Every investor while investing wishes to maximise his returns while minimising his risk. Asset Allocation and Superior scheme selection are time tested proven ways for doing the same. But time and again it has been proved that, for an investor to manage his asset allocation and select superior schemes is extremely tough and difficult to execute due to operational and behavioural reasons.
Want to invest in Equities but afraid of volatility? Want to capture Growth of the market, but protect the downfall? Want to invest in Best Equity MF Schemes at all times? PRESENTING MARS NJ MARS (Mutual Funds Automated Rebalancing System) manages asset allocation of your portfolio in line with the market movement based on solid NJ research (increases equity exposure when markets are low and decreases exposure when markets are high). This helps in capturing the upside in the market while protecting the downside. Also, your money is invested in consistently performing schemes, shortlisted based on NJ research. The non performing schemes, if any, in the portfolio, are replaced with better schemes on an annual basis. What s more interesting, all these transactions related to investment and rebalancing in the portfolio are done on a click of a button from your desktop or smart phone without the requirement of filling lengthy forms!!
PRESENTING MARS MARS stands for Mutual Fund Automated Portfolio Rebalancing System SALIENT FEATURES OF MARS It gives clients access to a range of well diversified portfolios to choose from. There are 2 broad sets of asset allocation portfolios: A) Dynamic Asset Allocation: The asset allocation between equity and debt would vary depending on the valuations of the equity markets; higher the valuation, lower will be the allocation into equities and vice versa. B) Fixed Asset Allocation: The asset allocation between equity and debt will be kept fixed. The underlying MF schemes will be selected by the NJ Research Team. The asset allocation rebalancing would be done yearly for Fixed Asset Allocation and on a half yearly basis for Dynamic Asset Allocation. The MARS portfolios are only available to clients holding NJ E-Wealth Accounts. BENEFITS OF MARS Client can select a model portfolio depending on his risk appetite and investment needs. Helps the client to invest in well researched mutual fund schemes. Simple execution tools for portfolio rebalancing. Enhanced returns resulting from disciplined asset allocation. HOW DOES MARS WORK Portfolios designed by the NJ Research team will be made available on the MARS platform. Client has an option to select any of the available portfolios with the help of his NJ partner. The client can invest in MARS by transferring his existing MF portfolio. The client can also invest in MARS through cheque / net banking / debit card / auto debit mandate The client will be required to authorize all the purchase transactions either online through a single click or signing the TIS provided by NJ Partner. Rebalancing of the portfolio is triggered as per schedule of various portfolios. The client needs to authorise the same to realign the portfolio with his target asset allocation. 1
WHAT IS ASSET ALLOCATION MARS Asset Allocation, simply means, investing money across asset classes, namely equity & debt. It is the key ingredient for any investor wanting to create wealth in the long term. Asset allocation is also important because different asset classes, due to their inherent nature, behave differently. Equity, which represents ownership in a business or enterprise, is volatile in nature and tends to go up and down in the short term. On the other hand, debt, which represents lending money to a business or enterprise, is relatively more stable and provides regular income in the form of interest. Diversifying the client's