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MUTUAL FUND CHANGES

Several mutual funds have altered their investing style, benchmarks and other attributes in recent months. Find out if their new flavours suit you. PAGE 2

The Economic Times Wealth is available at an invitation price of `7/issue. To book your copy*, contact your newspaper vendor or call 011 - 39898090; Email: [email protected]; SMS ETWS to 58888

GETTY IMAGES

DOTHENEWPLANS SUITYOU?

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Cover Story

The Economic Times Wealth, May 8-14, 2017

MUTUAL FUND CHANGES

DOTHENEW PLANS SUIT YOU?

GETTY IMAGES

Several mutual funds have altered their investing style, benchmarks and other attributes in the past few months. It’s time to re-evaluate the funds in your portfolio.

SANKET DHANORKAR

S

everal mutual funds have seen a change in their flavour in recent times. Some of these changes have been a direct outcome of the sharp rise in funds’ size, change in the fund manager or altered investing style. Others are a result of changes in some fundamental attributes of a scheme—investment mandate, change in benchmark index, etc. Some of these alterations may be subtle and go unnoticed. But, they could still impact the investor. If the changes have resulted in a scheme moving away from its profile—key to why you invested in the scheme in the first place—it may be

time to reassess whether the scheme deserves to be in your portfolio. Here we outline some of the changes that have occurred in your mutual funds and how these could impact you.

Fund sizes have ballooned Mid- and small-caps have faced difficulty building a portfolio due to large inflows. `5,523

Change in fund style Every mutual fund outlines certain objectives, an investment pattern and asset allocation in its scheme information document (SID). The SID helps investors take an informed investment decision, based on their risk profile, investing time horizon and goals. But the investing style and focus of funds, at times, undergoes a change. According to the recent S&P Indices Versus Active Funds (SPIVA) India Scorecard, both eq-

`3,444

`375 DSP BR Micro Cap

`292 Franklin India Smaller Co

AUM on Mar 2017(` cr)

AUM on Mar 2013 (` cr)

`5,238

`50

`3,344

`3,532

`138

L&T India Value

`318

Mirae Asset Emerg. Bluechip

Reliance Small Cap

`3,583

`199 SBI Magnum Midcap

`3,828

`258 UTI Mid Cap

Source: ACE MF. Compiled by ETIG Database

Cover Story

The Economic Times Wealth, May 8-14, 2017

Funds whose portfolio size has seen substantive growth Stocks in portfolio AUM (` cr) SCHEME Canara Robeco Emerg. Equities

CATEGORY

MAR ’13

MAR ’17

MAR ’13

MAR ’17

Small Cap

41

1,643

54

71

03

Funds which have sharply cut down their portfolio Stocks in portfolio AUM (` cr) SCHEME

CATEGORY

MAR ’13

MAR ’17

MAR ’13

MAR ’17

Multi Cap

530

6,027

41

32

DSP BlackRock Micro Cap

Small Cap

375

5,523

47

83

Franklin India High Growth Companies

Tata Ethical

Multi Cap

101

476

30

55

HDFC Large Cap

Large Cap

1,267

1,235

46

20

SBI Magnum Midcap

Small Cap

199

3,583

39

57

SBI Small & Midcap

Small Cap

23

684

42

24

ICICI Pru. Focused Bluechip Eq.

Large Cap

4,193

12,843

29

50

Tata Dividend Yield

Multi Cap

322

326

51

32

IDFC Classic Equity

Multi Cap

139

852

31

65

Birla Sun Life Frontline Equity

Large Cap

3,020

16,352

66

77

Mid Cap

202

1,208

54

40

Rising corpus has led to bigger portfolios for these schemes, resulting in heavy diversification.

uity and bond funds have exhibited a substantial style drift in recent years. Over the past three years, ending December 2016, only 41% of the large-cap funds, and 51.5% of mid- and small-cap funds maintained a style consistency. The style drift has been particularly acute over the past five-year period: Only 35.6% of the large-cap funds and 48% of mid- and small-cap funds stayed true to their style. Bond funds were more consistent, but not immune to style drift. Across one-, three-, and five-year periods, ending December 2016, only equity-linked saving schemes maintained a 100% style consistency, according to SPIVA.

AUM-induced changes Today, there are nine equity schemes with assets under management (AUM) of more than `10,000 crore. In 2015, there were only three such schemes. This spike in funds’ AUM, in a short span of time, has affected their portfolio management. Take, for instance, DSP BlackRock Micro Cap, one of the best-performing funds over the past three years. The fund’s size has ballooned from `374 crore in March 2013 to `5,523 crore today. This surge in inflows, coupled with the sharp uptick in share prices and valuations in small-caps has altered the fund’s portfolio drastically. From a basket of 47 stocks—as on March 2013—the fund has almost doubled its portfolio size to 83 stocks. Resultantly, its portfolio composition has undergone a huge change. The fund has now spread itself thin among its holdings with its top 10 stocks accounting for just 27% of its portfolio, down from 39% five years ago. Modest exposure to its top picks could dilute the fund’s alpha generation capability. This shift in approach was an inevitable outcome of the growth in the fund’s size, says fund manager Vinit Sambre: “To accommodate the bigger size, it was not possible to deploy money in the same stocks. We had to spread the money to more stocks while ensuring that the liquidity profile of the portfolio remains healthy.” The fund, however, has largely continued to maintain its investing focus, unlike many of its peers. Several other schemes from the smalland mid-cap category have also seen similar changes in their portfolio. “In the case of mid- and small-cap funds, portfolio dilution is inevitable beyond a certain corpus size,” says Kaustubh Belapurkar, Director, Mutual

Axis Midcap

Source: Value Research

These schemes have reduced holdings, resulting in greater concentration.

Key fund mergers since 2011

“We had to spread the money to more stocks while ensuring that the liquidity profile of the portfolio remains healthy.” VINEET SAMBRE FUND MANGER, DSP BLACKROCK MICRO CAP

Fund Research, Morningstar Investment Advisor India. Some large-cap funds have also been forced to expand their portfolio. ICICI Focused Bluechip—a large cap scheme mandated to take a concentrated approach—has diluted its portfolio from 29 to 50 stocks in the past five years. Contrastingly, there are also schemes which have cut down portfolio size sharply. ICICI Prudential Select Large Cap, whose AUM grew from `91 crore in March 2013 to `753 crore now, has brought down its portfolio size from 29 stocks to 14. Its top 10 stocks now account for 77% of its entire portfolio compared to 58% earlier. ICICI Prudential Value Discovery has also cut the flab, shrinking its portfolio from 69 to 40 stocks. Meanwhile, it has also morphed from a being distinctly mid-cap fund to being a flexi-cap scheme. Both the funds are helmed by Mrinal Singh, who is known to ply a strict value-conscious approach. “The sharper concentration is a reflection of our conviction in the businesses we own, and the move towards large-caps is an outcome of our value bias which guides us to areas where the risk-reward is more favourable,” says Singh. Franklin India High Growth, HDFC Large Cap and SBI Small and Midcap, are also among the schemes that have reduced their holdings in the past three years.

Change in fund manager Numerous fund manager exits have also led to changes in some funds. Incoming fund

DATE

SCHEME

MERGED INTO

8 Mar 2016

DHFL Pramerica Liquid Fund

DHFL Pramerica Insta Cash Plus Fund

776

8 Mar 2016

DWS Treasury Cash Fund

DHFL Pramerica Insta Cash Plus Fund

675

7 Sep 2013

Reliance Natural Resources Retail

Reliance Vision Fund

748

27 Mar 2014

UTI Master Value Fund

UTI Mid Cap Fund

517

30 Sep 2011

UTI Wealth-Builder Fund

UTI Opportunities Fund

738

When two schemes are merged, it may alter the fund profile of both the schemes.

managers have brought their distinct investing style and philosophy to schemes, resulting in visible tweaks in the funds’ construct and approach. “A change in the fund manager, particularly at a fund house that depends more on fund manager expertise than internal investment philosophy and processes, usually brings uncertainty and may also be accompanied by some degree of style drift,” says Renu Pothen, Research Head, Fundsupermart.com. For instance, Anoop Bhaskar’s appointment as the Head of Equities at IDFC Mutual Fund has been followed by distinct changes in the fund house’s equity schemes, previously helmed by Kenneth Andrade. Known to take a conservative approach, Bhaskar has brought his risk-conscious style to IDFC schemes. His penchant for heavily diversified portfolios is now visible in IDFC Classic Equity, IDFC Premier Equity and IDFC Sterling Eq-

Today, there are nine equity schemes with assets under management of over `10,000 crore. In 2015, there were only three such schemes.

AUM* (` cr)

*At the time of merger. Source: Value Research

uity—all three funds now carry a bulkier portfolio compared to two years ago. “He is tuned more towards loss aversion and protecting the downside, and does not take an aggressive stance in his funds unlike many others,” says Kunal Bajaj, CEO, Clearfunds. The impact of a fund manager change needs to be evaluated at the depth it deserves. “Recently one star fund manager was replaced by another, also with a proven, superior long-term track record, but vastly different fund management style. Of the 81 stocks held by the previous fund manager, the new manager exited from 56 within 6-7 months,” points out Roopali Prabhu, Head, Investment Products, Sanctum Wealth Management. With new equity fund managers taking over at fund houses like UTI, Invesco and Tata, among others, investors can expect changes in the investing approach of schemes from these fund houses. There are cases where change in fund manager has led to a pure large-cap strategy being altered to a more flexi-cap approach. “Every fund manager has a unique investing style and it is reasonable that he will play to his own strengths. But it can be a concern if the fund manager is straying from the limits specified by the fund,” says Belapurkar. Such drift in investing style or focus may actually boost the return profile of the fund. But if the return comes at higher risk, it may not suit the risk appetite of the investor.

Funds taking on higher risk Vidya Bala, Head, Mutual Fund Research, FundsIndia, points out that many funds’ in-

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Cover Story

The Economic Times Wealth, May 8-14, 2017

vestment approach is not consistent with their declared strategy—and investors may not even be aware of this style drift. The problem is acute in the bond funds category. Several debt funds have taken too much leeway, and have changed their style to suit the prevelant condition. For instance, there are some short-term debt funds which have taken undue credit risk, and others that have attempted to play the interest rate movements, almost mimicking duration funds. Such actions raise the fund’s risk profile even though investors may not have bargained for it. “In bond funds, the investor typically has a predetermined investing time horizon and the goal is quite clear. So, when an ultra shortterm fund carries portfolio with an average maturity greater than 2-3 years, it is potentially putting investors’ goals at risk,” says Pothen. Average maturity profile of a debt fund indicates its risk profile: A fund that invests in instruments with longer maturity is exposed to higher interest rate risk. Shortterm and ultra short-term funds are not meant to carry such high risk as their primary aim is to earn a stable return by investing in instruments with lower maturity profile.

Many schemes have changed their benchmarks CATEGORY

ASSETS (` cr)

ICICI Prudential Value Discovery

Multi Cap

UTI Opportunities

CHANGE

OLD BENCHMARK

NEW BENCHMARK

17,029

1 Nov 2015

Nifty Free Float Midcap 100

S&P BSE 500

Large Cap

4,479

13 Feb 2017

S&P BSE 100

S&P BSE 200

SBI Magnum Midcap

Small Cap

3,583

17 June 2016

S&P BSE Mid Cap

Nifty Mid Small Cap 400

Reliance Mid & Small Cap Fund

Small Cap

2,758

1 Sep 2015

S&P BSE Mid Cap

S&P BSE Mid Small Cap

UTI Bluechip Flexicap Fund

Large Cap

1,812

1 Dec 2015

Nifty 50

S&P BSE 200

Kotak Emerging Equity

Small Cap

1,712

1 Aug 2015

S&P BSE Mid Cap

S&P BSE Mid Small Cap

HDFC Large Cap Fund

Large Cap

1,235

28 June 2014

S&P BSE 100

Nifty 50

HDFC Small Cap Fund

Small Cap

992

28 June 2014

S&P BSE 200

Nifty Smallcap 100

HSBC Equity

Large Cap

599

11 Nov 2016

S&P BSE 200

Nifty 50

SCHEME

Source: Value Research

A change in the benchmark index may indicate a shift in investing focus.

