2014 - A good year for financial assets

2014 has a good year for financial assets. Investments in Equities including equity mutual funds and in debt – debt funds and fixed deposits have beaten inflation. Unless you had all you money in gold or gold funds, you have beaten inflation. Gold Funds gave a –ve return -6.10% as per Value Research.

This is a good time re-allocate you assets as per you financial plan. I am a firm believer in investing only according to a plan. Random investing to go along with the tide may be counter-productive in 2015. For 2015, stick to your plan and asset allocation. 

Debt

The returns from debt funds – have all beaten inflation. By November, WPI inflation was at 0 and CPI inflation at 4.38.

Given below is the performance of Debt Funds. Fixed deposit rates were about 9.00 – 9.50 % at the beginning of the year for deposits of > 3 years and those who had invested in debt / deposits have down well. The 8.75% returns for PPF and EPF in addition to beating inflation are tax-free. So we have had a year in which even debt has beaten inflation.

Debt – Income Funds	12.82
Debt – Short Term	10.49
Debt – Ultra Short Term	9.16
Gilt Funds – Long/Medium	16.40
Liquid Funds	8.76

Equities

Equities, especially mid-caps and small-caps, were the toast of the market. The BSE small-cap index was the top gainer at 66 per cent; the mid-cap index rose 51 per cent. The key benchmark indices, Sensex (on the BSE) and Nifty (on the National Stock Exchange), rose 29 and 30 per cent, respectively. These gains were despite about 2,000-point drop in 13 trading sessions between November 28 and December 17.

The below picture from the Business Standard gives a great snapshot.

Source: Business Standard

Returns from equity mutual funds - it has been good for Mutual Fund investors

Equity Large Cap Funds	34.69
Equity Mid and Small Cap	72.29
Equity Multi Cap	50.91
Equity ELSS	49.08
Hybrid Equity Oriented Funds	38.95

 However, international equity funds did not fare well and returned on an average 2.61% only. 

Gold

This picture from the Mint gives you a snapshot of how gold performed.

Real Estate:

It is difficult to analyse how real estate fared. However as per the NHB Residex, the performace this year hasn't been too great. While some pockets in some cities have fared well, overall real estate has not given the expected results this year. With piling inventory and stagnating sales, it remains to be seen how real estate will fare. See the below pic from the Business Standard. 

Finally, do your re-allocation now and keep investing systematically. 

Nifty PE & PB and snapshot of performance...

It has been a good year for investors who have been invested in equities and have remained so. A snapshot of performance in percentages over a year as on 23.12.14 is given below.

Category performance is from Value Research

One year performance of a few categories of Equity Funds

So, today  where are we in terms of valuations when compared to previous highs. The Nifty PE was 28.29 on 8.1.2008 and 25.72 on 6.10.2010. The price to book was at a high of 6.55 on  8.1.2008 and 3.97 on 2.11.2010.

Today the PE as per NSE is 21.12 and the PB is 3.49

 Source: http://www.nseindia.com/

Mission 5 crore +

Mission 5 crore +

Received a super response by mail to my post of 22.12.14. This is worth sharing.

“Thanks for your article – Be deliberate in your actions. I really like it and especially the part where a student you met, put down goals in writing and wrote – CAT 99 percentile. This really impacted me and I have today printed on a big paper – Retirement: Mission 5 Crore +

This is how I plan to go about and I have written in my diary. I am today starting an SIP of Rs 15000 a month for the 1^st of the month for 15 years so that I can get about 75 Lakhs... in 15 years.  Every year I will increase by putting a new SIP of Rs. 5000. This is in addition to the PPF etc. that I have saved.

I wish to consult regarding….”

 “Till now, though I have been a good saver, I have not approached it like you wrote”

This is amazing - putting down the larger goal and details the steps towards achieving it!

It is heartening to note that writing has some impact and it underscores the need to be deliberate in your investments!

My twitter handle @invest_mutual

Year end reflections: In life or in investments - be deliberate in all your actions

The end of a year is always a good point to reflect… reflect on where you want to go and how you fared in the year gone by. As I started on a new life as a financial planner and trainer, it has been my good fortune to meet many people who have shared their wisdom with me.

One thing that came out in all my interactions, in knowing where I have gone wrong and where others erred…was that random actions and investments lead you nowhere.

