Seven Investment Ideas

Transcription

1 23 April 2014 Seven Investment Ideas An (investment) t) idea can change your (financial) i life

2 Contents About Mutual Funds Performance of MF categories Seven Investment Ideas 1. Time to SIP in Banking 2. Think of Debt Funds with high yield accrual portfolio 3. Consider Fixed Maturity Plans (FMPs) for tax-efficiency 4. Have some exposure to good Company Fixed Deposits 5. Buy Tax-Free Bonds from secondary markets which offers yield better than Bank FDs 6. Start SIP in Equity Funds for long term financial goals 7. Use Liquid Funds for short term parking Online MF Purchase through MFSS MF Portfolio Login for Client MF Portfolio Analyzer

3 What is Mutual Funds? Passed back to Generates Returns = Investor Pools money with Fund House Fund Managers invest in Capital Market

4 Types of Mutual Funds By Investment Objectives By Constitution Equity Hybrid Debt Others Open End Closed End Interval Diversified Fund ELSS (Tax Saving) Sectoral Funds Index Funds ETFs Equity Oriented Debt Oriented Monthly Income Plans (MIPs) Liquid Funds Floating Rate Funds Income Funds Gilt Funds Fixed Maturity Plans (FMPs) Gold ETFs Arbitrage Funds Fund of Funds

5 Mutual Funds Risk / Return Return << < >> Debt Hybrid & MIP GILT & Bond Funds Short Term Funds Ultra Short Term Funds >> > Return << Equity Sectoral Funds Diversified Funds (ELSS) Index Fund Balanced Funds Liquid fund Arbitrage Funds Low Med High >> Risk << Low Med High >> Risk <<

6 Mutual Fund Performance

7 Fund Performance - Equity Category Name No. of Net Assets Absolute Ret % Compounded Ann. Ret % Fund (Cr) 1 mth 3 mth 1 yr 3 yr 5 yr 10 yr LargeCap 81 37, Large & MidCap 83 49, Mid & SmallCap 67 31, MultiCap 27 14, Tax Saving Funds 51 23, Equity Other 27 5, CNX Nifty CNX Midcap S&P BSE Small Cap (4.92) Almost all Equity categories bested Nifty across 1 month to 10 yrs time frame. Mid & Small Cap category has done exceedingly well consistently among others; Fetched 22.60% compounded annualized return in 5 years. Tax Saving Funds astoundingly managed to deliver p.a. return in 1 yr time frame and 17.60% CAGR in 5 yrs time frame, though 3 yr returns are lackluster but above Nifty. Returns are as on 22 April 2014

8 Fund Performance Sector Funds Category Name No. of Net Assets Absolute Ret % Compounded Ann. Ret % Fund (Cr) 1 mth 3 mth 1 yr 3 yr 5 yr 10 yr Sectoral Banking 13 2, Sectoral FMCG Sectoral Infrastructure 23 6, (1.51) 9.61 Sectoral Pharma 3 1, Sectoral Technology (6.47) Global Funds 37 3, (0.02) CNX Nifty CNX Midcap S&P BSE Small Cap (4.92) Defensive sector funds - FMCG and Pharma Funds performed consistently across time periods; offered staggering 31%+ compounded annualized returns in 5 yrs. Technology, Banking and Global Funds showed more volatility in returns. Infrastructure Funds picked up performance in the recent time. In 1 yr horizon, Technology Funds offered blistering 48.90% p.a. returns. Returns are as on 22 April 2014

9 Fund Performance - Hybrid Category Name No. of Net Assets Absolute Ret % Compounded Ann. Ret % Funds (Cr) 1 mth 3 mth 1 yr 3 yr 5 yr 10 yr Gold Funds 25 13,041 (2.66) Arbitrage Funds 11 4, AssetAllocation 6 1, Hybrid Debt Aggressive 27 8, Hybrid Debt Conservative , Hybrid Equity Oriented 31 13, Hybrid Other 19 1, Gold India (1.21) (0.91) CiilBl Crisil Balanced dindex Crisil MIP Index Gold Funds continued to lose shine. 5 yr returns are commendable but short term returns remain lackluster. Equity oriented hybrid funds [a.k.a. balanced funds] performed in line with Equity Funds categories. Returns are as on 22 April 2014