Scheme mandates have also changed

Scheme mergers A widely prevalent practice among fund houses is to merge non-performing or smaller schemes into bigger or better performing ones. In September 2013, Reliance Natural Resources was merged into Reliance Vision Fund. In March 2014, UTI Master Value was clubbed with UTI Mid Cap. Often, the merger can mean a drastic change in the fundamental attributes of a scheme—and, thereby, its risk profile—if it is merged into a scheme that has a different flavour. “If the theme of a scheme is altogether distinct from the scheme it is being merged into, investors should consider exiting even if the larger scheme is a healthy performer,” recommends Pothen. Also, you may already have a similar fund in your portfolio, which would only lead to duplication and skew your portfolio allocation. UTI Master Value was already a diversified mid-cap oriented fund, which made it compatible with the investing profile of UTI Mid Cap. Reliance Natural Resources, on the other hand, was a thematic fund distinct from the profile of Reliance Vision—a diversified scheme. The bigger scheme absorbing the smaller or underperforming fund may also undergo visible changes in its portfolio. Since it absorbs the entire portfolio of a scheme, the fund manager may require some time before he can realign the new portfolio to suit the fund’s mandate. This may also result in higher churn, imposing costs on the fund. Inves-

DATE

OLD NAME

NEW NAME

CATEGORY

9 Nov 2016

HDFC Small and Mid Cap Fund

HDFC Small Cap

Equity: Small Cap

992

22 Jan 2014

Reliance Equity

Reliance Focused Large Cap

Equity: Large Cap

1,106

22 Jan 2015

Reliance Long Term Equity

Reliance Mid & Small Cap

Equity: Small Cap

2,758

8 Mar 2016

DWS Investment Opportunity

DHFL Pramerica Balanced Advan.

Equity: Balanced

157

17 Mar 2017

Tata Treasury Manager Retail

Tata Corporate Bond

Debt: Ultra Short Term

351

1 Dec 2014

Franklin India Income

Franklin India Dynamic Accrual

Debt: Credit Opportunities

ASSETS (` cr)

In some cases, the change in mandate has altered the profile of the fund.

tors of both the schemes are given the option to exit if they feel the merger does not suit them.

Changes in scheme attributes Many schemes have witnessed changes in some of their fundamental attributes. A change in the scheme mandate is the most visible shift in the profile of a fund. Among equity schemes, Reliance Equity was renamed as Reliance Focused Large Cap in January 2014, and the scheme’s mandate was revised from running a diversified portfolio comprising companies from the top 100 universe to a focused approach with up to 25 companies belonging to the top 100

Funds with elevated interest rate risk PORTFOLIO AVERAGE MATURITY (years)

AUM (` cr)

Birla SL Treasury Optimizer Plan

5.1

7,253

ICICI Pru Short Term Plan

4.0

Birla SL ST Opportunities Fund

2,230 Source: Value Research

Apart from altered mandates, changes in the benchmark index, exit load structure or expense ratio can also have implications for the investor. “Choice of the benchmark index, at times, may be indicative of the changing profile of the fund,” says FundsIndia’s Bala. Often, schemes change their benchmark index to bring it in line with their prevailing asset mix and changing focus. ICICI Prudential Value Discovery, for instance, changed its benchmark index in 2015 from Nifty Free Float Midcap 100 Index to S&P BSE 500 Index, to better reflect its flexi-cap stance. Kotak Select Focus, Birla Sun Life Advantage and SBI Magnum Multicap have also adopted a broader

companies by market cap. HDFC Small and Midcap became HDFC Small Cap in September 2016. Among bond funds, Franklin India Income fund was re-labelled as Franklin India Dynamic Accrual in December 2014, and now invests into higher yielding, lower-rated debt instruments. Tata Treasury Manager was changed to Tata Corporate Bond in March this year as it became a credit fund from being a short-term debt fund, allowing the fund to take on more credit risk. DHFL Pramerica Balanced Advantage changed its category altogether. Till March 2016, it was a 100% equity fund with a different name and now it is a balanced fund with 60% equity exposure.

Funds with elevated credit risk % EXPOSURE TO SUB-AA SECURITIES^

AUM (` cr)

Franklin India Ultra Short Bond

48.9

7,909

8,776

Kotak Low Duration

40.7

4,499

3.8

5,442

DHFL Pramerica Low Duration

38.7

1,612

HDFC High Interest-STP

3.7

1,959

Indiabulls Short Term Plan

30.0

615

JM Short Term

3.6

34

HDFC Banking & PSU Debt Plan

28.1

3,055

SCHEME

Some short-term bond funds have invested in longer tenure instruments, that may not match the category’s risk profile.

Source: Ace MF. Data as on 31 March 2017

SCHEME

Some short-term bonds have invested large chunk of corpus in lower rated instruments.

^Rated AA- and below, A1 and below (as on March 2017). Source: CRISIL

Cover Story

The Economic Times Wealth, May 8-14, 2017

How mutual funds investing in REITs and InvITs impacts you

S

everal fund houses are planning to invest into real estate investment trusts (REIT) and infrastructure investment trusts (InvIT). Funds are now permitted to invest up to 5% of their net asset value in alternative securities—capped at 10% for a single fund. This change in investment pattern is a fundamental shift in the attribute of a scheme, so fund houses are asking investors to indicate their consent or to exit the investment. REITs are companies that own and lease out commercial or residential real estate. The rental incomes from the properties are shared among REIT investors, who

`

are allotted units. These units are tradeable on exchanges. InvITs are similar to REITs, except these own infrastructure assets not real estate. “The risk profile for these instruments is somewhat different, since the repayment capability of the instrument is completely dependent on the sales in the projects and the cash flows are usually volatile,” says Feroze Azeez, Deputy CEO, Anand Rathi Wealth

Management. In an environment where yields are falling, exposure to these instruments could actually lift a fund’s return profile. They could be a good source of return for funds provided adequate due diligence is done and risks are understood, says Roopali Prabhu, Head, Investment Products, Sanctum Wealth Management. Liquidity, however, could also be an issue since these are new, untested instruments, she cautions. Investors wishing to opt out of the scheme can do so within the window specified by the fund house without having to pay any exit load. They can also switch another scheme from the same fund house

“Shift to large-caps is because of our value bias which guides us to areas where the riskreward is more favourable.” MRINAL SINGH FUND MANAGER, ICICI PRU VALUE DISCOVERY

benchmark index that aligns with their portfolio.

What you should do If you are not being hand-held by an advisor, it is prudent to monitor your investment closely. It is critical that you keep your eyes open to news of any change in your scheme’s investment mandate or other modifications. “Scheme mandates are not watertight, which gives leeway to fund man-

05

agers to make sweeping changes in the portfolio,” says Belapurkar. To decide what to do in the event of changes in the fund you hold, the first thing is to ask yourself why you had picked the fund in the first place. If you are comfortable with the revised scheme structure or approach and it aligns with your needs, there is no reason to worry or exit. But, if you are not comfortable with the drift in style or change in the scheme mandate, then it makes sense to pull out your money. For instance, a shift in focus from a pure mid- or large-cap to multi-cap, or a concentrated fund taking a diversified approach may mean it no longer fits with your specific needs. “For some, the shift may be favourable as the risk gets diversified, but aggressive investors would be more comfortable with a leaner portfolio,” says Rohit Shah, Founder and CEO, Getting You Rich. In some cases, the change may affect the fund’s return profile. A change in fundamental attributes in a scheme or a scheme merger is communicated to the investor, providing the option to exit the fund within a specified time frame. But other changes, such as a shift in investing style are more subtle, and require monitoring and careful deliberation by the investor.

Please send your feedback to [email protected]

06

Financial Planning

The Economic Times Wealth, May 8-14, 2017

How much is too much loan & insurance

GETTY IMAGES

Find out what percentage of your income should go into loan EMIs, insurance premiums and rent, so that these don’t dent your budget or impact your investments.

YOGITA KHATRI

F

or most Indians, buying a house is one of their biggest dreams. For several, the dream is soured a few years down the line. The loan that they thought would help buy the house, starts straining their budget and impacting other goals. Home loan is not the only culprit. High insurance premiums, expensive personal loans and car loans contribute to the increasingly stressed finances and jittery investors. To avoid distressing your finances as well as your life, here’s how to figure out what percentage of your income should go into these expenses. INSURANCE PREMIUMS Most people make the mistake of mixing insurance with investment. So, instead of opting for low-cost pure life protection, they pack their portfolios with traditional plans, which yield low returns of 5-6% and come with a huge premium. Add to these other insurance plans like health, critical illness, car and home cover, and the premium outgo swells up considerably. The pure life cover, or term plan, should be about 8-10 times your annual income, and should take into account all dependants and loans. If you also

have traditional plans and Ulips, the premium should not exceed 6-7% of your total income. According to Harshavardhan Bhusari, Certified Financial Planner, FinPals, this figure should not cross 8%. “The premium on any kind of insurance policy should not be more than 8% of your income.” Mumbai-based sales professional Satish Shenoy, 50, didn’t know about this figure. A few years ago, when he earned `60,000 a month, he paid `21,000 for three Ulips and two endowment plans. This translated to about 35% of his income. “I bought these to save on tax, get good returns and for safety,” says Shenoy. After four years, he realised that the money wasn’t growing fast enough to meet the goal of his son’s education. If you have too many policies as an investment, get rid of the ones that don’t give you returns high enough to combat inflation. “Calculate the surrender and paid-up value of all your policies and take a decision,” says financial planner Dilshad Billimoria, Director, Dilzer Consultants. If you incur a small loss and maturity date is years away, surrender it. If not, convert it into a paid-up plan. For protection, go for low-cost term insurance. For investing, opt for equity-oriented options for long-term goals and debt-oriented ones for short- or medium-term goals.

SATISH SHENOY, 50 Mumbai INCOME: `60,000 EXPENSES: `66,000 INSURANCE PREMIUM: `21,000

INSURANCE PREMIUM SHENOY’S PREMIUM AS % OF HIS TOTAL INCOME

35%

THUMB RULE Insurance premiums should not be more than 6-7% of total income.

6-7%

What he did � Surrendered all his expensive traditional plans and Ulips. � Invested in a high-return option like mutual funds to meet his financial goals.

Financial Planning

The Economic Times Wealth, May 8-14, 2017

ASHISH WADHWA, 26

Vensiva Financial Solutions.

Chennai

PERSONAL LOAN & OTHER LOANS Bengaluru-based Balaji K, 30, is beginning to feel the heat too. Though he hasn’t taken a home loan, the software professional is finding it hard to keep up with his expensive personal loans and high rent. These comprise almost 80% of his income and result in a deficit every month. “I had to take various loans for a medical emergency and my wedding,” says Balaji. To cut down the expenses, he could look for a house with low rent and repay all loans at the earliest. While it is not advisable to take expensive personal loans at all, if one is forced to, the amount should not exceed 10% of one’s income. “If the total monthly loan servicing amount is over 50% of the net income, it is a red flag to watch out for,” says Suresh Sadagopan, Founder, Ladder7 Financial Advisories. Billimoria agrees, “It means one is earning to pay the bank and is likely to fall into a debt trap.” Pune-based Nirdesh Jain, 28, a chartered accountant, knows it well. He is repaying various loans, with the EMIs of 28,000 adding up to 45% of his monthly income. While he seems confident about his earning capacity, it is important to focus on investing. Jain currently invests only `16,000 annually in mutual funds. Mumbai-based businessman, Purushottam Bohra, 56, too needs to plan for retirement, but currently

INCOME: `53,000 EXPENSES: `50,000 HOME LOAN EMI: `31,000

HOME LOAN EMI WADHWA’S EMI AS % OF HIS TOTAL INCOME

60% House-related expenses, be it loan EMIs or rent, should be 40% of total income.

40%

What he should do � As he is young with fewer financial responsibilities, he should try to prepay his home loan. � He should also use any bonus or surplus funds to repay the loan.

