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What to do when markets fall 2% in a day?

This week started with a wobble. The Nifty index was down -2.14% on Monday. It might seem like a big down move, but such market moves are more common than one would expect. Since 1991, the Nifty 50 Index has seen quite a few declines of -2% or more in a day. On average, the index has a -2% down move every 15 trading days. Some years see more -2% down days than the others, but just because they have been infrequent in the recent past does not mean we become comfortable that it cannot happen.

The chart below shows the number of trading days every year that the index lost -2% or more.

So we had years like 1992, 1998, 2000 and 2008 that saw more than 30 such days where the market fell more than 2%. In 2008, the market fell more than 2% on 61 trading days – that is roughly one out of every four trading day.

So how did investors on Kuvera react to this move? As expected our investor base has shown remarkable maturity. We do not see any rush to stop SIPs or to sell and withdraw investments.

If anything we saw a big 3.2x jump in lump sum investments on Monday over our daily average. It is not for nothing that we say Kuvera is where the smart investors are.

There are two clear takeaways from the above

1. Large down moves happen more frequently than we would expect. Just because it hasn’t happened in the recent past is no reason to believe it won’t happen again.

2. The long-run returns of the index include such down days. When we say the Index returned 14% since 1991, it includes all of these negative 2% days. We cannot predict when they will happen but if we stay invested through them we will get superior long term returns.

And, as always our long term advice does not change 

1. If you promised yourself you will buy on dips

2. If you promised yourself you will run the SIP for 15 years

This is the time to honour that commitment. Stick to your plan.

Start investing through a platform that brings goal planning and investing to your fingertips. Visit kuvera.in to discover Direct Plans and start investing today.

#MutualFundSahiHai, #KuveraSabseSahiHai!

The post What to do when markets fall 2% in a day? appeared first on kuvera.blog.

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Mutual Funds Portfolio Turnover Ratio Explained

Mutual Fund Portfolio Turnover Ratio is a measure that denotes the percentage of equity Mutual Fund’s holdings which have been replaced during the last year. In other words, it is the frequency with which the portfolio is churned over. On Kuvera, you can find the Portfolio Turnover for equity funds in the fund’s details page on the “Other” tab for e.g ICICI Prudential Smallcap Growth Direct Plan

 

Calculation

Portfolio Turnover Ratio =  (Lower of total securities purchased or sold) / (Average AUM)

For example – Equity Mutual Fund ABC purchased shares worth INR 1500 crores and sold shares worth 2000 crores in 2018. The average AUM for the Fund for the year stood at 6000 crores. The Portfolio Turnover Ratio of the fund is thus 25%, signifying a churning over of one-fourth of the assets of Fund ABC.

Impact and significance

Every purchase and sale transaction in the stock market involves a cost. Thus, although the trading is carried out by the Fund Manager for the Mutual Fund, the cost is borne by the investor. Higher trading would mean higher costs and in turn, lower returns.

A Fund manager’s strategy can be gauged by looking at the Portfolio Turnover Ratio. A low turnover ratio (10-30%) would indicate a buy and hold strategy. It also signifies the conviction of the Fund Manager in his selection of stocks. High Portfolio Turnover Ratio (100% and more) indicates aggressive trading and will add to the costs.

Sometimes, a sudden change in the Portfolio Turnover Ratio means a change in the Fund Manager, who would follow his own agenda. It might also indicate a shift in the strategy of the fund. In an up-trending market, the Fund Manager would try to trade more owing to the available opportunities. In a volatile market, though, s/he might consider it prudent to sit back and wait it out.

How to use Portfolio Turnover Ratio

A high Portfolio Turnover Ratio results in a higher expense ratio. It is considered to be good if it can generate high returns. However, if the turnover ratio is rising (and hence the expense ratio) but the performance is consistently going down, then the investor should monitor it closely and take action.

For an aggressive investor, active investing and consequent high turnover ratio might look like a good idea. However, for a passive investor, who likes to sit tight and invest for the long term, index funds would be an ideal choice.

It is important to observe Portfolio Turnover Ratio during bearish or flat conditions as during a rising market, even very high turnover ratio would yield good results.

Portfolio Turnover Ratio can be used as a qualitative measure for comparing similar funds or two funds from the same category and thus in assessing the Fund Manager’s overall strategy.

Like all other parameters, Portfolio Turnover Ratio cannot be used in isolation and should be used in conjunction with other risk and return measures.

Experience conclusively shows that index-fund buyers are likely to obtain results exceeding those of the typical fund manager, whose large advisory fees and substantial portfolio turnover tend to reduce investment yields. Many people will find the guarantee of playing the stock-market game at par every round a very attractive one. The index fund is a sensible, serviceable method for obtaining the market’s rate of return with absolutely no effort and minimal expense.

: Burton Malkiel

Some Rules of Thumb
  1. Index funds tend to have a low turnover ratio
  2. Portfolio Turnover Ratio is more significant for funds that have equity exposure
  3. Smaller or new funds tend to have a higher turnover ratio
  4. Funds with a Value investing objective have a low turnover ratio compared to a fund with Growth investing objective
Disclosure guidelines

Most Equity schemes disclose their Portfolio Turnover Ratio as part of the Fund Fact Sheet every month, though, as per Securities and Exchange Board of India (SEBI) norms, they are required to disclose it twice a year only.

Further recommended reading

https://www.investopedia.com/terms/p/portfolioturnover.asp

https://www.investopedia.com/ask/answers/051915/how-should-i-use-portfolio-turnover-evaluate-mutual-fund.asp

Start investing through a platform that brings goal planning and investing to your fingertips. Visit kuvera.in to discover Direct Plans and start investing today.

#MutualFundSahiHai, #KuveraSabseSahiHai!