10 Fund Performance - Debt Category Name No. of Net Assets Annualized Ret % Compounded Ann. Ret % Funds (Cr) 1 mth 3 mth 1 yr 3 yr 5 yr 10 yr Income Funds Med/Long , Liquid Funds , Liquid Plus 86 98, Short Term Income Fund 48 47, Gilt Med/Long Term 43 5, Gilt Short Term 13 1, Medium Long Term Income/Gilt Funds 1 yr returns are lower due to rising yield curve during the period. Recent ease up in the yields helped Income Funds to deliver double digit annualised returns in the past 1 month. Returns are as on 22 April 2014

11 Investment Idea 1 Start SIP/STP in Equity Funds to achieve long term financial goals The most ignored but highly important investment idea is aligning long term financial goals with systematic investment plan (SIP). A financial goal of say Rs 12 lakhs for daughter s marriage hence in 10 yrs can be met by investing Rs. 6, 000 per month by assuming a 10% p.a. return on the conservative side. Is it not wise to start planning for it from now than waiting for a last minute hassle? In Systematic ti Transfer Plan (STP), oneinvest entire money in dbtf debt fund especially liquidid fund then transfer money systematically into equity fund.

12 How do I do Investment Planning? Start S early Invest regularly Plan for the future

13 Start Early Start Investing at age 50yrs 45 yrs 40 yrs 35 yrs 30 yrs 25 yrs Monthly Investment t Rs 5,000 Stop Investing at age 60 yrs Investment Period 10 yrs 15 yrs 20 yrs 25 yrs 30 yrs 35 yrs Total Investment (Rs) 6.0 lacs 9.0 lacs 12.0 lacs 15.0 lacs 18.0 lacs 21.0 lacs Current Value (Rs) 11.6 lacs 25.2 lacs 50.0 lacs 94.9 lacs crores crores * Assumes compounded annual returns of 12% over the entire period Difference in returns is almost Rs 2.30 crores! (Investment amount difference is just Rs. 6 lakhs) the sooner you start, makes a difference! The Power of Compounding is the Eighth Wonder of The World Albert Einstein

14 I Invest Regularly l Inculcate a HABIT to SAVE a certain sum of money each month It is very easy to spend WEALTH, but very difficult to SAVE Weekend trips Entertainment Apparels Leisure Tickets - movie Holidaying We EARN regularly We SPEND regularly So should we not INVEST regularly? Time in the market is more important than timing the market. - Warren Buffett

15 Plan for the Future A proper planning is required for accomplishing future financial goals.. Housing Children's Education Retirement Children s Marriage Dream Car Holiday Abroad Plan for the future because that s where you re going to be spending the rest of your life - Mark Twain

16 SIP Performance of Rs 10,000 per month SIP for 10 Yrs SIP for 15 Yrs Total Investment Lakh Lakh Scheme Name Present Value (Rs.) XIRR (%) Present Value (Rs.) XIRR (%) Reliance Growth Lakh 14.45% Lakh 24.62% HDFC Equity Lakh 17.04% Lakh 23.31% Franklin India Prima Plus Lakh 15.43% Lakh 20.86% HDFC Top Lakh 16.55% Lakh 22.38% # SIP Returns as on 22 April 2014 Additional Investment of Rs 6 lakhs over 5 yrs; is worth Rs 1.15 crores the sooner you start, makes a difference!

