Create Wealth Through The Right Mix

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Pearl Ferguson
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1 Create Wealth Through The Right Mix HSBC Managed Solutions (An open ended Fund of Funds Scheme) February

2 Why invest? 2

Social demographics are changing Stress at work leading to early retirement People are living longer life expectancy has increased Nuclear families

3 Social demographics are changing Stress at work leading to early retirement People are living longer life expectancy has increased Nuclear families Reduction in social security Rising health care cost - Old age is not covered Increased income but is it enough to cater to your post retirement needs? 3

4 And expenses are always north bound Emergencies? Children s Marriage Retirement Support old parents Children Children s Education Do you want to compromise on your living standard after your retirement? Car House Marriage Savings / Investing? 0 Birth & Earning Life Education Age Retired Life

5 If our expenses are real, our returns should be real too Real cost of today s expense over time Value of today s INR 100,000 over time Savings is not enough; you also have to beat inflation! 5

Focus is higher towards perceived safe investment avenues According to 12 th Five Year Plan (2012-17) Household savings expected ~24% of GDP

6 Focus is higher towards perceived safe investment avenues According to 12 th Five Year Plan ( ) Household savings expected ~24% of GDP ~41.6% of household savings is expected in physical assets (including Gold and Real estate) Shares and debuntures (inclusive of Mutual Funds) form ~4.5% of household savings Asset Class Distribution : Individual Wealth Asset Class Performance* Source : Reserve Bank of India, Currency - INR Expected average savings for 12th Five Year Plan ( ) 6 Period : FY90 FY16, Source : CLSA, Currency INR *Real Estate data not available

7 What worked yesterday, may not work tomorrow Pre-inflation returns Post-inflation returns Equities have outperformed other asset classes 7

8 Then where to invest? 8

employee) are close behind The fixed instrument bias is reflected in India s household savings data Of

9 India has traditional fixed income instrument bias Traditionally, Indians have been in favor of debt investments, primarily bank fixed deposits Post office saving schemes and provident funds (public and employee) are close behind The fixed instrument bias is reflected in India s household savings data Of the total financial savings by Indians, deposits dominate with 49% Source: Reserve Bank of India (RBI) 9

10 And that biasness reflects heavily on investments Most people are unaware that the fixed income bias erodes their investments significantly as inflation eats into the portfolio A hypothetical example of Mr A and Mr B reveals that if funds are kept idle in a debt instrument, the real return is marginal. On the other hand, if the fund invests in a high-yielding asset class such as equities, it negates the impact of inflation and grows better Mr A Mr B Amount Rs 1 lakh Rs 1 lakh Nominal Return (a) 8%^ (invested in debt instrument) 12%^ (invested in equities) Average Inflation* (b) 6% 6% Real return (a)-(b) 2% 6% Growth of amount after 5 yrs Rs 1.10 lakh Rs 1.34 lakh Source CRISIL Research Database, CPI Industrial Workers - *CPI industrial worker inflation data is average of month-wise annual inflation on a rolling basis since January 2002 FD rates for term of over 5 years published on annual basis by the RBI considered here as Debt instruments 10 *Average five years CPI industrial worker inflation data assumed at 6%. ^Average return from debt and equities assumed at 8% and 12% for respectively a period of five years.

foreseeable future Why highlight a young population?

11 despite a young population Higher preference for fixed income instruments persists despite India having one of the youngest populations in the world Not only do we have a young population now, but will continue to do so in the foreseeable future Why highlight a young population? Because young populace tends to have a long-term investment horizon and higher risk appetite; thus, the ability to invest in risky asset classes Population break-up Source: United Nations 11

volatility in the short term As seen in the chart, while the linear trend of the asset class is positive in the long term, the short term shows

12 Does that mean equity investment is the way?... While equity is a good investment instrument for a young populace, the asset class is only beneficial in the long term Equity is exposed to volatility in the short term As seen in the chart, while the linear trend of the asset class is positive in the long term, the short term shows volatility An example of this volatility is the subprime crisis in early 2008, which lopped nearly half of the market gains, while the quantitative easing by global central banks subsequently pushed the markets higher S&P Sensex Anatomy of Corrections Source: BSE and Crisil 12