The post Mutual Funds Portfolio Turnover Ratio Explained appeared first on kuvera.blog.

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All that you need to know about Mutual Funds this week

India’s first woman FM presented her maiden budget yesterday. The highlight was a commitment to grow our economy from $3 Trillion this year to $5 Trillion in 5 years i.e a growth of 10.75% in nominal USD terms every year. Historically the fastest that any economy has grown from $3 Trillion to $5 Trillion is China in 4 years from 2005 to 2008. Let us know if the growth is achievable in our online poll.

Here are our top picks for investors on what is proposed in this budget:

  • Infrastructure spending of Rs 100 lakh crore over the next 5 years 
  • Rs 70,000 Crore allocated for public sector bank recapitalization
  • Increase the minimum public shareholding limit in listed companies to 35% (from 25%)
  • Customs duty on gold increased from 10% to 12.5%
  • Tax on buybacks by listed companies at 20% to bring parity with dividend distribution tax

The US economy has grown for 121 consecutive months, since June 2009, following the Great Recession, marking the longest economic expansion in American history. The US stock market has followed the economy with the S&P 500 and Nasdaq 100 both making new all-time highs this week.

We have had an international allocation since the start in our recommended portfolio through the ICICI Prudential US Bluechip Fund, and we reiterate the importance of international diversification.

The AUM of the mutual fund industry increased 11.4% YoY to Rs 23.79 lakh crore in March 2019, shows the Economic Survey of India 2019. However, Mutual Funds witnessed net inflows of Rs 1.1 lakh crore in FY 2018-19, down 60% YoY from the net inflows of Rs 2.7 lakh crore in the previous financial year.

Sundaram Mutual Fund will amend the minimum investment/redemption limit for all equity funds (excluding ELSS) to Rs 100. The proposed changes will come into effect from 8th July.

Index Returns
Index Weekly open Weekly close Change
BSE Sensex 39,394.64 39,513.39 0.30%
Nifty 11,788.85 11,811.15 0.19%
S&P BSE SmallCap 14,239.33 14,141.83 -0.68%
S&P BSE MidCap 14,808.34 14,725.65 -0.56%

Source- BSE/NSE

Top 5 best performing funds
Name Week 3Y Category
HSBC Brazil 2.3% 16.4% Fund of Funds
Reliance Nivesh Lakshya 2.2% NA Long Duration
DSP World Agriculture 2.0% 6.3% Fund of Funds
Edelweiss Greater China 1.9% 16.1% Fund of Funds
Principal Global Opp 1.9% 12.4% Fund of Funds

Source – Kuvera.in

Top 5 worst performing funds
Name Week 3Y Category
Tata Digital India -2.4% 16.6% Sectoral
JM Core 11 -2.2% 17.0% Focused Fund
IPRU Dividend Yield -1.8% 11.0% Dividend Yield
Baroda Mid Cap -1.8% 10.5% Mid Cap
Tata Infrastructure -1.8% 11.6% Sectoral

Source – Kuvera.in

What investors bought

We saw the most inflows in these 5 Funds –

Name 1Y 3Y Category
Mirae  Large Cap 14.8% 17.1% Large Cap
Kotak Standard Multicap 13.4% 16.1% Multi-Cap
Parag Parikh LTE 7.3% 14.8% Multi-Cap
HDFC Small Cap 0.6% 17.3% Small Cap
Mirae Emerging Bluechip 16.3% 18.8% Large & Mid Cap

Source – Kuvera.in

What investors sold

We saw the most outflows in these 5 Funds –

Name 1Y 3Y Category
Invesco India Contra 7.8% 17.2% Contra Fund
DSP Equity Opp 9.5% 13.8% Large & Mid Cap
ABSL Frontline Equity  8.4% 12.2% Large Cap
SBI Blue Chip 9.9% 12.0% Large Cap
UTI Nifty Next 50 Index -2.3% NA Index Fund

Source – Kuvera.in

Movers & Shakers

1/ Axis Mutual Fund has announced that Vijayalakshmi Rajaram Iyer has been appointed as an Independent Director on the board of Axis Mutual Fund Trustee Limited.

2/ Union Mutual Fund has appointed Vinay Paharia as a Co-Fund Manager of Union Large-cap Fund and Union Tax Saver Schemes.

3/ Principal Mutual Fund has announced that V S Mathur and H M Singh have ceased to be independent directors of the board of the Trustee Company.  Raman Uberoi and Ameet Parikh have been appointed in their stead.

Quote of the week:

Budgeting has only one rule: Do not go over budget.

: Leslie Tayne

Start investing through a platform that brings goal planning and investing to your fingertips. Visit kuvera.in to discover Direct Plans and start investing today.

#MutualFundSahiHai, #KuveraSabseSahiHai!

The post Budget, Growth, Record US Economic Expansion & Other MF News appeared first on kuvera.blog.

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All that you need to know about Mutual Funds this week

Tax Harvesting is a technique that utilises the ₹1 Lakh annual LTCG exemption by selling and buying back part of your investment such that you “realise” gains and not pay taxes on them. At a 10% LTCG tax rate, you could save up to Rs 10,000 in LTCG taxes every year by doing this diligently. You can learn the details here.

Too many funds make it harder to manage and rebalance your portfolio to efficiently reach your goals. But is it true that the ease of online investing nudges the investor to invest in too many funds? We looked at our data to answer this recently. Investors who come to Kuvera import their entire transaction history with us. So we have insights into who started investing when and how many funds their portfolio had over time. Below is the data.

We note –

  1. Prior to 2011, there were no online platforms. Post-2011 clutter in the portfolio is coming down. The relationship is weak though.
  2. There is a weak positive correlation between the age of the portfolio and the number of funds in the portfolio.
  3. Investors who started with us have fewer funds on average and it will be interesting to see how this data matures.

