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Tuesday, November 30, 2010

HDFC Life plans IPO after June 2011

HDFC Life is likely to be the first private sector insurer to come out with initial public offer with the company saying that it will bring its maiden share sale offer after June 2011.

HDFC Life is the only company in the insurance sector to complete 10 years in operation, the minimum condition required for IPO.

We want to improve our margins to get better valuations when we go public.

We expect our profitability to improve in the next six months and then come up with an IPO in second half of next year, HDFC Life MD and CEO Amitabh Chaudhry said.

The IPO guidelines of SEBI require a three-years track record of profit for a company to float a public issue.HDFC Standard Life has recently been rebranded as HDFC Life.

Chaudhry said the life

insurance joint venture partner of HDFC UK's Standard Life is waiting for Parliament approval for amendment in Insurance Act to up its stake to 49 per cent from the 26 per cent at present.

The amendment Bill, which would allow foreign investment up to 49 per cent in Indian insurance companies, is pending in Parliament. Current norms allow foreign investment up to 26 per cent in an insurance company.

Standard Life is willing to increase stake in HDFC Life. Once the bill goes through, the UK partner can increase stake in the company so that we we can dilute our holding proportionately, he said.

The Securities and Exchange Board of India (Sebi) had last month approved public issues by insurance companies. We are waiting for IPO guidelines by the insurance regulator Irda, Chaudhry said.




Mutual Fund Review: ICICI Prudential Infrastructure

Fund manager's contrarian calls give ICICI Prudential Infrastructure an edge over its peers

Launched in 2005, it showed promise the very next year followed by a great back-to-back performance. To trounce the competition in 2007 and restrict its fall in 2008 is an extraordinary feat.


Naren's calls have worked in his favour, mostly. In 2007, it was Metals that clinched the deal for him. As he says: "We captured the run in utilities and got out at the right time." In 2008, it was his conservative stance of cash and debt allocations, bets on the Nifty, derivatives exposure and an overall large-cap equity tilt that saw the fund through. Neither does he leverage his derivatives exposure by investing in equity, instead the surplus cash (balance amount after making the margin payment) is deployed in debt. Come 2009, the fund slipped in rankings because Naren continued with his cautious stance. In the initial leg of the rally (March 9 to May 31, 2009), it delivered a measly 63 per cent (category average: 78%). Due to this, the fund found itself at the bottom of the ladder.


Naren does not change his strategy abruptly, hence that glaring bout of underperformance. This need not upset investors. Right now the portfolio gives the impression of being conservative and large cap tilted, and rightly so. But he is working on changing that. "I see a good infrastructure story between 2011 and 2014. Towards that, we will aim to reconstruct a portfolio that is relatively more aggressive over the next few months," he says. While the portfolio may sport a totally different look months down the road, what you can be sure of is that his bets are valuation driven. It leads him to actively change the portfolio's complexion with no qualms about going against the herd. "We avoid sectors where valuations are euphoric and have run ahead of fundamentals.


Being a multi-sector theme fund, we change the sector composition in tune with market valuations," says Naren. Consequently, by default, he shows up as a contrarian compared to the peer group. Right now his exposure to Construction is nil while exposure to Engineering is lower than that of his peers. "In the case of Engineering we have been tactically reducing and increasing weightage over time. As for Construction, we believe that a high interest rate environment is not positive for this sector," he explains. The largest fund in the category, it has a large-cap orientation and dabbles in every sector barring FMCG, Media, Infotech and Pharma.


Mutual Fund Review: Franklin India Bluechip

Franklin India Bluechip delivers superior returns without taking undue risk

An excellent pick for investors who want to beat the Sensex over the long term without taking undue risk. By and large, this fund delivers returns superior to the category average and occasionally astounds, catapulting it to the top slot.

Fund manager Anand Radhakrishnan does not follow the crowd or play the momentum game, and is relentlessly focused on long-term value. During the 2008 downturn, his cash exposure averaged just 5 per cent. So periods of relative under performance will come with the territory but are not a reflection of the fund's character.


In 2007, the fund's sector bets backfired as it stayed away from Metals, Power and Real Estate. "We are bottom up investors, so the sectoral exposures reflect our fundamental analysis over market cycles, rather than top-down views. In 2007, valuations along with ballooning subsidy burden made us uncomfortable about PSU oil companies. With regard to Power, valuations and policy uncertainty made us uncomfortable. We felt there was a bubble in Real Estate, with stocks trading at 2x-3x the net asset value. Many metal stocks were trading at high multiples to replacement costs," explains Radhakrishnan. The fund was over weight on Auto (which performed poorly that year) because of the fund manager's conviction regarding the consumption story and comfort with valuations.


During the 2008 crash, when his peers were piling up cash, he went bargain shopping to increase exposure to Financial Services. "India remains underserved in terms of Financial Services, but strong growth in personal incomes has led to increased demand. Given the low penetration of banking and financial services in India, companies in this sector have huge growth potential," says Radhakrishnan.


Last year, the fund's return of 84 per cent (category average: 73%), placed it in the third spot among the 46 funds in its category. It benefited from its exposure to Financial Services and high equity exposure when markets took a U-turn in March 2009. The 25 per cent exposure to mid caps (March 2009) also helped. "We invest primarily in large caps (market cap of the top 20% of CNX 500). Depending on our fundamental views, we might sometimes look at mid caps with a market capitalisation close to that of large-caps," says Radhakrishnan.

Have a medium to long-term perspective with this fund and you won't be disappointed.


Monday, November 29, 2010

Mutual Fund Review: Canara Robeco Balance

Since July 2008, when new fund managers under Canara Robeco took over, Canara Robeco Balanced has been transformed into a stable and conservative offering

This fund has a long and complicated history. It is the product of three balanced funds and two asset management companies - Canbank Mutual Fund (now Canara Robeco) and GIC Mutual Fund. In 2008, the fund was merged with Canara Robeco Balance II and the final entity has been named Canara Robeco Balanced. Due to the lack of continuity in management, it's tough to nail down this one's style. Also, since December 2007 there have been three fund manager changes with the current one taking over in July 2008, when Robeco took a stake in the AMC.


Historically, the fund has been a bit too bold. A 41 per cent allocation to just one sector, or a 20 per cent allocation to one single stock are two instances. Yet there have been times when the fund has moved to the other end of the spectrum.


There have been periods when the equity:debt allocation crossed the defined limits. October 2007 to January 2008 was one such period when the equity allocation averaged 81 per cent.


The risk was mitigated to a small extent by the heavy large-cap exposure.


