Volume 5, Issue 02

07Feb2013

The monthly newsletter from FundsIndia

Now, get your portfolio reviewed anytime!

Srikanth Meenakshi

Inside this issue:

Greetings from FundsIndia!

Now, get your

portfolio reviewed anytime!

The month ahead

- Equity recommendations B.Krishna Kumar

Looking beyond
fixed deposits
Vidya Bala

Financial Planning Education

Series

A Revolutionary
Budget Ahead?
Dhirendra
Kumar

Investors using FundsIndia for their mutual fund investments are familiar with the innovative Portfolio X-ray report feature that we offer in partnership with Morningstar. This
report provides an inside look at your portfolio and presents various useful data such as
holdings overlap about it.
While it is a very useful feature, it does not take into account many things about your portfolio the transaction history, performance, SIP investments, the tenure of the portfolio,
etc. In short, it looks at the current snapshot of holdings and provides an inside view, but does not tell you how
the portfolio has come along and where it could be going.
I am glad to announce that we are bridging this gap with a bold new feature that we are about to launch an ondemand, automated portfolio review that does a detailed analysis of your portfolio and gives you an idea as to
what the future holds for it. This report will have three main sections:
1.

A look at the current portfolio break-up and performance

2.

A mathematical analysis of how the portfolio could grow through the investment time frame

3.

An analysis of the mutual fund schemes in the portfolio.

The goal is for the investor to be able understand if they are on the right track with their portfolio, with respect to
the time frame of the investment and the financial goal they have for it.
Please take it for a spin and let us know what you think. Well gather all the feedback and continue to make it a
better and useful product.

Separately, as many of you have enthusiastically noticed, we have also made our Advisor Appointment page better. We have re-christened it as Ask
Advisor, and made it possible to get responses both via email (quicker) and phone calls (detailed). If you ever have a question about your investments,
please hop on to this page to ask us.
If you have not logged in to your FundsIndia account recently, please do so youll notice that there is a link to a recent FundsIndia publication available in every page. This is a very well done report on the five best funds in the history of the Indian mutual funds industry called the FundsIndia
Five. I highly recommend that you download and read it.
Our equity customers would have noticed that we have sent out an announcement regarding our new BSE trading license and the steps required to
switch to it from the current trading account. We request you to act on that as soon as possible so we can get you set in a seamless manner.
Happy Investing!

February is the month of love & affection. Prepare your Financial

Plan with FundsIndia and ensure a secured future for your loved
one *Please note: Comprehensive financial planning is a fee based service
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

Volume 5, Issue 02

Page 2

The month ahead - Equity recommendations

B.Krishna Kumar
After a flourish in the beginning, the stock market activity turned subdued as the month progressed. There has been a discernible slowdown in the momentum behind the recent rally. Even amidst a healthy show by the corporate sector, the benchmark indices such as the
BSE Sensex and NSE Nifty failed to make much progress beyond their respective resistance levels.
On the economic front, the domestic 10-year bond yield has slipped steadily, which can be construed as a signal of further easing of interest rates. The RBI has effected a 25 basis point cut in policy rate in its meeting held on Jan.29.
The US Dollar too has been receding to lower levels. The green back fell is now trading little over the Rs.53 mark to the Rupee. The appreciation in the Rupee is a positive sign from the macro-economic perspective. The short-term outlook for the Dollar remains weak until it
moves past the resistance at Rs.54.20.
Despite the positive macro-economic and corporate sector cues, the stock market has not been too cheerful, especially in the past few
weeks. This is a worrying sign and investors need to be cautious about allocating fresh money into equity market.

We suspect that the Nifty could seek

lower levels in the short-term. The support level of 5,900 is the make-or-break
level that we are paying attention to. A
fall below this level would throw open the
possibility of a significant downward
correction that could extend all the way
down to 5,650-5,700. Unless the Nifty
gets above 6,150, we would work on the
premise that a fall to 5,700 is underway.

Investors may therefore wait for better entry levels post a healthy downside correction. Looking at the individual sectors, FMCG, auto and
metals appear vulnerable and could play a key role in pulling down the benchmark indices.
As always, we advise investors to use the SIP-route to take exposure in equities be it direct stock investment or mutual funds.
This month, we cover the outlook for a couple of stocks from the FMCG space namely ITC and Hindustan Unilever. Both companies need
little introduction, courtesy the array of popular brands owned by them.
While ITC has been a star performer at the stock market in the past few weeks, Hindustan Unilever has taken a knock. Investors may use
this price weakness to buy ITC while any rally would present an opportunity to reduce exposures in Hindustan Unilever.
Form the daily chart of ITC featured below, its apparent that the stock is ruling at lifetime highs. The consistent sequence of higher highs
and higher lows is a sign that the stock is in a strong uptrend.

As the stock has run up a lot in the recent weeks, it

does not make sense to buy ITC at current lofty
levels. Any weakness in the stock would be an opportunity to buy with a stop loss at Rs.270 and
target of Rs.335.
A look at the daily chart of Hindustan Unilever
featured below indicates that the stock is in a
downtrend in the past few weeks.

