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Wednesday, May 31, 2017

How to review mutual fund investments?

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by Mr Deepak Jasani, HDFC Securities.

Investing in mutual funds should ideally be for the long term.

However, it is essential to periodically review the performance of the schemes by studying the historical returns of that scheme and comparison with the returns of benchmark / category that the schemes belongs to, over the same period of time.

If you do not do this, you may not achieve your earlier planned goals in time. Ideally, this exercise should be conducted every 6 to 9 months.

1. Performance of schemes

Historical absolute returns of the scheme (over different periods, say, 6 months, 1, 3 and 5 years) can give a sense of how the scheme has been performing. Returns during various market cycles should be studied as opposed to just comparing point-to-point returns. If the absolute returns are consistently below par or expectations, then there could be a risk of investors’ goals not being met at all.

The next step would be comparing the scheme’s performance with that of the benchmark and category to which the scheme belongs. By studying the returns vis-à-vis benchmark, investors will understand whether the scheme has generated enough premium to justify the cost of the actively managed scheme as opposed to simply tracking the benchmark through an exchange traded fund (ETF).

Comparing with category returns will help in understanding if the outperformance (or underperformance) is attributable to the entire category or just the scheme alone or a bit of both. If the scheme has consistently underperformed, then it is time for the investor to switch out of the scheme to better performing ones in the same category.

2. Assess the risk..!

The investor should also assess the risk that was undertaken to earn those returns. This can be done using various measures like Sharpe, Treynor Ratios, Standard Deviation (SD), etc. Out of these, SD is a simple yet comprehensive risk measure and gives a fair idea of the risks involved in earning the expected returns.

The investor should compare the scheme’s risk along with that of the category average and whether this is in line with his expectations and/or his own risk profile.

Portfolio turnover ratio is a measure of churn within the portfolio; i.e., how much has the fund manager bought/sold as compared to the total assets under management of the scheme.

In schemes with particularly high turnover ratios, investors should assess whether it has resulted in any excess returns.

3. Asset allocation changes..!

Another factor to consider would be asset allocation changes at the investor level that have occurred after the original investments. This can happen since not all asset classes grow or decline at the same rate.
The investor should make sure that his current asset allocation is in accordance with the originally intended allocation.

Investors in sectoral or thematic funds or investors having a particularly large exposure to a specific segment of the market need to be extra careful since they are exposed to unsystematic risk as well.

 Assessing the macro events pertaining to the sector like regulatory changes, changes in economic conditions should help the investor to estimate the future prospects of the sector/theme to a certain degree.

For example, currently, the IT sector has run into headwinds due to structural changes, rupee appreciation and changes in visa policy.

Investors should also assess if any particular segment that he is invested in is trading at high valuations which might be an indicator of the forming of a bubble in the sector.

In such situations, one can make use of the PE ratio of the particular sector/segment and compare it with its historical average and also against the Nifty 50 index to assess if it is trading at particularly rich valuations.

Review does not necessarily mean exit or switches. It is mainly meant to be aware of the emerging situation and taking necessary steps (only in case of major deviations) to fall in line with your original risk return profile and financial goals.

About the author


The Mr. Deepak Jasani writer is head, Retail Research, HDFC Securities.

E mail it : deepakjasani@gmail.com


First-time Equity Investor : Is Mutual fund Ideal?

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 First-time Equity Investor : Is Mutual fund Ideal?  

by Mr. Kaushlendra Singh Sengar, Advisorymandi.com

If you are new to stock market, then it is advisable not to invest without knowledge.

Stock market is not a gamble, it is a business.

However, we make it a gamble by investing without knowledge.

On the other hand, stock market professions make money from the market because they research about the fundamentals of stocks and have wide experience selecting stocks.

1. Mutual fund route..!

Ideally, one must take help from expert fund manager to manage your funds in stock market. Mutual funds collects money from investors and invests in stocks.

