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The simple and straight-forward answer to this question is No, Omega is not expensive. Compared to other options Omega is very reasonably price and substantially lower.

But is it not expensive on an absolute amount basis? No. Even on an absolute basis too Omega is very reasonably priced and valuable.

Here’s a comparison of fees that you will pay for Omega and PMS/MF-Regular

Service Fees structure
PMS · Upfront Fee (2%) (if purchased through broker)

· Other Expenses including Brokerage/ DP Charges/ Custodian Charges assumed at 0.70%

· Management Fee (2-2.5%)

· Exit Load 2% for the first 12 months

Profit sharing on crossing a hurdle rate eg 10-15% returns (15-25% of excess returns). Some reduce Mgmt Fees in Profit sharing

Lock-in: usually 3 years

Typical will be about 5% if bought through a broker and 3% per year  if bought directly-without exit load and profit sharing

For large AUM eg 5cr+ fees could be lower

Typical Fees for 1 cr Rs 3lacs per year

Mutual Funds-Regular

MFD –Bank/IFA act as

2 to 2.5% on entire amount Same fees for any amount bought. For 1 cr Rs 2 to 2.5 lacs
Omega Omega fees inclusive of GST.

· Upto 25 lacs -1.18%

· Next 25 lacs – 0.885%

· Amount above 50 lacs- 0.59%

 

Omega fees for 1cr : Rs 0.81 lacs.

If 50% invested in Mutual funds : Rs 0.5 to 0.6 lacs additional (Direct Plans)

+ Brokerage charges  incurred by investor

 

As can been seen from the above table Omega with 100% Direct Stocks as a service is comparable to PMS while its fees are significantly lesser, only one-third of a PMS. Compared to fees paid for Mutual Funds-Regular Plans, Omega fees is still lower, despite many benefits explained below

Omega is an zero-conflict advisor something an investor needs first and foremost. PMS and MF are products and solutions that are available and an advisor may advise the client to invest in them depending on what is right for the client. Omega recommends Direct Stocks and Mutual Funds for equity. But when we recommend Mutual Funds it is worth the extra cost clients incur because:

  1. The MFs recommended by us complement our Direct Stocks strategy. This ensures the portfolio performs reasonably well across different market cycles and it ensures investors stay invested even through volatile times
  2. Also, Investor can confidently invest a large portion-75%+ of their entire investable surplus through Omega-Multi-asset solution.
  3. Omega recommends MFs which have a good upside potential (not past performance) thereby ensuring better returns than funds that have already run up.
  4. We can and will replace active (high cost) funds with low cost passive Index Funds when appropriate, thereby reducing cost substantially

When the investable surplus is low we recommend clients to stay with 100% mutual funds till it makes sense to invest in stocks directly. Even then Omega fees+Direct Plan charges are not higher than Regular Plans.

Mature investors understand the value of having a zero-conflict advisor to manage grow their portfolio as well as becoming a better investor themselves. Some retail investors can wonder if they really need an advisor. A cursory search on google could lead them to the free advice which says ‘Investing in an Index Fund is all that is required to get market returns.’ Then why pay fees at all?

This advice is simple but not easy to implement seriously. By that we mean it’s not easy to invest much of your investable surplus maybe a few lacs or a few crores into an Index fund and sit tight for the next 10-20 years. The toughest thing to do in investing is doing nothing at all. When the market goes through its gyrations-imagine a roller-coaster ride, the best amongst us cling on to our seats and thank god for safety belts.  It’s what sees us through the ride.  A zero-conflict advisor is required even if you were to put all or most of your money in an Index Fund if you have to stay invested and complete the ride i.e reach your goals.  Don’t believe it. Here’s some data that proves why you need an advisor to earn even market returns.

Source Dalbar’s 22nd annual QAIB (Quantitative Analysis of Investor Behaviour)Study ended 31 Dec, 2015.

This shows that “In 2015, the 20-year annualized S&P return was 8.19% while the 20-year annualized return for the average equity mutual fund investor was only 4.67%, a gap of 3.52%” i.e 42% lower!

And this is in USA where investors are better informed and perhaps more experienced than in India. The data for India is not easily available but it is well accepted that Investor Returns on Mutual funds are lower than the fund returns. The average period for which retail investors stay invested in most funds is about 2 years which indicates that most retail investors do not earn the long term returns generated by the active funds!

Great quality unbiased research and hand-holding are two very large value addition that we at MoneyWorks4me do for our Omega clients. Together this ensures you reach your financial goals.

If you liked what you read and would like to put it in to practice Register at MoneyWorks4me.com. You will get amazing FREE features that will enable you to invest in Stocks and Mutual Funds the right way.

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The post Is Omega Expensive? And other price related questions appeared first on Investment Shastra.

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We invest to grow our savings to meet our financial needs and goals of the future.  And some invest to create wealth; which is a goal in itself.  Whatever the motivation, what we want is for our saving, our surplus money to grow. So how does money grow? Does it follow a formula? Yes, actually it does; perhaps at a personal level it is the most important formula. Let’s call it the Wealth  Building Formula, WBF.

Essentially what this says is that wealth (money available to you in the future) is what happens when you put your surplus money to earn returns and let it compound for a number of years

As you can see there are 3 variables, Surplus (the saving you put to work), Returns (CAGR) and No of years you stay invested and earn the returns. So how does this formula help understand how to invest or how not to invest?

Investing Style 1: The Safe Investor:

You are a Safe Investor if you are putting most of your surplus/saving in safe assets like FD/RD, Debt Funds and Gold.

