics for investors improved in the 5-year periods. The index delivered a return above 14% on 33% of the 5-year periods, while providing a negative return on just 10% of the times.

Clearly, increasing your investment horizon can move you closer to the long-term average return mark. But more importantly, the volatility in returns reduces. The chance of you losing capital shrinks.

Hence, when investing, don’t get carried away with the supernormal returns of the market. Tone down your expectations on return and always invest for the long term.To conclude…When it comes to picking the right mutual fund schemes, you need to be extra cautious in an euphoric market. As the saying goes, a rising tide lifts all boats, similarly, in a bull market, even the worst performing mutual funds deliver double-digit returns.

Hence, investors should prudently pick schemes after comparing the performance with the benchmark and other similar schemes. More importantly, investors need to remain patient and focused on their long term goals.

Staying the course with mutual funds is easy in periods of above average market returns. We are in such a period right now. But, when faced with periods of disappointing returns, it may test an investor’s faith in the equity markets.

Being aware of the potential outcomes can help you remain disciplined. This in the long term can increase the odds of a successful investment experience.

How should you deal with the ups and downs of the market? While there is no straight solution, one of the best ways to deal with market volatility, is to

invest in mutual funds via a Systematic Investment Plan and yes, keep a long-term focus. Setting the right asset allocation will help align your risk tolerance with your investment goals.

SIP

is only a method of investing in mutual funds. To support this investment method, you also need to pick the right mutual funds. PersonalFN offers a report titled "

The Super Investment Portfolio – For SIP Investors.

After a rigorous shortlisting process, PersonalFN goes a step ahead to select funds that are SIP-worthy. Under this, PersonalFN conducts a detailed analysis on how SIPs in the top shortlisted funds have performed across multiple market conditions and timeframes. Only those funds that successfully pass this evaluation are suggested.

You can read more about the report and the subscription details here:

The Super Investment Portfolio – For SIP Investors

. Don’t miss out on special discounts. Subscribe Now!

Try our SIP Calculator to find future value of your SIP contributions.

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5 SIP Features That Every Mutual Fund Investor Should Know

Just as you add more features to your smartphone by updating your applications, new mutual fund Systematic Investment Plan (SIP) facilities help improve your financial well-being. There is no doubt that SIP itself is an innovative way of instilling a regular investing habit; it is an ever-evolving, convenient investment option. In order to attract more investors to mutual fund schemes, fund houses have added several new features to the plain vanilla SIP to complement the regular form of investing. Let us see what more you can do with your monthly SIP…

Step-up SIP or Top-up SIP Mr Anshul Shah, a 27-year-old graphic designer, follows a disciplined approach with savings and invests in equity mutual funds through a SIP. Last month, he was promoted and received a good salary hike. With the surplus income, he plans to invest an additional amount in new funds to achieve his goal of buying a house. However, after doing much research, he realised that funds he has invested in are the best. He tried looking for other investment avenues. But other options did not appease him. Step-up SIP (also known as Top-up SIP) is the solution in this situation. Fund houses now offer a step-up facility, where you can increase your SIP amount at regular intervals. For instance, Mr Shah can now raise his monthly SIP amount with just one click. With this facility, you can start with a small amount and gradually increase the amount you invest. This will not only add to your initial principal, but will also inculcate a long-term approach of investing. To add on, you have an option to have a fixed or variable top-up (Top-up Cap) amount and a Cap Year. You can either set a fixed limit to your top-up amount or keep it variable. Also, you can set a date until when you would wish to continue your top-up facility. Top-up option must be specified at the time of enrolment. The amount can be as low as Rs 500 and in multiples of Rs 500 only. Further, the top-up details cannot be modified once enrolment is done. Hence, be sure before applying for it. A half yearly and yearly SIP top-up frequency is available for monthly SIP. Quarterly SIP offers top-up frequency at yearly intervals only. If you miss out on informing your top-up frequency it is assumed to be at yearly intervals. Consequently, as our income increases, so do our expenses. Therefore, increasing your investment level will protect you on rainy days. Many a times, investors continue the same monthly investment through SIP for over 5-7 years. Though they may have earned good returns on the investment, they would have lost out on earning an additional income had they topped up or stepped-up their SIP. Adding up the SIP amount regularly is an easy way to build up wealth.