Our findings suggest that advisory led online platforms can lead to better consolidation of portfolios and thus fewer funds in an investors portfolio.

India’s forex reserves are at an all-time high at $426.42 billion on 21st June, surpassing the previous high of $426.1 billion in April 2018. 

Key market indices broke their three-week losing streak to end the week with modest gains. Sensex and Nifty rose 0.51% and 0.55% to settle above 39,000 and 11,700 respectively. BSE Mid-Cap and BSE Small-Cap indices outperformed the Sensex this week.

SEBI has amended the risk management framework and investment norms of Liquid Funds. The market regulator has tightened the investment scope and directed the valuation method to be Mark to Market only. Liquid funds can now invest a maximum of 20% of assets in a single sector as against the previous cap of 25%. Further, the Board has laid down instructions for graded exit load if liquid fund units are redeemed within 7 days of investment.

“The measures we have taken will help revive the confidence of investors, especially those investing in debt MFs,” – Ajay Tyagi, SEBI Chairman. 

DHFL Mutual Fund has informed their unitholders about the proposed change in Controlling Interest of the AMC. Prudential Financial, Inc (PFI), the current co-sponsor, intends to increase their stake to 100% in DHFL Pramerica Mutual Fund (DPMF). Unitholders (as on 25th June) who do not wish to retain their holdings in schemes of DHFL Mutual Fund can redeem their units without any exit load between 29th June and 28th July 2019.

Index Returns
Index Weekly open Weekly close Change
BSE Sensex 39,194.49 39,394.64 0.51%
Nifty 11,724.10 11,788.85 0.55%
S&P BSE SmallCap 14,084.24 14,239.33 1.10%
S&P BSE MidCap 14,624.59 14,808.34 1.26%

Source- BSE/NSE

Top 5 best performing funds
Name Week 3Y Category
IDBI Ultra Short Term 4.7% 5.6% Ultra Short
BNP Paribas Medium 3.3% 3.8% Medium Duration
HDFC Infrastructure 3.2% 5.8% Sectoral
DSP Srategic Bond 2.8% 6.7% Dynamic Bond
BNP Paribas Bond 2.7% 5.5% Corporate Bond

Source – Kuvera.in

Top 5 worst performing funds
Name Week 3Y Category
BOI AXA Credit Risk -29.6% -13.5% Credit Risk
BOI AXA Short Term -7.9% 3.9% Short Duration
BOI AXA Conservative -5.7% 2.8% Hybrid
BOI AXA Equity Debt -5.2% 3.8% Hybrid
HSBC Brazil -3.3% 16.3% Fund of Fund

Source – Kuvera.in

What investors bought

We saw the most inflows in these 5 Funds –

Name 1Y 3Y Category
HDFC Small Cap -1.1% 17.4% Small Cap
Kotak Standard Multicap 11.2% 16.6% Multi Cap
PPFAS Long Term Equity 5.9% 14.6% Multi Cap
UTI Nifty Index 12.1% 14.7% Index Fund
Mirae Asset Large Cap 14.3% 17.4% Large Cap

Source – Kuvera.in

What investors sold

We saw the most outflows in these 5 Funds –

Name 1Y 3Y Category
Axis Focused 25 5.5% 18.4% Focused
SBI Blue Chip  9.0% 12.2% Large Cap
IPRU Balanced Advantage 8.9% 11.6% Balanced Adv
ABSL Equity Advantage 1.6% 12.0% Large & Mid Cap
HDFC Balance Advantage 17.7% 16.8% Balanced Adv

Source – Kuvera.in

Movers & Shakers

1/ L&T Mutual Fund has announced the change in scheme name of L&T Dynamic Equity Fund to L&T Balanced Advantage Fund, with effect from 01 August 2019. 

2/ Aditya Birla Sun Life Mutual Fund has announced that Harish Engineer has been appointed as an Independent Director on the board of the AMC.

3/ LIC Mutual Fund has announced that Shefali B Suri has ceased to be the Key Personnel of the AMC. Y V Padmavati has been appointed in her stead.

Quote of the week:

Never lie in bed at night asking yourself questions you can’t answer.

: Charles M. Schulz

Start investing through a platform that brings goal planning and investing to your fingertips. Visit kuvera.in to discover Direct Plans and start investing today.

#MutualFundSahiHai, #KuveraSabseSahiHai!

The post Portfolio Clutter, Forex, SEBI & Other MF News appeared first on kuvera.blog.

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All that you need to know about Mutual Funds this week

Tax Harvesting is a technique that utilises the ₹1 Lakh annual LTCG exemption by selling and buying back part of your investment such that you “realise” gains and not pay taxes on them. At a 10% LTCG tax rate, you could save up to Rs 10,000 in LTCG taxes every year by doing this diligently. You can learn the details here.

Canadian insurer Manulife is entering the Indian mutual fund industry through a strategic tie-up with Mahindra & Mahindra Finance. The global financial services group would be picking up a 49% stake in Mahindra AMC for $35 million.

Amidst global uncertainty, Gold had another good week with two of the five top performing funds this week from this sector. As we have said earlier, gold funds delivered on their diversification benefit during the global financial crisis of 2008-2009. Since then the returns have been largely flat.

India has imposed higher tariffs on 28 US products in retaliation to America’s withdrawal of preferential access for Indian products. This move comes just ahead of the meeting between US President Donald Trump and Indian Prime Minister Narendra Modi at the sidelines of the G20 meeting.

We had a slew of AMC announcements this week:

1/ HDFC AMC announced a liquidity arrangement for investors in certain fixed maturity plan (FMP) schemes. The AMC is making a provision of up to ₹500 crore to provide liquidity to the unitholders of FMPs that were affected by exposure to the non-convertible debentures of Essel group companies. 