investments across different asset classes will result in diversifying the investment risk and create a well balanced portfolio that can offset the impact of investments that are currently not doing well and take advantage of investments that are currently growing and performing well. PORTFOLIO REBALANCING Values of individual asset classes can go up and down in line with the underlying market movements. While this is no reason for the client to panic, it is important for the client to review his initial asset allocation with the current asset allocation and make course correction through portfolio rebalancing. Let us look at this example: On January 1st, 27, two clients invested R 1 lakhs each in a portfolio with the following asset allocation: Equities : 7% invested in CNX 5 portfolio Debt : 3% invested in Bank FD Debt 3% Equity 7% The first client, whom we will call Client A followed a disciplined portfolio rebalancing strategy as recommended by his advisor. The second client, Client B did not follow any rebalancing strategy. He invested his money and did not look at it for the next 3 years. 2
Here is what happened: As can be seen from the table below, Client A rebalanced his portfolio on an annual basis while Client B followed a buy and hold strategy. Client A Client B Starting AA Equity R 7,, Debt R 3,, Year 1 Returns Equity.51% (CY 27) Debt 8.7% Portfolio Value Equity R 11,37,57 @ end of Yr 1 Debt R 3,24,21 Rebalanced PV Equity R1,23,246 R 11,37,57 @ start of Yr 2 Debt R 4,38,534 R 3,24,21 Year 2 Returns Equity -57.13% (CY 28) Debt 8.6% Portfolio Value Equity R 4,38,666 R 4,87,676 @ end of Yr 2 Debt R 4,73,88 R 3,5,341 Rebalanced PV Equity R 6,38,782 R 4,87,676 @ start of Yr 3 Debt R 2,73,764 R 3,5,341 Year 3 Returns Equity 88.57% (CY 29) Debt 6.47% Portfolio Value Equity R12,4,551 R 9,19,611 @ end of Yr 3 Debt R 2,91,476 R 3,73,8 Totals R14,96,27 R 12,92, Abs. Return 49.6% 29.26% XIRR 14.37% 8.93% CY = Calendar Year POINTS TO NOTE: In year 1 i.e. CY 27, when equities gave returns of.51%, Client A booked profits in equities and reinvested the proceeds in bonds bringing the asset allocation back to 7:3. In year 2 i.e. CY 28, when equities gave returns of -57.13%, Client A invested more money in equities by reducing allocation to bonds bringing the asset allocation back to 7:3. In year 3 i.e. CY 29, when equities bounced back and gave returns of 88.57%, Client A's overall portfolio value increased to R14.96 Lakhs while Client B was at R12.92 Lakhs. Client A's CAGR return is an impressive 14.36% p.a. while Client B is only 8.93% p.a. Source: 1. Equity Returns are derived from CNX 5. 2. Debt Returns are based on 1 year FD rates available in Handbook of Statistics on Indian Economy on RBI website. 3
ASSET ALLOCATION CHANGES Mars was started in Dec. 213. Asset Allocation has been very dynamically managed since it s launch based on market movements. As is evident from the graph, the Equity Allocation decreased from Dec 13 to Mar 15 as the market went up and increased sharply as market declined in Feb 16. As the market rose again till Sep 16, the allocation again went down. So, effectively investors have been able to get higher returns than market with less than 6% exposure to it. Also, this has resulted in bringing down volatility in the portfolio substantially. Equity Allocation (RHS) S&P BSE Sensex (LHS) As per data till Jan 31st, 217 from inception date. Inception Date Dec 16th, 213. Above chart depicts asset allocation changes in mars DAA - Aggressive Portfolio. Returns for one year or less period are on an absolute basis and for more than a year period are on CAGR basis. Benchmark is made of Nifty 5 (Source: NSE) and Bank FD (data from RBI). Clients performance may differ from the model portfolio performance. Past Performance may or may not sustain in the future. TIME LINE OF MARS DAA - AGGRESSIVE DATE EQUITY DEBT S&P BSE SENSEX 16/12/213 8 2 2659.52 27/5/214 6 4 24549.51 27/8/214 55 45 2656.15 3/3/215 4 6 29593.73 12/2/216 65 35 22986.12 9/9/216 3 7 28797.25 Time to move your Mutual Fund investments to MARS 4