BALAJI K., 30 Bengaluru INCOME: `62,500 EXPENSES: `64,150 LOAN EMIS & RENT: `49,150

PERSONAL & OTHER LOANS BALAJI’S EMIS & RENT AS % OF HIS TOTAL INCOME

80% THUMB RULE Personal loan should be 10% of total income

10%

HOME LOAN EMI House-related expenses, be it loan EMIs (equated monthly instalments) or rent, can also send your cashflow haywire. While the combined EMIs of all your loans should not be more than 45-50% of the total income, home liabilities should not exceed 35-40% of the income. Aashish Wadhwa, a 26-year-old home owner from Chennai, was clearly unaware of this thumb rule when he bought a house recently. While he earns `53,000 a month, he is paying an EMI of `31,000, nearly 60% of his total income. “I bought the house to save on taxes and rent,” he says. These factors, along with attractive interest rates, double incomes and expectations of good salary hikes, make one stretch the budget to buy a house. If you are young and don’t have too

What he should do � Shift to a house with low rent. � Repay the two expensive personal loans at the earliest.

many financial responsibilities, a good option is to prepay the home loan instead of investing in other avenues. “A 9-9.5% loan versus an expected return of 12-15% on investments may feel like a no-brainer, but the psychology of a liability hanging over your head makes the borrower uncomfortable. Prepaying is a better option,” says N. Vishwanath, Founder and CEO, Blue Ocean Financial Services. “In the initial years, the interest component is higher and provides tax benefits, so prepaying after 5-7 years works well,” says Amol Joshi, Founder, PlanRupee Investment Services. It makes even more sense to prepay if the house is for self-use, not investment. “In today’s uncertain job market, managing a fixed expense like an EMI, especially when it is high, can be a big challenge,” says Balakrishnan Venkataramani, Proprietor,

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75% of his income, or `31,000, is going as EMI for a personal loan. He took the loan after his business suffered losses two years ago. This is why it is best to pay yourself first. “It may be daunting initially, but you pick up the habit gradually,” says Ramesh Bukka, CoFounder and Director at Entrust Family Office Investment Advisors. Equally important is to remember the ceilings for loans and insurance premiums, and try not to exceed these at any cost.

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Review Preview

The Economic Times Wealth, May 8-14, 2017

No blocking of NPS accounts

Product launches

PFRDA to issue fresh guidelines for FATCA self certification by NPS subscribers he Pension Fund Regulatory and Development Authority has clarified that NPS accounts of investors who have not submitted the Foreign Account Tax Compliance Act (FATCA) self certification will not be blocked. The clarification, sent to the registered email addresses of NPS investors on Thursday, comes as a relief to some 40 lakh NPS investors. These investors had been warned that if they failed to submit a physical signed self-certification of the FATCA by 30 April, their NPS account would be blocked. The PFRDA says it will issue fresh guidelines shortly. Observers say the FATCA declaration should not be offline because it will unnecessarily add to paperwork. Besides, the insistence on a physical document is an anachronism at a time when the government is pushing everything to the digital format. Mutual funds accept online submission of the FATCA declaration. “It is a self-certification process, and does

Axis Mutual Fund has launched the Axis Equity Advantage Fund Series 1, a multi-cap fund that will invest in a diversified portfolio of stocks and equity-related instruments. The closed-ended scheme has a tenure of 1,590 days (53 months). The NFO is open till 19 May.

T

`200cr was the insurance cover for the film Baahubali 2. The Future Cine Suraksha policy covered the film against death or illness of actors or natural calamities and accidents leading to delays in the film schedule.

New ITR forms ready for e-filing

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he Income Tax department has activated the e-filing facility for all categories of Income Tax Returns (ITRs) for the assessment year 2017-18. A taxpayer should keep ready a copy of last year’s ITR, bank statements, TDS and savings certificates, Form-16 and other relevant documents ready before attempting the efiling, an official said. The taxpayer’s Aadhaar number is now mandatory for filing of income tax returns. The e-verification of ITRs can also be done through the Aadhaar number. If e-verified, the ITR-V (acknowledgment) does not have to be sent to the Central Processing Centre (CPC) in Bengaluru. Already 2.6 lakh ITRs have been e-verified in this fiscal using the Aadhaar.

MUTUAL FUND

PPFAS Mutual Fund has launched ‘PPFAS Self Invest’, a mobile app to help manage one’s holding. The app can help conduct a range of transactions. Existing investors can register for ‘PPFAS Self Invest’ by registering and choosing a mobile PIN for each folio.

INSURANCE

not require any documents to be submitted,” points out Manoj Nagpal, CEO of Outlook Asia Capital. The issue brings into focus the need for a single-window KYC that applies to all financial dealings of an individual. Ideally, the FATCA self-certification submitted by an individual to banks and mutual funds

should be good enough for the NPS as well. Even the centralised KYC, which was introduced to make life easy for investors, has not been of much help here. “The PFRDA requirement for another FATCA self certification shows how the systems are still not talking to each other,” says Nagpal.

Cognizant offers 6-9 months’ pay for leaving company

I

n a bid to cut its wage bill, software major Cognizant Technology has offered a golden handshake to select senior employees. Directors and senior vice-presidents have been offered 6-9 months’ pay as a severance package. While directors are offered the ninemonth packages, as-

sistant vice-presidents and senior vice-presidents will get the six months’ salaries for leaving. Sources say close to 1,000 employees may be eligible for the voluntary separation incentive. Cognizant has witnessed terrific growth over the past two decades but has slowed down in recent years.

Employees felt the heat of slower growth for the first time in 2016, when the best performers received only 95% of their variable pay, significantly lower than the usual 150-200% they used to earn earlier. Cognizant employs 2.6 lakh employees globally, with 1.9 lakh of them based in India.

HDFC Life Insurance has launched HDFC Life Click 2 Protect 3D Plus, an online policy that provides nine different protection options and covers all possible adversities, raging from death, disability and disease.There is also a top-up option to increase the coverage. Bajaj Allianz General Insurance has launched Bharat Bhraman, a travel policy aimed at covering people for short or long-distance domestic tours. The premiums start as low as `5 for a single trip insurance and the coverage period can range from a few hours to up to one year. Edelweiss Tokio Life Insurance has launched India’s first over the counter life insurance policy. The ‘POS Saral Nivesh’ can be bought without any medical tests. The minimum premium is `5,000 per year or `1,000 monthly, with the insured sum ranging from `50,000 to `10 lakh.

domestic calendar Tuesday Monday MAY DEC

Wednesday MAY

Bharti Airtel fourth quarter results

Hero Motocorp fourth quarter results

09

10

Friday MAY

12

India year-onyear CPI data for April

RERA can’t rule on old projects

T

he Real Estate Regulatory Authority (RERA) can’t penalise builders for delays on projects started before 1 May 2017. Officials have clarified that the RERA can only penalise projects after they get registered and the builder defaults on the agreed

timelines. “We will decide the timeline for the ongoing projects as they come to us for registrations,” said Anthony De Sa, chairman RERA & former chief secretary, Madhya Pradesh. Vini Mahajan, additional secretary, housing urban development, Punjab

said RERA can only function under the specified rules. “Home buyers will have an option to reach out to other courts of law or RERA for resolving their issues. However, we can’t penalise a builder for earlier delay, as the Act doesn’t allows us to,” said Mahajan.

Tweet corner Vijay Kedia @VijayKedia1 MD, Kedia Securities

Don’t always trust what you see. In a bull market even a duck looks like a swan.

Samir Arora @Iamsamirarora

quote of the week

“SIPs are the best way to invest in ELSS. If you can’t understand this simple logic, don’t force your kids to study regularly from the beginning of the academic year.” VIJAI MANTRI CHIEF MENTOR & CO-FOUNDER, BUCKFAST INVESTMENT ADVISORY SERVICES

Fund manager, Helios Capital

Investor to company: Yr results are bad Yes Sir Guidance-muted Yes Yr history-so so Yes- but we are mid cap Investor: Sorry-forgot that. BUY

Family Finance

09

The Economic Times Wealth, May 8-14, 2017

Correct the realty skew The Hyderabad-based couple will need to revamp their portfolio if they want to meet all their goals. RIJU DAVE

C

handrashekhar T. is 37 and stays in Hyderabad with his wife and three-year-old child. He brings in a salary of `1.08 lakh and, after all expenses, is left with a surplus of `5,484. His portfolio is skewed heavily towards real estate and he has no equity investment. He is also repaying three loans with high rates, one of which is close to ending and another, a credit card bill, will end in about nine months. The financial planning team of Fincart suggests he build an emergency corpus of `2.8 lakh by allocating his cash and starting an SIP of `7,004 in a short-term debt fund. However, he can do this after nine months, when he has repaid his second loan. As for his other goals, he wants to build a sum of `55.1 lakh in 15 years for his child’s education. For this, he can use the maturity amount of his traditional plan and start an SIP of `5,931 in an equity fund. For the kid’s

wedding, he wants `38.6 lakh in 20 years. For this he will have to start an SIP of `2,310 in an equity fund for the given term. For retirement, he will need `8.1 crore in 23 years. To meet this goal he will have to allocate his PPF, EPF, NPS, debt plan and real estate holdings. Though Chandrashekhar is not keen on getting rid of his land and properties, he is advised to do so to be able to secure his retirement. In addition, he will need to start an SIP of `8,901 in an equity fund. Due to lack of surplus, he can start with `6,000 and invest `42 a month in the PPF. As for insurance, Chandrashekhar has one term plan of `1 crore and one traditional plan. He is advised to retain both the policies and buy another `1.1 crore term plan. He also has health plans of `5 lakh each for himself and his wife, and a `3 lakh plan for his father. He is advised to buy a family floater plan of `5 lakh for himself, his wife and child, and a top-up plan of `20 lakh. He should buy another `5 lakh plan for his father with a similar top-up plan of `20 lakh.

Chandrashekhar T. & Shubhangi, 37 & 32, Salaried, Hyderabad

How to invest for goals Resources used

Emergency fund

2.8 lakh / 2 yrs

Cash

Child’s education

55.1 lakh / 15 yrs

Insurance

5,931

Child’s wedding

38.6 lakh / 20 yrs

-

2,310

Retirement

8.1 crore / 23 yrs

PPF, EPF, NPS, debt, real estate

GOAL

Investible surplus needed

Asset

Real estate Cash

1.35 crore 1 lakh

Income

Existing (`)

Suggested (`)

1.08 lakh

1.08 lakh

Debt Insurance

3 lakh

PPF

1.2 lakh

Fixed deposit

80,000

NPS

36,000

Debt plan EPF Total Liabilities

20,000 12,000 1.41 crore Current value (`)

Loans

13.35 lakh

Total liability

13.35 lakh

Net worth (approx) `1.28 crore

1,583

Buy `1.1 crore plan

Traditional plan (1)

3 lakh

1,833

Continue

-

-

1.03 crore

3,416

-

-

Own

13 lakh

2,900

`5 lakh for family + `5 lakh for father + top-ups

5,289

Total

13 lakh

2,900

`10 lakh

5,289

Critical illness & accident disability

-

-

-

-

Total

-

-

-

-

Insurance cost

-

6,316

-

10,269

59,000

Health insurance

Loan EMIs

34,200

17,000

Employers’

Investment

3,000

Total outflow Surplus

1.02 lakh

21,287 1.07 lakh

5,484

444

1,564 + 1,583 (existing)

1 crore

59,000

10,269

Suggestions

Suggested monthly premium (`)

Term plan (1)

Total

6,316

Existing monthly premium (`)

Life insurance

Household expenses

Insurance premium

21,287

Existing cover (`)

Ulip

Outflow

6,042**

Insurance portfolio

Cash flow Current value (`)

7,004*

* Investment for this goal will begin after repaying the credit card bill. ** Investment for this goal is `8,901, but due to lack of surplus, he can begin with `6,000 and `42 in the PPF. Annual return assumed to be 12% for equity, 8% for debt. Inflation assumed to be 7%.

INSURANCE

Portfolio

Investment needed (`/month)

Future cost (`) / time to achieve

1,833

`2.1 crore

4,980

-

-

Premiums are indicative and could vary for different insurers.

Financial plan by Pankaaj Maalde Certified Financial Planner

WRITE TO US FOR EXPERT ADVICE

Looking for a professional to analyse your investment portfolio? Write to us at [email protected] with ‘Family Finances’ as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.

10

Banking

The Economic Times Wealth, May 8-14, 2017

Should investors be cautious about banking stocks? Despite the recent rally, experts are still of the opinion that there’s more in store for the banking sector. NARENDRA NATHAN

D

espite the lacklustre corporate performance, banking stocks are still rallying. The Bank Nifty has generated a return of 35% during the past year, compared to a gain of 19% in Nifty. The rally was more concentrated on the PSU bank side, with the PSU Bank Nifty generating one-year return of 52%. What are the reasons behind this? Since the rally is continuing unabated (PSU Bank Nifty rallied by another 3.37% in the past week), should investors be cautious about banking stocks at this juncture? More importantly, how should they play the sub-sections within banking stocks? Private retail banks Retail loan-focused private sector banks like HDFC Bank and Kotak Bank are the darlings of the investment community. As of now, the fundamentals are still improving and there is nothing to worry about on this front. “The Indian retail loan market should continue to grow fast, since it is still under-penetrated, as well as due to the pick-up in housing loans,” says Anand Shah, Deputy CEO & CIO, BNP Paribas MF. However, they are currently quoting at the highest valuations. While Kotak Bank and HDFC Bank are priced at 6.6 times and 4.42 times their respective book values, many other banks are quoting at very low levels. Experts see no reason to exit high quality companies like HDFC Bank due to high valuations. “While the valuations of quality companies, like HDFC Bank, are high, it is justified because of better earnings visibility,” says Siddharth Purohit, Senior Equity Research Analyst, Angel Broking.