Since July 2008, when the new fund managers under Canara Robeco took over, the fund has been transformed into a stable and conservative offering. The equity allocation, along with the large cap exposure began to dip instantly. No more bold exposures. So investors who want an equity exposure but are not aggressive will be happy here.


On the fixed income side, the fund manager takes no risk at all. In its past, it dabbled with low quality paper, but that is no longer the case.


On the equity side, the selection is more of bottom-up stock picking. "Our aim is to generate alpha on the way up and protect investors on the way down," says Anand Shah. He has a point. In the market crash of 2008, the fund was able to shield its investors better in three out of four quarters.


Last year the fund had barely any exposure to Autos and Metals, despite BSE Metals and BSE Auto being the top performing indices in 2009. The fund prematurely exited auto stocks in May 2009. "Across the board we had no exposure to Metals because we chose to play the domestic consumption. For a brief period Metals did better but in the long run, our stand holds. After the first correction itself we were vindicated," explains Shah.


Over the 5-year period ended July 31, 2010, the fund has delivered an annualised return of 22 per cent (category average: 16%).


Cheque-Writing Guidelines

Banks propose closing accounts with insufficient balance

You may need to be extra careful while writing cheques in future. Bank regulator Reserve Bank of India (RBI) as well as banks are becoming more strict about individuals issuing cheques.

Very often, individuals sign cheques irrespective of the balance in their savings account, to keep away from the creditors. Or, for electronic clearing services or auto debit bill payments or investments, if they do not have sufficient balance.

Insufficient balance

The State Bank of India (SBI) plans to close the savings account if cheques are issued without sufficient funds in the account.

"If four consecutive cheques bounce due to unavailability of funds, we may close your savings account," confirms a senior SBI official. This move will act as a deterrent for account holders, who will be more careful when transacting through cheques, he adds.

Private sector banks may soon follow suit. "We deal with cheque bounces on a daily basis. This move is necessary to tighten the regime around cheque bounces," says an official with a private sector bank, which is also likely to implement this norm.

Also, bankers do not favour post-dated cheques, as there is no guarantee of sufficient money in the account to honour the cheque.

Avoid overwriting

The regulation proposed by the apex bank has been diluted substantially. Overwriting will not be allowed for cheques that are being cleared under the image-based cheque truncation system, or CTS.

At present, the issuing bank sends the physical cheque to RBI (and, in some cases, SBI) for clearance. The amount is then credited to the receiving bank's account in two-three days.

In the image-based mechanism, a photocopy of the cheque will be sent to the clearing house, thereby making the process quicker. The recent circular, issued on June 22, says overwriting on these cheques will not be allowed.

In case of any overwriting while transferring money through this system, banks have been strictly asked to not accept those cheques.

Besides the two measures that are being implemented, there are some general guidelines that you need to follow.

Cross cheques

While issuing a cheque, make sure you cross it as an account-payee cheque. Bankers say customers fail to follow even the basic precautions taken during cheque-related transactions. For instance, 45-year-old Rashid Ali was duped of `2lakh when he lost a bearer cheque. Importantly, always strike out the word 'bearer' from the cheque, because it will mean anyone who has the cheque in hand can get it encashed.

Keep record of transactions

Always write the cheque details, such as the cheque number, amount, date and payee, in the section provided at the beginning of the cheque book. In case of any fraud, this record can be of help.

Bankers encourage customers to seek account statements from the bank and reconcile these with details in their cheque books from time to time. It will help them to ensure that the transaction details match those in the statement.

Do not pre-sign cheques

Already-signed blank cheques can land you in trouble. Bankers say this can be easily avoided by salaried individuals, as most withdrawals take place through automated teller machines or ATMs, and money transfers are not frequent. Significantly, once you have written the amount, ensure there is no space where numbers can be filled in. Use a '/-' sign immediately after the amount.

Mutual Fund Review: BSL Frontline Equity A

High returns, low risk and a diversified portfolio make this a worthy fund


This one's a winner. If compared with the benchmark, it has just one year of underperformance (2003) in seven years. From a relative point of view, it began to beat the category average only from 2006, a result of Patil taking over the fund in November 2005.

In 2009, it delivered 90.45 per cent (category average: 80.29%). Patil puts it down to many factors. "We got into good quality stocks at distressed valuations. We bought into certain stocks when the de-leveraging story began to play out and firms were able to raise money as liquidity eased. Prior to elections, we reduced cash and took a call that Infrastructure is one sector that will get a thrust, irrespective of who is at the Centre. We are diversified across sectors, and when the market picked, all moved up," he says. Its performance has not gone unnoticed. As assets under management (AUM) swelled, the outcome has been a more diversified portfolio with around 60 stocks (up from 35 in January 2009). Since 2008, apart from RIL, Bharti Airtel and Infosys Technologies, no stock has accounted for more than 5 per cent of the portfolio, while concentration of top  five stocks has been lowered to around 18 per cent.

This fund attempts to target the same sector weights in its portfolio, as is found in its benchmark - BSE 200. But that does not mean the fund manager is restricted to the benchmark universe. His individual stock selection is totally flexible and there is also some flexibility in computing the sector weights; either ± 25 per cent of the weight in the index or an absolute figure of ± 3 per cent, whichever is higher.


While Patil broadly adheres to this strategy, there have been the occasional deviations such Energy and Engineering in 2006 and 2007. "We have always been positive on capital goods, specially power equipment companies. This sector will continue to grow and the outlook is bright with good support from the government and private sector participation," says Patil. But due to stretched valuations, he was underweight on Energy at that time.


Though Patil is positive on mid caps and allocation to them has risen recently, he ensures that this fund has a large cap thrust. Higher than average returns, lower risk and a well diversified portfolio make it a sound proposition.


Saturday, November 27, 2010

Income Tax Returns Filling– What If you have missed the dead line

The penalty for late filing is actually not much. But it is important that the details are all there and without error

Now a day, I get lot of queries on this. So we have made an attempt to bring all those in the post

As we all know, the last date for filing the tax return is July 31. What if you were unable to file your return in time? Even then, there is no cause to panic — this year, though July 31 was the due date, one can still file ones return till March 31, 2012. What is important is not this due date of July 31 but the fact that the return should be filed with accurate information, where neither the income is inadvertently under-reported nor any expense or deduction overlooked due to lack of time. If any tax is due, the tax payer should arrange this without delay; the return can then be filed in due course.

In terms of repercussions, an interest of one per cent per month will be levied on any tax due. Also, the tax official has the option of imposing a penalty of '5,000 on account of the late submission. So, say you are a salaried employee who has not filed his or her return on time. However, the tax due from you has already been deducted at source in the usual course. In this case, the maximum downside for a late filing would be the '5,000 penalty. Since the tax due from you has already been paid (by way of the TDS), there would be no liability on account of interest. That is levied only if you owe any tax to the government.