SCHEME SELECTION MARS Diversified equity mutual funds, over the long term, have outperformed the popular benchmarks and inflation by a very impressive margin. Let us briefly analyse the table below. On a 5 year basis, equity funds have generated CAGR returns of 16.65% p.a. which is 6.68% p.a. more than the BSE Sensex. If we look at 1 years and 15 years, the difference in returns is 3.7% p.a. and 5.6% p.a. respectively, on a CAGR basis over the Sensex. s s 1s 2 Years Average of Diversified Schemes 16.65 1.68 2.79 2.3 S&P BSE 2 12.2 8.15 17.1 12.86 S&P BSE SENSEX 9.97 6.98 15.2 11.8 NIFTY 5 12.57 8.8 16.84 13. Source: Internal, Performance is as on January 31st, 217 and on a CAGR basis. Past Performance may or may not be sustain in future. If a client would have invested R1 Lakh in a portfolio of average diversified equity funds, his investment would have grown to R2.76 lakhs in 1 years, R17. lakhs in 15 years and R4.3 lakhs in 2 years. The corresponding numbers for BSE Sensex are R1.96 lakhs for 1 years, R8.35 lakhs for 15 years and R8.17 lakhs for 2 years. Therefore, it is extremely rewarding to invest in diversified equity funds with a longer term view. Though diversified equity funds as a category has outperformed the benchmarks by huge margins over long periods of time, there is a huge variation in terms of returns of individual schemes. Let us look at some data to corroborate this fact. If we split the entire universe of diversified equity funds into 4 parts and do a 3 year rolling return analysis of the top and bottom quartiles (Top 25% and Bottom 25% schemes) only, the difference in returns between the Top 25% and Bottom 25% schemes is anywhere between 12% - 18% p.a. on a 3 year CAGR basis. s Returns of Diversified Equity Schemes 214-216 213-215 212-214 211-213 21-212 29-211 28-21 Average of Top 25% Schemes 26.2 26.35 37.75 6.52 13.94 26.3 6.23 Average of Bottom 25% Schemes 11.63 1.64 2.14-5.35-4.52 9.29-8.85 Difference 14.39 15.71 17.61 11.87 18.46 16.74 15.8 Universe 222 23 227 232 229 224 199 Source: Internal Return are on a CAGR basis. Past Performance may or may not be sustained in future. 5
PERFORMANCE OF DIVERSIFIED EQUITY FUNDS If a client would have invested R1 Lakh in a portfolio of the Top 25% diversified equity schemes, his investment would have grown to R1.48 lakhs in 21-212 vs. R.87 lakhs in the Bottom 25% schemes. Similarly, had he invested the same amount in 28-21, his investment would have grown to R1.2 lakhs in the Top 25% schemes vs. R.76 lakhs in the Bottom 25% schemes. Not being in the right vehicle i.e. Top 25% schemes can result in a lot of unhappy clients as they will underperform substantially. Let us extend this data to 5 years. If we look at any of the periods below, the difference in returns between the Top 25% and Bottom 25% schemes is anywhere between 1.71% p.a. going up to as high as 15.8% p.a. on a 5 year CAGR basis. s Returns of Diversified Equity Schemes Average of Top 25% Schemes Average of Bottom 25% Schemes Difference Universe 212-216 211-215 21-214 29-213 28-212 27-211 24.44 16.83 19.71 23.89 6.18 8.74 12.15 4.45 7.46 1.56-8.9-2.18 12.29 12.38 12.25 13.33 15.8 1.92 216 219 21 25 184 164 26-21 21.42 1.71 1.71 133 Source: Internal Returns on CAGR basis. Past Performance may or may not be sustain in future. If a client would have invested R1 Lakh in a portfolio of the Top 25% diversified equity schemes, his investment would have grown to R2.64 lakhs in 26-21 vs. R1.66 lakhs in the Bottom 25% schemes. Similarly, if the client would have invested