Pause SIP On the contrary, what if Mr Shah loses his job tomorrow? Do you think he will have to stop down all his SIP investments? No! The SIP Pause facility will save him in such a difficult phase, allowing him to stop an existing SIP plan for a period of 1 to 3 months. In other words, if you are in financial distress and SIP payments will restrain your budget in a particular month, you can pause your SIP plan for a while and resume once normalcy returns. A short-term crunch should not be a cause of worry. It should not stop you from attaining financial freedom. But you too, ought to proactively ensure that your long-term financial wellbeing isn’t being jeopardised.

Flex SIP At times, investors do not prefer SIP because of the uncertain cash flows. This lame excuse can stop you from creating wealth. Now a flexible SIP or Flex-SIP facility can help during difficult times. This facility is also available as a Systematic Transfer Plan (STP). With this, you can adjust your instalment as you would want. Not only this, you can even opt for a trigger-based option. Here the SIP amount is determined with the triggers such as broader marker reaching a particular valuation multiple or scheme NAV changing by certain percentage. For example, Mr Anshul was rewarded with a bonus of Rs 1,00,000 this month. With the help of Flex SIP facility, he allocates this surplus money directly into one of the funds of his existing portfolio. This gives you the flexibility to either increase or decrease the amount in any particular month. So, if you have uncertain cashflow you can opt for flexi facility and still stay invested.

Trigger SIP This facility is more viable for experienced investors as it involves some amount of awareness and knowledge. With Trigger SIP, you can set either an index level, NAV, date or an event. This is to take advantage of any movement in an anticipation. For example, if you know a certain kind of government policy is due next week and that will impact the index crossing a certain mark, you can set it as a trigger date. Similarly, you can set trigger target for your fund NAV appreciation/ depreciation (in percentage terms) or capital appreciation or depreciation trigger. However, we believe this will inculcate speculative activities and you should not opt for this. Best is to always have a long-term view in mind to achieve your set of goals.

Perpetual SIP Usually when signing up a SIP mandate, you must enter the start and end date. This is for a pre-decided term period say 1 year, 2 year, or 5 year. And once the SIP matures, many a times investors procrastinate and delay renewal due to operational hassles. In turn, they end up missing few instalments, which upsets the saving discipline and affect returns in the long run. If you leave the end date block blank in a SIP mandate, by default you opt for perpetual SIP. Most fund houses will assume this SIP to continue till 2099, unless you submit/provide a written communication to the fund house. So, once you achieve your goals, you can redeem your funds as per your convenience.

To sum-up... There are multiple options available, and once you decide everything is possible, your first step to financial freedom is goal setting. Appoint a Certified Financial Guardian who will handhold you, plan your investments and counsel you during financially difficult times. Although all these SIP facilities give more and more convenience and flexibility to investors, the key is to avoid any short term financial hindrances and stay invested for five years or more. You can take advantage of SIP pause facility when under financial stress. But do not make it a habit because it hinders the path to wealth creation and accomplishing your financial goals. Remember, the key to financial freedom is perseverance.

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Here’s How SEBI Plans To Make Mutual Funds Cost Efficient…

‘Go green’ is the mantra of corporates these days!

Responsible corporate houses encourage their stakeholders to curb pollution and reduce carbon footprint. For example, companies resort to digital communication as a medium wherever possible, discouraging the print medium.

While all this might yield some environmental benefits, there’s one more equally important reason for companies to push green initiatives.

Cost savings are immense for big companies communicating frequently with stakeholders.