However, there is another drawback of not filing the tax return in time. If you have any business loss or capital loss (short-term or long-term), this cannot be carried forward for set-off against future income if the return is not filed on time. So, if you file your return after July 31 but before March 31, 2011, it would be a belated return, but without penalty imposed. If this is filed after March 31, 2011, a penalty of '5,000 is leviable. Interest will be payable in all cases if any taxes are due. So, all in all, it is always advisable to file your tax return on time. However, a tax return is always better belated than inaccurate.

One example of haste causing waste is in the case of Rajiv (name changed on request) who was more interested in filing the return on time even after knowing about the belated return facility. For 200910, he had earned long-term capital gains from the sale of property. In his hurry to get the return filed, he simply forgot that the expenses related to improvement of property can also be indexed with the cost. So, he paid more than what was actually due. Had he waited and reviewed the computation, he could have saved a neat packet. So, ensure the return is correct and complete and only then arrange to get it filed.

We list some common exemptions and deductions with potential for oversight or error by the taxpayer:

HRA: House rent allowance and home loan provisions are two different issues as far as the Income Tax Act (ITA) is concerned and one does not influence the other. So, you may own a flat or any number of flats, either in the same city you work in or anywhere else in India or abroad — this will, in no way, influence the HRA deduction you are entitled to. Conversely, notwithstanding the amount of HRA you receive, your home loan deductions on the equated monthly instalments (EMI) for the house you have bought or intend to buy will not be affected.

Section 80C: Generally, Sec 80C is synonymous with deduction available in respect of payment of life insurance premiums or investments in PPF, NSCs and ELSS funds. However, did you know that tuition fee paid to any school or college for the full-time education of up to two children is also allowed as a deduction? Also, investments in Nabard bonds or the Senior Citizens Saving Scheme and Post Office Term Deposits have been added to the list of eligible investments.

Regarding PPF, most know the deduction is available in respect of contributions made in the name of self, spouse or children. However, did you know the combined investment limit for yourself and your minor children is '70,000? I have come across several investors who invest '70,000 for themselves and additionally in the name of minor children. This is not allowed under the rules.

Housing finance: The principal portion of the EMI paid in respect of your house is deductible. However, to claim the deduction, the house needs to be owned for five whole years. If you sell your house in the interim, the earlier deductions claimed are to be added back to your taxable income in the year in which the house is sold.

Capital gains: The Securities Transaction Tax (STT) paid is not allowed as an expense in calculating your capital gain. Second, in respect of adjusting capital losses, note that any loss can be adjusted against capital gain income only and not against any other type of income. However, taxable capital gain may be adjusted against other losses such as business loss or loss under the head, house property. Even within the umbrella of capital losses, note that though short-term loss may be adjusted either against short-term gains or taxable long-term gains, any longterm loss can be adjusted against taxable long-term gain only. Unadjusted capital loss may be carried forward to be set-off against eligible capital gains for eight years. However, this facility is not available if the tax return is not filed within time.

Finally, for non-resident Indians (NRIs), in respect of capital gain income, the shelter of the basic threshold is not available. If a person, a resident Indian, were to sell his house and earn a capital gain of '10 lakh and this gain was his only income, he will have to pay tax only on 8.4 lakh ( '10 lakh minus the basic exemption of '1.6 lakh). However, if same person were to be an NRI, he would have to pay tax on the full '10 lakh.

In sum, whether you pay in time or belatedly, if you owe the tax to the exchequer, you have to pay it. There is no escaping this. Ironically, when you consider that a fine is a tax you pay for doing something wrong, whereas a tax is a fine you pay for doing something right.


Mutual Fund Review: DWS Alpha Equity

Why this large-cap fund deserves being core of an equity portfolio


With a large-cap bent, this fund can be core holding. Apart from 2005 and 2009, the fund has outperformed its category every year and has build up a decent track record with a 5-year annualised return of 22 per cent (January 31, 2010), a tad higher than the category average of 20 per cent.


When Inamdar joined in June 2007 he made some notable changes in the portfolio. He moved up the exposure to Energy from 9.43 per cent in May to as high as 28 per cent in October and added stocks like Gujarat N R E Coke, NTPC and Cairn India along with Diversified sector stocks like Grasim Industries and Aditya Birla Nuvo, Sintex Industries. The weightage to Metals doubled from 5.61 per cent in October to 10.17 per cent in January 2008 while Technology and Chemicals dropped. The result was a performance of 67 per cent in 2007, ahead of the category average by 15 per cent margin.


When the market tanked in 2008, the fund manager took shelter under cash and also increased the allocation to FMCG. However, the fund manager was not too quick to lower the allocation to the FMCG sector even after the markets took a U-turn to start for their upward journey in March 2009. Apart from this, the cash exposure was also brought down only in May. Probably the reason why the fund underperformed in 2009. Inamdar frequently churns the portfolio and does not hesitate in taking aggressive stock bets. While allocation has exceeded 8 per cent a number of times, investors do not have to worry about needless aggression.


Mutual Funds Review: HDFC Index Sensex Plus

HDFC Index Sensex Plus is passively-managed fund which invest 80-90 per cent of the portfolio in Sensex stocks

If you want to play it safe by being contented with the returns of the Sensex, and a little upside, then this one is for you.


The fund's strategy is to passively manage around 80-90 per cent of the portfolio which will be allocated to Sensex stocks in nearly the same proportion as that of the index. The balance 10 to 20 per cent will be actively managed enabling the fund manager to pick stocks that have the potential to outperform the Sensex.


Ever since inception, on an average, 82 per cent of the portfolio has been allocated to the 30 stocks of the Sensex. However, the actual allocation has ranged between 67 per cent and 100 per cent of the portfolio. And within the Sensex allocation, the fund manager uses his discretion. For instance, in 2009, the fund had an average exposure of 15 per cent to the Energy sector while that of the Sensex was 25 per cent. Currently, the fund's allocation to the sector is 16 per cent while the Sensex's is 22 per cent.


Again, while the fund has currently allocated around 9 per cent to Healthcare, it accounts for just 1 per cent in Sensex. The exposure to Metals is around 2 per cent while that of Sensex is around 8 per cent.


Two stocks - Jindal Steel & Power and Maruti Suzuki - that are part of the Sensex are not currently present in the fund's portfolio. Apart from this, there are currently 10 stocks accounting for 20 per cent of the fund's portfolio that are non-Sensex stocks.