the same amount in 28-212, his investment would have grown to R1.35 lakhs in the Top 25% schemes vs. R.63 lakhs in the Bottom 25% schemes. The results are very evident that in diversified equity mutual funds, Scheme Selection plays a vital role in determining the return for the investor. Though Mutual Fund schemes have created wealth for the clients, but if you are stuck with a non-performing scheme it can reduce your overall portfolio return. In MARS, the NJ research team, through its rigorous process shortlists the scheme for investments. What s more is these schemes undergo same set of stiff performance benchmarks every year, which helps weed out non-performing funds from the client portfolio. MARS does not guarantee you investment in best schemes at all times, but endeavours to invest your money in consistent performing funds at all times. 6
HOW TO DETERMINE THE BEST ASSET ALLOCATION Asset classes vary on the basis of their average returns and volatility. Equities have the potential to give higher returns but the volatility of the returns is also high. Debt is relatively more stable and pay fixed interest at defined frequencies. The best approach to asset allocation is to find out the risk appetite of each client. The greater the appetite for risk, the larger the share of the portfolio that can be allocated to equities. Risk appetite may differ from individual to individual based on his investment horizon, ability to bear loss, current financial status, current job status, social background etc. These are some of the factors affecting risk appetite for any person. The advisor should determine the right asset allocation for the client based on his understanding of all these factors. MARS PORTFOLIOS MARS broadly offers 3 types of portfolios based on the risk profile of an individual: CONSERVATIVE PORTFOLIO MODERATE PORTFOLIO AGGRESSIVE PORTFOLIO DAA - CONSERVATIVE PORTFOLIO Dynamic Asset Allocation - Conservative Portfolio is suitable for a client who is risk averse, wants minimal risk to principal, is comfortable with low volatility and modest capital appreciation and has a time horizon of 2-3 years. The equity allocation may vary from % - 3% based on the asset allocation model developed by NJ Research Team. The said model takes in account equity market scenario, valuations and economic growth indicators. The rebalancing will happen on a half yearly basis. Equity: % - 3% Debt: 7% - 1% Risk Profile: CONSERVATIVE Historical Risk / Return (Jan 1997 - Jan 217) 23 12.96 11 41.14-2.89 26 13.4 27.89 4.58 13.6 24.92 5.58 13.93 17.45 1.32 1 13.2 13.65 12.39 7
DAA - MODERATE PORTFOLIO Dynamic Asset Allocation - Moderate Portfolio is suitable for a client with a moderate risk appetite, portfolio gives a balanced mix of equity and debt. Ideal investment horizon for this portfolio is 3 5 years and the volatility level in these portfolios is medium. The equity allocation may vary from % - 6% based on the asset allocation model developed by NJ Research Team. The said model takes in account equity market scenario, valuations and economic growth indicators. The rebalancing in the portfolio will happen on a half yearly basis. Equity: % - 6% Debt: 4% - 1% Risk Profile: MODERATE Historical Risk / Return (Jan 1997 - Jan 217) 23 16.8 36 69.17-36.87 26 16.4 44.79 1.92 16.29 36.46 3.84 17.41 23.71 11.2 1 16.13 17.44 14.91 DAA - AGGRESSIVE PORTFOLIO Dynamic Asset Allocation - Aggressive Portfolio is suitable for a client who wants a growth oriented equity portfolio, is comfortable with investing for medium to long term and is looking at long term capital appreciation with a time horizon of 5 years or more. The equity allocation may vary from % - 1% based on the asset allocation model developed by NJ Research Team. The said model takes in account equity market scenario, valuations and economic growth indicators. The rebalancing in the dynamic portfolio will happen on a half yearly basis. Equity: % - 1% Debt: % - 1% Risk Profile: AGGRESSIVE Returns on CAGR basis. Past Performance may or may not be sustain in future. Historical Risk / Return (Jan 1997 - Jan 217) 23 2.91 52 116.23-53.28 26 19.6 9 63.81-4.69 18.52 47.35.19 19.44 29.58 1.21 1 18.1 2.36 16.13 8