17 Start Systematic Investment Plan (SIP) Systematic Investment (SIP) into Equity Fund is recommended with long term horizon of 5 to 10 yrs. SIP is a method of investing a fixed sum, at a regular interval in a mutual fund. It is very similar to monthly saving schemes like a recurring monthly deposit. SIP offers convenience as direct debit (ECS) option is available. You can continue for as long as you want. Benefits Noneed to time the market Encourages disciplined approach to investments Harness the power of two powerful Investment strategies: Rupee Cost Averaging Benefit from Volatility Power of Compounding Small investments create Big Kitty over time Suitable for Salaried Lighter on the wallet Reap benefits of starting early

18 Recommended Equity Funds for SIP/ STP Performance of Rs. 1,000 SIP 12 Month SIP 36 Month SIP 60 Month SIP 120 Month SIP Value of Return Value of Return Value of Return Value of Return Scheme Name Rs. 12k XIRR(%) Rs. 36k XIRR(%) Rs. 60k XIRR(%) Rs. 120k XIRR(%) Large Cap Funds Birla SL Top 100 Fund 13, , , ICICI Pru Top 100 Fund 13, , , , UTI Opportunities Fund 13, , , Mid & Small Cap Funds Franklin India Smaller Cos Fund 15, , , HDFC Mid Cap Opportunities Fund 15, , , IDFC Premier Equity Fund 14, , , T ax Saving Funds Axis LT Equity Fund 14, , BNP Paribas Tax Adv Fund 13, , , ICICI Pru Tax Plan 14, , , , Index Performance S&P BSE SENSEX 13, , , , CNX Nifty Index 13, , , , S&P BSE Small Cap 15, , , , S&P BSE Mid Cap 14, , , , Returns are as on 22 April 2014

19 Investment Idea 2 Time to SIP in Banking

20 Time to SIP in Banking We gave a call to invest in ICICI Pru Banking and Financial Services Fund on 14 th March 2014 since then the fund has given 10.78% absolute return till 22 April2014. Bank Nifty: Trending Upward could touch 16,000 by Sept 2015 with some hiccups in between.

21 Time to SIP in Banking What makes our call continue to be a good option: Improved fiscal & current account deficit (estimated to be 4.5% & 2% of GDP for FY respectively) Stable currency Expectations of business friendly government in the general election Optimistic forecast of GDP growth (5.4% by IMF) Improving liquidity conditions and More importantly, shortly expected downward trajectory of rate cut Reasonable Valuation: Bank Nifty currently trading at 1.89x P/B which less than 50% of its life time high of 3.86x P/B touched in December Performance of Our Recommended Banking Fund: Fund Rating Launch ICICI Pru Banking and Fin Ser Fund Corpus (Cr) 1Mth 3Mth 1Yr 3Yr 5Yr ***** Aug Returns less than 1 year are absolute and for more than 1 year is compounded dannualized as on 22 April, 2014.

22 Investment Strategy Released on 14 th March We believe Banking Sector can go up 20 25% over the next 18 months, may be with some hiccups in the short term. Rate cut may take some time to come into reality, hence we have time in hand to accumulate systematically over a period of time. At this juncture we recommend following 18 months strategy i. Start a SIP/ STP^ in Banking Fund NOW for the next 6 months. ii. Then hold for the next 12 months. This strategy provides the scope for accumulation over the next 6 months and then staying put for the next 12 months. In STP mode initial investment can be made in ICICI Pru Savings Fund. ^ Monthly Systematic Investment Plan / Systematic Transfer Plan

23 Investment Idea 3 Think of Debt Funds with high yield accrual portfolio

24 Debt Funds having accrual portfolio At this juncture Debt Market is highly volatile thanks to RBI s moves and FIIs participation. Exposure to Long Term Income Funds/ d/g sec Funds attracts interest rate risk ikas yields ild going upward will have negative impact on returns. [If you are willing to take exposure in long term income fund or G sec fund, do it only when 10 yr G sec yield goes above 9.15%] To play safe bet we are advising to invest in high yield accrual debt funds with a time frame of 15 to 18 months to avoid interest rate risk besides locking funds in the prevalent high yield. Below mentioned are the recommend debt funds having high yield accrual portfolios. Scheme Name Rating Launch YTM % Corpus (Cr) Avg Mat (Yrs) Exit Load % (Tenure) HDFC Corporate Debt Opp Fund N.A. Mar % (12M) / 1 % (18M) ICICI Prudential Regular Savings Fund **** Nov , % (15M) We expect more than 10% p.a. return from these funds in the next 15 to 18 months time horizon.