... equity does have high potential in the long term It can be observed from the return distribution chart given below that as the investment horizon increases, the percentage of positive returns

chart that there are no negative returns for an investment period above 15 years Minimum return over 30-year rolling period is 13% Another benefit of long-term investing is that volatility decreases

13 ... equity does have high potential in the long term It can be observed from the return distribution chart given below that as the investment horizon increases, the percentage of positive returns increases The chances of an investor earning between 15% and 20% is 83%, if he is invested for 30 years, while it is 31% for 10 years Similarly, it can be observed from the holding period returns chart that there are no negative returns for an investment period above 15 years Minimum return over 30-year rolling period is 13% Another benefit of long-term investing is that volatility decreases with an increase in the investment horizon Holding period returns Return distribution across horizons* Daily annualised rolling returns since inception (1979) of S&P BSE Sensex considered across various holding periods Source: BSE 13

the short term Investors should invest in the asset class in moderation and primarily use it for portfolio diversification Real estate: Tough to

14 What about other asset classes? Gold: Allocate in moderation While the asset class tends to have a positive growth trajectory in the long term, it is prone to fluctuations in the short term Investors should invest in the asset class in moderation and primarily use it for portfolio diversification Real estate: Tough to call, comes with significant risks Project delays Title Illiquid Varied returns Commodities: Regulations still evolving Gold not so glittering returns LBMA gold prices as on last day of the calendar year (adjusted as per the rupee value) *Till July 29,

15 What should an investor do? 15

16 Asset allocation: A key determinant of returns Factors that explain variation between portfolio performances Disproportionate focus on 6% viz. security selection, market timing Source: Brinson et al,

risk-adjusted returns and to spread risk In simple terms, asset allocation is an investment strategy to figure out how much of one s portfolio is to be invested in different

17 Asset allocation: The answer! 1 Allocate funds across various investment classes optimally based on an individual s risk-return profile 2 3 The basic premise of asset allocation is to earn efficient risk-adjusted returns and to spread risk In simple terms, asset allocation is an investment strategy to figure out how much of one s portfolio is to be invested in different asset classes depending on one s risktaking abilities and financial goals 4 The right asset allocation helps to counter market uncertainty as it diversifies investments not only within an asset class but also across asset classes 5 Asset allocation can be a good medium for meeting financial goals and wealth maximisation 17

Different asset classes perform differently across time periods To reiterate, different asset classes tend to outperform each other across time periods Allocating all funds to a single asset class is

18 Different asset classes perform differently across time periods To reiterate, different asset classes tend to outperform each other across time periods Allocating all funds to a single asset class is not a prudent investment approach as it may not garner efficient inflation and risk-adjusted returns Different levels of correlation among different asset classes provide an effective hedge to the portfolio The best asset class changes every year Data till December, 2016 Source: Internal analysis. Equity, debt and gold represented by Nifty 50, CRISIL Gilt Index and LBMA prices converted in to Rupees 18

19 Different correlation of performance provides effective hedge Low or non-correlation among asset classes ensures that movement of a particular asset class does not influence the performance of other asset classes Different correlation among different asset class provides an effective hedge to the portfolio emanating from any one asset class Correlation Matrix Debt Equity Gold Debt Equity Gold Data till December, 2016 Source: Internal analysis. Equity, debt and gold represented by Nifty 50, CRISIL Gilt Index and LBMA prices converted in to Rupees 19

Priority Need Want Goal-based asset allocation approach is the right way The goal-based approach involves investing to achieve specific goals (small, medium and long term) by allocating money to

20 Priority Need Want Goal-based asset allocation approach is the right way The goal-based approach involves investing to achieve specific goals (small, medium and long term) by allocating money to different asset classes in sync with one s risk capacity and time horizon For better understanding, let s take the hypothetical case of a young professional His/ her priorities in different time horizons are captured in the table below Based on that he/ she can allocate funds across asset classes Goal Buying a car Goal Buying a vacation home Goal Foreign vacation, estate planning Investment objective Stability Investment objective Stability and growth Investment objective Growth Asset allocation Moderately conservative Asset allocation Moderately aggressive Asset allocation Aggressive Goal - Child care expenses, down-payment for home Goals Children s education, old-age parent care Goals Retirement, Children s marriage Investment objective Stability Investment objective Stability and growth Investment objective Growth Asset allocation Conservative Asset allocation Moderate Asset allocation Moderately aggressive Short term Medium term Long term Time horizon For representation purpose only, it may differ on a case-to-case basis) 20