What does the WBF indicate? Based on your investments, the returns after taxes will hardly beat inflation. So no matter how much surplus you invest and for how long, your money will not create wealth for you. You are you playing it too safe to create wealth? Yes your money will grow, but only enough to fight inflation.

Say you see an expenditure on your child’s higher education 10 years later. Lets assume it costs 10 lacs today. You have some savings today from which you can fund this. How much money will you need to set aside today?  If you are a Safe Investor you will need to set aside the entire 10 lacs. That’s because the cost of higher education will also rise at about the same rate as inflation and you will need about 18 lacs after 10 years.

In short your money is not working hard for you.

Learning: Returns earned must be higher than rate of inflation to grow your savings into wealth

Action requiredChange your asset allocation to include assets that will give inflation beating returns- Equity. Does it mean you keep nothing in FD? No. You should keep about 20-25% of your total surplus in a very safe asset like FD in the biggest bank e.g. SBI even though it will earn you returns that just about beat inflation. This ensures a reasonable portion of your surplus is very safe and you can take manageable risk and invest the rest to earn inflation-beating returns.

Investing Style 2: The Risk Taker:  

You are a Risk Taker if most of your money is invested in equity following a high risk-high returns style of investing (high proportion of mid/small/micro cap stocks or funds, multibagger oriented investment)

What does the WBF indicate? Risk Takers are gunning for very high returns.  However, to generate wealth even with high returns, the other two variable i.e. how much is invested and for how long also have to be reasonably large. This is extremely difficult to do and virtually impossible over extended period of time when you follow a high risk-high return strategy.

Risk Takers will see a substantial drop in their portfolio when the market corrects. The quality of their portfolio is unlikely to inspire them to stay invested and hence it is most likely that they will cut losses and exit their equity investments.

Learning: Gunning for high returns will adversely impact the amount invested and the period one stays invested for and hence as per the Wealth Formula it is unlikely to generate wealth

Action required: Be a Sensible Investor

Investing style 3: The Sensible Investor:

You are a sensible investor if you invest your total surplus across multiple assets  (debt and Equity) so as to earn returns that are substantially higher than inflation rates without taking risks that makes you want to exit the market.

What does the WBF indicate?

All 3 variables help create wealth. However, all 3 cannot be maximised. Having a sensible returns expectations i.e. reasonably higher than inflation rate but one that ensures you stay invested for long and confidently invest your total surplus is likely to yield the best results.

The main reason investors exit their equity investments is their discomfort in handling a fall in the portfolio when the market corrects. The way to reduce the loss is the allocation to debt and equity. A 50:50 split ensures that the investor’s portfolio drops by roughly half the amount the market corrects. So even if the market corrects by 10%, the investor sees about 5% drop in his portfolio something that does not make you panic. Imagine your portfolio is 1 cr, a 10% drop would mean a paper loss of 10 lacs. If the portfolio has higher exposures to small cap stocks corrections could be even more severe, say 20%.

Learning: Get all the 3 variables working in your favour by having reasonable returns expectations that helps you to maximise the amount you put to work/invest and you stay as long as you are required to depending on your goals.

Here’s a case study of Amit, a Risk Taker and his friend Somu, a Sensible Investor and their experience with Investing

  Amit
(Risk taker)
Somu
(Sensible Investor)
Initial corpus 1 Crore 1 Crore
Asset allocation 100% Equity
(Invested across mid,small and micro cap stocks)
65% equity-35% Debt
(invested mainly in large cap and a few quality mid cap stocks)
Return after 5 years (CAGR) 18% 13%
Corpus after 3 years 1.64 cr 1.44 cr
Additional amount required to bridge the shortfall 20 lacs (in initial corpus)
Additional Time required to bridge the shortfall 1 year
Year 4 sharp market correction
Drop in Nifty 12%
Drop in Mid/small cap index 20%
Portfolio loss after markets correct sharply in Year 6 25% 9% (13% on equity portfolio)
Change in Asset allocation 50% equity-50% debt
(Equity exposure reduced to 50%)
75% equity-25% Debt
(Equity exposure increased to 75% as suggested by smart asset allocation)
Portfolio value after correction 1.23 Cr
(63 lacs in equity and 60 in Debt)
1.31 Cr
(98 lacs in equity and 33 lacs in debt)
Returns at end of 4 year (CAGR) ~5.3% ~7%
What happened later Having lost 41 lacs from the peak value, Amit decided to play it safe. He invested in safe large and mid cap stock/funds only. Over the next 3 years the markets rose by 15% CAGR  Amit portfolio rose to 1.69 cr a 7.8% CAGR over 7 years. Somu held onto his portfolio having very good companies during the correction. At the end of the next 3 years his portfolio was 1.89 cr. Over 7 years he had earned 9.5% CAGR

Does this remind you of a story you’ve heard when you were a child. Yes the hare and the tortoise. Well that’s what the Wealth Building Formula tells us: Slow and steady wins the race.

If you liked what you read and would like to put it in to practice Register at MoneyWorks4me.com. You will get amazing FREE features that will enable you to invest in Stocks and Mutual Funds the right way.

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The post The Formula for Growing Wealth and what it tells us about Investing appeared first on Investment Shastra.

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We want our saving, our surplus money to grow into wealth so that it can fund our future financial needs and goals and more. So how does money grow? Does it follow a formula? Yes, actually it does. We call it the Wealth Building Formula.

Essentially what this says is that wealth (money available to you in the future) is what happens when you put your surplus money to earn returns and let it compound for a number of years.

As you can see there are 3 variables, Surplus (the saving you put to work), Returns (CAGR) and No. of years you stay invested and earn the returns. So how does this formula help understand why Sensible Investing is the best way to grow your money.

