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Prashant
Jain,
arguably
Indias
most famous fund
manager, manages
HDFC Equity and
HDFC Top 200, that together
have assets of over `30,000
crore. In May 2012, Mr. Jain
penned an essay titled, Its
tomorrow that matters, amid
much uncertainty and concerns,
global and local.
In Mr. Jains words, Pessimism
is all that one sees all around.
Even so, as a veteran of multiple
market cycles, he was able to
look at history and tell his
readers that the time to invest in
equities was at hand.
He wrote, The lower the
markets are, the bigger is the
opportunity. The Sensex is up
by 30 per cent since.
Srikanth Meenakshi
Co-Founder & COO
FundsIndia.com
2014 has been a year in which mutual fund houses, barring a few, have moved
yet again to a familiar theme New Fund Offers (NFOs). This has happened
in 1992, 1994, 1999, 2005, 2007, and there we are again in familiar territory.
What is in it for investors?
Almost nothing. The universe of funds that existed at the end of 2013 was
more than adequate to take care of 99 per cent of the allocation and
investment needs of investors.
The residual 1 per cent will be essentially funds that chase riskier asset
classes, adopt riskier approaches, are complex, and / or are from new or old
fund houses that have an indifferent track record.
When it comes to international funds, they may look enticing given their
performance over the past five years in developed markets. All these
economies are in bad shape and equities from US and Europe, which make
up most of the MSCI World Index along with stocks from Japan, have
logged in compounded annual returns of 20 per cent over the past five
years. They are at the latter end of a long bullish phase that is unconnected
to reality. New funds are coming in from this space mostly.
This streak of international funds comes at a time when the value of the
Indian rupee (INR) is depreciating, or has been stable (as in the past few
months). INR appreciation can hurt you badly and it is never one-way
traffic.
The only area where genuinely decent funds have come up is corporate
bonds. Here too, please go only for those fund houses who hold a good
track record in debt funds, along with sizeable assets under management.
Prefer open-end funds any day to closed-end funds, except in the case of
Fixed Term Plans.
If you wish to own debt and a bit of equity, go for funds that focus
specifically on each class, rather than funds that seek to combine them.
In equity, there are at least about 125 funds with a track record of over 10
years, and a fairly sizeable number of funds have been around for 20 years;
ditto for the type of debt funds you need to own.
Please ask yourself and / or the sellers of these funds the question: why
new funds? You can be sure that rarely will there be a satisfactory answer.
S Vaidya Nathan
Editorial Consultant, FundsIndia.com
FundsIndia
Winner CNBC TV18 UTI Award 2013-14
National Online Advisory Services
www.fundsindia.com
Vidya Bala
Your Savings
EPF and PPF: For most salaried individuals, your Employees Provident Fund (EPF) would be your compulsory
saving. A few of you may also add the Public Provident Fund (PPF) as a part of your tax-saving investment and
believe these two should take care of your non-income earning future.
While these can be great saving habits, sadly, they will simply not suffice to build you a decent investment kitty in your
retirement years. For one, the interest rates on EPF have been on a steady decline over the past 20 years, hardly keeping
pace with inflation, especially in recent years.
For instance, the annual Consumer Price Inflation (industrial workers) was at an average of 9.5 per cent over the last
five years. That means, except in FY-11 when EPF rates were 9.5 per cent, for the rest of the years, you would actually
have earned real negative returns (that is, adjusted for inflation, your returns are negative)!
Your PPF rates too have been on a similar downtrend. The accompanying graphic shows how much ` 10,000 invested
every year in PPF would have delivered as compared to a similar investment in a tax-saving fund ICICI Pru Tax Plan.
The difference is stark, enough for you to realise how little you build with traditional options.
12%
1000000
11%
800000
10%
600000
Apr-14
Apr-13
Apr-12
Apr-11
Apr-10
Apr-09
Apr-08
Apr-07
Apr-06
Apr-05
Apr-04
Apr-03
` 3, 12,325
Apr-02
FY-14
FY-13
FY-12
FY-11
FY-09
FY-10
FY-08
FY-07
FY-06
FY-05
FY-04
FY-03
FY-02
FY-00
FY-01
FY-99
0
FY-98
7%
FY-97
200000
FY-96
` 10,37,367
PPF Balance
400000
8%
Apr-00
8.75%
Apr-99
9%
FY-95
1200000
Apr-01
13%
Actual rates of PPF are taken for calculation. ICICI Pru Tax Plan is the tax-saving equity fund considered. It was launched in August
1999. Past returns are not indicative of future performance. PPF is a 15-year investment product but earns interest up to its 16th year.
Hence, investment comparison has been done on a similar basis.