Asset allocation should be as per the risk ability Risk profiling involves investors assessing themselves on various parameters to evaluate their risk-taking capacity and accordingly allocate money

21 Asset allocation should be as per the risk ability Risk profiling involves investors assessing themselves on various parameters to evaluate their risk-taking capacity and accordingly allocate money to different asset classes Usually, risk profiling is undertaken through a formal questionnaire-based process where investors have to answer questions that probe their goals, risk-taking capacity and suitability For representation purpose only, it may differ on a case-to-case basis) 21

22 % returns Asset allocation strategy aims for higher returns Multi-asset strategy makes a compelling case compared to only equity asset class The illustration shows a combined portfolio of Debt : Equity allocation in 3 different portfolios for 3 different risk profiles and reflects the performance compared to Sensex M 9M 1Y 2Y 3Y Conservative Portfolio (80:20) Growth Portfolio (20:80) Moderate Portfolio (35:65) S&P BSE SENSEX 22

23 and also for higher risk-adjusted returns Prudently allocating assets across asset classes in sync with the risk profile can help generate efficient riskadjusted real returns The illustration shows a combined portfolio of debt and equity gave higher real (inflation-adjusted) returns vis-à-vis only debt and also reduced the risk compared to an-only equity portfolio 35% 30% Nominal returns Real returns Risk 29.9% 25% 20% 15% 10% 5% 0% 8.56% 15.16% 11.86% 12.1% 7.95% 5.7% 4.65% 1.35% Debt Equity Debt + Equity* Returns Average of 10 year CAGR on a daily rolling basis since 1997 Volatility Standard deviation of a daily returns since 1997 Debt and equity represented by CRISIL Gilt index and Nifty 50 Average month-wise annualised CPI IW inflation since 1997 is considered for calculating real returns ^ Assuming equal weighted asset allocation 23

Asset allocation through mutual fund has benefits Investors may not have the wherewithal to manage their money and allocate assets across asset classes Further, allocation is not just restricted

(short and long term) Professional management is an option for consideration Investments can be routed through mutual funds Benefits of mutual fund Professional management A dedicated team analyse

24 Asset allocation through mutual fund has benefits Investors may not have the wherewithal to manage their money and allocate assets across asset classes Further, allocation is not just restricted among asset classes but also, within the asset class Equity sub-asset allocation based on market cap (large, mid and small) and sector or theme-based Debt sub-asset allocation based on maturity (short and long term) Professional management is an option for consideration Investments can be routed through mutual funds Benefits of mutual fund Professional management A dedicated team analyse investment opportunities in the market Research and credit function An independent research and credit function aids investment Focused risk management Imperative to manage inherent risks in the asset classes 24

25 Impact of Asset Allocation Lowers volatility Encourages stable investor behavior and therefore, could achieve better results Rebalancing - a key supporting factor Asset allocation is an excellent tool for addressing the volatility of investment markets 25

26 HSBC Managed Solutions (HMS) (An open ended Fund of Funds Scheme)

27 HSBC Managed Solutions: the right mix for investments Multi-asset (Domestic and Offshore Equity, Fixed Income, Cash and Gold) portfolios which are actively managed Constructed to optimize Return whilst managing Risk Offer transactional efficiency to the investor How do I ensure Investment discipline? How do I avoid transactional cost? A unique investment solution for Indian investors 27

HSBC Managed Solutions: Salient features Construct : Fund Wrapper Fund of Funds feeding into HSBC/Third Party funds Style : Active Asset Allocation Strategic/Dynamic/Tactical Minimum quarterly review

28 HSBC Managed Solutions: Salient features Construct : Fund Wrapper Fund of Funds feeding into HSBC/Third Party funds Style : Active Asset Allocation Strategic/Dynamic/Tactical Minimum quarterly review of allocation weights Regular rebalancing for market movements Annual comprehensive review of design principles 3 Benefits Diversification : Domestic Equities/Bonds, Offshore Equities, Alternates Efficient : Free rebalancing Discipline: Long term solution i.e. not topical 28