The simple message for the new year -  Be deliberate in all your actions

Don’t let life’s waves lead you anywhere and toss you around. Even in your financial life, be completely  aware of what you are doing, where you are and where you want to go. Doing things deliberately means an awareness of your resources and the outcome of your actions.

A few people I met  made investment decisions without any deliberation, plan and at random, even on impulse - based on advertisements!!. This led to sub-optimal returns in a year which has been great for investments. A very young professional – 23 years old who saves about Rs 2 Lakhs a year was conned by an uncle into taking a money back policy for Rs 54000 per year!! No thought on what she wanted and what it entailed…

Being deliberate means the following:

First, it means – Having very clear goals and priorities:

There is no point in having vague goals like “ I want to be wealthy”. Your goals and priorities must be very clear. WRITE THEM DOWN.  For example,  a student I met had stuck a big piece of paper on her desk – CAT 99 percentile. As she got up every morning, the first thing she would see was her goal and every action during the day would be aligned towards that goal.

To reach anywhere in your financial life – first have goals and then prioritize them. What do you want from your life and how much money will get you what you want.  Then comes the planning part…to decide how each financial goal will be achieved.

Only if you know what you do, can you be deliberate - Make an effort to increase your knowledge

It is an investor’s  responsibility to have a basic understanding of investment products, know where to invest, for how long, how much, and why. Even investors who prefer to stay with simpler products should study their investment choices.

Many investors don’t like to read stuff on finance but you should at least know the basics. Today it is very easy to get a basic idea of financial products. Social media is a great place to get knowledge of the instruments you want to invest in. Having a basic understanding of financial products will help take informed decisions. You should have the ability to understand some details such as tax and net returns of every product. Working knowledge is good for a start.

 Now, as a consequence of the basic knowledge you have gained…

Invest only in products you understand:

To create wealth in the long run, you do not need to do anything stupid and invest in products, schemes that your “more intelligent” peers do. As long you don’t make blunders, you will find wealth building slowly but surely and all goals being reached. As a corollary – Do you understand the returns you are getting from products like insurance and the costs you incur?? If you do not then simply AVOID such products even if you brother-in-law assures you that all is great.

Being deliberate means…

Maintaining discipline in investing:

Automate and systematize your investing. This is the best way to maintain discipline in your investment. Keep a note of your cash flow – how much you earn, spend and save and you will see that by just being aware of your cash flow, you are doing the right things.

Being deliberate means, after the investments have been made…

Periodically monitoring your investments:

Being deliberate means being aware of where you have invested and monitoring regularly. It would be good to check if all the SIPs have gone through correctly and how the investments have fared. Monitoring would mean that you.

So, the final message – being deliberate in everything you do, including your investments will work wonders for you.

Do not hesitate to take the help of an advisor or planner if you wish to get a better direction. There are people with knowledge around and you can certainly take guidance. Taking such guidance would cost you a bit, but it is well worth the cost.

Wishing all a great and successful year ahead.

Upfront commissions: Should SEBI step in

Mutual Funds: The debate on upfront vs trail continues...

The market run-up has seen a spate of NFOs, closed-end NFOs in an exercise seen by commentators as an exercise in AUM gathering. It has been widely reported in the press that upfront commissions between 5%-8% has been paid by AMCs to distributors. Banks and National Distributors having the widest reach have obviously been paid the highest amounts. Surely we can expect miselling with such high commissions. Churning would make easy money wouldn’t it?

It’s been close to two months now since the Association of Mutual Funds of India (Amfi) members have been discussing idea of abolishing upfront commissions that fund houses pay to distributors. However, the industry has not come to any conclusion on retaining only trail and abolishing upfront commissions. Some commentators are suggesting a mid-path with a lower upfront (with a cap) combined with trail.

Alarmed at the high upfront commissions and seeing no consensus on the issue by AMFI, it has been reported that SEBI would step in and regulate the payment of commissions. Read this piece in the ET.

I do believe that Fund houses have gone overboard in the series of closed end NFOs with an AMC even launching a Series1 and Series 2 at the same time, being closed end for a different period!! I have also seen a few people subscribe to such NFOs, being informed that it is good to invest for a long term for 3 years!!!

The question arises now – Should SEBI step in??