Much to its credit, this fund has achieved what it set out to do. Over the 5-year period ended August 2010, it delivered an annualised return of 21 per cent against the Sensex's 18 per cent. Ironically, despite having a predominantly passively managed portfolio, it even beat the category average (18%). A feat that was even achieved last year when it delivered 81 per cent, almost equal to the Sensex's return though 7 per cent ahead of its category. The trump card: Being overweight on Financial Services.


In the market downturn of 2008, the fund beat the Sensex by a margin of 5.37 per cent. All through the year it did not plunge into cash but took this avenue only in the last quarter (December 2008) when it averaged around 19 per cent of the portfolio. When the market took a u-turn to begin its upward journey in March 2009, the fund was almost fully invested in equity. A move that helped tremendously.


Despite its different mandate, it's a worthy pick


Mutual Fund Review: ICICI Prudential Discovery

ICICI Prudential Discovery stays with the category average in downturns & rewards long-term investors's


Last year this fund, surprisingly, was one of the best performing equity funds. So why are we surprised? Because its value-based approach has historically been a letdown during bull runs. In fact, 2007 was a black eye in the fund's performance history. "From mid-2006, the infrastructure boom picked up," says fund manager Naren. "I ran the infrastructure fund the way it was to be run and this value fund according to its theme. At that time growth stocks were booming, not value." Barring FMCG and Healthcare, rarely did a sector account for more than 10 per cent of the fund's portfolio in 2007.


This time around, it was the re-rating of stocks in the small- and mid-cap space that led to his value picks playing out superbly. Launched in July 2004, the fund was more of a multi-cap player till 2006. From 2007 onwards, it resembled a mid- and small-cap offering. 

The fund's strategy is to scout for undervalued stocks that are available at attractive valuations in relation to their earnings (PE) or book value (BV) or current/future dividend. So it's not surprising to see the fund manager venture into relatively 'unpopular' stocks or sectors. For instance, his allocation to Financials in 2008. Over the past year, stocks that have made an appearance included FDC, Ruchi Soya Industries, Hyderabad Industries, Page Industries, eClerx Services, Bajaj Finance Services, B F Utilities, Hyderabad Industries, Kirloskar Ferrous Industries and India Nippon Electricals.


Neither is it surprising to see him move swiftly in and out of sectors wherever he sees value, or the lack of it. His moves in Technology in 2009 are a case in point. "In April, the sector with the lowest PE was Software. As it went higher we offloaded," he explains. Similarly exposure to Energy fluctuated. He bought into Energy but when he saw no more value left, he offloaded. Then he went into oil marketing companies and later into upstream companies. "We go wherever we see an attractive risk-return trade-off," he says. 


When the market tumbled in 2008, the fund contained the downside a bit better (-55%) than the category average (-60%). "The downside protection would be moderate because the portfolio has both large-cap and mid-cap value stocks," says Naren.


Being a value fund, investors must stay invested for the long haul, which means at least 5 years. 


Mutual Fund Review: Birla Sun Life 95

Birla Sun Life 95 has been a long-term performer for the past 14 years, underperforming peers only thrice during this period

Over the past 14 years, this fund has underperformed its peers in just three. From 1997 right till 1999, it had a fabulous run. Since then, it has evolved into a middle-of-the-road performer that rewards investors who hang in for the long term. Its 5-year annualized return of 21 per cent (category average: 16%) as on July 31, 2010, bears testimony to that.


Last year, the fund once again had that sporadic bout of brilliance. It delivered 70.20 per cent while the category average was just 61 per cent. The bias towards mid-cap stocks clearly worked in its favour. Till 2002, the fund tilted more towards large caps but when the rally started in 2003, it changed tack and gave in to smaller fare. Having said that, the fund has been flexible in moving across capitalisation as per the market conditions. It had an allocation of around 70 per cent to mid and small caps in October 2007, which was brought down to 39 per cent by May 2008. It was once again increased at the start of the market rally in March 2009 and went up to 60 per cent by September 2009.


The flexibility also extends to its changing composition. Its equity allocation was brought down to 55 per cent in December 2008 but once the market rallied, it rose to 75 per cent (May 2009). Over the past year it has averaged at around 69 per cent. The fund's mandate permits the equity allocation to fluctuate between 50 and 75 per cent of its assets, and it has always stayed within that limit.


When Nishit Dholakia and Satyabrata Mohanty took over in June 2009, changes were apparent in the fund. A lot of shuffling took place in sector bets while the number of stocks rose significantly to touch 60. The fund is fairly diversified and single sector allocation has rarely crossed 16 per cent since 2006. The fund managers have taken a contrarian stand as far as Energy sector is concerned. With a meagre 5 per cent allocation, it is nearly half the category average.


On the debt side, the portfolio has always been skewed towards bonds and debentures as well as G-Secs. Over here it will not be surprising to find aggressive maturity bets should the need arise. In 2008, for instance, the average maturity of the portfolio was moved up from 3.59 years (November) to 10.35 years (December). Recently, the fund manager has been taking exposure to Certificates of Deposit (CDs) though he has been known to stay away from both CDs and Commercial Paper (CP).


Quantitative easing and fund flows

   The Federal Reserve's second round of quantitative easing of USD 600 billion to support the struggling US economy was announced. This announcement by the Fed is almost in line with market expectations. The Fed announced it will buy treasury bonds of around USD 75 billion per month for the next eight months to increase money supply in the system as part of this quantitative easing.

   This increase in money supply by increasing the excess reserves of the banking system is expected to keep the interest rates very low, and stimulate the borrowing and spending activities in the economy.

Need for quantitative easing    

The US economy has come out of the 2008-09 recession but the economic growth rate has been very slow over the last few quarters. This is evident from various economic data points released month over month. On the other hand, new job creations are also very slow which is evident from the high jobless rate (hovering around 10 percent).

   Economists believe there are chances that a continued high unemployment rate may lead to changes in consumer behaviour and therefore trigger another round of recession which could probably last much longer than the current recession. Therefore, the Fed is under pressure to take the required steps and provide another round of triggers to stimulate business activity.

Impact of quantitative easing:

Momentum for economic activity    

The logic behind the quantitative easing is the Fed buys treasury bonds from banks leaving them with cash surplus to lend to customers. The interest rates would fall further and lower interest rates will encourage people to borrow money and increase spending. On the other hand, lower interest yield will discourage investors from investing in safer instruments such as bonds and debt instruments. Instead, they will invest in high returns investments like stocks. More spending results in more business and more hiring ensues.

High inflation    

Inflation will certainly be a threat after this quantitative easing. Some economists believe the quantitative easing will increase liquidity in the system which may push inflation rate to higher levels. The high liquidity may result in a situation of excess money chasing limited resources and hence prices start going up, leading to a high inflation rate.