As we have said Sensible Investing is about following two rules

Rule No 1:  Stay invested and let the power of compounding do its magic.

Rule No 2: Do things that help you follow Rule No 1; avoid the rest.

What does the Wealth formula indicate about Sensible Investing?

The Sensible investor focuses on maximising the 3rd variable of the Wealth Formula i.e allowing his money to compound as long as possible.  To do this he has a sensible returns expectation i.e. substantially higher than inflation rates but not so high that it requires taking high risks. These are the kind of risks that make him so uncomfortable that he wants to exit the market when it is volatile.  Since he takes moderate risks he confidently invests a large portion of his total surplus in this manner.  So Sensible Investing means using the Wealth Building Formula as follows

What leads to not staying invested?

The main reason investors exit their equity investments is their discomfort in handling a fall in the portfolio when the market corrects. The way to reduce the drop is ensuring asset allocation to debt and equity. For example a 50:50 split ensures that the investor’s portfolio drops by roughly half the amount the market corrects. So even if the market corrects by 20%, the investor sees about 10% drop in his portfolio something that makes us uncomfortable but not panicked.

Secondly a Sensible Investor invests only in strong companies, what MoneyWorks4me color-codes as Green and Orange. This gives him confidence to stay invested even when the market corrects.  Imagine your portfolio is 1 cr, a 20% drop would mean a paper loss of 20 lacs. A portfolio with large amount of small and mid-cap stocks and some Red companies i.e. companies having business risk could fall by this much. Would you have the heart to hold onto such companies? Most would sell and get out and incur a real loss.

But this way of investing would take very long to create wealth?

Yes, it does. Investing is not a get rich quick formula. As you can see from the Wealth Building Formula if you wanted to get rich quick i.e. the period you stay invested is small, then to create wealth you need to earn very high returns; the kind of returns that is offered in casinos and race tracks, provided you win. But that seldom ever happens because the odds are always in favour of the house, the bookie, the casino.  So remember investing is a marathon not a 100-meter sprint.

Now you need to choose between get-rich-quick and get- rich-definitely and sensible Investors choose the latter. After all, having worked hard for their money it is not sensible to let our impatience prevent us from growing our savings into wealth.

Wealth creation through investing follows the Wealth-Building-Formula and a sensible person aligns his behaviour to benefit from it. Join the Moneyworks4me Sensible Investing Club – Be Sensible, Become Wealthy!

Related Article:
In the Investing Race, Tortoises beat Hares, but it’s hard to stay a tortoise…until now!

Become a Member of the Moneyworks4me Sensible Investing Club
Bring discipline to your investing and reach your financial goals

Join Now!

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We have all heard the story of the race between the Hare and the Tortoise.  And as children we are disappointed that the Hare loses the race. It’s unbelievable how the fast, alert and smarter looking hare loses the race. As a child I was convinced that the adults have rigged the story to teach us some moralistic nonsense. Which stupid tortoises who can’t even walk fast agree to a race? And why would a hare go to sleep in a race when he can finish the race in no time and then go to sleep.

Hares think they are running a 100-meter race

When I was older I realised that I had assumed that the race between the hare and the tortoises was a short one, that all ‘races’ are short. Most people behave as if the race they are in is a short one and this is most visible in the world of investing in the stock market.

Investor – Hares think the race is a short 100-meter sprint. So they want high returns and for that they take high risks. They are over-confident about their ability to pick stocks and are hypnotised by the good times, by the rising stock prices. And their gains seem to tell them that they are really smart at this and they buy even more. They also over-estimate their ability to stay calm if the market crashes. In their preoccupation to moving fast they do not develop the skill to watch out for dangers and eventually they trip and trip badly. And then the market corrects, because it eventually does, and the hares panic. Hares also forget that the stock market has more ruthless animals- hyenas and wolves who also running the race. And they all love a good rabbit pie.

Tortoises know they are running a Marathon

Tortoises have one of the longest lifespans. I guess this makes them wiser. And probably they know that any race worth running is a marathon not a sprint. Growing older one realizes that life itself is a marathon and that’s a good thing. Investor-tortoises are slow creatures, cautious, unwilling to take high risk. When their stocks perform really well they attribute it to luck, not their foresight. When the markets run up, they fear a correction is round the corner. They go at their own pace, forever carrying their protective shell.

As in the story, hares will be ahead of the tortoises for some part of the race. But eventually the tortoises win.  

But it’s hard to stay a Tortoise

When our natural survival instincts drive us to follow the herd, mimic fellow-mates, it is difficult to do and be otherwise. An Investor-tortoise is required to take actions which are contrarian to the popular and loud voices of experts and the media. This is not easy to do. And then there is the waiting, the patience required before you get the confirmation that your decisions were right. This raises self-doubt – a source of discomfort. And when the hares are well ahead and celebrating, to not get tempted to join them is the most difficult. So, staying the course even though it the sensible thing to do, is not easy.

Joining a community of like-minded investors can make a big difference  

At MoneyWorks4me, for more than a decade now, we have been focused on making investing safe and simple for retail investors.  We have seen that while many register on our site for the free features, only a few progressed to making safe and sound investing decisions a way of life. We  have just launched the MoneyWorks4me Sensible Investing Club to provide the environment for Tortoise-investors to flourish and stay true to their style of investing.

The root of the word discipline and disciple is the same; which meant a follower of a guru, a principle, a way of life. However, when used as a verb,’ to discipline’ stands for punishing someone to make them follow certain rules. This has made most of us hate the word discipline. We obviously cannot impose any rules on you but want to inspire you to choose to follow fundamental (and simple but not easy) rules that govern investing. Like any physical laws of nature that govern how things work, failure to understand, appreciate and follow these laws leads to ‘loss’ and failure. To that extent we end up being ‘disciplined’

And what is the discipline of investing sensibly?
The Discipline of Sensible Investing:

  1. Stay invested and let the power of compounding do it’s magic.
  2. Do things that help you stay invested; avoid the rest.