29 HSBC Managed Solutions: 3 Styles Strategic Dynamic Tactical Aim: Deliver an optimal portfolio structure for the long term, that is aligned with objectives. Aim: Protect the downside risk of overvalued asset classes and build exposure to asset classes with attractive expected returns. Aim: Add value based on short term market anomalies. Time horizon: 10+ years Time horizon: 1-5 years Time horizon: 3-12 months Long Term Trends Valuations Event Driven 29

HSBC Managed Solutions: 3 Options Managed Solutions India Growth Primarily invests in equities, with diversification in debt, gold and liquid Managed Solutions India Moderate Primarily invests in

30 HSBC Managed Solutions: 3 Options Managed Solutions India Growth Primarily invests in equities, with diversification in debt, gold and liquid Managed Solutions India Moderate Primarily invests in equities and debt, with diversification in gold and liquid Managed Solutions India Conservative Primarily invests in debt, with diversification in equities, gold and liquid The right mix for your investments 30

31 HSBC Managed Solutions: 3 Options Plan Managed Solutions India GROWTH Type of Security Equity Schemes (Units of Domestic Equity and Offshore Equity) Indicative Allocation (% of net assets) Risk Profile Minimum Maximum 55% 90% High Debt Schemes 10% 30% Low to Medium Gold and Other Exchange Traded Funds 0% 15% Medium to High Money Market Schemes/Liquid Funds (including up to 5% in Money Market Instruments) 0% 20% Low Equity Schemes (Unit of Domestic Equity and Offshore Equity) 30% 70% High Managed Solutions India MODERATE Debt Schemes 30% 70% Low to Medium Gold and Other Exchange Traded Funds 0% 15% Medium to High Money Market Schemes/Liquid Funds (including up to 5% in Money Market Instruments) 0% 25% Low Equity Schemes (Unit of Domestic Equity) 0% 15% High Managed Solutions India CONSERVATIVE Debt Schemes 55% 100% Low to Medium Gold and Other Exchange Traded Funds 0% 5% Medium to High Money Market Schemes/Liquid Funds (including upto 5% in Money Market Instruments) 0% 25% Low to Medium The above are allocations as per Scheme Information Document 31

32 HSBC Managed Solutions: 3 myth-busters Myth 1: Portfolio rebalancing attract higher tax liability when funds are switched Reality: Rebalancing / change in asset allocation by fund does not attract capital gains tax for the investor Myth 2: Change in holding period for non-equity fund such as asset allocation funds makes them less investment friendly Reality: Asset allocation funds are long term investment products. Ideal investment horizon should be more than 3 years Myth 3: HSBC Managed Solutions Conservative option attracts higher tax liability Reality: Ideal investment horizon > 3 years (qualifies for LTCG); LTCG 20% with indexation is lower than STCG LTCG Long term capital gains tax STCG Short term capital gains tax 32

33 HSBC Managed Solutions Fund Performance

34 % returns Fund Performance HMS - Growth 18 HSBC Managed Solutions - Growth Jan'15-Dec'15 Jan'16-Dec'16 Since Inception Rs. growth HSBC Managed Solutions Scheme Benchmark Nifty 50 Crisil 10 yr Gilt Index Growth of Rs. 10,000/- in HMS Growth of Rs. 10,000/- in Benchmark Growth of Rs. 10,000/- in Nifty 50 Growth of Rs. 10,000/- in Crisil 10 yr Gilt Index Past performance may or may not be sustained in the future. Composite index of S&P BSE 200 (80%) and Crisil Composite Bond Fund Index (20%). Data for the period has been considered in all cases, except for Since Inception returns. Since Inception (%) returns are compounded annualised, other %returns are simple annualised. Since inception returns are calculated on 10 invested at inception. Standard benchmark is prescribed by SEBI and is used for comparison purposes. Returns on 10,000 are point-to-point returns for the specific time period, invested at the start of the period. The returns provided above have been rounded off and hence there may be minor differences between point-to-point returns vis-a-vis returns indicated above 34