2/ Essel Mutual Fund has announced the winding up of Essel Short Term Fund, with immediate effect, following its inability to maintain the minimum AUM criteria of Rs 20 crore at the end of its half-yearly rolling period. 

3/ Edelweiss Mutual Fund has approved the change in fundamental attributes of two schemes:

Unitholders who do not wish to retain their holdings in the schemes can redeem their units without any exit load between 20th June and 19th July 2019.

4/ Motilal Oswal Mutual Fund has announced that no exit load would be charged for switches made from Regular to Direct plan of the same scheme for all schemes of the AMC.

Index Returns
Index Weekly open Weekly close Change
BSE Sensex 39,452.07 39,194.49 -0.65%
Nifty 11,823.30 11,724.10 -0.84%
S&P BSE SmallCap 14,365.93 14,084.24 -1.96%
S&P BSE MidCap 14,720.99 14,624.59 -0.65%

Source- BSE/NSE

Top 5 best performing funds
Name Week 3Y Category
KOTAK WORLD GOLD 7.1% -7.2% Fund of Funds
EDELWEISS GR CHINA 6.3% 15.3% Fund of Funds
DSP WORLD GOLD 5.1% -4.6% Fund of Funds
FRANKLIN ASIAN EQ 4.6% 12.1% Sectoral
EDELWEISS EM MAK 4.5% 14.2% Fund of Funds

Source – Kuvera.in

Top 5 worst performing funds
Name Week 3Y Category
TATA CORPORATE -15.0% -11.8% Corporate Bond
TATA MEDIUM TERM -4.9% 1.8% Medium Duration
HSBC SMALL CAP -2.1% 6.4% Small Cap
UTI MNC -2.1% 9.3% Sectoral
EDELWEISS SMALL CAP -2.1% NA Small Cap

Source – Kuvera.in

What investors bought

We saw the most inflows in these 5 Funds –

Name 1Y 3Y Category
AXIS BLUECHIP 12.7% 17.0% Large Cap
KOTAK STD MULTICAP 11.0% 16.0% Multi Cap
MIRAE ASSET LARGE CAP 11.6% 16.6% Large Cap
PPFAS LONG TERM EQ 4.6% 13.6% Multi Cap
UTI NIFTY INDEX 11.0% 14.0% Index Fund

Source – Kuvera.in

What investors sold

We saw the most outflows in these 5 Funds –

Name 1Y 3Y Category
MOSL MULTICAP 35 0.9% 14.7% Multi Cap
DSP MIDCAP 0.2% 12.3% Mid Cap
KOTAK EQ ARBITRAGE 7.1% 6.8% Arbitrage
UTI HYBRID EQUITY 0.5% 9.3% Hybrid
SBI MAGNUM MULTICAP 7.3% 13.7% Multi Cap

Source – Kuvera.in

Movers & Shakers

1/ Aditya Birla Sun Life Mutual Fund has announced that Ashish Kela will cease to be Key personnel of the AMC following his resignation.

2/ IDBI Mutual Fund has announced that Ashish Mishra has ceased to be the Fund Manager of certain schemes of the AMC: IDBI Diversified Equity Fund, IDBI Midcap Fund, IDBI Focused 30 Equity FundIDBI Dividend Yield Fund and IDBI Gold Fund

3/ Axis Mutual Fund has announced that G Gopalakrishna has been appointed as an Independent Director on the board of Axis Mutual Fund Trustee Limited.

Quote of the week:

In times of turmoil, void or suffering, closely stays the images mirroring the lived, far seems the unknown to be; pick yourself a lens to see through, your eyes touch the distant mountains and the lived past disappears into ponzo illusions.

: Pavitraa Parthasarathy

Start investing through a platform that brings goal planning and investing to your fingertips. Visit kuvera.in to discover Direct Plans and start investing today.

#MutualFundSahiHai, #KuveraSabseSahiHai!

The post Gold, Manulife, Trade Tariffs & Other MF News appeared first on kuvera.blog.

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All that you need to know about Mutual Funds this week

Tax Harvesting is a technique that utilises the ₹1 Lakh annual LTCG exemption by selling and buying back part of your investment such that you “realise” gains and not pay taxes on them. At a 10% LTCG tax rate, you could save up to Rs 10,000 in LTCG taxes every year by doing this diligently. You can learn the details here.

The Mutual Fund industry AUM increased 5% in May to Rs 25.43 lakh crores. 5.54 lakh new folios were added in May bringing the total folio count to 8.32 lakh crore. Mutual funds saw a net inflow of Rs 77,000 crore in May. Inflows into equity funds, including ELSS, stood at Rs 4,969 crore. Net inflows into index funds surged more than 12 times from ₹18 crore in April to ₹220 crore in May. 

Inflows into Index Funds have increased as evidence mounts that active funds fail to outperform their benchmark indices. S&P Index versus Active or SPIVA has been the trusted name globally to this comparison. They report annually on how active funds have performed against benchmark indices. What gives SPIVA report credibility is that they correct the data for survivorship bias. The SPIVA 2018 report shows that 64% of large-cap active funds underperformed S&P BSE 100 index over the past 10 years. The complete table is below.

You can access the complete report here.

DHFL has repaid Rs 962 crore in delayed interest payments on Non-Convertible Debentures. The company also clarified that the payments were made within the cure period of seven working days in its release filed with the exchanges on June 11. Credit rating agencies including ICRA and Crisil have removed the company from the watch with negative implications. Per SEBI guidelines, once security is rated ‘D’, the rating agencies would have to wait for three months before evaluating any upgrade.