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

Volume 5, Issue 02

Page 3

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

Volume 5, Issue 02

Page 4

We expect this downtrend to continue for

a while and the stock could seek next
support at Rs.400 - 410 range. The immediate resistance is at Rs.486-490. Any
recovery to this resistance level would be
an opportunity to reduce exposures in
Hindustan Unilever.

Aggressive trades may consider short positions above Rs.480 (based on spot price), with a stop at Rs.510 (based on spot price) and target
of Rs.410 (based on spot price).

Mr.B.Krishna Kumar also hosts a weekly webinar that discusses the market
outlook for the following week.
You can register for the webinar by clicking here:
https://www4.gotomeeting.com/register/927617871

Looking beyond fixed deposits

Vidya BalaHead - Mutual Fund Research at FundsIndia

For most investors, mutual funds mean investing in equities and therefore, they come tagged with risks.
Given this, for a risk-averse investor, there may be little choice left than to invest in plain vanilla bank fixed deposits. But did you know that a threeyear deposit that you invested in 2010, for example, would not beat inflation (post tax), when you receive the maturity amount out in 2013? (Please see
table below for returns).
What if you had a similar debt product that can deliver returns superior to fixed deposit returns and beat inflation? Would you not consider that?
If you are investing for not less than two years, then income funds a class of debt mutual funds can deliver superior returns compared with bank deposits suggests data. That means you can earn a bit more than traditional debt avenues, by still staying invested in debt.

What are income funds and what makes them attractive?

Income funds are a class of debt mutual funds that invest in a combination of government securities, certificates of deposits, corporate bonds and
money market instruments. They are managed by expert fund managers who actively try to manage the portfolio based on interest rate movements,
while at the same time keeping the portfolio credit worthy.
In other words, they seek to generate returns both in declining and rising interest rate scenarios by managing their portfolio actively. They either generate interest income by holding the instruments till maturity or manage gains by selling them in the debt market if the price of the instrument rallies
well.

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

Volume 5, Issue 02

Page 5

That means that these instruments will not guarantee you fixed returns like deposits. It also means that in the short term, a fund managers call may
not work as anticipated, leading to fund underperformance.
Yet, over the last 10 years, income funds have beaten three-year deposit rates, irrespective of the year in which you had invested. Let us look at income
funds features and how they score over fixed deposits.
Income fund advantages

Highly liquid. Can withdraw money anytime unlike fixed deposits that come with a fixed lock-in period

Actively managed. Seek to generate returns from varying interest rate cycles. Fixed deposits, on the other hand, carry re-investment risk.
When a deposit matures and is reinvested, you may fall into a low interest rate regime and get lower returns than before.

Have historically generated superior returns than fixed deposits. Please see data given.

Very tax efficient, especially for those in the 20% and 30% tax brackets. Long-term capital gains (for holding over one year) are taxed at 10%
without indexation or 20% with indexation. Interest on fixed deposits, though, is taxed at your income slab. Please see table for post-tax returns

Offers high flexibility. Besides investing systematically, you can even withdraw money systematically thus generating regular cash flow for
yourself.
How to use income funds

Invest your money in a combination of traditional fixed income options such as deposits and income funds to pep overall returns. You need
not put your money in one basket.

-3 years

When you build a mutual fund portfolio, consider investing over one half of your capital in income funds when you have a time frame of say 2

Use income funds, along with equity funds, as part of a long-term asset allocation strategy to build wealth. Choose the growth option.

You can use income funds to also provide for some monthly cash flows by opting for a systematic withdrawal plan after first holding it for at
least two years.
Note: If you have a time frame of less than 18 months, there are other short-term debt schemes that mutual funds offer. Income funds will not fit a
short time frame as they carry interest rate risks. Also, remember that income funds do not guarantee fixed returns nor are they covered by insurance
as is the case with bank fixed deposits (up to Rs 1 lakh). To this extent, they do not top the safety chart.
However, for longer periods, the interest rate risks are taken care of as a fund can hold an instrument till maturity and gain from the interest income
from that. This helps generate superior returns for the limited risks assumed.

* Financial year beginning April

**quarterly compounded returns of 3-year deposits of top 5 public sector banks. The highest rate was taken for each period. Source RBI
***Avg. returns of income funds in the top quartile of respective three-year performance chart
# for a 30% tax bracket
## Long-term capital gains tax of 10% (without indexation)

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

Volume 5, Issue 02

Page 6

Financial Planning Education Series

S.Shridharan Head - Financial Planning

What are your financial goals?

A financial planner will help you in identifying your financial goals. This will provide you with a focus, purpose and vision in the financial planning
process. It will also help you in prioritizing your goals, giving you a clear direction towards reaching the same.
There are four steps involved in the financial planning process:
1.

Identifying your goals

a. Childrens education
b. Childrens marriage
c. Buying a property
d. Planning for a vacation
e.