25 Investment Idea 4 Consider Fixed Maturity Plans (FMPs) for Tax- Efficiency

26 Fixed Maturity Plans (FMPs) Fixed Maturity Plans (FMPs) is like a bank FD with a LOW taxation structure. FMPs invest in Bank Certificate of Deposits, Corporate Bonds, Commercial Paper (CPs), Money Market Instruments etc. whose maturity coincides with that of the scheme; hence blocking the Interest rate risk. Current Yields: 1 yr Bank CDs: 9.25% p.a. 1 yr AAA rated paper: 9.35% p.a. 2 yrs AAA rated paper: 9.42% p.a. Before rates go down it makes sense to lock-in funds at prevalent rates. We can expect around 9% p.a. yield on the FMPs. The tax-effectiveness is very significant for highest tax bracket individuals.

27 FMP Tax-effectiveness illustration Illustration of FMP vis à vis Bank FD Fixed Deposit 370Days FMP 370Days FMP 730Days Amount Invested (Rs.) 100, , ,000 Assumed Returns (p.a.) 9.00% 9.00% 9.00% Maturity / Repurchase Amount 109, , ,000 Indexed p.a. inflation rate 107, ,490 Taxable Gain (Rs.) 9,123 2,123 3,510 Applicable tax rate^ 30.90% 20.30% # 20.30% # Tax liability (Rs.) 2, Returns after paying tax (Rs.) 6,304 8,692 17,287 Post Tax Annualized Yield (G/A) 6.22% 8.57% 8.64% Effective rate of TAX 30.90% 4.72% 3.96% # LTCG Tax on FMPs is taxed at 10% without Indexation or 20% with Indexation, whichever is lower. ^Highest tax slab considered for the investor. FMP with more than 1 yr tenure is eligible for single indexation benefit and more than 1yrFMPs Effective rate of TAX on FMP in this illustration is 4.72% & 3.96% respectively for 1 yr and 2 yr FMP which is way below 30.90% tax.

28 FMPs Closing Shortly Fund Name Tenure (Days) Open Close Estimated Indicative Portfolio Yield^ Composition Birla Sun Life FTP Series LI Apr 29 Apr Bank + 20 AA+ ICICI Prudential FMP Series Days Plan D Apr 28 Apr Bank + 20 AA+ Birla Sun Life Fixed Term Plan Series LG Apr 28 Apr Bank + 20 AA+ Birla Sun Life Fixed Term Plan Series LF Apr 25 Apr Bank + 20 AA+ Reliance FHF XXVI Series Apr 29 Apr CPs [mixed rating] Reliance Fixed Horizon Fund XXVI Series 14 ICICI Prudential Fixed Maturity Plan Series Days Plan E Reliance Fixed Horizon Fund XXVI Series Apr 28 Apr AA Apr 28 Apr AAA/AA+ 50AA/AA Apr 28 Apr AA/A ^ Yields are not guaranteed but estimated based on current Bank CDs, CPs yield and it can vary based on the prevalent yields on the closing date of the FMPs.

29 Investment Idea 5 Have some exposure to good Company Fixed Deposits What's wrong in investing AAA rated companies and getting 10 to 11% p.a. return that too for a year or so horizon?

30 Focused Company Fixed Deposit Company Fixed Deposits are offering promising interest rates over 1 yr to 3 yrs+ period at a time when Bank FD is offering % p.a. When your investment horizon is known to you, itmakessenseto lock-in your investments in good company FD at high interest rate. Min. Deposit Interest Rate (%) for Cumulative option Extra % For Company Name Amount / Multiple 12M 14/15/18M 24M 36M S. Citizen 9.75 Bajaj Capital 150,000/ % [15 M] [yearly compounding] Value of Rs. 1 lac 109, , , ,834 DHFL Aashray M 2,000/ % Deposit Plus [14 M] [half yearly compdng] Value of Rs. 1 lac ,10, ,21, ^ 1,34, Mahindra Finance 10,000/ % [18 M] [yearly compounding] Value of Rs. 1 lac 109, , , ,010 Shriram Transport Unnati [yearly compounding] 25,000/ % Value of Rs. 1 lac 109, , ,841 HDFC Platinum 20,000/ M M M % [yearly compounding] Value of Rs. 1 lac 112, , ,348 ^ In case of DHFL, value of Rs. 1 lac is given for 36 months period.