Howard Marks, the legendary investor at Oaktree Capital, in his recent newsletter described the three stages of a bull market as –

  • Stage 1: when only a few forward-looking people begin to believe things will get better
  • Stage 2:  when most investors realize improvement is actually underway
  • Stage 3: when everyone concludes that things can only get better forever

A quick twitter survey revealed, 25% of investors think we are in Stage 1, 35% in Stage 2 and 40% think we are in Stage 3. What do you think?

You can read the complete newsletter here.

Index Returns
Index Weekly open Weekly close Change
BSE Sensex 39,615.90 39,452.07 -0.41%
Nifty 11,870.65 11,823.30 -0.40%
S&P BSE SmallCap 14,657.09 14,365.93 -1.99%
S&P BSE MidCap 14,906.38 14,720.99 -1.24%

Source- BSE/NSE

Top 5 best performing funds
Name Week 3Y Category
DHFL MEDIUM TERM 5.0% -16.5% Medium Duration
BNP LOW DURATION 4.9% 7.4% Low Duration
EDELWEISS GR CHINA 3.3% 13.3% Fund of Funds
DSP WORLD MINING 2.9% 11.2% Fund of Funds
HSBC ASIA PACIFIC 2.8% 11.6% Fund of Funds

Source – Kuvera.in

Top 5 worst performing funds
Name Week 3Y Category
BOI AXA CREDIT RISK -18.5% -3.2% Credit Risk Fund
INVESCO INDIA CREDIT -4.2% 3.6% Credit Risk Fund
BOI AXA ST INCOME -4.0% 6.4% Short Duration Fund
BOI AXA  HYBRID -3.7% 4.9% Conservative Hybrid
BOI AXA EQUITY DEBT  -3.0% 5.4% Balanced Advantage

Source – Kuvera.in

Top 5 best performing ELSS funds
Name Week 3Y Category
HDFC TAX SAVER -0.1% 13.4% ELSS
KOTAK TAX SAVER  -0.1% 16.2% ELSS
TATA INDIA TAX SAVING -0.1% 16.2% ELSS
LIC MF TAX  -0.1% 14.3% ELSS
MOTILAL OSWAL LTE -0.1% 17.2% ELSS

Source – Kuvera.in

What investors bought

We saw the most inflows in these 5 Funds –

Name  1Y 3Y Category
MIRAE EMER BLUECHIP  11.3% 19.6% Large & Mid Cap
MIRAE LARGE CAP 11.6% 17.5% Large Cap
UTI NIFTY INDEX 11.0% 14.8% Index
KOTAK STD MULTICAP 10.4% 17.1% Multi Cap
HDFC SMALL CAP -5.6% 18.1% Small Cap

Source – Kuvera.in

What investors sold

We saw the most outflows in these 5 Funds –

Name 1Y 3Y Category
HDFC HYBRID EQUITY 7.7% 11.5% Aggressive Hybrid
SBI BLUE CHIP 6.0% 12.1% Large Cap
FRANKLIN SMALLER COM -8.1% 9.7% Small Cap
HDFC BALANCE ADV 11.6% 16.4% Balanced Advantage
SBI SMALL CAP -3.3% 17.5% Small Cap

Source – Kuvera.in

Movers & Shakers

1/SBI Mutual Fund has announced that Binod Kumar Mishra has ceased to be the Chief Operating Officer and Key Personnel of SBI Funds Management Private Limited. Naveen Kumar Jha has been appointed in his stead.

2/ DHFL Pramerica Mutual Fund has announced that Rakesh Suri – Fund Manager – Fixed Income has ceased to be the Fund Manager and Key Personnel of DHFL Pramerica Asset Management Private Limited, with effect from 07 June 2019.

Quote of the week:

A fit body, a calm mind, a house full of love. These things cannot be bought – they must be earned.

: Naval Ravikant

Start investing through a platform that brings goal planning and investing to your fingertips. Visit kuvera.in to discover Direct Plans and start investing today.

#MutualFundSahiHai, #KuveraSabseSahiHai!

The post Rs 77k Crores Inflow, DHFL Update, Tax Harvesting & Other MF News appeared first on kuvera.blog.

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Tax Harvesting – Reduce your LTCG taxes for higher returns

Last year a 10% Long Term Capital Gains (LTCG) tax was introduced where none existed before. The LTCG tax, however, came with a tax break.

The first Rs 1 Lakhs of LTCG is exempt from 10% taxes. 

Tax Harvesting is a technique that utilises the ₹1 Lakh annual LTCG exemption by selling and buying back part of your investment such that you “realise” gains and not pay taxes on the exempt Rs 1 Lakh of LTCG.

At a 10% LTCG tax rate, you could save up to Rs 10,000 in LTCG taxes every year by doing this diligently. 

Ben Franklin famously said, “Nothing is certain except for death and taxes.” and Margaret Mitchell exclaimed, “Death, taxes and childbirth! There’s never any convenient time for any of them.”

Yes, no one likes paying taxes!

We, however, encourage every citizen to pay their rightful taxes for nation-building. That said it is also our responsibility to our financial future and to our children, to take advantage of tax breaks written in the tax code.

Let’s see a simple example of how LTCG Tax Harvesting works.

By harvesting Rs 1 Lakhs of LTCG every year, you reduced your LTCG Tax burden from Rs 20k to NIL.

This is the power of LTCG Tax Harvesting and we are bringing it to you. 

How Tax Harvesting works?

It’s simple. We take over once you unlock the Tax Harvesting feature on Kuvera.

We monitor your portfolio and recommend a transaction when applicable. We use sophisticated modelling to decide when is the right time to harvest taxes. Then we recommend the transactions you need to execute to harvest LTCG.

As mentioned above, there are two opposing forces –

1. If I wait and the markets go up, I can harvest more taxes (something like 2017).

2. If I wait and the markets go down, I would have lost the opportunity to harvest the gains I had (something like 2018). And since tax harvesting is tied to the calendar year, once that opportunity goes, it won’t come back.