PSU banks Most public sector banks are oriented towards corporate loans, and are therefore harder hit by non-performing asset (NPA) issues. Though some, like SBI, are aggressively moving into the retail side, their retail portfolios are still fewer than corporate ones. Concerns about asset quality on corporate books came to light when RBI enforced stricter recognition norms in 2015, forcing them to report large NPAs. While some banks had to report losses, others only suffered a big fall in net profit. Recent events like demonetisation compounded NPA issues for them. But now their prices are climbing again, because the investment community has started seeing light at the end of the tunnel on the NPA front. “Though new NPA addition is still happening, it has slowed down considerably,” says Purohit. Most experts feel that the net NPA additions may drop to zero within few quarters, following which, the gross NPA too, will start falling. There is also speculation in the market about the government creating an NPA resolution mechanism. “The economic recovery is slowly solving the NPA issues, and the expected government action will only hasten it,” says Shah. Since these banks have already provided for NPAs through their profit and loss account, they can write back any gain from NPA resolutions. Further, after demonetisation blues, corporate loan growth is slowly picking up. “This is good news for large PSU banks which have the bandwidth to benefit from it,” says Kajal Gandhi, Banking Analyst at ICICI Direct. Private corporate banks Private banks focused on corporate lending constitute another segment that is getting attention now. They will benefit from any gov-

Outstripping the competition

GETTY IMAGES

ernment initiative on the NPA front. More importantly, they may also gain from the expected NPA resolution, economic recovery and higher loan growth. ICICI Bank reported a 189% jump in net profit last week, though it was largely due to a low base effect. Though fundamentals are still improving, PSU banks and midsized private banks have rallied significantly. So, should investors still consider them? Experts are of the opinion that there is no reason to worry about their past performance because even after doubling from the bottom, most of these banks are still far from the top, unlike the large pri-

Banking Funds Mutual fund investors can also benefit from the banking sector rally by investing through banking funds or by buying ETFs dedicated to the banking sector.

Analysts prefer PSU and midsized private banks

PSU Bank Nifty rallied significantly more than other indices over the past year. 160 150

90 80 2 May 2017

PBV

Dividend yield

Buy

Hold

Sell

320.00

10.93

1.07

0.47

7

2

-

Vijaya Bank

80.30

12.97

1.14

1.87

-

1

1

Federal Bank

112.55

23.35

2.29

0.62

31

4

2

Lakshmi Vilas Bank

180.80

13.51

1.84

1.66

8

2

1

DCB Bank

196.85

28.12

2.61

0.00

12

6

3

Bank of India

181.20

(4.66)

0.59

2.76

2

7

17

Punjab National Bank

170.75

(8.44)

0.92

1.93

14

10

24

OBC

172.00

40.86

0.43

0.41

1

3

5

38.65

(6.34)

1.34

0.00

-

-

-

366.60

(7.30)

0.78

2.86

5

6

12

NIFTY

100

P/E

Indian Bank

119.32

110

CMP

PSU BANK Nifty

BANK Nifty

120

Analyst Views

152.06

135.05 130

Valuation Ratios

Bank

140

2 May 2016

vate banks that are already at new highs. Another question is whether you should bet on PSU banks or on private corporate banks now. “Both PSU banks and private banks are expected to do well,” says Gandhi. Shah concurs, saying “Money is to be made in both PSU banks and corporate private banks, but it’s difficult to say which one will do better”.

Despite the rally, experts see further scope for banking stocks

Dhanlaxmi Bank Canara Bank

Source: Bloomberg; compiled by ETIG Database

INVESTOR CONNECT INITIATIVE

>> pg 11

THE ECONOMIC TIMES WEALTH, MAY 8-14, 2017

AVOID COMMON INVESTING MYTHS

There are various myths relating to investing. At 23, someone in his/her first job may think he/she is too young to start planning for retirement or make a will. One may think investing in stocks is not for him/her even when other factors may support his/her suitability to invest in equities. Here are some mythbusters for first time investors

Myth 1:

I AM STILL YOUNG. I DO NOT NEED TO START SAVING SO SOON.

When you start investing early, you can start with a small amount,

Reality 1: say even `500 per month. As you grow, in age and in your career, you can gradually increase your investment amount and gain from the power of compounding. Time is the most important ingredient in creating wealth.

Myth 2: Research shows that equity-oriented funds

Reality 2: outperform assured-return investments over the

I CANNOT HANDLE THE PRESSURE OF MARKET VOLATILITY. I NEED ASSURED RETURNS.

long run. Investing small amounts regularly and in a disciplined manner in diversified equity funds through SIP has proven to be the seamless antidote to volatile markets.

Myth 3:

If you expect returns from

Reality 3: your investments in a

LONG TERM DOES NOT MATTER TO ME. I WANT SHORT TERM RETURNS.

short period of time, you need to be ready to face unpredictability. The longer your investment horizon is, higher is the probability of return.

Myth 4: Investment decisions relating to stocks require

WHEN IT COMES TO WEALTH CREATION, STOCKS ARE THE WAY TO GO, NOT MUTUAL FUNDS.

Reality 4: in-depth knowledge of the market, meticulous

research, sustained tracking of portfolio's constituents and also of the market as a whole, and an appetite for risk. In the absence of all these attributes, mutual funds are one of the preferred ways for long term wealth creation.

Reality 5: When you invest in any tax planning

instrument, meeting your financial and life goals are just as important as saving taxes. Choose an investment for its ability to build your wealth. While investing, tax saving should be an added incentive and not your primary motive.

TAX SAVING SHOULD BE THE SOLE AIM OF MY INVESTMENT PLANNING.

Myth 6:

I DO NOT NEED MUTUAL FUNDS, I CAN MANAGE MY OWN PORTFOLIO.

ILLUSTRATIONS: SACHIN VARADKAR

Myth 5:

Mutual funds provide diversification,

Reality 6: professional management, economies of scale and tax efficiency. To manage one's portfolio, one needs lot of time, skills and a host of other attributes (mentioned in Point 4 above). So managing money is a job best left to fund managers.

12

Guest Column

The Economic Times Wealth, May 8-14, 2017

THE INDIAN SAVER’S INSURANCE PROBLEM MONEY MYSTERIES

The first step in personal finance–buying life insurance–is also the one that most savers get wrong, says Dhirendra Kumar. ulator (IRDA) also measures success by how much money the industry takes from customers, rather than how much insurance they have delivered and to how many people. The IRDA annual report, or any other published data in this country does not reveal the actual extent to which people are insured. IRDA uses something called ‘insurance density’, which is the per capita premium charged from customers and as well as the premium as ratio of GDP. These numbers do not tell us how much insurance cover is delivered, only how much money the industry has extracted from people. The real questions are: When a customer dies, how much money does his family get? How many customers have what amount of this cover? What is the ratio of the total premium collected to the cover provided? Shockingly, this information either doesn’t exist (meaning IRDA has not bothered to collate it), or it’s a secret. This attitude is perfectly reflected in the behaviour of whoever sells you insurance. However, the various ways in which agents will try and befuddle you is too long a story. You should just focus on getting ten years’ income worth of insurance. If you do this, you will get only the right kind of insurance product which is a term insurance. The reason for that is that in other kind of insurance products, getting ten years worth of life cover will cost you your entire income. The basic principle of buying insurance is to keep insurance and investment separate and buy only pure insurance (term insurance). In India, insurance sellers have encouraged an investing culture where people are averse to buying term insurance because ‘you get back nothing’. Agents do this because they earn far higher commissions in other kinds of products. It’s not possible to be charitable while commenting honestly about this existing system so I won’t even try: this system exists because the regulator is asleep, agents are conniving and manipulative and customers are foolish. The system won’t change, so it’s up to you to learn how to actually buy insurance.

A lot of people know how much premium they pay to insurance companies, but do not know what their family will get if they die.

GETTY IMAGES

I The author has written about personal finance for more than two decades. He is the Founder and CEO of Value Research

nsurance should be the first step of every saver. You should get insured before you think of doing anything else financially. However, to do this correctly you will have to understand what insurance really is and how much you actually need. Here’s the dictionary definition of insurance: an arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium. For life insurance, we can simplify this to: an arrangement by which a company will compensate your survivors if you die, in return for payment of a specified premium. This is the only definition of insurance. Keep in mind that much of what insurance agents try to sell you is not insurance. How much should you be insured for? There are a variety of ways to arrive upon the answer, but a starting point could be ten years worth of your current income. This will obviously vary according to other family members’ income, assets, house etc, but rarely would an amount

less than ten years’ income suffice. If you don’t believe me, quickly make a rough estimate of what your family’s budget would be if you were to die soon. So here’s the most important question: Do you have enough insurance? The answer is no. And how do I know that? Because that’s the correct answer for a vast majority of Indians and so statistically speaking, this is likely to be your answer too. The strange thing is, in my experience, a lot of people know how much premium they pay to insurance companies, but do not know what their family will get if they were to drop dead. Actually, it’s not strange because the life insurance business is optimised around taking money and indeed, measures its success not by how much its customers are insured for, but how much money the customers pay. It does so by ensuring that a vast majority of products are not insurance but expensive and opaque investment products that have a small smattering of real insurance as a statutory requirement. By the way, this is official. The insurance reg-

Please send your feedback to [email protected]

Financial Planning

5

The Economic Times Wealth, May 8-14, 2017

TASKS YOU CAN’T PUT OFF ANY LONGER A recent study shows a spike in mortality rates in the 45-54 age group in the US. India is witnessing a similar rise in this age bracket. To avoid problems for your dependants, here’s how to set your financial life in order at the earliest, says Riju Dave.

STORE PASSWORDS

APPOINT NOMINEES

As our financial lives veer towards the digital—banking transactions, income tax returns, utility bill payments, insurance premium payments and mutual fund investments—we are besieged by a set of passwords that only we have access to. Make a hard copy of all the user names and passwords, including your official mail, mobile apps, even social media accounts, and put it in a locker or any other safe place. If you have stored all these in a password manager (it keeps all your passwords in an encrypted vault and offers security against identity theft and fraud), note down its password and keep it safe. More importanly, keep your spouse in the loop.

This crucial task is disregarded by most people as they consider it dispensable. However, appointing nominees—while opening a bank account, buying an insurance policy or investing in stocks or mutual funds—makes the process of passing on benefits or assets very smooth. Though a nominee is technically just a trustee till the investments are passed on to legal heirs, it reduces the hassle for family members and does not add to the emotional trauma.

BUY A CRITICAL ILLNESS COVER With the rising incidence of illnesses like cancer and cardiac diseases, it’s important to not just have health insurance, but also a critical illness cover. This is because such plans provide a lump sum on diagnosis of specified illnesses and ensure the availability of funds at regular intervals for long-term treatment, expensive medicines and rehabilitation. While a contingency corpus can take care of one-time surgery or hospital care, critical illnesses can wipe out most of your savings if you are not prepared. Ideally, opt for a cover of `25-30 lakh. It is available as a standalone cover or as an add-on with life insurance policies. These plans typically cover about 20 diseases and come with a waiting period clause.

COMPLETE YOUR PAPERWORK One of the most tedious and shunned tasks is estate planning and documentation. It is, however, one of the most critical. Earmark a few days in a year for this task. First, prepare a will, clearly listing the heirs to avoid legal disputes. Next, prepare a list of all your acquired assets, ongoing investments and liabilities. Create a separate folder for each: bank deposits, insurance policies for life, health, car, as well as traditional plans or Ulips, small savings schemes, post office schemes, stocks and mutual fund investments, real estate deals, loan EMIs, among others. Make sure these have all the details, including dates of commencement and maturity, amounts, premium paying dates, etc. Keep your spouse in the know and deposit these in a bank locker.

COVER YOUR LOANS If you are servicing a big loan, say for a house, at the time of death, it could saddle your dependants with a huge burden. To avoid this, make sure that your life insurance covers all your loans as well. A term plan should ideally be 8-10 times your annual income to replace the lost income and take care of the day-to-day and future needs of your family. To this, add the value of all the loans so that these can be repaid easily. Another available option is a plan that only covers loans. Here, the cover amount reduces in line with the loan.

