Vol 2 - Issue 5 NOVEMBER 2017 Rs Contact Number: (India)

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1 Vol 2 - Issue 5 NOVEMBER 2017 Rs.3.50 Contact Number: (India)

2 Of the various tax saving options under Section 80C of Income Tax Act, 1961, mutual fund Equity Linked Savings Schemes (ELSS) have the maximum wealth creation potential over a long investment horizon. Equity Linked Savings Schemes (ELSS), also known as Tax Saver Funds are equity mutual fund schemes which invest in a diversified portfolio of stocks with the objective of generating capital appreciation for investors over a sufficiently long investment horizon. Investors can get tax deduction of up to Rs 150,000 from their taxable income by investing in Equity Linked Savings Schemes (ELSS) under Section 80C of Income Tax Act, Investors can save up to Rs 46,350 in taxes every year by investing in Equity Linked Savings Schemes (ELSS). Equity Linked Savings Schemes (tax saver funds) have a lock-in period of three years; investors cannot redeem ELSS units before 3 years from the date of investment. Investors can invest in Equity Linked Savings Schemes in lump sum or through Systematic Investment Plans (SIP). By investing in Equity Linked Savings Schemes through Systematic Investment Plans, investors can not only meet their tax saving goal, but can also take advantage of volatility in stock markets through Rupee Cost Averaging. However, when investing in Equity Linked Savings Schemes through Systematic Investment Plans (SIPs), investors should note that, each Systematic Investment Plans installment will be locked in for three years. One can invest in either Growth or Dividend Options in Equity Linked Savings Schemes. Investors should note that Dividend Reinvestment Option is not available in Equity Linked Savings Schemes. This is because the lock-in clause of Equity Linked Savings Schemes may result in the dividends re-invested in the scheme to be locked in indefinitely. The dividend option of Equity Linked Savings Schemes provides investors with the option of getting tax free income from their Equity Linked Savings Schemes investment during the lock-in period and beyond. Investors should however note that mutual fund dividends are paid at the discretion of the scheme s fund manager. There is no assurance with regards to timing or amount of dividends paid by mutual funds. Wealth Creation Potential of ELSS What are Equity Linked Savings Schemes and their benefits Section 80C investment schemes can either be risk free or subject to market risks. Public Provident Fund, National Savings Certificates, Tax Saving Bank FD schemes, Tax Saving Post Office time deposit schemes etc. are examples of risk free investments, while mutual fund ELSS and ULIPs (Unit Linked Insurance Plans) are subject to market risks. If one does not want to take any risk, then Equity Linked Savings Schemes (tax saver mutual funds) or Unit Linked Insurance Plans (ULIPs) are not the right investment options. However, note that risk and return are directly correlated; one cannot get higher returns without taking risks. Even though Equity Linked Savings Schemes are subject to market risk, they are one of the best tax saving investment options, if an investor has long investment horizon. Historical data shows that equity is the best performing asset class over a long investment period, outperforming asset classes like gold and fixed income (debt). In the last 20 years from January 1997 to January 2017, the BSE Sensex has given 11.1% annualized returns, while gold has given 9.3% and fixed deposits have given 7.6% annualized returns respectively. Rs 1 lakh invested in the Sensex twenty years back would have grown to Rs 8.2 lakhs, while the same amount invested in gold and fixed deposit would have grown to Rs 5.9 lakhs and Rs 4.3 lakhs respectively. Let us assume an investor invested Rs 12,500 every month (annual Rs 150,000) in an Equity Linked Savings Scheme each year (at the beginning of the financial year) for the purpose of tax savings. If the investor is in the highest tax bracket, he/she will be able to save Rs 46,350. Over a 20 year period, the investor will be able to save almost Rs 9.3 lakhs in taxes. Let us now see the wealth creation potential of ELSS. Assuming an annualized return of investment of 2