This is the principle that guides MoneyWorks4me and if you agree that this should guide your investing you should become a member of our Sensible Investing Club. Members will get access to valuable information, content, insights and tools to imbibe the disciple of sensible investing.

Read the next article to know How a Sensible Investor uses the Wealth Building Formula to his advantage

Become a Member of the Moneyworks4me Sensible Investing Club
Bring discipline to your investing and reach your financial goals

Join Now!

Join our Telegram Channel:
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Mutual Fund Investing

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Need help on Investing? And more….Puchho Befikar

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MoneyWorks4ME by Team-moneyworks4me - 1w ago
Review

Nifty Total Return Index (Nifty including dividends) earned 10% Year to date 2019 and ~15% CAGR in last 3 years. FIIs under-own Emerging Market Equity due to poor performance of Emerging Markets in last 5-10 years. We saw increased interest in EM due to i) Cheaper valuation (except India) ii) Fed’s signal to not hikes interest rate leading to Risk ON behaviour iii) Slowing down in Developed market growth after long bull market. India too saw increase in FII interest. Most of the stocks that rallied were either beaten down or index heavyweights like Banks. Some undervalued stocks have also moved up thereby reducing number of investment opportunities. A lot of stocks in Infra space rallied post-election outcome in anticipation of continuation of reforms from incumbent government. Due to narrow rally in select stocks led to all advisors and MFs underperforming headline index, Nifty 50.

Outlook

As on date, average upside of our coverage universe is likely to be ~8% CAGR over next 3 years. Given quality companies are trading at steep price multiples & our coverage mostly has quality companies, expensive valuation is getting reflected in poor upside potential too.

Few advisors are recommending small and mid-cap companies as uncertainty of election is behind us. However, we believe that small and mid-cap are not cheap yet to make risk adjusted returns over an entire cycle. They may rise temporarily however, long term returns won’t be commensurate for the risk one takes investing in small and mid-cap companies. A SIP product may work in such situation but we recommend caution.

Last 10 years belonged non-cyclical companies who exhibited linear growth rates. Also, some stocks that showed non-cyclicality despite being part of cyclical sectors, saw massive outperformance versus their peers. Our expectation is that there will be “reverse to the mean” in stock prices that have run up a lot versus their earnings growth.

Some pockets of the market like consumer staples, consumer discretionary except Auto, chemicals, financials (except corp banks/nbfc) are trading at stretched valuation. We expect mediocre returns from this basket over next 3 years even if earnings growth is good. Starting valuation play an important role in long term returns.

Investor must consider investing in Infra & Infra-related companies through stocks or funds for medium term. Some of the Auto stocks have seen deep cuts and trading at low valuation multiples versus last 5 years. We expect a basket of select NBFCs, corporate banks, utilities, Autos and diversified non-MNC Pharma to earn good returns over next 3 years.

Risks

Many investors were waiting for elections citing it to be one of the risks to equity markets. We had written in previous note that equity returns are not dependent on which government comes to power, but it depends on earnings growth of businesses…We believe that going forward as well, young population, under-penetration in several sectors, under-investment in infrastructure would provide ample opportunities for the companies to grow. This will get reflected in rise in stock prices as well irrespective of which party forms the government.

Election Outcome: Favourable or a non-event?

Narendra Modi led-NDA formed India’s new government by winning around 350 seats in Loksabha, higher than the projections of exit polls and total seats in 2014 elections. The market celebrated comeback of incumbent government with stellar rally a day after exit polls.

Over the last 5 years, NDA government maintained fiscal deficit in guided range by way of divestment in PSUs, increased tax base and unified tax structure across the country. This is expected to continue to keep fiscal deficit in a range.

Numerous sectors were brought out of stress by way of recapitalisation, imposing duties on imports, resolving bankrupt companies through IBC, etc. We are yet to see full implementation of road infrastructure, SEB reforms (UDAY) and tax collection of GST. The benefits may trickle down across economy under new regime. On reforms front, initiatives like LPG connection, financial inclusion, clean India, affordable housing, healthcare and last mile electrification may not have reached every potential beneficiary. We expect new government to expand these policies to larger population.

From financial markets standpoint, need of the hour is easing liquidity to avoid slowdown in consumption/supply. NBFC-led liquidity crisis is making lenders cautious and saving liquidity for a rainy day. Some experts believe lowering interest rate may relieve some stress. We may see this happening in subsequent RBI policies.

Lower oil & flat commodity prices, write off of bad loans and deleveraging of corporate balance sheets should kick start new earning growth cycle. We believe with improving profitability from better capacity utilization, new capacity to come up and generate employment.

Some market participants opine that Modi’s victory would lead to huge market rally and stellar equity returns like it happened in 2014. In our opinion, NDA’s return to the power doesn’t warrant good returns from equity. If Nifty were to correct to fair value today, Nifty’s 5 year CAGR from the start of NDA’s first term was meagre 9%, including dividends. This was due to poor earnings growth over last 5 years and high starting valuation. Starting valuation and earnings growth determine equity returns. At current juncture, Nifty trades at 15% higher than its fair value aka Nifty@MRP. There is limited upside in indices in near/medium term. This is due to some of the stocks are trading at 40-100% premium to their fair value. Rest of the market trades at more or less fair value to slightly overvalued range.