35 % returns Fund Performance HMS - Moderate 18 HSBC Managed Solutions - Moderate Jan'15-Dec'15 Jan'16-Dec'16 Since Inception Rs. growth HSBC Managed Solutions Scheme Benchmark Nifty 50 Crisil 10 yr Gilt Index Growth of Rs. 10,000/- in HMS Growth of Rs. 10,000/- in Benchmark Growth of Rs. 10,000/- in Nifty 50 Growth of Rs. 10,000/- in Crisil 10 yr Gilt Index Past performance may or may not be sustained in the future. Data for the period has been considered in all cases, except for Since Inception returns. Since Inception (%) returns are compounded annualised, other %returns are simple annualised. Since inception returns are calculated on 10 invested at inception. Standard benchmark is prescribed by SEBI and is used for comparison purposes. Returns on 10,000 are point-to-point returns for the specific time period, invested at the start of the period. The returns provided above have been rounded off and hence there may be minor differences between point-to-point returns vis-a-vis returns indicated above 35

36 % returns Fund Performance HMS - Conservative 18 HSBC Managed Solutions - Conservative Jan'15-Dec'15 Jan'16-Dec'16 Since Inception Rs. growth HSBC Managed Solutions Scheme Benchmark Nifty 50 Crisil 10 yr Gilt Index Growth of Rs. 10,000/- in HMS Growth of Rs. 10,000/- in Benchmark Growth of Rs. 10,000/- in Nifty 50 Growth of Rs. 10,000/- in Crisil 10 yr Gilt Index Past performance may or may not be sustained in the future. Composite index of Crisil Composite Bond Fund Index (90%) and S&P BSE 200 (10%). Data for the period has been considered in all cases, except for Since Inception returns. Since Inception (%) returns are compounded annualised, other %returns are simple annualised. Since inception returns are calculated on 10 invested at inception. Standard benchmark is prescribed by SEBI and is used for comparison purposes. Returns on 10,000 are point-to-point returns for the specific time period, invested at the start of the period. The returns provided above have been rounded off and hence there may be minor differences between point-to-point returns vis-a-vis returns indicated above 36

37 HSBC Managed Solutions Portfolio

38 HMS - Growth 38

39 HMS - Moderate 39

40 HMS - Conservative 40

41 Fund performance of other funds managed by Anitha Rangan, Gautam Bhupal and Sanjay Shah 41

42 Fund performance of other funds managed by Anitha Rangan, Gautam Bhupal and Sanjay Shah 42

43 Fund performance of other funds managed by Anitha Rangan, Gautam Bhupal and Sanjay Shah 43

44 Fund performance of other funds managed by Anitha Rangan, Gautam Bhupal and Sanjay Shah 44

Fund performance of other funds managed by Anitha Rangan, Gautam Bhupal and Sanjay Shah Past performance may or may not be sustained in the future.

45 Fund performance of other funds managed by Anitha Rangan, Gautam Bhupal and Sanjay Shah Past performance may or may not be sustained in the future. The performance of HSBC Fixed Term Series (FTS) is not given above, as FTS are close-ended schemes of varying maturities and performance of FTS may or may not be strictly comparable with open-ended debt schemes. Data for the period has been considered in all cases, except for Since Inception returns. Since Inception (%) returns are compounded annualised, other %returns are simple annualised. Since inception returns are calculated on 10 invested at inception. Standard benchmark is prescribed by SEBI and is used for comparison purposes. Returns on 45 10,000 are point-to-point returns for the specific time period, invested at the start of the period. The returns provided above have been rounded off and hence there may be minor differences between point-to-point returns vis-a-vis returns indicated above

46 Product labelling HSBC Managed Solutions India Growth HSBC Managed Solutions India Moderate HSBC Managed Solutions India Conservative This product is suitable for investors who are seeking*: To create wealth over the long-term Investing predominantly in units of equity mutual funds as well as in a basket of debt mutual funds, gold & exchange traded funds, offshore mutual funds and money market instruments This product is suitable for investors who are seeking*: To create wealth and provide income over the long-term Investments in a basket of debt mutual funds, equity mutual funds, gold & exchange traded funds, offshore mutual funds and money market instruments This product is suitable for investors who are seeking*: To provide income over the long-term Investing predominantly in units of debt mutual funds as well as in a basket of equity mutual funds, gold & other exchange traded funds and money market instruments Investors understand that their principal will be at moderately high risk Investors understand that their principal will be at moderately high risk Investors understand that their principal will be at moderate risk * Investors should consult their financial advisers if in doubt about whether the product is suitable for them. 46