3 11%, the investor will accumulate a corpus of Rs 1.09 Crores over a 20 years period (ELSS category has actually given over 11% annualized returns in the last 10 years). If one combines tax savings and wealth creation, the financial benefits of ELSS investments over a sufficiently long investment period is huge. Superior Liquidity of ELSS compared to other 80C tax saving investment schemes Equity Linked Savings Schemes offer higher liquidity compared to all Section 80C investment options. 80C investments like NSC, tax saving bank FDs, post office tax saving time deposits, Unit Linked Insurance Plans etc. have a lock in period of 5 years. Public Provident Funds (PPF) has tenures of 15 years with limited liquidity in the interim. Traditional life insurance policies also have long maturity tenures and if the policy is surrendered within a certain period from the policy inception date, then one stands to lose a lot in surrender value. Equity Linked Savings Schemes (ELSS) investments have a lock-in period of 3 years and this makes them the most flexible Section 80C investment schemes from a liquidity perspective. Lock-in period of ELSS can benefit investors over a sufficiently long investment horizon Though the liquidity of Equity Linked Savings Schemes investments is restricted in the first three years of the investment, over a long investment period, the 3 year lock in period in Equity Linked Savings Schemes is to the advantage of investors compared to open-ended diversified equity funds. Since the investor cannot redeem units of the scheme in the first three years, they are not affected by redemption pressures on account of short term volatility, which enables the fund manager to stick to his long term stock convictions. In the last 5 years, Equity Linked Savings Schemes on an average delivered 20% annualized returns, outperforming the broader market; top performing 5 years Equity Linked Savings Schemes delivered nearly 25% compounded annual returns over the last 5 years. Post the lock-in period of 3 years, the units in the scheme becomes free and if the investor wishes, he or she can redeem the units partially or fully to reinvest the proceeds again for saving taxes for the FY in which redemption is made. This is an idea which can work for investors who do not have liquidity in hand but need to invest to save taxes under Section 80C. Tax Benefits of ELSS Equity Linked Savings Schemes are also the most tax friendly investment schemes among the eligible Section 80C investment options. There is no taxation during the investment period, unlike many fixed income investment options. Since Equity Linked Savings Schemes are equity oriented schemes with a minimum investment period of three years, long term capital gains from Equity Linked Savings Schemes are tax free. Dividends paid by Equity Linked Savings Schemes are also tax free. Therefore, returns from Equity Linked Savings schemes, either in the form of capital appreciation or dividends are completely tax free. Conclusion What are Equity Linked Savings Schemes and their benefits (Cont...) In this post, we discussed the various benefits of investing in Equity Linked Savings Schemes. Equity Linked Savings Schemes are one of the best Section 80C investment options. Equity Linked Savings Schemes offer superior wealth creation potential, liquidity and tax benefits compared to other Section 80C investment schemes. Edited Excerpts from (Article written on behalf of Sundaram Mutual Fund) 3

4 Equity Outlook Continued positive macro prints on the global growth recovery, Trump administration expectations on tax reforms and the 19th National Congress of China were the highlights of October globally. On the domestic front, the government s decision to recapitalise PSU banks and its announcement to invest Rs.6.9tr. in infrastructure were important focus points during the month. The Indian markets saw a net inflow of $3.1bn. Global Global markets remained positive right through the month, taking the Indian markets along to new highs. The underlying sentiment was that of a reinstatement of the recovery in global growth. Global PMIs have remained positive for a while now and central bank commentary has added to this sentiment. On the macro front, the US ISM saw its fastest expansion in the last 13 years. US consumer confidence on economy and jobs moved to its highest since Eurozone economic confidence moved to its highest in the last 16 years. We have been writing about the clear shift in central banking language towards better growth and these prints are set to strengthen the same. China concluded its 19th party congress with great consolidation of power for its president. The course China would steer on reforms would have a number of ramifications for global growth. Central banks The central banking space remained the focus in October with the expectation of QE taper commentary from the ECB. The ECB held on to its rates and decided to reduce its asset purchases to 30bn per month from the current 60bn. The ECB s QE taper is to be read as a reflection of the central bank s positivity on growth in the Eurozone. The Fed. minutes witnessed its members looking for more evidence of price movement before supporting a third rate hike in The RBI held on to its rates citing that inflation risks outweighed the existing growth slack. Central bank commentary continues to reflect their increasing confidence on global growth and the recent macro prints in the developed world appear likely to entrench this positive commentary. Domestic October started with the RBI leaving rates unchanged in its monetary policy and cutting its growth estimate by 60bps to 6.7% for FY18. With a neutral policy stance, the central bank kept its language open and data dependent. Macro prints during the month were positive with an increase seen in industrial production and a marginal drop in retail inflation. The PSU bank recapitalization proposal of the government was the key focus of the month. The government announced a Rs.2.1tr. recapitalization plan to boost the balance sheets of public sector banks that were struggling with high NPAs. The recapitalization plan size was a positive surprise and would help the banks improve their capital ratios. Banks can take now haircuts and expedite the stressedassets resolution process. The complete details of this recapitalization are yet to be made public. Also announced alongside this was an announcement to develop & expand ~83,677kms of roads, with an investment of Rs.6.9 tr. over the next five years Outlook The Government s firm commitment to spur the infrastructure investment cycle is already reflecting in improved execution on the ground. Focus on rural incomes and spend is also helping broad-basing growth and serves as a long term driver of the consumption story. The stress in the banking system has seen significant and targeted addressing, as expected, with recognition, provision of bad loans, resolution and subsequent capitalisation commitments. The Govt. has been laying the foundations for the road to sustainable growth through broader reforms and efficient administration. While we continue to believe that all is well with the economy on a medium term perspective, there are some concerns on disruptions from GST implementation in the backdrop of weaker growth in the 1st quarter. GST transition impact though real in few quarters, we believe is a short term phenomenon and hence investors are advised to see it through patiently and have faith in the strong India growth story. Growth will be spurred by improved velocity of new currencies, rising rural incomes and improved demand going forward with the 1Q GDP print being the bottom. The uptrend in corporate results and earnings trend will gather steam into second half of FY18. Conclusion Softer inflation and better growth will gradually lead to a shift in the saving pattern of Indian households from physical to financial with a sharp bias towards equity. Mutual funds are well positioned to absorb this incremental shift. Corporate earnings are set to enter a double digit growth trajectory driven by the domestic recovery in this fiscal. Our funds are very well positioned to reap these benefits. Fed. is likely to move ahead gradually, keeping in mind not to pull down economic growth that has just seen some momentum is likely to be the year of the fiscal with most governments acknowledging the need to create demand through fiscal spending. India will not be far behind in this move and will continue to remain prudent in such deficit spending. With the twin deficits reasonably contained, inflation well under control, bottomed out growth, a relatively stable currency and an extremely strong political mandate, India stands taller than the rest. While broader valuations, driven by domestic liquidity, indicate market discounting near term earnings, one will have to look beyond FY18 and look forward. Near term markets may undergo a time consolidation or be range bound, which could be a good time to get invested in a disciplined manner. We continue to remain positive on our equity markets with a medium to long term outlook. Equity Desk 4