We run an optimization that solves for the above to ensure that you can harvest the optimal level of taxes as soon as possible.

The power of LTCG tax saving is now on your fingertips. Try it now.

Frequently Asked Questions

(Q) Why can’t I wait till Feb – Mar and harvest then?

(A) We would advise harvesting taxes as early in the Financial Year as possible.

There are two opposing forces –

1. If I wait and the markets go up, I can harvest more taxes (something like 2017).

2. If I wait and the markets go down, I would have lost the opportunity to harvest the gains I had (something like 2018). And since tax harvesting is tied to the calendar year, once that opportunity goes, it won’t come back.

We run an optimization that solves for the above to ensure that you can harvest the optimal level of taxes as soon as possible. Waiting after the optimal condition is met only increases the likelihood that the LTCG may not be there in the future to harvest.

(Q) I have subscribed to Tax Harvesting and I have a family account. Will my subscription cover all accounts?

(A) Tax Harvesting is enabled based on the taxpayer PAN. Say for example a husband and wife have 4 accounts –

  1. Wife’s Single
  2. Husband Single
  3. Wife + Husband Joint
  4. Husband + Wife Joint

If the Wife then enables Tax Harvesting in her account it will also enable it for Wife + Huband Joint account as for tax filing purposes LTCG in both the Wife and Wife + Husband account will be attributed to Wife’s tax returns. So, you will have to enable Tax Harvesting individually for every taxpayer in your family. In our example, it would mean to enable Tax HArvesting for Wife and Husband separately.

(Q) If I sell now to harvest LTCG, will I lose out on future profits from that investment?

(A) Not at all. As part of Tax Harvesting, we will advise you to sell the units and buy it back with no NAV impact. So you will still get the benefits of all future profits if that investment continues to go up.

Start investing through a platform that brings goal planning and investing to your fingertips. Visit kuvera.in to discover Direct Plans and start investing today.

#MutualFundSahiHai, #KuveraSabseSahiHai!

The post Tax Harvesting can save up to ₹10,000 in LTCG taxes every year! appeared first on kuvera.blog.

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Beating the stock market Index returns is incredibly hard.

The experts on financial TV and financial press would make you believe it is easy to pick market-beating stocks. So would a lot of financial planners. But they always stop short of showing you the evidence or show short term returns or just handwave the whole returns comparison. Time and again research has shown that beating the stock market Index returns is incredibly hard. Further selecting which investors will be able to beat the index market returns is equally hard. Thus the age-old advice, invest in index funds and keep your investment costs low.

Let’s look at the data. India Evidence

There is a lot of noise in the Indian data and in the financial blogosphere where this is hotly debated. Most of the data presented in the financial blogosphere is not conclusive and almost all of it suffers from selection and survivorship bias. AMFI collects monthly data on the stock and flow of money invested into different mutual funds category (eg. Equity, bond, lifestyle etc). Since it is flow data we are using it is free of selection and survivorship bias. We use this data to create a history of equity mutual fund returns (as an industry) and compare it to NIFTY returns. The difference is massive, of the order of 60bps a month. In the chart below we track Rs100 invested in NIFTY and the average equity mutual fund.

But our data ends in 2013. Enter SPIVA Index Vs Active report.

SPIVA, which stands for S&P Index Vs Active studies the outperformance of active managers vs benchmark Indices all over the world. They have been writing a report on India as well and starting this year (2019) it includes a 10-year comparison of Index Vs Active funds in the Indian Mutual Fund landscape. The results are not good for the active guys:

So in one of the longest bull market (2009 – 2019), the active guys have underperformed in each category. Beware the next promise from the advisors that active funds have better downside protection, i.e in times of market downturns they fall less. Again across multiple market cycles globally, this has also been proven to be patently false.

SPIVA goes deeper into the issue at hand and looks at survivorship and also style consistency. An interesting story emerges if you look at the 10-year data.

  1. Only 67% of Large Cap and Mid/Small Cap funds survive for 10 years. What happened to the remaining 33%. They are usually merged with better performing funds to hide their inferior performance. What this also means is that if you run any analysis starting with funds available today you will get very biased returns as it will not capture the 33% funds available at the start of 2009 which had bad outcomes. This is the single biggest fault in most of the fund analysis that is littered on the web. They start with the survivors and look at their past returns.
  2. There is little style consistency. Large-cap funds had a style consistency of only 14.63%. They were taking a lot of mid-cap and small-cap risk. Still, 64% of large-cap funds failed to beat the benchmark index. Given the stricter guidelines imposed by SEBI, it will be harder for funds to take a risk outside their defined scope. This will make it even harder for them to beat benchmark returns.

Enough said!

International Evidence:

There is a lot of international evidence that active managers underperform market index returns. The higher fees charged by active managers usually is the biggest drag on their performance. An exhaustive study by Vanguard finds

“To take one example, 72% of U.S. large-cap value equity funds under performed their benchmarks over the ten years ended December 31, 2014. The case for indexing has been strong over shorter horizons, too, although shorter sample periods have tended to produce slightly more erratic results. The case for indexing over longer horizons such as 15 years has also tended to be strong.”

Similar returns have been shown in academia for all investment horizons.

The last two years have been good for managed mutual funds. This reflects in the increased marketing money and rhetoric by the managed portfolio managers and investment managers that push these products for higher fees than an index mutual fund.

A prudent investor would do well to look at the long term performance evidence in India and abroad and ask “is this time any different?

It’s all good in theory, but what does it mean in practice:
  1. Beating the market is incredibly hard. So is selecting a money manager who can beat the market. For every Warren Buffet, there are thousands of money managers who underperform the market index.
  2. If investing is not your day job and you don’t want to take a lot of risks, you are better off investing in index mutual funds.