13

14

Financial Planning

The Economic Times Wealth, May 8-14, 2017

THE MONEY QUESTION

Paper Work

Does higher income automatically lead to wealth accumulation?

Transfering your bank account

Vikramjeet is an equity analyst who plans to buy a house in five years. He has already shortlisted some, and wants to prepare himself for the upcoming expense. But he finds himself unable to save much, despite getting paid more than the average at his age. The type of house that he is looking at will be worth `5 crore in five years, but he only has the capacity to shell out `2 crore. He is confident that over the next five years, his income levels will increase enough for him to be able to afford the house of his choice, without taking a loan. But does earning more guarantee wealth creation?

When you move to a new home, it is important to also transfer your bank account to a branch nearby. Though normal banking transactions such as deposits, withdrawals, can be done at any branch, getting a locker, availing of loan and credit facilities, activating dormant accounts, etc. can be done only at the home branch. Here’s how to go about transfering your account.

Application The account holder(s) should submit a written application or form to either the new branch or the old one (home branch). The letter should clearly indicate account numbers, which are to be transferred to another branch. The exact name of the new branch, where the account is to be transferred, must be mentioned in the letter as well.

ikramjeet associates wealth with his income level. If this was true, only individuals with low income levels would be opting for car loans, home loans, credit card spending, etc. The fact is, there are takers for loans at all income levels; only the quantum changes. Those who once took a personal loan to plan a holiday to Kerela might eventually want to take a loan to for a foreign holiday, and then for a cruise and so on. Many people like Vikramjeet can barely get by every month, irrespective of how much they earn. Expenditure tends to increase with income. Therefore, Vikramjeet must analyse his expenses and cut down the unnecessary ones to free up some cash, which can be set aside as savings. He must start by setting himself a goal. By saving with a goal in mind, he is more likely to do so diligently, so that he ultimately meets his target. He must invest for the long-term in a growth-oriented investment like equity. Further, he must consider topping up his investment amount every year as his income increases. Ths should be easy to achieve with a higher income. Paying off loans is also a crucial part of money management. Vikramjeet should focus on paying off his debts at the earliest, so that he is relieved of unnecessary financial burdens. Making more money instead of saving right is like hoping for a miracle. Higher income alone may not be enough to fulfil all of Vikramjeet’s financial dreams. He should start planning to arrange for the funds he needs, well in time.

V

Surrendering the cheque book Along with the application, the account holders are required to return any cheque book(s) and unused cheque leaves.

Other documents Proof of new address should be accompanied by the application. Contact details such as new landline or mobile number should also be updated.

Process

GETTYIMAGES

SMART THINGS TO KNOW: Return on Equity (ROE)

1

ROE is a profitability measure that calculates how much profit a company has made on the money that the shareholders have invested.

2

ROE is expressed as a percentage and calculated by dividing profit after tax by shareholder’s equity

3

ROE also measures the efficiency of a company, indicating how well the given company’s management is deploying the shareholders’ capital.

4

A rising ROE suggests that a company is increasing its ability to generate profit without needing additional capital.

5

Write downs, buybacks and a high level of debt reduce the value of the shareholders’ equity, which leads to an artificial increase in ROE.

The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.

Once the application is received, the request is sent to the home branch. The home branch closes the account and transfers balances to the other branch. A new account is then opened at the branch where the account is transferred and funds are deposited in this account. The whole transfer process may take 8-10 working days. Once the account is transferred, the customer is allotted the new account number, and a new cheque book can be issued.

Points to note � The customer ID usually remains unchanged but the account number may change depending on the bank branch. � Existing ECS and standing instructions will have to be revised if there is a change of account number.

Financial Planning

The Economic Times Wealth, May 8-14, 2017

15

How homemakers get left behind financially A lot of women who give up their financial independence to take care of their families eventually regret falling out of touch with their own household finances, says Uma Shashikant.

T

he protagonist of the story I’ll tell you this week does not wish to be named. She insisted that nothing in this column should even remotely be traced back to her. This turned out to be quite easy, since several other women to whom I posed the same questions provided remarkably similar answers and shared similar life experiences. There seems to be a segment of 50 plus women, who put on a brave face, but actually live with tremendous regret. Research shows that regret is quite a common feeling among both men and women over 40. When people realise that the time they have left is getting shorter than the life they have already led, they begin to wonder if they have lived the way they wanted or just played out someone else’s life. They start second guessing whether they have missed moments and experiences that matter more than the career goals that they have been pursuing. But the story is different for women, whose life dramatically alters with the arrival of a child. An accomplished academic record, extreme competitiveness at the graduate level, and a superb start to what looks like an illustrious career, all come to a grinding halt when women fall off the career path after having a child. There are many who struggle through the demands of their home and work; there are some who find support and manage to succeed in accomplishing their career goals; there are some that pursue something that enables them to care for the children, even if it is not their career of choice; and there are some who simply settle for domesticity, without much complaint. It is when the children grow up and leave that they look back at their lives and wish they could have made different choices. The compromises stare them in the face and seem very unfair and unacceptable. There is a sense of regret about not being financially independent. My friend tells me that her husband’s generosity fails to fill up the vacuum of not having her own earnings. She is always guilted by the cost of what she buys and constantly seeks bargains. But her problem is not about spending, it is about the general attitude towards money. Despite the joint holding of assets and pursuing life goals together, my friend does not influence the financial decisions of the family as a whole. She is willing to take more risks with money and is quite an involved equity investor. She also is very adept at managing the paperwork related to investments and finances, since she works with the chartered accountant on the tax returns and annual statements. However, her husband is quite

GETTY IMAGES

conservative in his approach and dislikes the stock markets. He is unwilling to risk the hard earned money, and since he is the one who earns, it is his call to make. The risk profiling of the household has been done by their financial planner based on the preferences of her husband. My friend feels constrained and upset that what she knows and believes to be good for the family will not be implemented with the money they save, since she is not financially independent to make those decisions. The disconnect between the money attitudes of spouses is a very common problem in personal finance. Our upbringing, our childhood experiences, our attitude towards hoarding and giving, and our sense of

security about the future, among other things, determine our attitude towards money and our orientation when it comes to making financial decisions. It is very likely that the husband and the wife do not agree on spending, saving and investing. There are no simple ways to resolve these conflicts. It takes several years of negotiation, understanding, experiences, and outcomes before joint decisions are made easily by a household. Women like my friend, who don’t contribute to the income of the household are further constrained because they are back footed, or because they are not interested in getting involved in finance and investments. The confidence among women to make the

decisions to spend and save for the household, does not translate into making actual investment decisions. My friend thinks that she should now pursue an interest that will keep her engaged and involved with the outside world, while also helping her develop meaningful relationships outside her home. She finds this to be a difficult, given her limited network of relationships, somewhat outdated skills and tentativeness with technology. Overcoming the barriers of inadequacy that she feels about her capabilities has taken her much longer, but she is working at it. The fastpaced modern world of work and network can bewilder someone who has been out of work for over 20 years. Without the helpful groups of peers, colleagues and clients, how far could those of us who have been fortunate enough to continue to work go? In personal finance, we emphasise the fundamental linkages between earning, saving, investing and owning assets. When women have given up all the other roles, asset ownership alone does not provide the fulfilment and satisfaction that they seek. While some have taken up volunteering and socially relevant jobs, there are many like my friend, who are keen to erase dominant sense of regret that they feel about their lives. They want to make a fresh start and find something worthwhile to pursue that provides them with a sense of success and achievement. I tell my friend about several women who have taken on various entrepreneurial ventures in food, event management, fashion, and the like. She remains worried and tentative, hoping to find mentors who will guide her along. Simplistic ideas like paying the woman who chooses to remain a homemaker do not even scratch the surface of the issues these women face. It is easy to brush it all aside as psychological complexes or insecurities. Many women do not delve into these issues, seeking happiness within the familiar context of their households. But for those like my friend, the question the potentially capable and competent woman returning to the economic mainstream of earnings and finance, is critical. It is the existential debate about what could have been, and we cannot fault women who want their worth to be measured by the money they earn themselves.

The author is Chairperson, Centre for Investment Education and Learning.

16

The Economic Times Wealth, May 8-14, 2017

Learn & Keep

Why pay 30% tax when you can pay 6.4%? In the highest tax bracket, investors pay 30.9% tax on the interest they earn on fixed deposits. Babar Zaidi suggests an alternative that can reduce your tax liability to less than 7%.

1

Fixed deposit rates are down. Yet, many investors prefer them because they are seen as safe and offer assured returns. FIXED DEPOSIT INTEREST RATE (%)

2

BANK

1-YEAR

3-YEAR

5-YEAR

IDFC Bank

7.5

7.2

7.2

RBL Bank

7.5

7.5

7.5

DCB Bank

7.2

7.25

7.2

HOLDING PERIOD

TAX RATE

Less than three years.

Same as applicable to fixed deposits.

Over three years.

20% after

Indexation takes into account the inflation during the holding period and accordingly raises the purchase price. This reduces the tax significantly.

indexation.

How inflation indexation can bring down your tax

5

Purchase price x Cost inflation number in year of sale

Indexed cost = ANNUAL INCOME

BELOW `3 LAKH

`3-5 LAKH

`5-10 LAKH

OVER `10 LAKH

Tax bracket

0%

5%

20%

30%

Post-tax returns

7.50%

7.11%

5.96%

5.18%

If you put `1 lakh in a fixed deposit for five years, here is what you will get on maturity

Maturity value

`1.44 lakh

`1.41 lakh

`1.34 lakh

`1.29 lakh

Tax bracket

0%

5%

20%

30%

Tax paid

Nil

`2,559

`10,023

`14,821

Instead of putting money in tax-inefficient fixed deposits, investors should consider debt mutual funds. Funds that can replace fixed deposits in your portfolio RETURNS (%)

Bond yields have come down, so debt funds may not give such high returns in future.

FUND CATEGORY

1-YEAR

3-YEAR

5-YEAR

Liquid funds

6.8

7.9

8.3

Very low risk option. Rarely goes into the negative. But returns won't be very high.

8.7

Low risk option that is best at this stage. Expect stable returns in line with fixed deposits.

8.8

Moderate risk option that also has the potential to give higher returns than fixed deposits.

Short-term debt funds Income funds

4

Senior citizens are a very important segment. They are offered higher rates of 25-50 bps on fixed deposits.

But the interest income from fixed deposits is fully taxable. Tax eats into the returns. The higher the tax bracket, the lower is the post-tax return. If you invest in a fixed deposit that gives 7.5% return, here is what you will get

3

Close to `37 lakh crore, or 21%, of total financial assets of Indians, is in fixed deposits and bonds.

Debt funds are treated as capital assets and gains are taxed at a lower rate than FDs. The tax rate depends on the holding period.

8.8 9.5

9.1 9.9

Cost inflation number in year of purchase

`

Let us consider this with a real example: Date of purchase

10 Mar 2014

NAV of debt fund

`12

Date of sale

15 Mar 2017

NAV of debt fund

The fund has given a return of 9% per year.

6

The tax rate is 20% on gain. But after indexation, the effective tax is reduced to 6-7%.

`15.50

Investment must be held for three years for the indexation benefit.

The capital gain of `3.50 per unit is taxable.

Indexation will reduce the tax by adjusting for the 6.2% annual rise in inflation during the holding period Cost inflation index of 2013-14

939

`12 x 1,125

The indexed cost = 939 Cost inflation index of 2016-17

1,125 Indexed cost comes to `14.38 per unit

Capital gain is `1.12 per unit (`15.50 `14.38).

20% tax on this would be 22 paise per unit.

Effective tax rate on the gain would be only 6.4%.

18

Investing

The Economic Times Wealth, May 8-14, 2017

“By choosing a neutral position, we did well during volatility” How is the bond market reading the strength of the rupee? The strength of the rupee is more of a fallout of the flows in debt and equity by global investors and a relative softening of US dollar against rest of emerging market currencies. The sharp appreciation is unlikely to be sustained, unless the flows continue to remain as strong. The bond markets saw a rally in yields initially but have reversed due to supply pressures and a neutral outlook. How do you expect the RBI to move in terms of interest rates for the coming year? Our reading is that the change to a neutral stance by the RBI puts an end to any further easing of interest rates. Given some of the concerns related to tightening by the Fed and the inflation trajectory in the second half of financial year 2017-18, we expect the RBI to adopt a wait and watch policy. How much will US Fed moves influence the central bank? The Fed rate move does have a very strong influence on the monetary policies of most central banks. Since rate hikes began again in December 2016, most central banks have started recalibrating their policies. I can’t see any central banks considering easing over the next 12 months, till the Fed outlook on terminal rate becomes clearer.