   However, inflation is under control at the moment and the Federal Reserve is not very worried if it goes upwards slightly.

Weak dollar    

The quantitative easing will result in a drop in interest rates, and as a result the dollar will have some depreciation in its value against major world currencies in the international market. However, analysts believe the quantitative easing package of 600 billion dollars will not have any drastic impact on the dollar valuation. The US dollar will eventually regain its strength in a couple of quarters, the feel.

Increased inflows for emerging markets    

The quantitative easing will result in further funds inflows into emerging markets such as India. Analysts believe a part of this excess cash will be channelled to the emerging markets as these countries are better positioned than their developed counterparts in terms of economic growth.

   In the markets here, foreign institutional investor (FII) inflows are expected to remain strong in the short to medium terms. This will keep the markets in a bullish momentum.

   On the flip side, this will mean challenges related to high liquidity, and the high inflation rate will continue further up. Sharp currency movement is another factor which investors should track going forward. Individual investors should not turn over-optimistic on the stock markets, but exercise caution.


Mutual Fund Review: UTI Opportunities

The right sectoral calls have helped this fund's performance in recent years


As the name implies, the fund has accomplished what it stated it would do. And in the bargain, has made money for its investors.


Launched in July 2005, it got off to a weak start. It delivered a meagre 11 per cent in 2006, underperforming both, its category and benchmark by huge margins. One of the reasons being the high allocation to mid cap stocks when it was large caps that rallied that year. Coupled with sector picks that went wrong, such as being overweight on Auto (BSE Auto was among the worst performing indices that year).


Come 2007, the fund began to make up for lost ground. Upadhyaya took over in March 2007 and since then the fund's performance has been more than impressive. Over the 3- year period ended February 28, 2010, it was the best performing fund in its category with an annualised return of 20.01 per cent, double than that of its benchmark (10.30%) and category average (10.32%).


The mandate of this fund requires Upadhyaya to dynamically shift between sectors depending on the macro economic outlook and opportunities available in the market. How does he take such a call? "We hold on to a sector until we see a huge valuation gap between that sector and the market. Or, there has to be some fundamental development which is negative in the sector leading to a sell-off. Alternatively, it could just be that there is another sector that looks more attractive," he explains. In 2009, he moved out of FMCG and into IT. He got into Metals early in the cycle. He continued with Hero Honda and his bets on Tata Motors, ICICI Bank, Hindalco and Lanco Infratech made it for the fund.


By and large, Upadhyaya attempts to keep around 65-75 per cent of his portfolio in 4 to 5 select sectors which he believes will outperform the broader market in the short to medium-term. He also sticks to a 70 per cent large cap tilt and averages at around 40 stocks in the portfolio.


The high cash levels in the fund don't imply that he is not fully invested but indicate derivative exposures. "We employ derivatives either to hedge part of the portfolio or employ it for reverse arbitrage trades. Also, entry and exit is easier in the futures market because of high liquidity," he says.


Friday, November 26, 2010

What Not To Expect from Mutual Funds

Flash In The Pan:

You must have read about stocks hitting the upper circuit of 10% or 20% in a day in the stock market. But you may have seldom heard about mutual fund schemes doing the same. In fact, if it does, you should be worried, not the other way around. A mutual fund scheme's portfolio comprises various stocks, ideally reputed companies with longterm track records. These stocks are unlikely to hit the upper or lower circuit, unless something extraordinary has happened to the company. Mutual funds are meant to deliver over a long period of time, and not overnight. To make the best of the investments in mutual funds, its is better to invest in a diversified equity fund with a good long-term track record. A classic example is HDFC Equity Fund that has multiplied the initial investments 30 times over the past 16 years since its inception. This must be seen in the light of approximately five times growth in S& P CNX Nifty over the same period of time. Thematic funds may, in some cases, ride the booming sentiment and deliver well in a short period of one month to one year. But if you cannot time your entry and exit, you may land on the wrong side of the market, hurting yourself. It is advisable to let the fund manager of a diversified mutual fund take a call on sector allocations from time to time to enjoy growth across sectors and companies across market capitalisation.

Personalised Solutions:

Don't expect the fund to offer you customised investment options. A mutual funds work on the premise of pooling mechanism. Typically, a mutual fund scheme will have people with different needs. In certain case, it can be even contrasting. This factor becomes very crucial when it comes to booking profits. For example, redemption pressure during dull market conditions may force a fund manager to sell stocks that have huge potential. This can have an adverse impact on you as an existing customer in the scheme. You may also have some preferences when it comes to investments, but in most cases last-mile customisation is not possible in a mutual fund scheme. However, there are ways to handle this issue. Systematic withdrawal plan, where you can redeem a certain amount of money at regular interval say each month, can come to help for those with income needs. Trigger options launched by mutual funds help investors to book profits at a pre-determined rise in NAV over the floor NAV. Products like ethical fund by Taurus AMC and shariah-compliant fund by Benchmark AMC offer investors investment opportunities in a socially responsible way to a certain extent. But, keep that in bold letters, you have to make these choices.

Asset Calls:

Mutual funds go by the mandate of the scheme. For example, equity funds have to invest at least 65% of the money in equity and related instruments. This mandate offers the fund managers a limited scope to book profits and increases their exposure to short-term fixed income instruments at high levels in equities. The same holds true for sector funds, too. The fund manager doesn't have the liberty to dump the sector despite knowing that the sector is not going to do well. That is why, it becomes imperative that the investor himself has an asset allocation plan and rebalances the portfolio at regular intervals. Invest proportionate amount in a diversified equity and pure debt fund and keep a track of it.


Does the term ring a bell? Well, it refers to stocks that deliver many times their purchase cost. They can also come in various denominations like 10-baggers and 20-baggers. A fund manager invests in stocks that are approved by the investment committee of the fund house. The process ensures risk management of the fund in which your money is invested. This benefit also brings in some disadvantages. Low market capitalisation and low liquidity in stocks of small companies is a hurdle the fund managers cannot jump over in 'investment-process driven houses with strong risk management practices'. This means your fund manager won't be featured along with the top guns in the market. Though good diversified equity funds may not come with such stocks, they are still good candidates for your core portfolio holdings. Let the fund manager manage a 'core portfolio' for you. You can look separately at companies that do not fit into the mutual fund's investment universe but look promising (you can use a small or micro scheme for the purpose). Portfolios of companies with established track record offer you stability. If you combine them with small companies with growth potential, you can enjoy higher returns, though at a higher risk. If you do not have skills to identify such opportunities, then better restrict yourself to equity mutual funds.