FIXED ASSET ALLOCATION PORTFOLIOS Apart from the DAA Portfolios, MARS also offers Fixed Asset Allocation portfolios. There are multiple portfolios which offer the option to invest in FAA ranging from 1% Equity upto 1% Equity exposure. The rebalancing in these portfolios will happen on a yearly basis. The details of these portfolios are mentioned as under: FAA E 1 Equity: 1% Debt: 9% Risk Profile: CONSERVATIVE Historical Risk / Return (Jan 1997 - Jan 217) 23 8.88 1 19.5 -.39 26 8.84 12. 4.84 8.66 1.6 6.76 8.72 9.38 7.97 1 8.65 8.86 8.28 FAA E 2 Equity: 2% Debt: 8% Historical Risk / Return (Jan 1997 - Jan 217) 23 1.6 8 3.25-8.29 26 1.5 16.38 2.21 Risk Profile: CONSERVATIVE 9.87 14.39 7.12 1.16 11.55 9.1 1 9.87 1.33 9.18 FAA E 3 Equity: 3% Debt: 7% Historical Risk / Return (Jan 1997 - Jan 217) 23 11.19 25 41.1-15.65 26 11.13 2 22.16 -.45 Risk Profile: CONSERVATIVE 1.94 18.66 6.51 11.44 13.56 9.41 1 1.93 11.72 9.94 9
FAA E 4 Equity: 4% Debt: 6% Risk Profile: MODERATE Historical Risk / Return (Jan 1997 - Jan 217) 23 12.27 34 51.76-22.55 26 12.7 4 27.98-3.13 11.87 22.88 5.74 12.56 15.39 9.6 1 11.84 13.1 1.55 FAA E 5 Equity: 5% Debt: 5% Risk Profile: MODERATE Historical Risk / Return (Jan 1997 - Jan 217) 23 13.29 43.51-29.4 26 12.87 5 33.83-5.85 12.66 27.4 4.82 13.53 17.7 9.65 1 12.6 14.19 11.3 FAA E 6 Equity: 6% Debt: 4% Risk Profile: MODERATE Historical Risk / Return (Jan 1997 - Jan 217) 23 14.27 5 73.26-35.19 26 13.56 1 39.73-8.6 13.32 31.17 3.75 14.35 18.58 9.58 1 13.2 15.27 11.36 1
FAA E 7 Equity: 7% Debt: 3% Risk Profile: AGGRESSIVE Historical Risk / Return (Jan 1997 - Jan 217) 23 15.2 52 84.1-41.4 26 14.11 15 45.67-11.38 13.84 35.25 2.51 15. 19.95 9.37 1 13.66 16.24 11.55 FAA E 8 Equity: 8% Debt: 2% Risk Profile: AGGRESSIVE Historical Risk / Return (Jan 1997 - Jan 217) 23 16.8 57 94.77-46.63 26 14.53 18 51.66-14.2 14.21 39.29 1.6 15.48 21.17 9.1 1 13.96 17.1 11.58 FAA E 9 Equity: 9% Debt: 1% Risk Profile: AGGRESSIVE Historical Risk / Return (Jan 1997 - Jan 217) 23 16.91 64 15.52-51.98 26 14.82 22 57.71-17.6 14.43 2 43.3 -.61 15.78 22.24 8.49 1 14.8 17.84 11.45 11
FAA E 1 Equity: 1% Debt: % Risk Profile: AGGRESSIVE Historical Risk / Return (Jan 1997 - Jan 217) 23 17.68 65 116.27-57.13 26 14.96 32 63.81-19.97 14.49 8 47.35-2.42 15.88 23.15 7.8 1 14.3 18.45 11.13 Returns on CAGR basis. Past Performance may or may not be sustain in future. SIP IN MARS The Client is also having an option to start SIP in his selected MARS portfolio. The SIP is registered for 12 months based on Asset Allocation of the start date of the portfolio and renewed annually through the system. Methodology used for calculating historical returns Equity Returns are derived from NIFTY 5. Debt Returns are based on 1 year FD rates available in Handbook of Statistics on Indian Economy on RBI website. In Fixed Asset Allocation Model Portfolios, rebalancing is done on a yearly basis in the month of February end. In Dynamic Asset Allocation Model Portfolios, rebalancing is done on a half yearly basis in February & September end. Period of Analysis: January 1st, 1997 to January 31st, 217. returns are returns for overlapping cycles within a particular period of analysis. Returns have been calculated for 1, 3, 5 and 1 year cycles using monthly values within the period mentioned above. For e.g. 1 year rolling period starts from Jan 1st, 1997 - Dec 31st, 1997, Jan 31st, 1997 - Jan 31st, 1998, Nov 3th, 212 - Nov 3th, 213 and so on. 3 year rolling period starts from Jan 1st, 1997 - Dec 31st, 1999, Jan 31st, 1997 - Jan 31st, 2, Nov 3th, 21 - Nov 3th, 213 and soon. Ideal Risk Profile is mentioned against each portfolio. Client should select the portfolio for investment according to his risk appetite based upon discussion with his financial advisor. 12