5 Debt Outlook The month started with the RBI keeping the repo rate unchanged at 6% in its Credit & Monetary policy, given concerns on rising headline inflation while lowering growth forecast to 6.7% for the current fiscal. The RBI also kept the policy stance neutral with the objective of limiting the medium term target for CPI inflation of 4% within a band of +/- 2% while supporting growth. The 10Y Government benchmark security was range bound between 6.66% to 6.85% for the month and closed at 6.86%, which is almost 20 bps higher than last month s closing, mainly because of rise in oil prices and negative market sentiment which was further aggravated by the wait and watch approach of MPC. Liquidity was positive in the month of October with average around INR 1.38 trillion vs. INR 1.77 trillion in September Domestic Macro Factors The new IIP series printed at 4.3% y-o-y in August versus 0.9% in June, higher than market expectation of 2.6%. This recovery was broad based across sectors but largely because of favorable base effect. India s external trade deficit narrowed marginally to $ 8.98 bn in September vs. $ 11.6 bn in August, lower than the market expectation of a deficit of $ 11.0bn. INR traded in the range of to during the month and finally closed the month at 64.75/$ vs 65.28/$ in September. India s forex reserves were close to at $399 bn in the week ending October 27, Inflation Headline CPI inflation remained unchanged at 3.28% y-o-y in September, lower than the market expectation of 3.50% largely due to lower food inflation which came in at 1.2% in September, down from 1.5% in August. WPI inflation decelerated to 2.60% in September from 3.24% in August, aided by a sharp fall in food and fuel prices. Core WPI Inflation (manufactured product ex food inflation) moved up 30bps to 2.9% YoY in September, due to higher textile, metals and machinery product prices. Outlook The minutes of the Monetary Policy Committee (MPC) meeting indicated that most of the members are still balanced in their stance on inflation and growth. Despite the fact that the inflation has surprised the market with downward movement, RBI is still cautious and is following the wait and watch approach. Majority of MPC members believe that economic growth (GVA) has slowed in Q1FY18 and will gather pace in 2HFY18. The government announced an aggressive INR2.11 trillion capital infusion plan for public sector banks reeling under bad loans which should be done over a period of two years. The announcement is being seen as a major step towards helping the public sector banks flush with money post demonetization but reeling under non-performing assets. Out of the total commitment, INR 1.35 trillion will come from the sale Recapitalization Bonds. The remaining INR 0.76 tn will be through budgetary allocation and fundraising from the markets. The government has not specified the details of issuance of recapitalization bonds. It is important to note that whatever route the government uses to sell these bonds, it will be seen as increasing the debt burden of the government. Yields should hold firm in the absence of any fresh triggers and the extension of quantitative tightening or balance sheet unwinding by the US Fed. Yields are expected to move upwards from current levels until the upcoming data surprises the market. Investors are not expecting any changes in October / November policy. Brent Crude Oil Price has reached a two year high since OPEC started reducing supply. Rising oil price may have a major impact on Indian economy as 80-85% oil we consume is imported. China s Q3 GDP grew 6.6% yoy which was in line with the forecasts. It is expected to grow at ~6.6% - 6.7% in Q4 as production restrictions in some areas would have an impact on growth. The wait and watch approach adopted by RBI has to be observed keenly as RBI will focus more on inflation figures and other key data points. As of now, RBI stance remains neutral. It may move to accommodative stance once the inflation and fiscal deficit targets are moving along expected lines. We believe the RBI is likely to wait for a further confirmation on the overall inflation trajectory. The current neutral stance of RBI has left the door open for further rate cuts but is likely to be significantly data driven in its future decision. Global factors like monetary policy normalization by major central banks and with balance sheet unwinding of the Fed, will weigh on RBI s mind. We expect Indian domestic yields will remain range bound. In the meantime, we expect MPC to maintain pause and do active management of evolving liquidity conditions. We continue to recommend that with volatility being the cornerstone in the coming year and looking at the risk reward payoff, the fixed income investor is better off in short to medium term funds with an accrual focus. Fixed Income Desk 5