Assured Returns:

Your mutual funds can't offer guaranteed returns to you. Sebi has done away with the practice long time ago. So, make sure you understand the risk you are taking while investing in a particular mutual fund scheme. This is called investment risk. Simply put, investors have to accept both gains and losses after investing in a fund. There is little that an investor can do after he invests in a fund. So better ascertain why you want to invest in a mutual fund. If you are aware of your risk appetite, you can accordingly invest. Never invest in a fund with no or limited track record.


Refinancing Home Loans

With home loan lending rates easing out, many borrowers are considering home refinance as an option to minimise their liability

   Home loan borrowers have always been concerned about their financial outflow while repaying debts. With interest rates easing out in the recent past, many borrowers are considering home refinance as an option to reduce this burden.

So what is home refinance and how can you capitalise from it?

Understanding refinancing.    

Refinancing in simple terms means replacing your existing loan, with a new one, under fresh terms and conditions. So when you talk of home loan refinance, you will be repaying your existing home loan before its final tenure, with a new loan possessing different terms.

   A home refinance option could prove to be beneficial for many borrowers. However, it is important to understand its procedure and the various costs that are associated with it before considering the option.

   Whether it's for personal requirements or changes in interest rates, here is why you should consider a home refinance.

Reduced EMI payments:

At times you may wish to reduce your monthly EMI to divert some cash flow for large expenses or for repayment of other debts. Refinancing your loan could be a solution to reduce your monthly outflow. Your refinance lender may increase your loan tenure to suit the reduced EMI.

Easing interest rates:

You could choose to modify your existing floating rate loan to a fixed rate loan at lower interest rates.

Change in loan tenure:

To suit your personal requiremnt and alter your loan tenure to either a short term or long-term.


* As a borrower you generally look out for a market time when interest rates are low before considering a fresh loan. The same applies for a refinance option too. The right time to consider this option would be when loan interest rates are low.

* When interest rates fall, a wise option would be to replace your existing home loan with a fresh refinanced loan at a low interest rate. What you need to keep in mind is whether the rates have fallen enough to cover the costs associated with your fresh refinanced loan.

* Analyse your existing home loan. Before going in for a refinance option, it is important to analyse your existing home loan, the current interest rate scenario and the charges quoted by your refinance lender. This will give you an idea if it is actually worthwhile and profitable for you to transfer your loan to a new lender.

* Understand your requirement:

Your requirement for refinance may arise due to an interest rate change, a cash flow requirement or a change in the loan tenure. Identify the specific reason before you choose the option.

* Choose the right refinance lender:

A home refinance comes with various costs associated with it. When choosing your lender take into account the interest rate of your new loan, charges for prepayment quoted by your previous lender and the processing and administration cost charged by the refinance lender.

* Provide the worth of your property and your income and expense details to lender.


   You will need to provide the refinance lender with an estimate of your property. This estimate should take into consideration any increase in property prices. Lenders generally make disbursements on the basis of actual worth of your home, so a realistic estimate is mandatory.

* Your lender would also review your income on the basis of your salary and debt payments such credit cards, auto loans etc. Disbursements are made keeping in mind your debt to income ratio.

* Closure of existing loan and new loan processing. Your earlier loan will be closed and your new lender will process your loan after adequate documentation is collected from you.

   It pays to understand the current market scenario before opting for a refinance option. A thorough calculation of your existing loan, the interest rate and charges would give you a picture of what you would actually be saving through refinancing.

   Various lenders have refinance offers. Review their options before choosing the one that fits your bill.

   Lenders quote various charges such as mortgage charges, stamp duty charges, documentation fees, and administrative charges. Work out the charges with your lender.


Choose Your Financial Products Carefully

   THE very mention of financial products invokes yawns from most people. This category is the least engaging and most, given a choice, would put off wading through boring information and tables to the last minute. If it's insurance, there is even more gobble-degook, which means that most would want to get over with it, in the least possible time.

   Now, insurance is a security net that once creates for oneself and the family. Most people have, however, looked at insurance products as tax-saving devices and investment products. Insurance companies have been launching product after product, to appeal to the instinct to save, rather than as something that provides security to the family.

   Now, unit linked insurance plans (Ulips) have changed for the better and charges have come down. Many people call me to know if the present-day Ulip has become a good investment product overnight. The answer is yes and no. Yes, because the charges have come down. The first year charges have come down significantly in some cases. But the total charges recovered in the first five years can still be 30-40%, on an average, of the regular premium. So, it is lower than what it was, but not very low in an absolute sense.

   Comparing with MF + term insurance combination, these products come close and can even be better after 12-13 years (assuming that both MF schemes and insurance funds offer similar returns). But, there is a catch. There is a limit to how much insurance can be taken in a typical Ulip, for a specific amount of premium and age band. It may be 10 times the annual premium or seven times the annual premium or lower or some such imposed limit. So, a person requiring a much higher life cover will still need to look at a term insurance. A lot of people who do not require life insurance at all, invest in Ulips. For them, the mortality charges impose an unwanted cost.

   Also, if the past record is anything to go by, then most investors tend to stop paying the premiums or redeem the funds or surrender the policy in the first few years. For them, the cost is higher. In the initial stages, the front loaded costs do impose a huge burden on the fund performance. Hence, this may again not be suitable for many, if we go by the past track record.

   So, by elimination, the new Ulips may be suited to those whose investment horizon is close to 15 years or beyond and whose life insurance requirements are in tune with what the Ulip offers. The number of people for whom this may match neatly will be indeed small.

   There are two other factors to be considered. One, the premium is invested for a long period in one company's funds. If the funds do not perform, one cannot exit, without the costs involved. That is where a typical mutual fund scheme still scores over Ulips. To start with, one can diversify across fund categories and fund houses. Hence, the fund manager-risk is reduced in mutual funds, to a great extent. Secondly, there is a concentration risk of too much money accumulating in one fund, over time. Again comparative underperformance will extract a huge toll on the investor. But then, which investor goes into these aspects before investing? They are interested in getting over with the onerous exercise in the shortest possible time – which suits the sellers. They display some nice tables and then show some nice, round figures, which could come at the end of the tenure. And then a nudge and a push and they have the form and the cheque in hand! That's not going to change in a hurry, till the investor shows some more interest in his/her own money.


Mutual Fund Review: ICICI Prudential Dynamic

When the markets are falling, ICICI Prudential Dynamic is the fund to go with


The very nature of this fund ensures that it will have excellent defending capabilities during market downturns. Its market strategy causes it to reduce exposure to equities when the stock market is high and get fully invested when valuations are low as the risk return trade off is better and opportunity is greater.