How are you positioning your duration funds at this juncture? What would be the ideal allocation for investors within bond funds right now? We have assumed a neutral position in our bond funds and are at the lower band of the duration our short term funds operate in. The focus is more on improving the yield to maturity of the portfolio and focus on income and capital preservation. I think debt investors need to stay updated, but not get overtly concerned and end up rejigging their fixed income portfolios. Investors who have followed an asset allocation approach for debt funds should maintain that discipline. Those who increased duration thematically and hence moved up on the ladder of duration funds could consider de-risking. Has the credit profile of Indian firms deteriorated further? What are the major pockets where issues persist? Not really. The credit profile of corporate India has been on the mend for quite some time now. The broad profile is improving. If you look at a recent study by CRISIL on upgrade to downgrade ratios, you will seee that it is now at 1.24. What is even more notable is that the value of debt that has been upgraded to that which has been downgraded is at 0.88, which is well above the bottom of ~0.10 we saw in financial year 2012-13. This trend is positive from the corporate credit perspective, but it should not make the markets complacent. Further, commentary from most banks now indicates that there hasn’t been any significant incremental addition to their stock of stressed assets in the recent quarters.

“Debt investors should stay updated, but not get overtly concerned and end up rejigging their fixed income portfolios.”

Amandeep Chopra Head of Fixed Income, UTI Mutual Fund The RBI’s shift to a neutral stance took the markets by surprise, and reassured investors about its plans to target inflation, Amandeep Chopra tells Sanket Dhanorkar.

Bond market inflows are at a multi-year high. What, in your opinion, is attracting the attention of investors? The high level of foreign portfolio investor (FPI) inflows has been driven by a combination of factors. Concerns about local rates and outlook, which emerged in November and December 2016, have been revisited. With the change of stance by the RBI, investors have been reassured about the cental bank’s objective to target inflation. The corresponding reversal of sovereign and corporate yields have made local yields quite attractive compared to that of other emerging markets. Combined with this, the prudent budget and continuity in terms of political outlook have reinforced the stability of India’s macro story. So, while FPIs pulled out close to `8 billion in November and December last year, they have invested a similar amount in the March-April period alone.

Many bond funds, even short-term ones, were carrying a high duration when RBI changed its monetary policy stance to neutral earlier this year. Were fund managers guilty of being too exuberant? Income funds were sitting on high duration during demonetisation, expecting some monetary policy stimulus. The subsequent inaction in December and the change of stance by the RBI in February took everybody in the markets by surprise. Some funds were clearly complacent and added duration, as an unitary strategy for generating returns. But this only compounded risks. This has not been our approach. We evaluate exuberance and irrational market expectations to suitably modify our strategy. By choosing a neutral position, we managed to do better during the volatile period.

Are fund houses taking undue credit risks by chasing higher yields in bond funds? I can’t make a general observation about this. It depends on the risk framework of funds and how they state it to investors. In a low yielding environment, there is always a tendency to chase nominally high yields. Therefore, investors should be careful about the strategy and portfolio of funds. At UTI Mutual Fund, we don’t invest unless we completely understand the risks or if we are unable to price it. Investing only to chase high yields has never been our investment style.

Financial Planning

The Economic Times Wealth, May 8-14, 2017

19

Moms to be, take stock of your finances Before you go on maternity break, plan out your savings so that you’re ready for child care costs.

IMAGESBAZAAR

HIRAL THANAWALA

W

hen Mumbaibased interior designer Radhika Jaju, 31, started planning to have her second child, she also began savings and budgeting immediately. She and her husband were acutely aware of the additional costs that would come with the arrival of the baby, having struggled to keep their finances in order and meet all the expenses when their first child was born. “I took stock of all our household expenses, and started cutting down on unnecessary spending. I

had to take the loss of my pay during my extended maternity leave into consideration and save for additional expenses for the baby,” she says. Jaju started putting aside `10,000 each month, then gradually increased the savings, so that by the time the baby was born, the couple had managed to save `2 lakhs in a separate liquid fund. Rishi Mehra, CEO of fintech firm, Wishfin.com says, “As you embark on the process of becoming a mother, you must be prepared for a lot of changes, not only physical and emotional, but financial as well.” While you can’t plan ahead for everything, it’s wise to do some financial planning before

welcoming your bundle of joy. If you are a working woman who is planning to start a family, here are the financial steps you should take before going on maternity break. Set a budget for the three phases of parenthood It’s easy to end up overspending when buying adorable merchandise for your little one, or by throwing a huge party to celebrate. But this can land you in a difficult financial position. Budgeting is at the core of planning for parenthood, which can be quite expensive. Sneha Mehta, partner at financial advisory firm, TBNG Capital Advisors says, “We advise

RADHIKA JAJU, 31 Interior designer, Mumbai Her financial plan for motherhood She started cutting out unnecessary household expenses. She also began saving `10,000 each month, and gradually increased the savings. By the time the baby was born, the couple had built a corpus of `2 lakh in a separate liquid fund for child care expenses.

our clients to divide the budget into three phases: pre-delivery, out of pocket expenses in the hospital and post-delivery expenses. This gives more clarity about how much money is required at each stage.” Build a contingency fund Taking an extended break from work can mean a serious financial setback for your family. So it is crucial to provision for future expenses in a planned manner, before you become a mother. Open a separate bank account or transfer a fixed sum to a liquid fund and start creating a corpus, which can take care of all the expenses related to all three initial phases of motherhood. Dinesh Rohira, Founder and CEO of robo advisory firm 5nance.com “We suggest having the provision for 50% additional expenses before the birth of a child to tackle unanticipated spends.” Consult a mother with a one-year-old baby List all the expense heads related to caring for a baby and plan it six months in advance, for a better overview of the cash outflows. Rohira suggests seeking advice from someone with a one-year-old, as they will be able to give you a clear baseline to plan for the monthly budget under each expense head. Review your health insurance If you don’t have insurance cover for maternity expenses, you could end up making a dent in your finances. Rohira advices, “The insurance should cover not only the

expecting mother but also the child.” Insurance policies like Religare Joy health insurance have a waiting period of nine months for applying for maternity benefits, which can be availed of within three years of buying a policy. Pay off your high-interest debt If you have a sword of debt hanging over your head, it is advisable to pay it off at the earliest, so that you can give your child a more financially stable environment. Mehra says, “Try to reduce your EMIs or eliminate your loan payments so that you can add that amount to your childcare budget.” Find an alternate source of income If you intend to go on maternity leave for an extended period of time, consider working from home if the company policy allows it. You can even consider taking on freelance assignments for and additional source of income. Read up on maternity policy Start reviewing your employer’s maternity policy before going on break. Understand each clause carefully and consult the HR department, so that you can make the most of your maternity leave. As per the new law, female employees will now get paid maternity leave of 26 weeks, up from 12 weeks, for the first two children.

Please send your feedback to [email protected]

20

Mutual Fund

The Economic Times Wealth, May 8-14, 2017

Switch from mid and smallcap to large-cap funds

PORTFOLIO DOCTOR

Sankalp Gore has multiple goals, including buying a car in 1-2 years, a house in 3-4 years, saving for future children’s needs and his retirement. Here is what the doctor has advised him: INVESTOR’S EXISTING PORTFOLIO

Started SIPs of `2,000 in equity funds in 2009 and gradually hiked amount.

AMOUNT INVESTED (`)

FUND NAME

EXISTING SIP (`)

RECOMMENDED ACTION Continue SIPs but increase amount to `2,000 per month.

NEW SIP (`)

HDFC Equity Fund

33,074

1,500

Holds a mix of large-cap, multi-cap, mid-cap, small cap and sector funds.

HDFC Long Term Advantage

47,514

Nil

Fund is now closed. Shift corpus to HDFC Equity.

Should shift from midand small-cap funds to large-cap funds.

HDFC Top 200

12,768

Nil

Start SIP of `1,000 in this fund.

1,000

ICICI Pru Long Term Equity

46,178

Nil

Start SIP of `2,000 if you want to save tax under Sec 80C.

2,000

Reliance Banking

69,072

1,500

Stop SIPs and shift to large cap diversified fund.

0

Reliance Growth

1,32,192

1,000

Stop SIPs and shift to Reliance Top 200 fund.

1,000

Reliance Mid & Small Cap

1,23,367

Nil

Avoid investing in a sector fund. Best to go with a diversified equity fund. Has also invested in FDs. Should opt for short-term debt funds instead.

Note from doctor Shift from dividend reinvestment option to growth option. Shift investments for short-term goals (1-3 years) to debt funds. Start STPs to gradually shift funds from equity plans to debt schemes.

0

44,882

2,000

Stop SIPs in this mid-cap fund and shift to SBI Bluechip

DSP Blackrock Opportunity

2,052

1,000

Continue investing in this weelperforming multi-cap fund.

1,000

DSP Blackrock Micro Cap

2,089

1,000

Stop SIPs and shift to DSP Blackrock Focus 25 Fund

1,000

`5,13,188

`8,000

SBI Global Magnum

TOTAL

Tejas Jaiswal invests `45,000 a month in nine equity funds and want to hike the SIP to `50,000. He is saving to buy a house and for his daughter’s education in 10 years.

INVESTOR’S EXISTING SIPs AMOUNT INVESTED (`)

SIP AMOUNT (`)

ICICI Prudential Focused Bluechip

1,55,833

1,500

ICICI Prudential Value Discovery

1,33,435

10,000

Continue SIPs in this multi-cap fund.

SBI Bluechip Fund Growth

1,21,565

13,000

Continue SIPs in this large-cap fund.

DSP Blackrock Micro Cap

1,38,724

3,000

Continue SIPs in this high performer.

L&T India Value Fund

23,128

2,000

Continue SIPs in this mid-cap fund.

Mirae Asset Emerging Bluechip

16,423

5,000

Continue SIPs in this outperforming fund.

FUND NAME

RECOMMENDED ACTION Hold and increase SIP to `5,000.

Birla Sun Life Equity

9,443

6,000

Continue SIPs in this large-cap fund.

HDFC Balanced

9,448

3,000

Hold and increase SIP to `4,500.

Franklin India Smaller Companies

4,864

1,500

Continue SIPs in this small-cap fund.

Lump sum put in five equity funds

2,85,975

Nil

Hold investments.

50,964

Nil

Hold investment.

`9,49,802

`45,000

TOTAL

0

Shift corpus to large cap diversified fund.

Scale down goals or hike SIP amount

Birla Sunlife Dynamic Bond

2,000

GETTY IMAGES

PORTFOLIO CHECK UP

2,000

`10,000

PORTFOLIO CHECK UP Has about `9 lakh in equity and balanced funds, and about `50,000 in a debt fund. All equity funds doing well. But be cautious about mid-cap and small-cap funds. Existing investments can’t achieve all goals. Hike SIPs substantially or scale down goals. Assuming 12% returns from equity funds and `50,000 SIP, amount would grow to `57 lakh in five years. Not enough for house but can be used for daughter’s education. In 10 years, the amount would be `1.45 crore. If SIP increased by 10% every year, corpus will be closer to target with `1.95 crore. Use debt funds to save for short-term goals such as buying a house.

How is your mutual fund portfolio doing? Not many investors are able to answer this. This section will provide the answer. The portfolio doctors on our panel will assess the health of the mutual funds held by individuals, examine their suitability and, if required, recommend corrective measures. While doing so, they will consider the performance of the schemes, the risk profile of the investor as well as the financial goals of the individual. The investor will get a detailed diagnosis of his fund portfolio and if he needs to make changes.

WRITE TO US FOR HELP If you want to get your mutual fund portfolio examined, write to us at etwealth@timesgroup. com with “Portfolio Doctor” as the subject. Mention the names of the funds, the amount invested till now and if you have SIPs running in them. Also mention the goals for which you invested and the tenure you had in mind.

smart stats ET WEALTH TOP 50 STOCKS

In This Section

Mutual funds

22

Loans and deposits

25

Alternate investments 26

Every week we put about 3,000 stocks through four key filters and rate them on a mix of factors. The end result of this exercise is the listing of the top 50 stocks based on the composite rating to help ease your fortune hunt. RANK Current Rank

PRICE `

Previous Rank

Stock Price

GROWTH%* Revenue

VA L UAT I O N R AT I O S

Net Profit

PE

PB

Div Yield

PEG

RISK Downside Risk

R AT I N G Bear Beta

No. of Consensus Analysts Rating

Fast Growing Stocks Top 5 stocks with the highest expected revenue % growth over the previous year.