They charge a nominal fees as fund management charges for investing your money in stocks. Mutual fund houses are regulated by Securities and Exchange Board of India (SEBI).

In mutual funds, first time investors should look at Systematic Investment Plans (SIPs) to build long-term wealth. SIPs allow an investor to buy units on a given date each month. One can start with a minimum amount of Rs. 500.

The biggest advantage of an SIP is that the investor doesn’t have to time the market. Investing every month ensures that one is invested during the highs and the lows

To be sure, SIPs make the volatility in the market work in favour of an investor and help average out the cost. More units are purchased when a scheme’s net asset value (NAV) is low and fewer units are bought when the NAV is high.

When the two situations are analysed together, the cost is averaged out and, the longer the time-frame of the investment, the larger will be the benefits of averaging.


2. Risky direct investment..!

If you are directly investing in stock market it can be a risky proposition. Suppose you bet on 10 different companies stocks, out of them you will get an average success in 3 to 4 stocks, but if the same thing is done by expert than the accuracy can be much more.

If you are an active investor and having some risk appetite than go for equity mutual fund and you are passive investor with less risk appetite than invest in debt or balanced mutual fund.

There are different types of mutual funds scheme available in the market. Investing in equity-linked savings schemes will get you tax benefit, too.

About the author..

The writer  Mr. Kaushlendra Singh Sengar is founder & CEO, Advisorymandi.com




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Managing Debt: How to pay off Credit Card Loan, 7 Best Tips

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Managing Debt: How to pay off Credit Card Loan..!

By Mr. P Saravanan, IIM Shillong

Avoid revolving your credit, opt for balance transfer of your outstanding amount and convert outstanding debt into EMI option.

Credit cards are often described as a debt trap when used uncontrollably, whereas if used smartly, it could provide you free credit for certain period of time.

However, significant number of investors end up with large sums outstanding on their cards and owing to higher rates of interest they find it difficult to settle entire amount.

Let us discuss below, how to pay off your credit card debt.

1. Pay more than minimum balance..!

Often investors are enticed by the revolving credit facility offered by the bank. Under this, out of the total amount outstanding one can pay just 5% and remaining outstanding can be carried forward.

Such a revolving credit facility cost you up to 40% per annum. Pay more than the minimum balance on each month.

If minimum payment required for that month is say Rs. 2,000 try to pay back double or even more if possible.

2. Avail balance transfer facility..!

You can consider balance transfer or transferring your outstanding amount from one card to another. Under this scheme, you can shift your balance from one card to the other or / from multiple cards to a single card.

The major advantage of balance transfer option is that the second bank (who takes over your outstanding amount) generally allows a credit-free period up to ninety days for easier repayment of your pending amount.

3. Stop credit card spending..!

Another easy way is take out all credit cards from your wallet, and leave them at home when you go for shopping. Avoid using credit card, even if you earn cashback or other lucrative rewards with credit card purchases. You should stop spending with your credit cards until your finances are under control.

4. Use your bonuses to pay debt

If you receive any performance-based bonuses or annual incentives, etc. use the same to pay off your credit card outstanding.

Avoid the temptation to spend that bonus on a vacation or buying any other luxury items. It is more important to keep your house in order than that owing luxurious products.

5. Change your spending habits..!

Generally, your daily spending habits and routines are the reason for getting into the debt trap. Avoid unnecessary buying and ask yourself questions about how you spend money each day, each week and each month.

Think of the possibilities of bringing your lunch to work instead of buying it four times a week from the canteen.

Change your habits by asking yourself what can I change without sacrificing my lifestyle too much and act accordingly.

6. Personal loan to pay off card debt..!

Try to avail an interest free loan from friends or relatives and if you are not successful in that then you can go for a personal loan and use that money to pay off the credit card outstanding.

For personal loans, interest will be in range of 14-18%, but still you could save a lot as credit card companies charges you around 35% on an annualised basis.

7. Convert outstanding into EMI..!

Another option is that you can convert your outstanding debt into EMI option from the same bankers. Almost all the big bankers provide an option to convert the credit card debt to EMI for tenures ranging from three to 24 months.