Deposits: When it comes to other voluntary savings that you make, bank deposits are likely to be on the top of your
list. Not only are deposits tax inefficient, they are also likely to give you real negative returns that is not give you
anything over inflation.
Given below is a graph that shows the three scenarios of Fixed Deposit (FD) returns with an interest rate of 8, 9
and 10 per cent per annum. We have assumed a tax slab of 30 per cent and inflation of 8 per cent. You will see that
the FD does not beat inflation even with a rate as high as 10 per cent.
A popular observation about the markets is that the markets have run up nearly 40 per cent in the
last one year. A more pertinent observation is that the markets are up only around 30 per cent from
the pre Lehman levels over the last 6 years...
Prashant Jain, Chief Investment Officer, HDFC Mutual Fund
www.fundsindia.com
Post-tax return
9.0%
8.0%
5.5%
-2.5%
6.2%
-1.8%
6.9%
-1.1%
Inflation of 8 per cent and an income tax rate of 30 per cent plus
cess has been considered.
Your Investments
But very likely the person who sold it would not have told
you over what period the money doubled. So what,
equities hardly make that, you might think. They probably
delivered just 15 percent compounded annual returns in
five years.
15.9%
15.5%
15.0%
16.5%
13.2%
12.4%
10.0%
5.0%
0.0%
Gold
Equities
Partly
Partly
No
No
Partly
Yes
Yes
Yes
Yes
Yes
www.fundsindia.com
Active or passive?
Large-Cap
Funds
36
Mid - &
Small-Cap Funds
10
10
78 per cent
65 per cent
17
www.fundsindia.com
Market Place
FundsIndia Blog
If you look carefully, almost all old money secrets can be traced to a single source: a longer-term
outlook.
Bill Bonner
www.fundsindia.com
Nifty
Technical View
This column is targeted at investors who are registered customers with FundsIndia for trading and investing in equity as well as prospective
investors who wish to open an equity account with FundsIndia. B Krishna Kumar hosts a weekly webinar that discusses the market outlook
for the following week. You can follow him on Livestream. If you wish to receive reminders for his webinars, go to
https://www4.gotomeeting.com/register/131985103
Disclaimer for Think FundsIndia: Mutual Fund Investments are subject to market risks. Please read the offer documents available at the website of each mutual fund carefully
before investing. Past performance does not indicate or guarantee future performance. There is risk of capital loss and uncertainty of dividend distribution. Think FundsIndia,
a monthly publication of Wealth India Financial Services, is for information purposes only. Think FundsIndia is not and should not be construed as a prospectus, scheme
information document or offer document Information in this document has been obtained from sources that are credible and reliable.
Publisher: Wealth India Financial Services
Editor: Srikanth Meenakshi
www.fundsindia.com
1 Year
CNX Nifty
S&P BSE Sensex
CNX Mid Cap
CNX Small Cap
CNX 100
CNX 500
CNX Bank
CNX Energy
CNX FMCG
CNX Infrastructure
CNX IT
MSCI Emerging Markets
MSCI World
30.7
30.0
57.0
66.9
32.5
37.9
49.0
19.6
9.9
35.7
25.9
-2.8
5.1
5 Years
11.6
11.5
12.1
10.5
11.9
11.3
14.7
1.9
21.9
-0.7
17.1
16.1
20.4
10 Years
16.4
17.0
17.4
17.0
16.5
15.9
21.1
10.9
23.4
11.0
15.3
12.1
9.9
Returns (in per cent as of October 30, 2014) for less than one year is on an
absolute basis and for more than one year on a compounded annual basis.
Q&A
Wisdom
Must Read: Keep in mind that even terribly hostile market environments do not resolve into uninterrupted
declines, writes John Hussman in On the Tendency of Large Market Losses to Occur in Succession. Read his
insightful comments at www.hussmanfunds.com
www.fundsindia.com
Investment Quiz
@fundsindia.com in October
Recommended Book
About us: FundsIndia.com is India's leading online investment platform. It offers a wide range of investment options such
as mutual funds, equities, corporate deposits, bonds, the National Pension System, loans, insurance and 24 Karat gold, to name
a few, in one convenient online location. FundsIndia also offers a host of value-added services such as Systematic Investment
Plans (SIPs), Alert SIPs, Flexi SIPs, trigger-based investing, and more, that further enrich your investment experience.
Recovery in economic growth is expected to be led by a revival in the capex/investment cycle by FY 16-17. Hence,
recovery in earnings of cyclical sectors could be back-ended. Valuations of cyclical stocks might look expensive
from the next 12-month perspective. Sanjay Dongre, Senior Fund Manager, UTI Mutual in Marketplace,
FundsIndia Blog.
www.fundsindia.com