31 Investment Idea 6 Buy Tax-Free Bonds from secondary markets which offers yield better than Bank FDs

32 Tax Free Bond from Secondary Market Till this March, many PSUs/Infra Cos. raised thousands of crores by issuing Tax Free Bonds. As the financial year ended, the flow of issues also stopped. At present many tax free bonds are trading at 5 7% premium to their face value due to higher demand and low supply. It is feared that new tax free bond issues (to be issued this year, if approved in the July budget) are likely to offer lower yields compared to recently listed tax free bonds. For high tax bracket individual the tax free bonds which are available in the secondarymarket offersanattractive investment proposition. A tax free yield of say 8.50% p.a. is comparable with 12.30% p.a. pre tax returns. Which is quite good! The bonds buying from the secondary market depends on availability of liquidity.

33 Tax Free Bond: Yield Better than Bank FD Issuer Traded data as per ISIN Symbol Credit Rating Date of Allotment Coupon Rate(%) Residual Last Trade Maturity Price (Rs) YTM (%) HUDCO BSE INE031A07AG AA+ 24 Mar % Years 1, % HUDCO BSE INE031A AA+ 25 Oct % Years 1, % HUDCO BSE INE031A07AH AA+ 24 Mar % Years 1, % IIFCL BSE INE787H AAA 27 Mar % Years 1, % IIFCL BSE INE787H AAA 12 Nov % Years 1, % IIFCL BSE INE787H AAA 26 Mar % Years % IRFC NSE INE053F07579 IRFCN4 AAA 19 Feb % Years % NHB NSE INE557F07132 NHBTF2014N6 AAA 13 Jan % Years 5, % NHB NSE INE557F07199 NHBTF2023 N7 AAA 24 Mar % Years 5, % NHPC BSE INE848E AAA 02 Nov % Years 1, % NHPC BSE INE848E AAA 02 Nov % Years 1, % NTPC BSE INE733E07JJ AAA 16 Dec % Years 1, % PFC BSE INE134E AAA 28 Mar % Years % PFC BSE INE134E AAA 16 Nov % Years 1, % PFC BSE INE134E AAA 16 Nov % Years 1, % REC BSE INE020B07IG AAA 24 Mar % 88% Years 1, % REC BSE INE020B07HS AAA 24 Sep % Years 1, % REC BSE INE020B07IH AAA 24 Mar % Years 1, % Data on 15 April The prices and other details of these tax-free bonds can be seen on the BSE and NSE website.

34 Investment Idea 7 Use Liquid Funds for short term parking

35 How much interest your saving bank account is offering?

36 Yes, it is paltry 4% p.a. in most of the banks & upto 7.50% p.a. in flexi bank account.

37 Liquid Funds for Short Term Parking: If you are holding larger sum of money in bank saving account, then you are destroying your wealth. The meager returns earned in saving account doesn't even beat inflation and offers negative real rate of return on investment. Therefore, we recommend to park short term money in liquid funds to earn appx. 9% p.a. returns which can be withdrawn anytime. The settlement cycle next day you will get money in your bank account. is T+1, meaning if you withdraw today, then by List of Performing Liquid Funds is given on the next slide.

38 Performing Liquid Funds Scheme Name Rating Launch YTM % Corpus (Cr) Annualized % CAGR % 1 Mth 3 Mth 1 Yr 3 Yr Axis Treasury Advantage Fund **** Mar , ICICI Pru Savings Fund *** Nov , Reliance Money Manager Fund **** Mar , SBI Magnum Income FRP Saving Plus Bond ***** Jul Sundaram Ultra Short Term Fund ***** Apr Returns are as on 21 April 2014

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