Major risk currently is the slowdown in GDP growth and consumption. Even if long term growth trajectory may be intact, stocks can be very volatile due to high equity valuation. We recommend not to chase stocks that are doing well despite high valuations.

If you liked what you read and would like to put it in to practice Register at MoneyWorks4me.com. You will get amazing FREE features that will enable you to invest in Stocks and Mutual Funds the right way.

Join our Telegram Channel:
Stock Investing
Mutual Fund Investing

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Mutual Fund Investing

Need help on Investing? And more….Puchho Befikar

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We have said in our last blog that SIP works when you have less than 40,000 monthly saving but you need to do in it right way to benefit from it. There are 4 things you need to get right. We call it the Power of 4.

Power 1. Diversify across Process – Value, Momentum, Quality & Size to ensure the benefits of right diversification.

One of the biggest advantages of investing in mutual funds is diversification. Diversification reduces risk. Investing in a fund enables you to invest in multiple stocks – this is one level of diversification. However, this is not adequate. There is one more dimension of diversification that you need – diversification across investment strategies.

Every fund manager tends to have a natural inclination/expertise for a particular Process. Outperformance of a fund is due to a Process or method of selection of stocks with similar characteristics. However, a particular process works well only in a certain market situation but not in others. Over longer term, 10-15 years, all of the above processes beat the market, hence you will see that SIP done for very long periods seems to work.

Why then diversify?

Your goal in SIP is not to earn very high, index-beating returns. You goal is to earn substantially higher than inflation rate and FD interest rate on all the saving that you generate monthly. Continuing to invest and staying invested for long, letting your money compound at this healthy rate is what you need to do. However, it’s easier said than done.

The main reason for investors exiting prematurely is discomfort/panic when their portfolio corrects more than they can stomach. For SIP to work you need to continue buying when the market and the fund has corrected because only then you will get a lower average buying price. Without this SIP does not work.

Diversifying your portfolio across processes ensures that at least one fund is working well at all times in the market. This will reduce the downside volatility on your MF portfolio and help you continue investing for the long term which is critical for success in investing.  Hence, it is prudent to invest in all the key processes without worrying about a certain process going out of fashion in the short term.

Through MoneyWorks4me SmartSIP we recommend funds with 4 key and different Processes to ensure right diversification, reduced risk and to help you stay invested:

  1. Momentum – has worked best in rising markets
  2. Value/Dividend – in flat or falling markets
  3. Quality – in tough/bad economic conditions
  4. Size – in good times.
Power 2. ‘Andar-se-Strong’ Funds to help you ride through tough times

Most of the industry relies on selecting funds that have delivered highest returns in the past. This is like driving a car looking at the rear view mirror. This selection criterion can be misleading, inadequate and risky. Misleading, because it has the biases of when you started and how the markets are doing at the time of measuring the performance. It’s inadequate because it does not tell us how much risk the fund manager is taking and whether the fund is likely to perform in the future, the period we are interested in. It’s risky because funds that give the highest returns today are likely to have stocks that are overvalued and to correct or stagnate.

So how does MoneyWorks4me SmartSIP select funds?

We stress-test funds based on two criteria – Portfolio Quality & Consistent Performance (Rolling returns). For details read, How do you select the right Equity Mutual Fund to invest in?. Funds that pass our stress test have the necessary strength i.e. they are ‘andar se strong’ to ride through the tough times and also recover fast. This method ensures funds with risky stocks in their portfolio and inconsistent returns performance are never recommended. They are also likely to perform better than others when the markets favour their Process. So with SmartSIP you get the Power of ‘andar-se-strong’ Funds.

Power 3. Low Cost Plans to Enhance Your Returns

Regular Plans are very expensive on the investor pocket. But few realise it until the math is explained to them. Let’s look at an example. If you invested Rs 10,000 per month for 20 years in Regular Plans you will earn Rs 99.9 lacs (returns assumed 12%) versus Rs 1.15 crores in Direct Plan (returns assumed 13%) i.e an additional Rs 14.6 lacs. Even after reducing the effect of fees you would pay for getting the investment advice the difference will be more than Rs 10 lacs.

The difference is even higher for higher SIP amounts. In addition to Direct Plans, MoneyWorks4me SmartSIP recommends funds that have a low expense ratio and no/low hidden cost. Read Avoid Mutual Funds with Hidden Costs for a deeper understanding. A low cost ensures higher returns for you. With SmartSIP you get the Power of Low Cost.

Power 4. Get Zero-conflict Advice

Things are always changing and hence the fill-it-and-forget-it passive way of SIP investing does not work. Nor does reacting to every change. So you need advice you can trust, advice that is from a zero-conflict-of-interest advisor. So when you are advised to make changes (stop, switch and sell) in your SIP portfolio you can rest assured it is in your interest, 100%. MoneyWorks4me has been fiduciary (no conflict of interest) research and advice provider for 10 years now. With SmartSIP you get the Power of Zero-conflict Advice.

To do SIP the Right Way get the Power of 4 now with MoneyWorks4me SmartSIP !!

So, now you know how to build a winning SIP portfolio. But what if you already have a SIP portfolio and are not sure if you have invested in the right mutual funds. The ‘Sher ya Billi’ tool by MoneyWorks4me helps you find the answer to your question-will your mutual fund portfolio disappoint you or make you happy?  The Sher-ya-Billi Tool helps you know the important risks in your mutual fund portfolio-the ones that could and probably will adversely impact your portfolio’s performance.

Read our next blog to find more details on the Sher ya Billi tool.

If you liked what you read and would like to put it in to practice Register at MoneyWorks4me.com. You will get amazing FREE features that will enable you to invest in Stocks and Mutual Funds the right way.