Normally I would be against any regulation in what is a business decision. AMCs should decide how much to pay for acquiring and retaining assets. However, I also believe that AMCs continually launching unnecessary NFOs are really harming investor interests.  Certainly the high upfronts are causing churning and the fear of widespread mis-selling is valid. AMCs are divided on the issue as you will see in the below twitter conversation. There is a case for a bit of intervention or a  rap on the knuckles by SEBI. 

Do see this nice discussion on twitter.

PPFAS MF holds the first ever AGM for mutual fund unitholders at Chennai 8.11.14

In a first ever for the Mutual Fund industry, I was pleasantly surprised to receive an invitation from PPFAS Mutual Fund to attend an AGM for Unit holders and attended the first one at Chennai earlier today.

In a world where gathering of AUM is the norm with hardly anyone making themselves accountable to investors, it is refreshing to see  a Mutual Fund look upon investors as true owners of the fund and stating clearly that they look upon themselves as trustees. Rare to see an AMC offering themselves to scrutiny, taking questions from the “owner – unit holders” and frankly sharing their views and philosophy.

With a clearly stated goal to align the interest of the unit holders and managers and as trustees of unitholder money the PPFAS team  put themselves up for scrutiny here at Chennai.

Mr. Parag Parikh, the CEO and Director and Mr. Rajeev Thakkar, the Chief Investment Officer themselves were present. Will not write details of their presentations and you must attend if you have the opportunity. However, one point that struck me and is a value I hold very dear was mentioned by Mr. Parikh when he was outlining the philosophy of the AMC. He mentioned clearly that there were two sets of laws governing mankind - Universal Laws made by God and man-made laws and policies. The former is a constant and can't be changed and PPFAS Mutual Fund endeavors to be aligned to the Universal Law of Truth; this would mean that their thinking and actions are aligned to the interest of the investor completely without deviation. This value explains the frank open nature of the discussion which followed later.

Man-made laws, rules and policies can be manipulated and examples are -  devising fancy new types of series of schemes, declaring dividends to entice investors, all of which may look good, but actually harm investors' interest.

Mr. Thakkar gave a great presentation outlining the investment philosophy, and how they arrived at their investments. Was a great learning for all present.

The best (and longest) session was the Q and A session and the audience questioned the AMC on almost all of the scrips in the portfolio.  Mr. Thakkar answered in very great detail and the Q and A itself was a great learning. What really impressed was their openness and accountability to the true owners of their fund - the unit holders. 

Truly, I do not think many AMCs can have such a meet; for how can anyone answer detailed questions on 136 odd schemes??  Or can anyone explain truthfully  why there are multiple schemes investing in the same theme?? 

The Management of this AMC does evoke trust in unitholders.

Real Estate...becoming Unreal

Sharing some good links on the real estate scene from Firstbiz

In this post, Sunainaa Chadha says:

Sales across top six cities in India saw a quarter-on-quarter drop of 25% in the September quarter, the lowest sales since 2009 while unsold inventory rose to a high of 815,000 apartments as investors are slowly deserting the property market as prices have peaked.

This is the highest ever unsold stock  implying that the ready but vacant flats will take at least four years to sell, which means home prices have not only peaked in India's financial hub, Mumbai, but in other parts of the country too.  The report covered six cities—Mumbai Metropolitan Region (MMR), the National Capital Region (NCR), Bangalore, Hyderabad, Chennai and Pune, which contribute round 70% of the total apartments built in India.

While sales in the national capital region (NCR) have dipped 34 percent to 11.51 million sq feet quarter on quarter, sales in Mumbai were down 9% to 10.22 million sq ft from the last quarter. But get this: the productive markets of Bengaluru and Chennai have been hit the most, with sales dipping by 43% and 46%, respectively, from the previous quarter. The average price increase in the six centres was just 1%.

In Greater Mumbai for instance, weighted average cost of a house has soared to an all-time high of Rs 3 crore (from Rs 2.8 crore last year) even as the unsold inventory pile-up has shot up to 53,856 units. The number of apartments that came into the market this quarter (3,589) is also 53% more that the previous quarter but sales have dipped 6 percent in the same period. According to Pankaj Kapoor, MD at Laises Foras, it will take 65 months ( a little over 5 years) to sell these apartments!

From Firstbiz

Read the entire article here

Read these links:

What does easier FDI in real estate mean

Construction FDI - Speculators gain

A message from a woman...

This is a guest post by Shivani Desai, who is a trainer at the Money Mantra workshops

I wish to share with the gist of a message shared by a woman, a home-maker who attended one of our workshops.  She was asked to speak and share her thoughts and shared this wonderful message, worth recording here.