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8 The Wise Investor R DIS No.: 2266/06 REGISTRAR OF NEWSPAPERS FOR INDIA No.: TNENG/2007/22771 Postal Registration No.: TN/CH /132/ Licensed to Post Without Prepayment WPP No. TN/PMG(CCR)/WPP-93/ Date of publication: 10th of every month Registered Newspaper Posted at : Egmore R.M.S., Patirika Channel. Posted on: 13/11/2017 If undelivered please return to: Sundaram Asset Management Company Limited Corporate Office: 2nd Floor, Sundaram Towers, 46, Whites Road, Royapettah, Chennai -14. Contact Number (India) (NRI) Regd. Office: No. 21, Patullos Road, Chennai CIN: U93090TN1996PLC Fax: Disclaimer Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Risk Factors: All mutual funds and securities investments are subject to market risks. There can be no assurance or guarantee that a scheme's objective will be achieved. NAV may rise or decline, depending on factors and forces affecting the securities market. There is risk of capital loss and uncertainty of dividend distribution. General Disclaimer: The Wise Investor, a monthly publication of Sundaram Asset Management, is for information purposes only. The Wise Investor is not and should not be construed as a prospectus, scheme information document, offer document, offer solicitation for an investment and investment advice, to name a few. Information in this document has been obtained from sources that are reliable in the opinion of Sundaram Asset Management. Opinions expressed by authors do not necessarily represent that of Sundaram Mutual Fund or Sundaram Asset Management or Sundaram Trustee Company or Sundaram Finance, the sponsor. Statutory: Mutual Fund Sundaram Mutual Fund is a trust under the Indian Trusts Act, 1882 Sponsor (Liability is limited to Rs 1 lakh): Sundaram Finance Limited; Investment Manager: Sundaram Asset Management Company Limited. Trustee: Sundaram Trustee Company Limited. Past performance of Sponsors/Asset Management Company/Fund does not indicate or guarantee future performance. Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Published by Sunil Subramaniam on behalf of Sundaram Asset Management Company Limited, from its office at Sundaram Towers, II Floor, 46, Whites Road, Chennai Printed by R. Velayudhan at Paper Craft, No.25, C.P.Mudali Street, Pudupet, Chennai Editor: Sunil Subramaniam. Talk to your investment advisor now or call (India) (NRI) SMS SFUND to customerservices@sundarammutual.com Follow us on Facebook: 8 Design and layout by Spark Creations:

Vol 2 - Issue 8 FEBRUARY 2018 Rs Contact Number: (India)

Vol 2 - Issue 8 FEBRUARY 2018 Rs.3.50 Contact Number: (India) 1860-425-7237 1 Which return to use for selecting the best mutual funds: Part 2 The final part of this post will be dedicated to just one type