Visit www.kuvera.in to invest in “Direct Plans” of Mutual Funds and save BIG on commissions!!!

First published – Apr 23 2016

Updated – Jun 10 2019

The post Is it easy to beat the market Index returns (Nifty, Sensex etc)? appeared first on kuvera.blog.

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All that you need to know about Mutual Funds this week

Gold funds outperformed this week, with two of the five top performing funds this week from this sector. Gold funds delivered on their diversification benefit during the global financial crisis of 2008-2009. Since then the returns have been largely flat. 

On June 4th, DHFL missed its deadline to make a payment of Rs 1150 crore to its bondholders. Mutual fund houses which had exposure to these papers marked down their investment in DHFL securities by 75%, with some AMCs (like UTI) making a full write-off. Most Fund houses have restricted fresh investment in schemes that were most impacted by the write-down, while others introducing exit load conditions where there were none earlier (E.g.: UTI) to safeguard investor interests.

In the first formal use of SEBI’s side-pocketing provision, Tata Mutual Fund has announced the launch of segregated portfolios in a few schemes affected by DHFL default. The fund house intends to start side pocketing in 3 of its schemes (Tata Corporate Bond Fund, Tata Medium Term Fund and Tata Treasury Advantage) from 14th June onward.

In line with market expectations, the RBI reduced the repo rate by 25 basis points from 6% to 5.75%. The RBI also decided to change the monetary policy stance from neutral to accommodative.

Index Returns
Index Weekly open Weekly close Change
BSE Sensex 39,714.20 39,615.90 -0.25%
Nifty 11,922.80 11,870.65 -0.44%
S&P BSE SmallCap 14,867.04 14,657.09 -1.41%
S&P BSE MidCap 15,096.18 14,906.38 -1.26%

Source- BSE/NSE

Top 5 best performing funds
Name Week 3Y Category
KOTAK WORLD GOLD 9.8% -7.9% Fund of Funds
DSP WORLD GOLD 8.9% -4.5% Fund of Funds
INVESCO GLOBAL EQ 3.3% 5.7% Fund of Funds
INVESCO EUROPEAN EQ 3.0% 3.8% Fund of Funds
HSBC BRAZIL 2.4% 17.1% Fund of Funds

Source – Kuvera.in

Top 5 worst performing funds
Name Week 3Y Category
DHFL MEDIUM TERM -52.9% -18.4% Medium Duration
DHFL FLOATING RATE -48.3% -13.7% Floater Fund
TATA CORPORATE BOND -29.5% -6.8% Corporate Bond
BARODA TREASURY ADV -16.9% 0.9% Low Duration Fund
PRINCIPAL DURATION -16.4% 0.9% Low Duration Fund

Source – Kuvera.in

Top 5 best performing ELSS funds
Name Week 3Y Category
MOTILAL OSWAL LONG TERM EQUITY 0.0% 16.3% ELSS
LIC MF TAX  -0.1% 14.0% ELSS
MIRAE ASSET TAX SAVER -0.2% 12.8% ELSS
BNP PARIBAS LONG TERM EQUITY -0.2% 11.0% ELSS
AXIS LONG TERM EQUITY -0.3% 15.2% ELSS

Source – Kuvera.in

What investors bought

We saw the most inflows in these 5 Funds –

Name 1Y 3Y Category
UTI NIFTY INDEX 12.0% 14.2% Index Fund
HDFC SMALL CAP  -1.6% 18.8% Small Cap
MIRAE ASSET LARGE CAP 12.6% 17.0% Large Cap
KOTAK STD MULTICAP 11.9% 16.9% Multi Cap
PARAG PARIKH LTE 5.8% 13.8% Multi Cap

Source – Kuvera.in

What investors sold

We saw the most outflows in these 5 Funds –

Name 1Y 3Y Category
HDFC HYBRID EQUITY 8.3% 11.2% Aggressive Hybrid
SBI EQUITY HYBRID  10.4% 12.9% Aggressive Hybrid
TATA INDIA CONSUMER -5.1% 20.4% Sectoral
ICICI PRU EQUITY & DEBT 9.3% 14.9% Aggressive Hybrid
MOSL MULTICAP 35 2.1% 15.1% Multi Cap

Source – Kuvera.in

Movers & Shakers

1/ LIC Mutual Fund has announced that Farzana Sayyed will cease to be a Key Personnel of the AMC, following her resignation from the post of Fixed Income Dealer.

Quote of the week:

Have patience. All things are difficult before they become easy.

: Saadi

Start investing through a platform that brings goal planning and investing to your fingertips. Visit kuvera.in to discover Direct Plans and start investing today.

#MutualFundSahiHai, #KuveraSabseSahiHai!

The post Gold funds, DHFL & RBI Rate Cut & Other MF News appeared first on kuvera.blog.

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Karunesh Dev is a former banking professional turned writer and personal finance educator. He offers coaching, financial literacy advisory and a blog on investing wisely and building wealth. He blogs at Investment Diaries with the aim of making people ‘financially literate’ so that they can make smart and intelligent choices. You can reach him here.

There are no ‘guaranteed returns’ with market-related investments and Mutual Funds are no exception. They have a concept of ‘expected returns’ based on various factors. An investment can be considered to be beneficial only if the return is proportional to the risk associated with it. There are many ways to measure risk and performance.

If you are comparing Mutual Funds from the same category, the best obviously would be the one with the highest returns but given the same risk.

These are certain key ratios or tools which are used for measuring risk in Mutual Funds:

Standard Deviation (SD)                                  

Standard Deviation is used to measure the dispersion or deviation of data from the average (mean value). A higher Standard Deviation means the data is farther from its mean and vice versa. An investment with a higher SD has a greater scope of upward or downward movement and that too, in a much wider band. SD is proportional to the volatility (risk) associated with that portfolio. It is a standardized measure and the calculation mechanism remains the same for all funds.