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The post Do your SIP the right way with the Power of 4 appeared first on Investment Shastra.

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If you have concluded that SIP is the safe and will always give your very good returns then you are mistaken. Firstly you need to know if Systematic Investment Plan (SIP) is right for you and then what is the right way of doing SIP. And since it concerns your money, you had better do what is right and not what is convenient.

What is SIP and how does it work?

SIP is a systematic way of investing in mutual funds just like Recurring Deposit is a way of systematically putting some of your savings into a FD, say every month. The primary reason one does RD is because one has generated some saving every month and an RD ensures it earns higher interest rate than a saving account’s i.e. you have put it to work a little harder.

Now it should be obvious to you that SIP in Mutual funds is an extension of the same logic. But mutual funds come with risks and the prices fluctuate, which can scare away simple investors. So there was a need to reassure investors that SIP actually made investing in mutual funds safer. And they called the reason why it makes it safer; dollar or rupee-cost-averaging, a fancy word for what is obvious. Here’s what it means. The markets keeps going up and down and hence when you invest the same amount every time you end up getting either a little less or a little more for the amount you invested. And like normal person you will divide your total investment in the MF by the total number of units you got and arrive at your average cost per unit.

So what’s the big deal, what the benefit of doing SIP?

The biggest benefit is that it liberates your mind of having to take a decision every time you have some money to invest. And one of your decisions may be to not invest and that certainly hurts the industry and it may also hurt you. Why, because you generate a surplus every month and need to put it to work harder for you, harder than an RD/FD if you have to beat inflation hands down. This is an important benefit, no doubt. Equity as measured by the popular Index (which means you invested in all the companies in the Index) is likely to give you the highest returns across all asset classes. Plus you have the benefit of buying and selling this very easily i.e. high liquidity. But putting money in an Index fund does not earn much money for the MF industry and to be fair the past track record seems to suggest that actively managed MF at least some/many of them will earn you higher returns than a passive Index Fund, despite their higher cost. So SIP ensures you put money regularly in the equity asset class through a diversified fund.

Now if you are a little confused, it’s alright. Better be confused, than be a lamb to the slaughter. Simply put SIP in Mutual Funds is a better way of investing your monthly surplus than RD/FD, provided you do it right. But don’t extend this to any of your lumpsum savings or investments e.g. don’t redeem your FD and start an SIP.  And what if your monthly saving is large, say more than 40,000? Well its best to think of this as lumpsum money that you need to invest wisely and with the help of a zero-conflict advisor, as SIP is not the best solution for you.

Thus, SIP works when you have less than 40,000 monthly saving but you need to do it right to benefit from it. There are 4 things you need to get right. We call it the Power of 4. Read our next blog to know more on the Power of 4 and the right way to do SIP!

There is a lot written on SIP. You can read two well written articles to understand when it works and when it does not and why.

Related articles:
Analyze your Mutual Fund Portfolio to check if it will disappoint you

If you liked what you read and would like to put it in to practice Register at MoneyWorks4me.com. You will get amazing FREE features that will enable you to invest in Stocks and Mutual Funds the right way.

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The post Is SIP in Mutual funds the right way to invest for me? appeared first on Investment Shastra.

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What Are Multicap Funds?

Multi-cap funds invest in stocks across Large, Mid & Small market cap. This flexibility to switch between sectors and stocks belonging to any market capitalisation allows the fund manager to take advantage of a larger pool from which to build and manage the portfolio and deliver returns.

Minimum investment in Equity & Equity-related instruments for Multicap funds is 65% of total assets.

Who should invest in Multicap Funds?

Multicap funds are a good way to take exposure to broader market and are suitable for investors with a moderate risk appetite.

Investors who want to take benefit of the growth potential of mid and small cap stocks without exposing themselves to high risk, should invest in Multi-cap funds rather than mid & small cap funds. The Multicap Fund Manager has the mandate to change the mix of large/mid/small cap in the fund’s portfolio depending on his assessment of the risk-reward opportunities. The mid/small cap fund manager has less room to reduce risk and hence these funds are usually more volatile. Keep in mind, like any other equity product you need to be invested in a Multicap fund for the long term (5-7 years).

How to choose the Best Multicap Mutual Funds? 1. Quality of portfolio

An important parameter in shortlisting a fund for investment is assessing the underlying stocks in the portfolio of the fund.  This helps us understand how much risk we are taking for that extra return in our portfolio. Avoid funds with large exposure to small and risky quality companies.

2. Performance Consistency

Though the fund may be a top performer today, it is not necessary that it will be able to repeat this performance in the future. However, if it has a track record of consistently beating the benchmark year after year, it would give us more confidence of the fund managers’ ability to do so in the future too. Avoid funds with poor return consistency.

3. Past 5-year rolling return

Across industry, advisors analyse funds return for last 3 years, 5 years and 10 years. However, the starting and end point of all these periods makes a big difference to what these returns are. This is inadequate as past poor performance may get hidden in recent good performance and vice versa. The past performances of schemes which have been reshuffled significantly to adhere to SEBI’s reclassification are even more irrelevant.

You should instead look at individual fund’s returns performance versus its benchmark on rolling basis of a reasonable time-frame say 3 or 5 years, rather than every year performance or point to point past performance.

4. Turnover ratio

Choose a fund with low turnover ratio which helps us avoid brokerage and impact costs. An investor should be even more wary of these costs as they’re hidden (not disclosed by the AMC), but definitely eat up into your returns.

How do you find the best Multicap funds based on the above analysis?

At MoneyWorks4me, we provide data on all the above 4 parameters and is available free; (link given below). This will assist your investment decision and help you avoid costly mistakes. Before you go there, here are some important tips on how to use it.