The interest on the same can vary in between 18% to 24% depending on the banker. They will also charge a processing fees, which will be one or two percent of the outstanding amount.

 About the author


The writer Mr. P Saravanan is associate professor of finance & accounting, IIM Shillong.

28% GST detrimental to the existence of amusement park industry

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28% GST detrimental to the existence of amusement park industry
Industry being categorized alongside casinos, betting and race course


Mumbai, May 31, 2017: The recently announced Goods and Services (GST) tax by the Government of India, has put the very existence of India’s amusement – theme park industry at peril with the imposition of a mammoth tax rate of 28%. This new taxation regime puts this industry catering to outdoor entertainment for children, youth and families at par with the casinos, betting and race courses. It also overlooks the essential role played by the industry in creating social infrastructure and attracting tourism.

One year back, in many states, where the tax rate was 0%, then service tax added to 15% and now with GST it is 28% which is a huge burden on the industry.

The amusement park industry, which is still in its budding phase in the country, is a highly capital-intensive industry and requires significant investment both Capex on land and rides to the tune of Rs. 700 crores for mega parks and Rs. 100 crores for mid-sized parks and also the Operational Expenditure (Opex). Furthermore, although being a highly seasonal business, all the parks have to operate on a full capacity even during off seasons.

In spite of operating on such thin margins with cumulative revenue of INR 1,700 crore approximately, the amusement park industry has contributed significantly towards social infrastructure creation and currently employs around 1.25 lakhs across India. Realizing the essentiality, it plays in establishing tourist hubs, more and more states are now keen to host theme parks to attract increasing number of tourists.


Mr. Shirish Deshpande, President, Indian Association of Amusement Parks and Industries (IAAPI) & CEO, Pan India Paryatan Pvt. Ltd., (PIPPL) said, “This is a huge setback for our industry which in essence puts our very survival at risk. Such high taxation is out rightly unsustainable for our industry which as it is operates on a paper-thin margin. Amusement park is not and was never a luxury. It is a social infrastructure giving outdoor entertainment to children and youth of tomorrow’s India, who are otherwise glued to gadgets and digital world. Amusement Parks helps foster bonding with family and friends, relieves stress and provides rush of adrenaline and more. It has a direct correlation with the development of tourism in any state and plays a major role in creating employment both directly and through ancillary and other related industries. In view of this, as a representative of the industry, we would like to urge the government to consider our standpoint and treat the industry in line with hospitality and restaurants which fall in the GST slab of 12%-18%, on top of it this industry does not consume major raw materials and input credit is not more than 2-3% therefore it makes amusement industry unviable to sustain such high GST rate.”

Globally, in markets where ever GST has been introduced, tourism rate has been kept half of the GST rate and in most cases, it is under 10%.  The GST rate in Australia is 10%, Singapore is 7%, Japan 5% , Malaysia 6%. This on one hand stimulates tourism demand and on the other creates an economic multiplier effect on GDP thereby creating business opportunities across multiple sectors such as hospitality, food & beverage, transport among others. 

Mr. Rajeev Jalnapurkar, CEO, Ramoji Filmcity said, “Imposing such high rates of taxation is detrimental to the prospects of our business making it unviable besides putting thousands of jobs at stake. The amusement park industry is still at its nascent stage and requires significant support from the government’s end to make the industry flourish in its full dynamism. We strongly advocate the government to rethink on its decision and support our industry by bringing it under the aegis of the tourism industry.”

Such a high tax rate will not only hamper the current Amusement Park industry but will be deterrent to new entrants in this industry.

