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CAPITAL
LETTER
Volume 4
Issue 02
Eventful January
Greetings from FundsIndia!
The year got off to a very interesting start over the past month. The equity markets had their best January
in several years with the indices returning 11+% for the four weeks of trading. As of writing this, these
gains are still holding up and the market appears trending upwards. That should calm the nerves of the
investors who are getting tired of seeing their portfolio valuations in the red.
More importantly, it will, hopefully, educate our investors that investing when the equity markets when it is down (or persisting with the ongoing SIPs) is the wise thing to do. During the course of the past few months, I heard many an investors
say that something along the line of "Equity markets are down right now, so I want to invest in debt funds". Or that they
want to stop the SIPs till the market "recovers". Such thought processes are what lead to under performances of many a
portfolio. There is no tutor like the real market to teach the value of staying true to systematic investment processes.
In other news, there were reports about Fidelity mutual funds considering "strategic options", usually a code-word for considering selling their businesses. This comes as a surprise, and a sad one at that. Fidelity has established a good track record
with their solid funds and is a favorite fund house among investors. Hopefully, the company that takes over the funds will
retain continuity of fund management and prudent business practices.
In FundsIndia news, we are happy to tell you that we are working on revamping our user interface for the entire website and
we should roll it out by the end of this month. Please watch out for it, and provide forthright feedback (which I know you
will :-) ).
Happy Investing!
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.
1.Get an additional Rs.20,000 exempted from your income-tax (under section 80ccf)
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Rating
1 Year
2 Year
3 year
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FAAAA
9.5%
9.65%
9.75%
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8.75%
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FAA
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10%
10.25%
TAA
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9.75%
10.75%
DHFL
AA+
10.25%
10.25%
10.25%
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.
Rebalancing Judiciously
BY DHIRENDRA KUMAR
Even though this looks like a time for fixed income, its actually a time for asset rebalancing. Asset rebalancing must be the most useful and yet the most ignored of ideas in
the world of investing. However, its actually so easy to implement for mutual fund investors that its worthwhile to periodically revisit the concept and see whether it can be
worked into your portfolio.
Asset rebalancing is the right response to situations where the prospects of equity are
dubious but fixed income investing looks attractive. Currently, its relatively straightforward to earn 8-10 per cent from a variety of fixed-income options, either guaranteed or
market-linked ones. Among mutual funds, almost all debt categories are running an average of 8 to 9 per cent per annum. Taken together, the equity and fixed income situations together suggest a shift to fixed income.
However, thats a simplistic view. Its a form of market timing to try and anticipate when equity would do better or
worse than fixed income and then try and change ones asset preference based on that. Its far better to do this in an
automated way. The way to do that is to decide that a certain percentage of your investments should be in fixed income and the rest in equity. For younger investors, the fixed income proportion could be as low as 10 per cent, but it
shouldnt be zero. For those with a more conservative approach, it could be higher.
Asset rebalancing means that instead of seeing the equity Vs. debt question as a black and white binary choice, you
should be seeing it as a shade of grey. Once every year or so, you could rebalance your portfolio. What this means
that if the actual balance has veered away from your desired one, you should shift money from one to the other to
restore that percentage.
When equity is growing faster than fixed incomewhich is what you would expect most of the timeyou would periodically sell some equity investments and invest the money in fixed income so that the balance would be restored.
When equity starts lagging, you periodically sell some of your fixed income and move it into equity. This implements
beautifully, the basic idea of booking profits and investing in the beaten down asset. Inevitably, things revert to a
mean, and that means that when equity starts lagging, you have taken out some of your profits into a safe asset.
Astute readers would have seen the fly in the ointment, or rather, two flies. One is the amount of monitoring or work
required; and two, the tax implications. Both are easily taken care of by not doing all this yourself and using a balanced fund instead. Balanced funds are the most underappreciated idea in mutual fund investing. Balanced funds do
all this automatically and without building up any tax liability.
Much more importantly, when the market goes down, balanced funds fall less. Over the last five years, through the
huge upheaval of the equity markets, the average equity-oriented balanced fund has given better returns than all the
diversified fund categories. While balanced funds typically invest more than 65 per cent of their assets in equity for
tax reasons, less aggressive rebalancing options are also available. MIPs typically keep equity at less than 20 per cent
or so and are a very good option for more conservative investors.
All in all, regular rebalancingand not complete switchingis the right response to the fluctuating fortunes of equity
and fixed income investments.
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.
Planning for a secure financial future is a must! It can be done, and is not easy, but is not rocket science either.
Maybe youre saving to buy your first home?
Perhaps starting your own business is a dream.
The costs of a college education have spiraled and you may wonder how you will pay for your childs education.
You will probably live longer. Additional years after retirement WILL cost more than originally planned.
Your company pension plan may not be enough to maintain your standard of living after retirement. Worse, it may
cancel the pension plan by the time you retire!
Complex financial marketplace and changing tax laws make it difficult to understand your financial picture.
Everyone needs to plan for tomorrow. At every income level, there are steps you can take to make more efficient use
of your assets and to ensure a secure financial future. It makes sense to develop well-defined goals and to map out
appropriate strategies to turn your dreams into reality. To help you get started, below are some frequently asked
questions about personal financial planning.
What is personal financial planning?
Personal financial planning is a process, not a product. It is an organized, well-planned system of developing strategies for using your financial resources to achieve both short- and long-term goals. You may think of the process as
helping you to answer three straightforward questions:
Where am I?
Where do I want to go?
How do I get there?
When should I start planning?
It is important to start planning as soon as you can. Time passes quickly it is never too soon to start planning for
tomorrow. Nor is it too late to start a plan.
Who should prepare my personal financial plan?
A well-qualified financial adviser should work with you to prepare your plan. A CA financial planner combines the
objectivity and trust long associated with the CA profession and the years of experience and expertise in personal
financial planning. However, if he does not do this for a profession (most of them do not), look for a financial planner who is a full time professional.
What should it include?
A comprehensive and complete financial plan one that addresses your entire financial picture should include a
review of your net worth, goals and objectives, property and other assets, liabilities, cash flow, investments, retirement planning, estate planning, tax planning and insurance needs, as well as a plan for implementing your goals.
I dont have a lot of money. Do I need a full-scale financial plan?
You may not. You can seek out different levels of financial planning advice, from counseling on a particular issue to
comprehensive planning. Speak to the advisers you are considering and discuss with them your requirements. You
should be able to find one who meets your needs.
(Cont)
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.