Monday, December 29, 2014

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. 

Wednesday, December 24, 2014

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/

Tuesday, December 23, 2014

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 1st 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

Monday, December 22, 2014

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.


Friday, December 5, 2014

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.