The fund manager has the discretion to go fully (100%) into equity or liquidate his holdings to zilch (0%). Over the past few years, his equity holdings dropped to a low of 76 per cent. And, true to mandate, that was not in 2008 when the market collapsed but in July 2009 when the rally began to gain in momentum.


Besides the asset allocation, this portfolio stands out with regard to its defensive nature. "As the valuation of a theme expands and enters into a bubble territory, we tend to be underweight in it which helps the fund mitigate downside risks well," explains Naren. That would explain why he is underweight on Domestic Consumption. He is also underweight on interest rate cyclicals given the interest rate and inflation scenario. But he is betting on Energy, which he finds to be a more conservative avenue than Commodities. The fund manager has tremendous flexibility not only to dynamically shift between asset classes but even between market caps. And this leeway he uses to the hilt. It started as a large-cap fund but joined the mid-cap rally in 2003 to once again take on a large cap tilt from mid-2006 onwards. Despite mid caps rallying, its large cap exposure currently stands at 69 per cent.

Frankly, the fund's performance has not always been impressive. When compared with its benchmark, it has done suitable well for itself by hitting a rough patch in 2007 and being a fairly average performer in 2009. When compared to its category average, its track record is spotty. It has undoubtedly had a few good years, but stood out in 2008 by limiting its fall to just 45 per cent (category average: -54%). But this is exactly what one should expect from such a fund. "Over a five-year period, this conservative fund has a better potential for outperformance than other funds. While it may demonstrate moderate performance during market rallies, due to great downside protection it neither will correct significantly, thereby averaging the returns over the long term," says Naren.


Stock Review: Blue Dart Express



Considering the strong position enjoyed by Blue Dart Express in the logistics sector, investors could consider this stock on a long term basis


BLUE DART Express is a leading player in South Asia for courier and integrated express package distribution. The recovery in the domestic economy and other emerging markets has helped the company post better performance in the past few quarters as it saw a rise in volume of goods transported across its networks.

   The company was started in 1983 by three promoters Clyde Cooper, Tushar Jani and Kushroo Dubash. In 2005, DHL Express (Singapore) took a majority stake in the company.

   We had recommended this stock in our issue dated March 29, 2010, and since then the stock has gained nearly 54.4% compared to a 18% rise in the Sensex. And despite the jump, its valuations do not appear stretched on a historical basis. For instance, this stock is currently trading at 5.9 times its book value for the year ended December 2009. And during the January 2008 and January 2010 period, the company traded in a range of 3.7-5.8 times its trailing book value.


Blue Dart Express follows an integrated business model and the company's fleet of four Boeing 757s and three B737 freighter aircraft are operated by Blue Dart Aviation, an associate company. In addition, its network includes over 5,412 vehicles, 52 domestic warehouses and over 13.4 lakh square feet of facility space at the end of December 2009.

   The company's domestic network covers over 25,498 locations, and more than 220 countries and territories worldwide through its sales alliance with DHL. Its expanded logistics network especially in the domestic economy appears well timed, given strong demand conditions from the corporate and consumer sector. Also, the company's brand is well recognised in its segment.

   During the calendar year ended 2009, the company had carried over 7.72 crore domestic shipments, a rise of 10.6% on a CAGR basis from CY06. Also, it had carried over 7.18 lakh international shipments at the end of December 2009, a rise of 4.5% on a CAGR basis during this period. The company had invested 143.2 crore during the period CY09 and CY07, while its operational cash flows during this period amounted to 176.7 crore. The company was debt free during this period.



The upturn in the economy helped the company's net sales to rise 24.7% to 294.2 crore in the September 2010 quarter, compared to a year earlier. However, its operating profit margin at 11.8% was broadly flat. Although, not strictly comparable, but Blue Dart Express grew faster than the largest domestic logistics player Container Corporation of India during the earlier three financial years.

   For instance, during the period CY06 and CY09, Blue Dart's net sales grew at a CAGR of 10.7% to 905.2 crore, while net profit grew 5.7%. In contrast, Concor's net sales grew at a CAGR of 6.6% during the period March 2007 and March 2010, while net profit improved by barely 3.8%.


Blue Dart Express at 1,086 per share, trades at a P/E of nearly 28.8 times on a trailing four-quarter basis. This is at a premium given that Container Corporation of India's stock trades at a P/E of 22.1 times on a trailing basis, while Allcargo Global's scrip on a consolidated basis trades at 15 times. Given the strong position enjoyed by Blue Dart Express in its segment of the logistics sector, investors could consider this stock on a long term basis.


Mutual Fund Review: Sahara Growth

Though not a leader in its category, the fund has put up a respectable performance


This fund will not typically show up as a leader of its category, but is a respectable offering.

The fund started off with a bang before turning out to be a fairly average performer. Once Sridhar took over, it put up a respectable performance in 2007 and 2008. But in 2009, it did deliver less than the category average and the benchmark.


Its size and name would imply a portfolio laded with mid caps. In reality, nothing could be more misleading. While it resembled a mid-cap offering in its initial years, that's no more the case. This fund has displayed a penchant for larger stocks and over the past three years the large-cap allocation has averaged around 85 per cent of the fund's portfolio and has not dipped below 65 per cent in any month.


Typical to Sridhar's style, he takes huge cash positions should the need arise. There have been occasions where the allocation has even exceeded the mandated 20 per cent, touching a maximum of 35.36 per cent (October 2008). That helped in cushioning the fall that year. In the bear run (January 8, 2008 - March 9, 2009), it curtailed losses to 45 per cent (category average: -53%).


Thanks to the size, the fund manager aggressively churns his portfolio, with respect to stocks and sector preferences. Although the portfolio looks slightly concentrated with around 30 stocks (1-year average), rarely has any stock cornered more than 7 per cent of the fund's portfolio.


Mutual Fund Review: SBI Bluechip Fund

Given SBI Bluechip Fund's past performance and shrinking asset base, the fund has neither been able to hold back its investors nor enthuse new ones


LAUNCHED at the peak of the bull-run in January 2006, SBI Bluechip was able to attract many investors given the fact that it hails from the well-known fund house. However, the fund so far has not been able to live up to the expectation of investors. This was quite evident by its shrinking asset under management. The scheme is today left with only a third of its original asset size of Rs 3,000 crore.


The fund has plunged in ET Quarterly MF rating as well. From its earlier spot in the silver category in June 2009 quarter, the fund now stands in the last cadre, Lead.