ONGC

1

2

188.90

26.91

81.16

17.16

1.31

3.93

0.20

1.02

0.71

37

3.97

Power Grid Corporation Indian Oil Corporation Mahindra & Mahindra

2 3 4

4 1 7

210.65 435.65 1,334.90

47.66 24.61 39.13

55.45 87.83 61.51

18.32 18.86 24.61

2.56 2.78 2.76

1.19 5.10 0.90

0.33 0.19 0.42

0.95 1.24 0.93

0.67 1.39 1.22

40 36 45

4.55 4.58 4.38

Manappuram Finance

5

6

92.80

106.97

135.09

22.10

2.83

1.62

0.16

2.34

2.68

11

5.00

CESC

6

5

951.05

32.45

168.25

34.41

2.01

1.05

0.21

1.05

0.97

26

4.00

GAIL India

7

10

428.70

19.36

114.49

32.20

2.05

2.01

0.28

0.96

0.91

39

3.54

VA Tech Wabag

8

9

674.80

44.96

95.79

39.81

3.71

0.59

0.42

1.22

1.05

22

4.77

Techno Electric & Engineering

9

11

403.10

425.06

113.66

32.75

4.54

0.25

0.29

1.09

0.45

16

4.69

South Indian Bank

10

16

25.95

32.45

53.69

11.61

1.01

1.74

0.32

1.29

1.91

15

4.13

Oil India

11

14

331.10

20.15

36.16

13.24

1.18

4.68

0.35

0.88

0.72

34

3.62

Least Expensive Stocks

Petronet LNG

12

12

435.35

50.96

90.62

35.17

5.08

0.57

0.39

1.31

1.11

41

4.07

The 5 stocks with the lowest forward PE.

Lakshmi Vilas Bank

13

13

179.50

54.51

65.47

17.86

1.83

1.67

0.37

1.55

1.51

11

3.91

DB Corp

14

21

368.90

26.80

49.68

22.84

5.03

2.24

0.46

0.83

0.76

20

4.45

Sun Pharma

15

22

631.50

24.83

67.97

32.22

4.84

0.16

0.49

1.16

-0.03

46

4.61

HSIL

16

18

347.60

24.23

74.54

28.21

1.82

1.15

0.38

1.44

1.76

11

Glenmark Pharma

17

20

859.20

38.88

115.08

34.35

5.68

0.23

0.30

1.09

1.40

Redington India

18

24

133.50

34.22

23.12

12.54

1.91

3.07

0.55

1.19

JSW Energy

19

NR

62.90

17.98

51.69

16.30

0.99

3.18

0.31

Lupin

20

30

1,261.75

41.16

44.62

25.01

5.18

0.59

Engineers India

21

26

169.85

37.22

79.29

43.78

4.19

Rallis India

22

31

238.95

26.32

48.30

15.62

J Kumar Infraprojects

23

27

287.75

48.89

44.13

Aurobindo Pharma Ashoka Buildcon Cholamandalam Investments

24 25 26

33 17 29

591.75 212.05 1,085.05

31.99 29.91 76.17

Gateway Distriparks

27

38

255.45

UPL

28

37

NMDC

29

Shriram Transport Finance

Techno Electric & Eng

425

Manappuram Finance

107

Natco Pharma

103

Cholamandalam Inv.

76

Indiabulls Housing Fin

70

See revenue column in the adjacent table.

HPCL

10.97

South Indian Bank

11.61

4.55

Tech Mahindra

11.96

38

4.32

Redington India

12.54

0.87

10

4.60

Karur Vysya Bank

12.88

1.55

2.04

27

3.33

0.57

1.17

0.75

46

4.04

2.06

0.54

1.57

1.73

21

4.38

4.18

1.05

0.32

1.17

1.19

22

3.86

Best PEGs

19.30

1.70

0.69

0.52

2.39

2.35

17

4.88

40.46 130.73 63.75

17.44 67.32 28.60

4.91 2.12 4.62

0.33 0.38 0.51

0.43 0.52 0.50

1.29 1.38 1.42

1.69 1.91 1.43

40 23 25

4.68 4.65 4.12

Top 5 stocks with the least price earning to growth ratio.

23.84

32.54

25.34

2.95

2.35

0.66

1.33

0.71

21

4.43

811.40

40.66

66.61

26.78

5.12

0.62

0.61

1.26

2.05

29

4.55

34

128.10

47.62

14.58

17.31

1.70

9.72

0.40

1.46

2.30

25

2.84

30

19

1,019.65

23.39

40.92

18.28

2.04

0.98

0.40

1.46

2.46

39

3.64

Natco Pharma

31

35

891.85

103.38

213.78

98.01

11.96

0.76

0.47

1.39

0.38

19

4.11

ICICI Bank

32

NR

297.80

25.26

34.66

17.01

1.66

1.68

2.18

1.26

1.55

51

4.49

JK Cement

33

36

995.45

23.34

418.42

109.87

4.28

0.40

0.26

1.36

1.85

25

4.52

NTPC

34

40

162.65

20.43

12.66

13.17

1.50

2.69

1.04

0.94

0.87

37

4.30

Indiabulls Housing Finance

35

15

1,076.85

70.10

26.55

15.65

3.88

3.34

0.60

1.41

1.96

13

4.31

Minda Inds

36

39

485.35

62.01

87.87

34.68

8.22

0.41

0.44

1.55

2.50

12

4.75

Skipper

37

42

189.70

39.65

35.12

20.40

5.09

0.75

0.58

1.26

1.80

16

4.75

Granules India

38

43

140.50

27.37

69.32

24.52

4.57

0.60

0.50

1.57

2.00

13

4.46

Jubilant Life Science

39

46

734.20

16.53

86.52

27.10

4.02

0.41

0.31

1.80

2.44

13

4.85

Larsen & Toubro

40

45

1,731.65

24.65

26.47

31.66

3.67

1.05

1.15

0.94

1.18

42

4.50

Sobha

41

41

412.30

36.57

34.16

26.38

1.58

0.49

0.75

1.39

1.39

18

4.44

Tech Mahindra

42

48

419.10

13.98

10.48

11.96

2.32

2.86

1.20

1.07

1.06

51

4.28

IRB Infras

43

44

263.85

31.90

20.07

14.59

1.92

0.76

0.71

1.48

2.87

24

4.54

Cyient

44

50

527.70

12.40

24.85

17.27

2.81

1.04

0.70

1.07

-0.24

23

4.35

BPCL

45

49

731.50

22.37

10.35

13.25

3.77

5.33

0.95

1.15

0.33

37

3.89

HPCL

46

NR

531.45

2.61

16.53

10.97

3.12

8.16

0.63

1.41

0.94

37

3.92

Orient Cement

47

NR

166.50

66.21

74.54

54.77

3.36

0.60

0.69

1.64

1.17

14

3.64

Grasim Inds

48

NR

1,203.45

18.70

56.90

23.81

2.17

0.37

0.45

1.32

1.65

19

3.84

Karur Vysya Bank

49

NR

120.05

33.24

18.85

12.88

1.60

0.67

0.68

1.04

0.89

18

3.72

India Cements

50

47

213.60

20.90

146.85

48.88

1.91

0.47

0.37

1.91

3.20

22

3.68

* The figures under this head are for expected growth. NR: Not in the ranking. Data as on 4 May 2017. Source: Bloomberg

See PE column in the adjacent table.

Indian Oil Corp

CESC

0.19

0.21

0.16

Manappuram Finance

0.20

0.26

ONGC

JK Cement

See PEG column in the adjacent table.

Income Generators Top 5 stocks with the highest dividend yield. NMDC | 9.72 HPCL | 8.16 BPCL | 5.33 Indian Oil Corp | 5.10 Oil India | 4.68 Dividend stocks are considered safe stocks during a downturn. Figures indicate what an investor can earn as dividend for every `100 invested.

Least Risky Top 5 stocks with the lowest downside risk.

Methodology The four filters used to arrive at the Top 50 stocks Only traded stocks: Of the about 7,000 listed stocks, only actively traded stocks were considered. Only big stocks: Only companies with an average market capitalisation and revenue of over `1,000 crore were considered. Only well tracked: We picked stocks that are tracked by at least 10 analysts. Only profitable and growing: We considered only those stocks that are

expected to show growth in revenue, net profit and EPS (earnings per share) in the in the next four quarters. The final two filters were that the companies should have made profits in the past four quarters and have a positive net worth. Rating rationale Having arrived at the final stocks universe, we ranked them using the following four principles. A percentile rating (on a 1-100 scale) is given to each parameter and the composite ranking is arrived at using the weighted average of these parameters. 1. Growth is the key... Total weight: 30%, which comprises 10% weight to revenue growth, 10%

weight to net profit growth and 10% to growth in EPS (the higher, the better, for each parameter). Growth is calculated by comparing the ’consensus estimate’ for the next 12 months with the historical 12-month values. 2. ... but only at reasonable valuation. Total weight: 40%, which comprises 10% weight to PE ratio, 10% to PB ratio, 10% to PEG ratio (the lower, the better, for all three parameters) and 10% to dividend yield (the higher, the better). 3. Analysts’ views matter... Total Weight: 20%, which comprises 10% weight to the total number of

analysts covering the stock (the higher, the better) and 10% to consensus rating (a composite rating based on the recommendations by all analysts who track a stock. Again, the higher, the better). 4. ... and so do the risks. Total weight: 10%. Two kinds of risks were considered. A 5% weight was assigned to downside risk and bear beta each (the lower, the better, in both cases).

NTPC

0.94 Oil India

0.88

Larsen & Tourbo

0.94

Mahindra & Mahindra

0.93 DB Corp

0.83 The ranking methodology has been developed by Narendra Nathan. A detailed explanation of the methodology is available at

www.economictimes.com/wealth

See downside risk and bear beta columns in the adjacent table.

22

Smart Stats

The Economic Times Wealth, May 8-14, 2017

LAGGARDS & LEADERS

ETW FUNDS 100 B E S T

F U N D S

T O

B U I L D

Y O U R

Taking a long-term view of fund returns, here is a list of 10 funds in each category—five leaders (worth investing) and five laggards (that may be a drag on your portfolio).

P O R T F O L I O

LAGGARDS

Equity: Large cap 5-year returns

ET Wealth collaborates with Value Research to identify the top-performing 100 funds across 10 categories. Equity funds and equity-oriented hybrid funds are ranked on 3-year returns while debt-oriented hybrid and income funds are ranked on 1-year returns.

10.64 HSBC Dynamic Fund

11.62 LIC MF Index-Sensex Plan VALUE RESEARCH FUND RATING

NET ASSETS (` cr)

3-MONTH

6-MONTH

�����

3,409.78

8.24

11.86

����

2,266.64

5.54

SBI Bluechip Fund

�����

12,586.47

Motilal Oswal MOSt Focused 25 Fund

�����

R E T U R N S

( % )

11.79

3-YEAR

5-YEAR

EXPENSE RATIO

29.37

22.2

20.82

2.41

8.7

23.6

21.86

17.51

1.75

7.51

8.08

20.33

21.35

20.3

2.11

494.97

9.62

12.58

28.88

20.96

—

2.65

����

2,700.71

9.49

13.54

29.79

20.43

18.27

2.05

�����

2,935.15

6.88

9.34

18.86

20.03

18.97

2.32

����

177.50

8.32

11.49

24.31

19.29

18.03

2.21

Birla Sun Life Top 100 Fund

�����

2,663.49

6.97

10.82

25.95

19.16

19.18

2.29

Birla Sun Life Frontline Equity Fund

�����

16,351.84

7.34

10.15

25.6

19.01

19.26

2

IDBI India Top 100 Equity Fund

����

439.32

9.5

11.28

22.56

18.53

—

3.08

LIC MF Equity Fund

Kotak 50 Regular Plan

����

1,319.04

6.77

9.62

20.99

17.98

16.17

2.18

12.69

Edelweiss Equity Opportunities Fund

����

282.81

8.82

8.51

20.54

17.91

15.87

2.54

Union Equity Fund

Reliance NRI Equity Fund

����

88.32

7.95

12.31

27.98

17.79

16.5

2.68

DHFL Pramerica Large Cap Fund

����

257.35

8.51

10.9

21.88

17.65

16.58

2.94

Invesco India Business Leaders Fund

����

131.94

5.78

7.2

19.2

17.46

16.11

2.39

UTI Equity Fund

����

5,335.65

7.21

7.1

18.85

17.14

16.57

2.12

ICICI Prudential Focused Bluechip Equity Fund

����

12,842.72

5.82

10.09

24.2

17.13

16.9

1.67

SBI Magnum Equity Fund

����

1,959.16

6.22

5.72

18.96

17.02

15.55

2.11

13.45

Invesco India Dynamic Equity Fund

����

176.32

6.34

10.44

22.18

15.87

17.19

2.21

UTI Dividend Yield Fund

Equity: Large Cap Mirae Asset India Opportunities Fund DSP BlackRock Focus 25 Fund

Reliance Top 200 Fund Franklin India Flexi Cap Fund Invesco India Growth Fund

1-YEAR

Tata Index Sensex Fund

22.2%

11.94 Reliance Index Fund Sensex Plan

The 3-year return of Mirae Asset India Opp is the highest in its category.