Retirement

When you are identifying your financial goals, make sure that they are quantifiable, time bound and realistic.
For example, you cant plan to buy a property worth Rs. 5 Cr. by taking a loan of Rs. 4 Cr., if your income is Rs.5,00,000/- per annum.
2.

Classifying your priorities and the proximity

a.

Short Term (less than 3 years)

b.

Medium Term (between 3-5 years)

c.

Long Term (more than 5+ years)

This will help you in channelizing your investments towards the goals that have higher priority. Also, your investment decisions can be taken based on
the time horizon.
3. Quantifying your goals
Once you have identified your goals, quantify the value of each goal. For example, if you are planning for your childs higher education in India, the
expenses could be somewhere close to Rs. 12 Lakhs.
4. Planning and investing according to your goals
When you are planning your investments, keep your goals in mind before taking investment decisions. Prioritize your goals based on your needs. Classify goals into three categories like essential, desirable and if possible.
The major portion of your investments should be invested towards reaching your essential goals than your desirable goals. If you have additional cash
flow, then you need to start planning for investments towards your if possible goals.
For example, your childs education is an essential life event. As a parent, you are more responsible for providing a better education to your child and
this event cannot be postponed as when your child turns 18, he / she will have to go for higher education. On the other hand, buying a car may be an
essential goal. We, as financial planners consider this as a desirable event. This can be postponed for a year or more and hence, the investment priority
is to be given towards your childs education.

Mr.S.Sridharan is the Head of Financial Planning with FundsIndia. You can reach Mr.Sridharan at sridharan@fundsindia.com

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

Volume 5, Issue 02

Page 7

A Revolutionary Budget Ahead?

By Dhirendra Kumar | Jan 30, 2013

From whatever one had read or heard so far, the Union Budget might bring in some significant, progressive changes to the
savings and investment-related aspects of income tax. Of course, it's possible that none of these may actually happen. January is traditionally the time when the finance ministry paints rosy visions of the future, most of which are dashed to the
ground by the end of February. However, if there's one year when one has some reason to hope for the best, it is 2013. Last
year, with the terrible fiscal situation and the prevailing back-to-the-seventies attitude in the government, there was little
expectation of anything positive on this front and the budget definitely didn't belie the low expectations.
This year, the atmosphere is quite different and one can genuinely hope for something more meaningful. From the indications so far, here's superset of
the changes one can expect. 1) Increase in the section 80C investment limit from Rs 1 lakh, perhaps to Rs 1.5 lakh. 2) Inclusion of the Rajiv Gandhi
Equity Savings Scheme in the investments permitted under 80C. 3) An exemption aimed at pension products from mutual funds, either as part of the
80C limit or separately. 4) Removal of long-term capital gains for returns earned from infrastructure bonds.
Unlike some earlier years, the changes seem sharply focussed on encouraging tax-payers to invest more, rather than just on tax-relief, which is welcome. If one discounts gold and property and counts only financial instruments, most Indians are under-invested. We invest only to the extent that will
get us tax relief. In fact, if the government were worried about balancing tax revenue foregone with encouraging investments, then it would be best to
create another tier of 80C that is larger but with a correspondingly lower tax relief.
Here's an example. Currently, investments made under 80C are deducted from one's taxable income. If the limit is raised from Rs 1 lakh to 1.5 lakh
then the revenue foregone would go up by 50 per cent. However, the FM should instead raise the limit to Rs 2 lakh but allow only 50 per cent deduction
above the Rs 1 lakh limit. This would mean the same revenue foregone but encourage double the investment. It would also lead to double the long-term
benefit that the investor would derive from returns on the investmentsa win-win situation for the saver as well as the government.
Of course, it is another matter that keeping the 80C limit frozen for years on end is fundamentally unfair. Compared to when this limit was fixed, the
value of Rs 1 lakh is now down to less than half. Back in the late nineties, Rs 1 lakh was a lot of money and many middle-class taxpayers were unable to
exhaust the limit. The 80C limit should ideally be linked to the cost-inflation index and thus be automatically revised upwards every year.
The idea of pension-linked exemption is also a great one, provided these investments flow into equity-linked products and stay locked-in till retirement
age. However, it would be best if the pension investments are tracked through a pension account, rather than a fixed investments that stays locked into
a specific fund. This 'retirement account' idea was actually mooted in the first draft of the DTC but was subsequently dropped because it was thought to
be too complex to implement. Surely, that's not actually true.
The move to include the Rajiv Gandhi Scheme in 80C would be interesting and would in fact rescue it from irrelevance, provided savers could use it
every year instead of only once in a lifetime.
All in all, savers and personal finance advisors have a lot of reasons to look forward to what Mr Chidambaram will reveal. Certainly, if these measures
are taken, there will be a boost to investments flowing in to long-term investments. And who knows, perhaps some reduction in the amount flowing
into gold.

Syndicated from Value Research OnlineArticle can be viewed online herehttp://www.valueresearchonline.com/story/h2_storyview.asp?

str=22017

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Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.