   Benchmarked to the BSE 100, the fund has outperformed neither the benchmark nor the major market indices including the Sensex and the Nifty. In its first year, the fund posted 17% return, which appears meager when compared with the 40% gain in the BSE 100. The Nifty and the Sensex rose by 40% and 47%, respectively during the year. The fund failed to outperform the indices even in the subsequent years.

   In 2009, the 87% return generated by the fund was marginally higher than the 85% gains in the BSE 100. However, the fund missed the current large-cap rally. In 2010, so far it has not been able to beat the returns of benchmark and the major market indices.


Adhering to its name Bluechip, the scheme is focused on bluechip companies with a little exposure to midcaps and absolutely no exposure to high-risk small-cap counters. The fund's portfolio is thus a bundle of prominent large-cap stocks, such as Reliance Industries, Bhel, SBI, TCS, ONGC and Bharti Airtel among others. The fund has been holding most of these stocks since its inception.

   The fund's sectoral weightage is similar to that of the BSE 100 with a large exposure in power, healthcare and capital good sector. Both the power and the capital goods sector have not performed well since the past three years. This serves as a prime reason for the sluggish performance of the fund.

   The lackluster performance of the metal stocks, however, has not impacted the fund much given its limited exposure to the beleaguered sector.

   The fund has increased its exposure in technology and healthcare sectors. However, probably a little more weightage to the auto sector could have helped the fund perform better. In the automobile sector, it has so far invested only in the scrip of Mahindra & Mahindra.

   Currently, 97% of the fund is invested in equities. The fund manager has maintained this for a while now. There have been rare occasion when the cash holdings of the fund increased to more than 10%. For instance, during the meltdown period almost 25% of the fund was held as liquid cash.

   Interestingly, the fund manger has maintained his portfolio turnover ratio to 134% for a long-term now. This implies that ever since three years, the fund managers have kept a stock on an average for 11 months in the portfolio.


Given its past performance, and ever shrinking asset base it's needless to say that the fund has not been able to hold back its current investor or enthuse new investor. The fund has not been able to leverage its strategy to bet on large-cap stocks. It needs to be seen whether it can show enough resilience and aggression to select the right bets given the fact that many of the bigger companies are currently trading at their historically high valuations.


Mutual Fund Review: Reliance Regular Savings Balanced

Reliance Regular Savings Balanced fund has shown great resilience during market crash

After a shaky start, this fund has established itself as a strong contender in this space. In the past three years it has ridden the market well by not only delivering during the market run-ups but also displaying resilience during the crash. In 2008, it witnessed the second lowest fall among its category and last year it was amongst the top three performers with a return of 76 per cent (category average: 61%).


The poor underperformance in 2006 can well be credited to the low equity allocation of the fund, which stood at just over 10 per cent for only four months that year. Though the fund has the leeway to go up to 75 per cent in equity, it has never touched that limit. In fact, it has exceeded 70 per cent in just five months in its entire history. During the crash of 2008, the fund managers had no problem going right down to 54 per cent (equity exposure). Fund managers Omprakash Kukian and Arpit Malviya who took over the reins in October 2007 made some significant changes in the portfolio that quarter. Engineering was introduced in the portfolio while Construction and Technology were two sectors from which a complete exit was made. Energy was reintroduced in December. The equity allocation too was increased.

The fund managers frequently churn the portfolio and show no hesitation in moving in and out of stocks. It's not unusual to see the fund enter a stock in one month and exit it completely in no time. A natural outcome has been the fairly rapid shift in sector allocations.


However, Omprakash is clear that needless churning does not take place. "There may be churning when money comes in or because of a valuation call, but it will take place in selected stocks. Since the size of the fund is reasonable we can do that to generate alpha," he says.


Although the fund has historically maintained a compact portfolio of less than 20 stocks, with allocation to a single stock exceeding 7 per cent on many occasions, a toning down has been noticed in recent times. Allocation to a single stock has not exceeded 7 per cent after 2008 and the number of stocks is now at around 30, due to the increase in the asset size. This year has also seen an increased exposure to large caps. On the debt side, the fund has largely stuck to cash and call money. It has only been recently that an exposure to debt paper has taken place with the bulk in Certificate of Deposits (CDs).


Planning finances for retired life

   A few days ago, a senior citizen was asking if he could dabble in the equity markets to earn extra money. Having retired more than a decade ago, this investor is sitting on a corpus which is attractive from an equity point of view. But the problem for the investor is that he needs a regular cash flow for living and hence any threat of capital erosion is completely avoidable.

   When told that the investment amount of Rs 10 lakhs has the potential to even become Rs 8-9 lakh in the short term through equity investments, he was utterly disappointed. He was viewing the equity markets with the hope of converting his one million into 1.5 millions. After all, that's what all equity-related news indicated with a return of 40-50 percent.


   First, let us understand why our retired investor is considering the option of investing in equity. A decade ago, immediately after his retirement, he would have been happy to get a fixed return from his money as it ensured regular cash flows without the risk of capital erosion. A lot can happen in a decade in financial markets as it is a long time horizon for any market. It is not very different in the last decade either.

   The equity markets have rallied since 2000 and have gone up by as much as 8-10 times. Interest rates have fallen by as much as 40-50 percent. What has compounded problems for retired investors is the high inflation in the last 12-15 months. Those who bet only on fixed return products are facing the challenge of inflationary pressures. In fact, there is a lesson for any individual planning his postretirement life in the coming years.

   One should take into account a number of factors while building a corpus for life after retirement.

Here are some tips that could come in handy:

Choose products that beat inflation    

As pointed out earlier, inflation is a big risk though you can expect it to be moderately volatile in the coming decades. While you can expect the consumer inflation index to grow at the rate of 7-8 percent, it is bound to throw challenges at regular intervals as has been the case in the recent times. Hence, an investor needs to allocate a portion of his corpus in products which can beat inflation in the medium to long terms.

   The choice of products could be gold, equity and property. Under the equity category, products like balanced funds, dynamic equity funds and monthly income plans can do the job.

Mix and match fixed return options    

No retired person can ignore the need for assured returns. Hence, they need to form a good chunk of the portfolio at all times. A basket of instruments like fixed deposits, debentures which are secure and non-convertible, and company deposits with good credit rating can be part of this list.

   In addition, investors can also look at capital-protected schemes and pension schemes. The advantage with the latter is that the investments needs to be made well in advance as longer the tenure, higher would be the corpus. Around one-third of the post-retirement fund needs can be met through this product as annuity after retirement ensures regular cash flows. More importantly, a pension plan does not pose the challenge of re-investment which is a big challenge for any investor in the long term.

   With every decade throwing up fresh challenges, you can expect money management to be a challenging task as the years pass by. Chances are, as an investor, you may have to deal with products that you never came across during the early part of your life.


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