Product labelling HSBC Flexi Debt Fund HSBC Income Fund Investment Plan HSBC Income Fund Short Term Plan This product is suitable for investors who are seeking*: Regular income over long term

47 Product labelling HSBC Flexi Debt Fund HSBC Income Fund Investment Plan HSBC Income Fund Short Term Plan This product is suitable for investors who are seeking*: Regular income over long term Investment in Debt/Money Market Instruments This product is suitable for investors who are seeking*: Regular income over long term Investment in diversified portfolio of fixed income securities This product is suitable for investors who are seeking*: Regular income over medium term Investment in diversified portfolio of fixed income securities Investors understand that their principal will be at moderate risk Investors understand that their principal will be at moderate risk Investors understand that their principal will be at moderately low risk HSBC Dynamic Fund HSBC Monthly Income Plan HSBC Dividend Yield Equity Fund This product is suitable for investors who are seeking*: To create wealth over long term Investment in equity and equity related securities and in debt instruments when view on equity markets is negative This product is suitable for investors who are seeking*: Regular Income over medium term Investment in fixed income (debt and money market instruments) as well as equity and equity related securities This product is suitable for investors who are seeking*: To create wealth over long term Investment in equity and equity related securities Investors understand that their principal will be at moderately high risk Investors understand that their principal will be at moderately high risk Investors understand that their principal will be at moderately high risk * Investors should consult their financial advisers if in doubt about whether the product is suitable for them. 47

48 Product labelling HSBC Brazil Fund HSBC Emerging Markets Fund HSBC Asia Pacific (Ex Japan) Dividend Yield Fund This product is suitable for investors who are seeking*: To create wealth over long term Investment in equity and equity related securities through feeder route in Brazilian markets This product is suitable for investors who are seeking*: To create wealth over long term Investment in equity and equity related securities of Emerging economies This product is suitable for investors who are seeking*: To create wealth over long term Investment in equity and equity related securities of Asia Pacific countries (excluding Japan) through fund of funds route Investors understand that their principal will be at high risk HSBC Global Consumer Opportunities Fund - Benefiting from China s Growing Consumption Power This product is suitable for investors who are seeking*: To create wealth over long term Investment in equity and equity related securities around the world focusing on growing consumer behaviour of China through feeder route Investors understand that their principal will be at high risk Investors understand that their principal will be at high risk Investors understand that their principal will be at high risk * Investors should consult their financial advisers if in doubt about whether the product is suitable for them. 48

49 Thank You 49

50 Disclaimer This document has been prepared by HSBC Asset Management (India) Private Limited (HSBC) for information purposes only and should not be construed as an offer or solicitation of an offer for purchase of any of the funds of HSBC Mutual Fund. All information contained in this document (including that sourced from third parties), is obtained from sources HSBC, the third party believes to be reliable but which it has not independently verified and HSBC, the third party makes no guarantee, representation or warranty and accepts no responsibility or liability as to the accuracy or completeness of such information. The information and opinions contained within the document are based upon publicly available information and rates of taxation applicable at the time of publication, which are subject to change from time to time. Expressions of opinion are those of HSBC only and are subject to change without notice. It does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies that may have been discussed or recommended in this report and should understand that the views regarding future prospects may or may not be realized. Neither this document nor the units of HSBC Mutual Fund have been registered in any jurisdiction. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions. Copyright. HSBC Asset Management (India) Private Limited 2017, ALL RIGHTS RESERVED. HSBC Asset Management (India) Private Limited, 16, V.N. Road, Fort, Mumbai Website: Mutual fund investments are subject to market risks, read all scheme related documents carefully. 50

HSBC Global Asset Management, India Creating Wealth through Asset Allocation. March 2018

HSBC Global Asset Management, India Creating Wealth through Asset Allocation March 2018 1 Why invest? 2 Changing social demographics Stress at work leading to early retirement People are living longer