Sort the list on the basis of the 5-year rolling returns in the descending order so that the fund with highest return is on the top. Whilst you can see the full list on our site, given below are the Top 10 Multicap funds based on this criteria. Now you can see how each of these funds measures on the other parameters to shortlist the few that you need to go into details before taking a decision.

  1. Portfolio Quality: Funds with higher percentage of risky quality companies will be indicated as RED, while those holding good quality companies will show Green colour code.
  2. Similarly, funds with a poor return consistency are colour coded RED, while those with good return consistency are coded Green. As mentioned above you should prefer a lower turnover fund between two funds that have are close on the other parameters.
  3. A good thumb rule is to avoid Red i.e. a riskier portfolio and/or a less consistent performer in favour of others with similar or even slightly lower rolling returns.

Top 10 Multicap funds (on 5-year rolling returns basis) (For the complete & updated list click here)

Very Good 
Somewhat Good
Risky, Not Good 
Scheme Name 3 Year Rolling Return (%) 5 Year Rolling Return (%)
Invesco India Multicap Fund
 
 
20.95 22.23
Motilal Oswal Multicap 35 Fund
 
 
18.53 19.8
IDFC Multi Cap Fund
 
 
19.03 19.44
Mirae Asset India Equity Fund
 
 
18.19 18.87
Kotak Standard Multicap Fund
 
 
16.63 18.29
Parag Parikh Long Term Equity Fund
 
 
15.59 17.51
Reliance Multi Cap Fund
 
 
16.08 17.14
HDFC Equity Fund
 
 
15.02 16.8
Franklin India Equity Fund
 
 
14.82 16.68
Aditya Birla SL Equity Fund
 
 
14.19 15.62

Q – Quality; P – Performance

Some other important points to take into account when choosing Mutual funds for investment include: 
Now the last thing you want to do is jump and invest based on the above. What you can do is have a meaningful discussion with your advisor using the above.

  1. Your risk appetite – Always check if the investment product is meant for you, both financially and emotionally
  2. Your asset allocation – Do no ignore asset allocation and invest in a popular fund. There is enough research to show that proper asset allocation is an important factor for portfolio returns
  3. Sufficient diversification – Invest across 4-5 mutual fund schemes such that their strategies and portfolio not only complement each other but also your direct stock portfolio. This is important to cap the downside risk on our portfolio, as one strategy does not work all the time in the market. MoneyWorks4me Members can see this by uploading their portfolio on our site and using the link in the Right allocation Box of the Moneyworks4me Decision Maker.
  4. When investing lumpsum you need an answer to one very important question – Can you expect a good enough return by investing in the fund right now? Ultimately, an equity fund is a collection of stocks and if most of them are currently over-priced (and probably show high past returns today); you are likely to get a low return going forward. MoneyWorks4me Members can check if this return is likely to be better than FD/Debt Fund in the Right Time box of the Moneyworks4me Decision Maker.

If you liked what you read and would like to put it in to practice Register at MoneyWorks4me.com. You will get amazing FREE features that will enable you to invest in Stocks and Mutual Funds the right way.

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The post Best Multicap Mutual Funds to Invest in 2019 appeared first on Investment Shastra.

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Look at your Mutual Fund Portfolio and think how you came about having this particular composition. Did you, like most people pick up a top performing fund every time you decided to invest or did you get a set of funds from a Mutual Fund Distributor or a Robo-advisor? Are you satisfied with the results so far? More importantly, how do you know that your current portfolio will not disappoint you if you held it for the next 3 years? And if you are currently investing through SIP, should you continue in exactly this set of funds or is something not quite right?

It’s healthy to have these doubts and seek answers. Only a naïve investor avoids asking these questions but then he doesn’t remain an investor for too long- most exit when their portfolio corrects.

Fund Portfolio Analysis Tool

Now, you have a tool to find the answer to your question-will your mutual fund portfolio disappoint you or make you happy?  We call this the Sher ya Billi Tool. It’s like going for a walk in the woods and finding a small orange coloured baby of the cat family. It looks feisty, but you can’t quite figure out whether it is a cub or a kitten-Sher hai ya Billi?

Investing is about the likely future performance and hence not certain, nor is it likely to repeat the past. We must therefore look for the tell-tale signs that indicate to us that we indeed have a strong portfolio that can withstand the uncertain times, the tough times that the future will bring? And if not make the necessary changes now rather than wait and be disappointed later. The Sher-ya-Billi Tool helps you know the important risks in your mutual fund portfolio-the ones that could and probably will adversely impact your portfolio’s performance.

Fund Manager Risk:

Investing in one or two mutual funds exposes you to the risk called the Fund Manager Risk. The fund can underperform for one of these 3 reasons 1) His investing style underperforming in the market situation (A single strategy cannot outperform the market all the time) 2) an error of judgement or 3) his moving out of that job/role and his replacement’s investing style or competence is not the same.  If this happens you are likely to see a huge loss on your portfolio at the time the fund underperforms. And at such a time even the best of us incorrectly redeem our MF investments.

Over-diversification:

This risk arises from having invested in too many mutual funds. Many investors falsely believe the more the number of funds, more the diversification and hence it’s better. Diversification reduces risk, but beyond a point, adding more funds to a portfolio, does not serve the purpose of reducing risk but rather lowers the returns.

Portfolio Quality:

Most investors incorrectly think that they’re not taking any risks when investing in MFs. The fact is that you are taking on all the risks that the fund manager has taken when building the portfolio. In the rush to be the top performing fund, has your fund manager taken more risk that you can handle? And do you have a large exposure to funds with a risky portfolio? If so, you need make corrections to avoid being disappointed.