PORTFOLIO PERFORMANCE Dynamic Asset Allocation Portfolio DAA-AGGRESSIVE Nifty 5 DAA-MODERATE 6% Equity & 4% Debt DAA-CONSERVATIVE 3% Equity & 7% Debt 12 Months 19. 16.4 15.9 13.2 11.76 1.37 24 Months 1.3 1.47 9.41 4.5 8.71 6.46 36 Months 21.89 16.14 16.56 13.59 12.65 11.17 Since Inception 2.96 15.7 16.5 12.94 12.42 1.85 FAA E1 1% Equity & 9% Debt FAA E2 2% Equity & 8% Debt FAA E3 3% Equity & 7% Debt FAA E4 4% Equity & 6% Debt FAA E5 5% Equity & 5% Debt FAA E6 6% Equity & 4% Debt FAA E7 7% Equity & 3% Debt FAA E8 8% Equity & 2% Debt FAA E9 9% Equity & 1% Debt FAA E1 Nifty 5 Fixed Asset Allocation Portfolio 12 Months 9.9 8.56 11.13 9.47 12.25 1.37 13.83 11.26 14.64 12.14 15.76 13.2 17.15 13.88 18.53 14.73 19.61 15.57 2.68 16.4 Performance as on Jan 31st, 217. Inception Date Dec 16th, 213. Returns for one year or less period are on an absolute basis and for more than a year period are on CAGR basis. Benchmark is made of Nifty 5 (Source: NSE) and Bank FD (data from RBI). Clients performance may differ from the model portfolio performance. Past Performance may or may not sustain in the future. 13 24 Months 8.8 7.61 8.25 7.5 7.89 6.46 7.56 5.83 7.52 5.18 7.29 4.5 7.2 3.79 7.9 3.5 6.81 2.28 6.49 1.47 36 Months 1.32 9.31 12.51 1.26 14.2 11.17 16.1 12.2 7.52 5.18 19.6 13.59 2.69 14.3 22.24 14.96 23.55 15.57 24.81 16.14 Since Inception 1.22 9.21 12.28 1.5 13.7 1.85 15.52 11.59 17.1 12.29 18.38 12.94 19.87 13.55 21.29 14.1 22.5 14.61 23.64 15.7
PORTFOLIO PERFORMANCE Equity Schemes Performance 12 Months 24 Months 36 Months Since Inception Invesco India Contra Fund - Gr Kotak Select Focus Fund - Gr Mirae Asset India Opportunities Fund - Gr Motilal Oswal MOSt Focused Multicap 35 Fund - Gr SBI Magnum Multicap Fund - Gr MARS Equity Portfolio (E1) NIFTY 5 17.28 23.13 2.74 25.5 17.56 2.68 16.4 4.86 5.92 5.67 11.69 7.72 6.49 1.47 25.95 25.15 23. NA 25.42 24.81 16.14 24.93 23.64 22.16 NA 24.9 23.64 15.7 Debt Schemes Performance * 12 Months 24 Months 36 Months Since Inception DSP BlackRock Money Manager Fund Gr Kotak Equity Arbitrage Fund - Div Reliance Arbitrage Advantage Fund - Div BNP Paribas Short Term Income Fund - Gr TATA Short Term Bond Fund Regular Plan - Gr 7.66 6.53 6.42 9.73 9.39 7.63 6.84 6.98 8.53 8.47 8.4 7.48 7.33 9.2 9.36 8.4 7.63 7.43 9.13 9.33 Performance as on Jan 31st, 217 Inception Date Dec 16th, 213 Returns for one year or less period are on an absolute basis and for more than a year period are on CAGR basis. Dividends are assumed to be reinvested. Past Performance may or may not sustain in the future. *Based on the nature of the scheme and not as per taxability of the scheme. 14
Disclaimer: This Handbook document is made by NJ India Invest Private Limited ( NJ India ) for private circulation and information purposes only. The information/data mentioned in this document is taken from various sources for which NJ India does not assume any responsibility or liability and neither does guarantee its accuracy or adequacy. Mutual Fund investments are subject to market risks. Investors are advised to read the offer documents/scheme related documents and other risk factors carefully before investing in any scheme. The past performance of a scheme is not indicative of its future performance. Investors are advised to take advice of experts before making any investment decisions. This document shall not be construed as a financial/investment advice and/or as solicitation/advice to buy or sell any financial product.