All my dear lady friends, no one will take care of you or for your money as much as you do.

Managing money has been seen to be clearly a man’s domain. We women conveniently pass the responsibility and the right to manage money to our husbands and shift our focus to managing day to day family affairs apart from the little job that we may have. We get lost in the rut of daily chores and are too tired to know, understand and to learn about matters beyond family budget.

An unexplained fear surfaces in us when we hear about anything untoward happening to our lady friends, or any acquaintance. We dread imagining ourselves in such a situation where we lose a loved one and shrug off the thought by reassuring ourselves of our strong belief in GOD. We think that by not thinking of such a situation, it will not happen.

BUT remember GOD helps them who help themselves.

So friends, please resolve to take few steps in this direction and even if you do not get involved in day to day decisions, make sure that you know

1. List of bank accounts both joint and individual.
2. List of properties in your name and your husband's name
3. Do you have life insurance policies and who are the beneficiaries.
4. List of investments made in your name your husband's and in the name of your children. This should include the investments made from your savings
5. Where are important financial papers such as insurance policies, property papers, bank statements, kept
6. How much exactly are we as a family  spending, saving each year?
7. How much debt do we have to be paid off?
8. Are we on track to meet our goal be it children’s education, marriage, retirement
9. Who can I go to for help if I need it  in case of an emergency?

Some of the ways women can become more confident is by first accessing their own bank accounts, paying their own credit card bills, instead of their husbands doing the same  for them.

Learning  and helping in few simple tasks that your husbands have to do regularly for eg. depositing cheques, keeping track of bill payment dates electricity,credit cards ,telephone will give you a lot of confidence.

As you gain more confidence, you can make a little effort in learning more about investments and handle the same yourself. It is no rocket science. Haven’t many surveys shown that women turn out to be better money managers :)

 

I thank the Money Mantras team for giving me this opportunity which has opened my eyes.

RBI advice to banks on prevention of cheque related frauds

RBI, has noted that many cheque related frauds could have been avoided had there been proper checks by banks at the time of handling and/or processing the cheques and monitoring newly opened accounts.

In a recent circular to banks the RBI has advised them to review and strengthen the controls in the cheque presenting/passing and account monitoring processes and to ensure that all procedural guidelines including preventive measures are followed meticulously by the dealing staff/officials. Given below are some of the preventive measures suggested by RBI.

• Ensuring the use of 100% CTS - 2010 compliant cheques. Under the CTS environment, electronic image of the cheque is transmitted to the drawee branch through the clearing house, along with relevant information such as data on the MICR (magnetic ink character recognition) band, date of presentation, and presenting bank. Cheque truncation obviates the need to move the physical instruments across branches
• Strengthening the infrastructure at the cheque handling Service Branches and bestowing special attention on the quality of equipment and personnel posted for CTS based clearing, so that it is not merely a mechanical process.
• Ensuring that the beneficiary is KYC compliant so that the bank has recourse to him/her as long as he/she remains a customer of the bank.
• Examination under UV lamp for all cheques beyond a threshold of say, Rs.2 lakh.
• Checking at multiple levels, of cheques above a threshold of say, Rs. 5 lakh.
• Close monitoring of credits and debits in newly opened transaction accounts based on risk categorization.
• Sending an SMS alert to payer/drawer when cheques are received in clearing.        

The threshold limits mentioned above can be reduced or increased at a later stage with the approval of the Board depending on the volume of cheques handled by the bank or it's risk appetite.

In addition to the above, banks have been asked consider the following preventive measures for dealing with suspicious or large value cheques (in relation to an account’s normal level of operations) :

a) Alerting the customer by a phone call and getting the confirmation from the payer/drawer.

b) Contacting base branch in case of non-home cheques.

The above may be resorted to selectively if not found feasible to be implemented systematically.

It has been reported that in some cases even though the original cheques were in the custody of the customer, cheques with the same series had been presented and encashed by fraudsters. In this connection, banks are advised to take appropriate precautionary measures to ensure that the confidential information viz., customer name / account number / signature, cheque serial numbers and other related information are neither compromised nor misused either from the bank or from the vendors’ (printers, couriers etc.) side. Due care and secure handling is also to be exercised in the movement of cheques from the time they are tendered over the counters or dropped in the collection boxes by customers.