Normally, many business houses retain such savings.

But, the Securities and Exchange Board of India (SEBI) wants mutual funds to set an example for other industries.

Moreover, it’s also going to evaluate the possibility of bringing down the existing expense ratios of mutual funds, thereby reducing the burden of investors.

But SEBI doesn’t want to stop there.

It wants to leverage digital technologies to increase mutual fund penetration in India.

SEBI will encourage green initiatives in investor education programmes.

SEBI’s Annual Report 2017-18 makes its intentions crystal clear:

In an effort to make mutual funds industry more attractive for stakeholders, steps will be taken to bring cost effectiveness in the mutual fund industry by promoting go green initiatives through online transactions and examining the existing expense ratio applicable for various mutual fund schemes. Besides, measures will be taken to bring uniformity in various practices of the mutual fund industry in the areas of governance, risk management, due diligence process, channels of distributions, etc. SEBI will also explore the possibilities of increasing penetration through technology based initiatives by creating awareness through various digital mediums.

SEBI seems to be working with a formidable long term plan to enhance the share of mutual funds in the domestic savings.

As explained in one of the dated reports of SEBI, until a few years ago, mutual fund investors were more influenced by salient, attention-grabbing information. The report had also highlighted that investors were cost-cautious and were more sensitive to salient in-your-face fees, like front-end loads and commissions, than operating expenses.

Investors responded positively to the exceptional performance and effective marketing effort.

Responding to these finding, SEBI banned entry loads in 2009 and also streamlined the cost-structure of mutual funds. To encourage mutual funds to expand beyond the top-15 cities, SEBI sanctioned mutual fund houses to charge additional costs in the form of expense ratio to mobilize assets from smaller towns.

This move nudged the industry to create awareness among investors through various investor education programmes. Mutual Funds Sahi Hai campaign of AMFI (Association of Mutual Funds in India) has grabbed attention in the recent past, especially in post-demonetisation period. It has allowed mutual funds to reach to investors even in the remote areas.

Now that the penetration of the mutual funds is improving, the SEBI has set stricter parameters for allowing mutual funds to charge additional expense costs. In other words, SEBI has not only been introducing new measures, but has also been revisiting the older ones to make them sharper and more relevant.

It seems going digital is SEBI’s next step. According to a report published by Ernst & Young (EY) titled, ‘Mutual Funds: Ready for the next leap’, Technologies such as mobile, social media, big data and analytics, cloud and artificial intelligence are transforming the mutual fund industry and continue to be a key growth enabler by facilitating seamless customer acquisition and real-time efficient processes.

SEBI is now likely to encourage the mutual fund industry to use high-tech solutions to heighten the efficiency in operations and investor-education drives. The capital market regulator would also encourage them to pass on the cost-savings made on account of digital technologies to investors in the form of lower expense ratios and better service.

Can you expect investing in mutual fund to become cheaper soon?

It depends on various factors; such as how aggressively the SEBI will push the mutual fund industry to lower the expense ratio, while maintaining the effectiveness of investor education programmes. How intermediaries such as brokers and mutual fund distributors respond to the technological disruption also remains to be seen.

Investing in mutual funds is cheap even today for intelligent mutual fund investors.

Smart investors invest in mutual fund schemes that have a proven track-record of performance across timeframes and market phases. This enables them to earn higher cost-adjusted returns.

Intelligent investors opt for direct plans for investing in mutual funds.

They prefer low-cost-automated robo advisory platforms.

Are you wondering what robo advisory platforms are and how to invest through them?

In simple language, robo advisory platforms are digital advisors that provide portfolio management and financial planning services online, without little or no human intervention.

Read: All You Need To Know About Robo-Investing

Intelligent investors stay clear of aggressive promotional campaigns of New Fund Offers (NFOs) since their cost structure is always high. They know their goals, risk appetite, and existing financial situation. Based on this, they chalk out a personalised asset allocation plan and invest in mutual funds through Systematic Investment Plans (SIPs).