For further information please contact:

Adfactors PR
Rahul Jain
+91 9867567534
rahul.jain@adfactorspr.com
Adfactors PR
Debdoot Majumder
+91 96193 21119


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Tuesday, May 30, 2017

9 Indian Cities in JLL’s latest ‘Global 300’ Rankings

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9 Indian Cities in JLL’s latest ‘Global 300’ Rankings

 by Mr. Ramesh Nair, JLL India

A total of nine Indian cities figure on the latest edition of ‘Global 300’ cities – the annual JLL ranking exercise, which represents 300 major cities that are the focus of commercial activity and interest, 40% of the world’s economy, and three-quarters of global real estate investment. In an ever-changing world, more urban centres in India are rapidly emerging as players on the global stage – moving beyond the powerhouses of Mumbai, Delhi and Bangalore.
While the megacities of Delhi and Mumbai rank in the ‘Global Top 30’ – thanks largely to their huge scale, other cities such as Bangalore, Chennai and Kolkata sit within the ‘Global Top 100’ – with Hyderabad sitting just outside. Mumbai (17th) is among the 20 largest cities in the world by gross domestic product (GDP), while Delhi (22nd) sits just outside of this – with both cities having a GDP of more than $400 billion. This also makes them the fifth and sixth largest cities in Asia, respectively, only behind Tokyo, Shanghai, Seoul and Jakarta.



Source: JLL

Both the megacities demonstrate their sheer scale by being larger than the likes of Singapore, Hong Kong, Washington and San Francisco. However, in GDP per capita terms, Mumbai and Delhi lag behind their global counterparts, due to their large populations. While both Indian megacities significantly lag Shanghai, Beijing and Seoul, even the American cities and Singapore have per capita incomes that are three to four times larger.

In terms of corporate presence, Mumbai comes ahead of San Francisco, Shanghai, Sydney, Singapore, Washington, Atlanta, Toronto etc. Delhi, too, is ahead of cities like Guangzhou and Frankfurt. Corporate presence is based purely on number of headquarters of the Forbes 2000 list. The scale of the Indian market means that 38 companies – based in either Delhi (14) or Mumbai (24) – make the list from India’s largest IT firms, banks and energy firms. This does not account for regional or secondary offices of global firms, which may help account for Mumbai and Delhi’s high positions.

Although some attention is starting to turn to the country, India’s cities are not large recipients of direct real estate investment – given the difficulties in accessing stock and market transparency. Mumbai sees similar investment volumes to cities such as Guangzhou and Mexico City – but just 5% of those seen in Shanghai (USD 37 billion) and 10% of those seen in Beijing (USD 18 billion). Over the past three years, Mumbai has attracted USD 1.7 bn of real estate investment, while Delhi has seen USD 0.6 bn.

This puts both cities outside the ‘Global Top 100’ real estate investment destinations, despite their scale. These markets are dominated by domestic players, rather than international investors. These lower rankings suggest that, while Mumbai and Delhi have the scale to match their global counterparts, they are underperforming in terms of direct real estate investment. It is also indicative of an historic preference by investors to look to development and debt lending to gain exposure to real estate in the Indian market.

However, a number of key policy-level changes taken by the government in recent times such as RERA, REITs, simplification of taxation, easing of FDI restrictions, are expected to counter this. Along with completion of new high-quality stock by commercial developers, which will increase the amount of investable assets across India, these developments are encouraging increased interest from international investors of the likes of Blackstone, GIC and Brookfield.

About the author..

Mr. Ramesh Nair – CEO & Country Head, JLL India


 For media contact


Sunday, May 28, 2017

Why do Indian Households Invest? Top 10 Reasons..!

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Why do Indian Households Invest? Top 11 Reasons..!

Form
SEBI Investor Survey 2015


1. Capital Gains 2594

2. Improve Lifestyle 2495

3. Liquidity Needs 1994

4. Home Buying 1760

5. Education 1471

6. Regular Income 1320

7. Retirement 1301

8. Tax Saving 1248

9. Bequest 527

10. Charitable 276

11. Social  Function  140


Figure 4.2: Why do Households Invest




N = 5,356 (all urban investor, SIS 2015). Optional question answered by 5,313 investors.  Respondents could check multiple options.