False diversification:

You might be at ease thinking that you have sufficiently diversified your MF portfolio by investing in 5-6 funds. However, this might not be the case. You may be holding funds that have similar portfolios and hence you may not be well-diversified. This exposes you to the risk of a sharp correction in your portfolio should some stocks/sectors under-perform.

Low returns:

There are no guarantees of great/good returns by investing in MFs. After all they are subjected to Market Risks. What if you are currently holding funds that have a very large proportion of stocks that are highly over-priced? You are very likely to earn low returns on your MF investments, period. In fact, some funds can give you less than FD/Debt Fund returns. Eventually, the market prices stocks close to the real worth, and when all the irrational exuberance is over markets could hover around this for a long time.  You need to ensure you are not overloaded with funds that have a low upside potential.

Check if your mutual fund portfolio is good enough to hold onto or do you need to make changes. Use the Sher-ya-Billi Tool now. Make sure you are investing in mutual funds the Sahi way.

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MoneyWorks4ME by Team-moneyworks4me - 1M ago
Review

Nifty Total Return Index (Nifty including dividends) earned 8.5% Year to date 2019 and ~16% CAGR in last 3 years. FIIs under-own Emerging Market Equity due to poor performance of Emerging Markets in last 5-10 years. We saw increased interest in EM due to i) Cheaper valuation (except India) ii) Fed’s signal to not hikes interest rate leading to Risk ON behaviour iii) Slowing down of Developed market growth after long bull market. India too saw increase in FII interest. Most of the stocks that rallied were either beaten down or index heavyweights like Banks. Some undervalued stocks have also moved up thereby reducing number of investment opportunities. Due to narrow rally in select stocks led to all advisors and MFs underperforming headline index, Nifty 50.

Outlook

As on date, average upside of our coverage universe is likely to be ~8.5% CAGR over next 3 years. Given quality companies are trading at steep price multiples & our coverage mostly has quality companies, expensive valuation is getting reflected in poor upside potential too.

We are seeing rise in stock prices of already performing stocks due to better predictability in earnings and quality. We believe no stock is so great that no price is too high. We believe it’s much safer (relatively) to invest in stocks that are priced favourably for reasonable upside.

Howard Marks, a renowned investor, describes a good thought process on how to think while buying stocks. He says that most investors apply first level thinking while making decisions. First level think is simplistic and superficial; it doesn’t involve analysing a situation in-depth to reach any conclusion. Second level thinking, on the other hand, is more detailed and convoluted. It involves understanding that asset prices already reflect expectations of other investors in the market. Following the same opinion would not result into superior results. One has to think differently to earn superior returns. For example:

First level thinking says, “It’s a good company; let’s buy the stock.” Second level thinking says, “It’s a good company; but everyone knows it’s a good company and stock is probably overpriced; let’s sell the stock.”

First level thinking says, “The outlook calls for low growth and rising inflation; let’s sell the stock.” Second level thinking says, “The outlook stinks; but everyone is selling in panic and the stock may have become underpriced; let’s buy the stock.”

We believe that last 10 years belonged non-cyclical companies who exhibited linear growth rates. Also, some stocks that showed non-cyclicality despite being part of cyclical sectors, saw massive outperformance versus their peers. Our expectation is that there will be “reverse to the mean” in stock prices that have run up a lot versus their earnings growth.

Some pockets of the market didn’t see any meaningful returns over last 4-5 years, rightly so due to lack of earnings growth. We may see these stocks earning reasonable returns over 3 years and/or may not correct as much in near future. Select asset based companies provide reasonable upside albeit with moderate to high risk. Investor must consider investing in Infra & Infra-related companies through stocks or funds for medium term. Some of the Auto stocks have seen deep cuts and trading at low valuation multiples versus last 5 years.

Risks

Major risk is slowdown in GDP growth and even consumption volumes numbers. Even if long term growth trajectory may be intact, stocks can be very volatile due to high equity valuation.

Many cite elections result to be one of the risks. Equity returns are not dependent on which government comes to power, but it depends on earnings growth of businesses. We have seen Indian corporate earnings grow at 13-15% CAGR for past 30 years. Sensex has risen at more or less similar rate. This growth is more to do with underlying economy and entrepreneurial spirit of the nation. We believe that going forward as well, young population, under-penetration in several sectors, under-investment in infrastructure would provide ample opportunities for the companies to grow. This will get reflected in rise in stock prices as well.

Elections result, although not a fundamental reason, can only increase volatility of stocks in short term. Those who are avoiding equity because of uncertainty over which government comes to the power, must avoid sectors that have high government influence, rather than avoiding equity investing. This will reduce fear of unexpected outcome of elections. For the rest of you, Elections result is nothing but just another event that may lead stocks to move up and down. Even UK referendum of Brexit, North Korea Nuclear threat shaked investors’ confidence in India, but it staged a smart recovery in matter of months. Volatility in stocks must be embraced rather than getting scared of.

We want stocks to come down, not go up in hurry. Stock prices going up is dependent on earning growth, we cannot do much about it. What we can certainly do is buy more when stocks are trading cheap. This improves our returns for similar earning growth. A stock can grow only 15% if underlying business grows at 15% CAGR, but if bought cheap, a stock can earn more than 15% CAGR even if underlying business grows at same 15% CAGR.

If you liked what you read and would like to put it in to practice Register at MoneyWorks4me.com. You will get amazing FREE features that will enable you to invest in Stocks and Mutual Funds the right way.

Join our Telegram Channel:
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Mutual Fund Investing

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Need help on Investing? And more….Puchho Befikar

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