Intelligent investors are increasingly flocking towards robo-advisory platforms.

Are you an intelligent investor?

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10 Basics First-time Mutual Fund Investors Need To Know

There is no doubt that mutual fund investors are flooding the market. The Mutual Fund “Sahi Hai” catchphrase seems to have encouraged a new wave of investors. Apart from existing retail investors, there are new and inexperienced investors that are parking their money into mutual funds. The quantum of growth in new investments becomes clear when looking at the increase in mutual fund folios over the past year. As on April 30, 2017, the equity mutual fund folios (accounts) grew by 5.22 million or 14% to 41.41 million from 36.18 million a year ago. On the other hand, balanced fund folios soared by 47% to 3.7 million folios from 2.52 million over the same period. For both categories, the year-on-year growth has been the highest in the past five years.

Year-on-Year Growth In Mutual Fund Folios

Are the new flock of investors acquainted with the volatility in the market? Or will we see money flowing out as soon as the market goes through a correction? If left to their behavioural biases, we may see an exodus of funds from retail investors in the face of volatility. If you are a newbie investor, don’t get lured by the performance of equity mutual funds over the past few years. Instead, invest in lines with your financial goals after drawing up a sound financial plan. Below, PersonalFN has outlined 10 points that a novice investor should keep in mind before investing in mutual funds:

Set SMART goals Before embarking on your investment journey through mutual funds, first set S.M.A.R.T. financial goals. This means that your investment goals should be Specific, Measurable, Adjustable, Realistic, and Time-bound. Investing in an ad-hoc manner without any focus will lead to the sub-optimal utilisation of your savings.

Recognise your risk profile Risk profiling determines your risk taking capacity and the willingness to take risk. It is measured based on various factors such as age, knowledge of financial products, investible surplus, time horizon, and investment objective. Don’t get carried away with the high returns of an investment product, it is vital to consider the risk involved in respective investments and weigh that against your risk appetite. It would be best to first consider your risk appetite and the suitability of the investment for your financial goal, and then decide whether to invest in a particular financial product or not.

Choose funds that suit your risk profile Remember, your investments in mutual fund schemes should always be in line with your risk profile and its suitability for your financial goal; because every mutual fund scheme carries some investment risk. Equity mutual funds are suitable for high-risk investors with long-term goals. As a newbie, you may choose to invest in large-cap funds or balanced funds as these are less volatile. For a conservative investor, opting for debt-oriented funds such as liquid funds or short-term funds may prove worthwhile.

Focus on asset allocation Choosing funds as per your risk profile is not enough. It is pertinent to focus on optimal asset allocation as well. Asset allocation refers to distributing your investible surplus across asset classes such as equity, debt, gold, real estate or even holding cash for that matter. Through proper allocation, you are essentially adopting an investment strategy that can balance your portfolio’s risk and rewards keeping in mind your risk profile, financial goals, and investment time horizon. Certain hybrid funds, like balanced funds, multi-asset funds or monthly income plans (MIPs) may meet your asset allocation needs to an extent. Therefore, while preparing the overall asset allocation for your portfolio, it is essential to pay heed to the fund’s investment allocation.

Diversify your portfolio well Though asset allocation does help in diversification, within each asset class as well, it is essential to diversify over multiple funds. For example, under equity, diversify the portfolio over large-cap funds, mid-cap funds, and multi-cap or value funds. In the debt category, invest in a mix of long-term and short-term debt funds. At the same time, diversification does not mean investing in 20 different funds of the same asset class. Focus on sufficient, not excessive diversification. Therefore, to meet your equity allocation, invest in over 4-5 equity funds from different categories.