According to Figure 4.2, capital gains, which are “… an increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase  price”, is the primary purpose for household investing.

Thus, capital gains closely followed by lifestyle improvement are the key motivations for investing while  liquidity needs and home buying also play crucial roles.

Additionally, since there are almost no investment opportunities (as opposed to savings schemes) that allow for tax savings, this factors significantly lower in the list.

With just 3% of Indians paying income taxes, the indifference towards tax savings schemes may also be a consequence of the insignificant tax net.

While investment rationale, that is, “Why do I invest?” is a crucial element of the survey, key drivers of broader financial savings (in both investment and other financial instruments), that is, “What Drives Me to Save?” is also an important question that needs to be explored. Figure 4.3 shows the distribution of savings amongst households by income levels.

The economic reasoning behind the linear income-savings hypothesis is logical and derives directly from basic development economics. Since all additional income is expended to supplement basic needs, lower income groups have a higher marginal propensity to consume.

Figure 4.3 backs this claim as the data shows that 85% of those in the < Rs. 20,000 income range have savings less than 40% of annual income.

Once the threshold of basic needs is crossed, households start saving for future contingencies or for investment returns. The SIS data supports this hypothesis; in urban India, the limit is above or around the Rs. 20,000 per month level. The data also reveals that middle-class households in the Rs. 20,000 to Rs. 50,000 range, followed closely by the Rs. 50,000 to Rs. 1 lakh income group, have a higher marginal propensity to save.

Unexpectedly, the figures disclose that 80% of households with monthly income greater than 1 lakh also have savings less than 40 percent of annual income.

While this seems to go against the linear income-savings hypothesis, it is crucial to keep in mind that this high- income segment may have social safety nets (like insurance, family support, etc.) that allow them to have a lower “precautionary demand for savings”.

Additionally, with just 3% of Indians paying income taxes, the top tier of the high-income group are arguably less keen to disclose their incomes and savings.


N = 5,356 (all urban investor, SIS 2015). Optional question answered by 5,313 investors.  Respondents could check multiple options.

According to Figure 4.2, capital gains, which are “… an increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price”, is the primary purpose for household investing.

Thus, capital gains closely followed by lifestyle improvement are the key motivations for investing while liquidity needs and home buying also play crucial roles.

Additionally, since there are almost no investment opportunities (as opposed to savings schemes) that allow for tax savings, this factors significantly lower in the list. With just 3% of Indians paying income taxes, the indifference towards tax savings schemes may also be a consequence of the insignificant tax net.

While investment rationale, that is, “Why do I invest?” is a crucial element of the survey, key drivers of broader financial savings (in both investment and other financial instruments), that is, “What Drives Me to Save?” is also an important question that needs to be explored.



Figure 4.3 shows the distribution of savings amongst households by income levels. The economic reasoning behind the linear income-savings hypothesis is logical and derives directly from basic development economics. Since all additional income is expended to supplement basic needs, lower income groups have a higher marginalpropensity to consume.

Figure 4.3 backs this claim as the data shows that 85% of those in the < Rs. 20,000 income range have savings less than 40% of annual income.

Once the threshold of basic needs is crossed, households start saving for future contingencies or for investment returns. The SIS data supports this hypothesis; in urban India, the limit is above or around the Rs. 20,000 per month level. The data also reveals that middle-class households in the Rs. 20,000 to Rs. 50,000 range, followed closely by the  Rs. 50,000 to Rs. 1 lakh income group, have a higher marginal propensity to save.

Unexpectedly, the figures disclose that 80% of households with monthly income greater than Rs. 1 lakh also have savings less than 40% of annual income.

While this seems to go against the linear income-savings hypothesis, it is crucial to keep in mind that this high- income segment may have social safety nets (like insurance, family support, etc.) that allow them to have a lower “precautionary demand for savings”.

Additionally, with just 3% of Indians paying income taxes, the top tier of the high-income group are arguably less keen to disclose their incomes and savings.


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