For example- Suppose you are comparing two funds from the same category – Fund ABC & Fund XYZ. The return generated for both in last 5 years has been 12%. However, SD for Fund XYZ is lower than that for Fund ABC. It may be concluded that there is a greater chance of Fund XYZ continuing with similar stable returns in the future while those of Fund ABC might vary.

Lower SD is considered to be better. Higher the deviation, higher is the risk.

Beta

Beta measures the Fund’s volatility against the market or a benchmark (BSE 100 or NIFTY 50). It basically captures the Fund’s movement (ups and downs) relative to the market. It is a measure of the systematic risk (inherent risk associated with the entire market or segment).

The value of Beta assigned to market or benchmark is 1. A Beta higher than 1 denotes more volatility than the benchmark or market and Beta lower than 1 depicts lower volatility.

For example- if your fund has a Beta of 0.75, it means it has low volatility. For every fall or rise of 1 in the market, your fund’s value may fall or rise by 0.75.

A beta of 1.2 means that the fund will be 20% more volatile than the benchmark index. For an investor with low to medium risk profile, low Beta funds would be ideal. An aggressive investor can look at high Beta funds. (Taking into consideration all other related factors. This is not a recommendation)

Here it is important to understand that Beta is different for different stocks in a MF portfolio. It is the Fund Manager who would do the balancing act by including certain stocks and removing others for arriving at a target Beta for the portfolio.

Beta is an effective measure when the Mutual Fund portfolio follows its benchmark closely.

A low Beta might indicate that the investment has been less volatile than the market and also that the fund has taken less risk with lower potential expected returns. A high Beta would imply that the investment is high-risk relative to the market but also has greater expected return potential.

Alpha

The primary objective of investing in an active fund is generating ‘Alpha’, which means, a return over and above its benchmark. An alpha of 2 means that the fund has outperformed its benchmark by 2%.

Alpha could be positive or negative. Negative Alpha implies that the Fund’s returns are lower than the benchmark and hence the Fund Manager has not been able to generate any returns and has rather taken away or generated negative returns.

For example, let us assume that you invested in Fund ABC, which has NIFTY 50 as its benchmark. For 2018, NIFTY 50 generated a return of 15%.  If Alpha for your Fund ABC is 3, it means that it has outperformed its benchmark by 3% and has thus given 18% (15%+3%) returns.

Higher the Alpha, the better it is. However over longer time frames, Alpha maybe not so relevant. Also, generating Alpha relative to Beta is another aspect to be considered. There might be two funds with returns of 15% and 18 % in one year, but the one with 15% return would have generated these returns with a Beta of 1.2 and the one with 18% would have done it with a higher Beta of 1.8.

Thus Alpha helps you in comparing funds across categories on the basis of risk-adjusted returns.

Sharpe Ratio

It is a measure of the return that your fund manager manages to get for your investment in the fund over and above the ‘Risk-free return’ (defined as Government bonds or securities or even the FD rates, which are almost risk-free).

A higher Sharpe Ratio means better risk-adjusted return. This means that the fund has been able to generate higher returns for the amount of risk undertaken. This holds good only when two schemes from the same category are being compared.

Sharpe ratio = [(Fund Return – Risk-free return)/Standard Deviation of the Fund]

As is evident from the formula, if a Fund has a high SD, it would have to earn higher returns to be able to have a higher Sharpe Ratio and vice versa.

Moreover, a higher Sharpe Ratio does not mean that it is a low volatile fund. It just indicates that the fund’s Risk/Return relation is rather more proportional.

Sharpe Ratio is a good measure in case of non-diversified funds

Treynor Ratio

It is also a measure of excess returns which a Fund Manager is expected to earn for the risk undertaken. It uses Beta as the denominator while Sharpe Ratio uses SD as the denominator.

Treynor Ratio = [(Fund Return – Risk-free return)/Beta of the Fund]

A higher Treynor Ratio implies that the return has been generated with a lower risk.

For example, the price of rubber would have an impact on rubber or related stocks but not on IT or FMCG stocks. This kind of risk is an unsystematic (specific) risk and is thus unique to either a particular stock or a particular industry or group.

An active Fund Manager should be able to eliminate the unsystematic risk associated with the portfolio.

This can be managed by diversifying-the Fund Manager can either remove or reduce the composition of a particular stock.

Thus, the Treynor ratio is a better measure for a well-diversified portfolio.

Conclusion

While choosing Mutual Funds, none of the measures should be used in isolation. While Beta is a relative measure, Alpha is not a specific indicator or tool. Sharpe Ratio is an absolute measure and a better tool for checking risk-adjusted returns. Treynor ratio makes use of Beta and thus takes market performance into account.

Mutual Funds carry risks associated with market-related instruments. As these are generally used as long term investment options, the risks should be considered along with the returns before arriving at a final decision.

It is obvious that return maximization is the expectation for mutual fund investments. In order to meet your investment objectives, it is imperative to look at your own risk profile and also the risk associated with the Fund you are investing in. Understanding these ratios/measures along with other factors would give you a definite edge in your investment journey.

Kuvera notes: Do note that all the measures described here are for performance attribution of past returns and past risk. Just like past returns are no guarantee of future high returns, similarly past high alpha or high Sharpe ratio is no measure of future high returns. 

Start investing through a platform that brings goal planning and investing to your fingertips. Visit kuvera.in to discover Direct Plans and start investing today.

#MutualFundSahiHai, #KuveraSabseSahiHai!

The post Mutual Funds – Analyzing Risk & Return Statistically appeared first on kuvera.blog.

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