Invest Regularly For The Long Term It’s better to have your investment right than timing it wrong. At a time when valuations seem stretched, a staggered approach to investing is a prudent path to take. There’s no point timing the market. No one has derived much success from it. A trader is only as good as his/her last trade; you don’t know what’s in store – good, bad, or ugly. Hence, it is wise to start a Systematic Investment Plans (SIPs) in mutual funds and take advantage of the benefits of rupee cost averaging, while inducing a regular saving habit.

Pay attention to the investment strategy adopted by a fund Funds houses offer a variety of funds to suit the needs of diverse investors. For aggressive investors, who wish to take exposure to specific sectors, there are Sector Funds available such as Infrastructure Funds, Banking Funds, FMCG Funds, Pharma Funds etc. Similarly, foreign fund-of-funds allow investors to take exposure to international markets. There are even funds that focus on specific investment strategies such as Contra Funds or Dynamic Funds. At times, it becomes difficult to judge the type of fund solely by its name. Hence, it is essential to take a deeper look into the investment allocation and strategy adopted by the fund before you invest. Unless you understand the risk involved in such investment strategies, it is best to stay away from such funds.

Rebalance at regular intervals In simple words, rebalancing a portfolio is correcting the deviations in the original asset allocation. For example, you invested 70% in equity, 20% in debt, and 10% in gold—after a year, equity accounts for 80% of the portfolio, and gold contributes 12%. You will then need to reduce the exposure to equity and gold by shifting to debt in order to achieve the initial asset mix. Rebalancing helps safeguard investments from a bad market phase not only by booking gains, but also by reducing the exposure to risky assets.

Keep in mind the tax implications The gains on equity mutual funds and debt mutual funds (non-equity funds) are taxed differently. Only schemes that allocate over 65% of their assets to equity qualify as equity funds. Equity mutual funds attract a Short-term Capital Gain (STCG) tax @15% on units redeemed within a year. STCG tax is applicable for debt fund units sold within 36 months. In the latter, the gains are added to income and taxed as per the income-tax slab. Long-term Capital Gains (LTCG) on equity mutual funds is tax-free. For non-equity funds, LTCG tax is chargeable @20% with indexation. Keep this in mind before investing and while redemption of mutual fund units.

Don’t ignore the costs Many tend to ignore the cost of investing through mutual funds. All mutual fund schemes charge an expense ratio (a fee that is charged on a daily basis) towards fund management and distribution overheads. On an annual basis, the fee or expense ratio can range from as low as 0.10% to as high as 3% depending on the type of scheme you choose. Most equity schemes charge an expense ratio in upwards of 1.50% Fund houses also offer a direct plan under each scheme that is devoid of distributor expenses. Hence, the expense ratio of a direct plan is lower than the regular plan of a mutual fund scheme. The cost under direct plans can be lower by as much as one percentage point. Though the difference may seem miniscule, over the long term this gets compounded and can lead to a huge difference in portfolio value. This small difference in costs can result in savings of anywhere between Rs 8-17 lakh over 20 years, on a Rs 10 lakh investment. Always keep an eye on the cost. You do not want to lose lakhs of your hard-earned money over the years.

If all this seems too much of a task to do, it would be prudent to consult with an expert. After all, no one wants his or her hard-earned money to be wiped away because of negligence. Hire a financial planner who is ethical and devoid of any biases. Choose a Certified Financial Guardian (CFG) who will safeguard your financial interests. A financial guardian is trustworthy; an advisor who puts your interest before their own. For novice investors who wish to strategically align their mutual fund portfolio to ride the market waves can subscribe to PersonalFN's Strategic Funds Portfolio for 2025. It consists of a Core and Satellite portfolio, which aims to have the best of both worlds, that is, short-term high-rewarding opportunities and long-term steady-return investing. The core portfolio offers stability by investing in funds that promise sturdy returns and have a strong ability to manage downside risk. The satellite portfolio provides the opportunity to support the core by taking active fund calls determined by PersonalFN's extensive research on mutual funds. Subscribe here to PersonalFN's Strategic Funds Portfolio for 2025 to avail of attractive discounts.

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