11.95 Reliance Quant Plus Fund

12.51

12.83 Edelweiss Prudent Advantage Fund

12.98 Birla Sun Life International Equity

5,991.59

11.53

15.37

37.34

33.31

—

2.18

����

3,123.85

8.17

9.91

32.69

26.49

22.75

2.35

�����

6,027.28

6.14

12.59

28.15

26.49

24.32

2.34

Kotak Select Focus Fund Regular Plan

����

9,322.77

10.09

14.17

33.98

25.6

22.19

1.98

Birla Sun Life Special Situations Fund

����

157.59

4.75

6.45

32.41

25.47

21.02

2.63

18.54

�����

1,954.63

7.65

10.74

25.68

25.38

20.89

2.12

Birla Sun Life Dividend Yield Plus Fund

Invesco India Contra Fund

����

464.04

9.18

12.68

28.36

25.08

21.18

2.5

19.89

Reliance ETF Junior BeES

����

124.56

11.34

16.19

37.04

25.01

21.71

1

Birla Sun Life Equity Fund

�����

4,801.13

6.06

9.2

33.88

24.72

22.57

2.2

DSP BlackRock Opportunities Fund

����

2,073.09

7.33

13.03

34.19

24.61

21.19

1.99

ICICI Prudential Nifty Next 50 Index Fund

����

56.00

11.51

16.54

37.53

24.54

21.16

0.81

Kotak Opportunities Regular Plan

����

1,358.41

9.96

13.85

34.11

24.15

20.1

2.18

BNP Paribas Dividend Yield Fund

����

313.40

10.73

13.63

26.77

23.2

19.75

2.73

�����

17,029.16

6.05

7.64

19.65

23.09

22.1

1.88

Franklin India Prima Plus Fund

����

10,702.83

7.45

9.56

20.79

22.15

19.7

2.32

SBI Magnum Multiplier Fund

����

1,781.32

7.99

8.7

23.06

21.63

19.88

2.12

ICICI Prudential Indo Asia Equity Fund

����

164.29

11.28

14.79

31.99

20.77

18.83

2.56

Birla Sun Life Advantage Fund Franklin India High Growth Companies Fund

SBI Magnum Multicap Fund

ICICI Prudential Value Discovery Fund

Equity: Mid Cap

Mirae Asset India Opportunities Fund

20.3 SBI Bluechip Fund

19.49 JM Multi Strategy Fund

19.26 Birla Sun Life Frontline Equity Fund

19.18 Birla Sun Life Top 100 Fund

24.32 Franklin India High Growth Companies Fund

22.75 Birla Sun Life Advantage Fund

22.57 Birla Sun Life Equity Fund

22.19 Kotak Select Focus Fund Regular Plan

22.1 ICICI Prudential Value Discovery Fund

Equity: Mid cap 3-year returns

The 3-year return of Motilal Oswal MOSt Focused is the highest in its category.

�����

Motilal Oswal MOSt Focused Multicap 35 Fund

20.82

Equity: Multi cap 5-year returns

33.3%

Equity: Multi Cap

LEADERS

8.45 Baroda Pioneer Midcap Fund

HDFC Core & Satellite Fund

21.11 DHFL Pramerica Midcap Opportunities Fund

21.54 SBI Emerging Businesses Fund

38.32 Canara Robeco Emerging Equities Fund

36.16 Mirae Asset Emerging Bluechip Fund

35.18 Kotak Emerging Equity Scheme

34.39 Escorts High Yield Equity Fund

33.48 L&T India Value Fund

Equity: Small cap 3-year returns 25.64

36.1%

HDFC Small Cap Fund

Mirae Asset Emerging Bluechip Fund

�����

3,531.76

13.14

16.63

44.07

36.16

31.5

2.36

L&T India Value Fund

�����

3,444.12

10.68

16.87

40.68

33.48

26.94

2.1

Motilal Oswal MOSt Focused Midcap 30 Fund

����

1,304.91

11.17

9.4

30.33

33.16

—

2.57

Principal Emerging Bluechip Fund

����

884.33

11.92

15.81

40.14

31.94

28.12

2.52

Edelweiss Mid and Small Cap Fund

����

469.72

12.71

11.86

32.14

31.29

26.83

2.47

Birla Sun Life Pure Value Fund

����

1,059.28

13.32

17.28

40.3

30.92

28.44

2.56

34.06

Franklin India Prima Fund

����

5,388.62

10.77

13.82

33.26

30.49

27.64

2.36

Birla Sun Life Small & Midcap Fund

HDFC Mid-Cap Opportunities Fund

����

15,734.25

11.12

14.94

39.02

29.98

26.1

2.22

35.04

UTI Mid Cap Fund

����

3,828.06

10.64

9.06

26.88

29.58

26.82

2.34

L&T Midcap Fund

�����

5,523.05

10.72

13.38

39.96

41.62

31.58

2.51

SBI Small & Midcap Fund

����

684.44

11.02

10.01

30.4

38.64

31.79

2.39

Franklin India Smaller Companies Fund

����

5,238.18

9.95

11.88

33.08

33.24

31.69

2.38

3-year return of Mirae Asset Emerging Bluechip is the highest in its category.

29.97 HSBC Midcap Equity Fund

33.24 Franklin India Smaller Companies Fund

41.62 DSP BlackRock Micro Cap Fund

39.28 Reliance Small Cap Fund

38.64 SBI Small & Midcap Fund

35.75 Sundaram S.M.I.L.E. Fund

35.04 L&T Midcap Fund

Equity: Small Cap DSP BlackRock Micro Cap Fund

Hybrid: Equity oriented 5-year returns 7.62 Principal Equity Savings Fund

Equity: Tax Planning

25.5%

8.75

IDBI Equity Advantage Fund

����

599.52

11.99

8.67

22.17

25.47

—

2.89

Tata India Tax Savings Fund

����

600.73

10.86

13.17

29.45

25.22

20.96

2.56

Birla Sun Life Tax Relief 96

�����

3,189.37

11.47

11.1

24.71

25.1

21.76

2.35

DSP BlackRock Tax Saver Fund

����

2,406.10

7.36

11.73

32.67

24.75

21.84

2.52

Birla Sun Life Tax Plan

����

506.75

11.49

11.02

24.05

24.25

21

2.74

�����

12,396.03

10.07

7.76

20.7

22.71

22.9

1.98

L&T Equity Savings Fund

IDFC Tax Advantage Fund

����

564.99

12.32

15.47

29.06

22.29

21.18

2.44

10.72

Invesco India Tax Plan

����

389.67

7.83

9.41

22.86

21.95

19.82

2.52

HDFC Equity Savings Fund

Franklin India Taxshield Fund

����

2,849.77

6.81

8.95

20.1

21.62

19.17

2.53

Axis Long Term Equity Fund

The 3-year return of IDBI Equity Advantage Fund is the highest in its category.

Tata Regular Saving Equity Fund

9.35 DHFL Pramerica Equity Income

9.5

20.29 Tata Retirement Savings Fund

19.33 L&T India Prudence Fund

18.81 ICICI Prudential Balanced Fund

18.43 SBI Magnum Balanced Fund

18.33 Tata Balanced Fund Annualised returns in % as on 3 May 2017.

Smart Stats

23

The Economic Times Wealth, May 8-14, 2017

ETW FUNDS 100

Top 5 SIPs NET ASSETS (` cr)

3-MONTH

6-MONTH

�����

95.85

12.5

L&T India Prudence Fund

����

3,751.83

HDFC Balanced Fund

����

Birla Sun Life Balanced '95 Fund

VALUE RESEARCH FUND RATING

R E T U R N S

( % )

1-YEAR

3-YEAR

5-YEAR

EXPENSE RATIO

16.51

31.47

26.19

20.29

2.81

7.59

11.71

24.75

21.45

19.33

2.06

10,185.98

6.33

9.83

24.42

20.3

18.14

1.95

����

7,419.15

5.42

8.34

23.19

20.26

18.17

2.29

Tata Balanced Fund

����

6,395.98

5.28

6.62

18.8

20.02

18.33

2.06

ICICI Prudential Balanced Fund

����

9,146.73

3.41

9.36

25.36

19.56

18.81

2.09

SBI Magnum Balanced Fund

����

10,004.31

4.01

3.76

15.24

17.53

18.43

1.98

Hybrid: Equity-oriented Tata Retirement Savings Fund

Top 5 equity schemes based on 10-yr SIP returns.

26.2% The 3-year return of Tata Retirement Savings Fund is the highest in its category.

966.79

1.11

4.28

13.12

12.82

11.19

2.03

SBI Regular Savings Fund

����

451.76

1.58

5.6

12.78

11.83

10.39

1.12

�����

207.96

2.02

4.08

10.51

12.12

11.14

2.33

����

2,558.25

1.48

3.83

9.05

10.76

9

1.65

�����

3,701.32

1.01

3.45

10.05

10.2

—

1.7

DHFL Pramerica Medium Term Income Fund

����

714.36

0.25

3.05

9.97

10.55

—

1.06

ICICI Prudential Banking & PSU Debt Fund

����

7,282.21

0.25

3.34

9.96

9.84

9.46

—

�����

151.03

0.91

3.53

9.86

—

—

1.25

L&T Resurgent India Corporate Bond Fund

����

1,314.25

1.11

3.4

9.65

—

—

1.59

Birla Sun Life Treasury Optimizer Fund

����

7,252.61

-0.13

2.61

9.49

10.15

10.05

0.64

HDFC Medium Term Opportunities Fund

����

8,621.85

0.68

3.33

9.33

9.54

9.44

0.31

Kotak Corporate Bond Fund

����

226.25

1.41

3.8

8.93

10.2

8.8

0.5

Reliance Banking & PSU Debt Fund

����

5,236.21

0.56

3.06

8.63

—

—

0.43

�����

1,271.89

1.73

3.91

8.52

9.07

8.45

0.68

Invesco India Medium Term Bond Fund

L&T Midcap Fund

22.08 22.07

SIP: Systematic investment plan

% annualised returns As on 3 May 2017

Debt: Income

UTI Medium Term Fund

23.86

21.72

����

Kotak Medium Term Fund

Franklin India Smaller Companies Fund

DSP BlackRock Small and Mid Cap Fund

SBI Magnum Monthly Income Plan

ICICI Prudential Regular Income Fund

24.72

Sundaram Select Midcap Fund

Hybrid: Debt-oriented Conservative

SBI Magnum Monthly Income Plan

Canara Robeco Emerging Equities Fund

10.1% The 1-year return of Kotak medium Term Fund is the highest in its category.

Top 5 MIPs Top 5 MIP schemes based on 3-year SWP returns. ICICI Prudential MIP 25

12.31 SBI Magnum Monthly Income Plan

12.19 SBI Magnum Monthly Income Plan Floater

11.56 Kotak Monthly Income Plan

Debt: Short Term �����

2,957.50

1.95

4.46

10

9.76

9.75

0.78

����

1,213.49

1.08

4.19

9.94

9.38

—

0.3

�����

296.45

2.01

4.34

9.84

9.31

8.99

1.28

BOI AXA Short Term Income Fund

����

314.14

1.37

4.13

9.49

9.27

8.56

1.35

HDFC Regular Savings Fund

����

4,433.42

1.45

3.81

9.33

9.89

9.4

1.84

Birla Sun Life Short Term Fund

����

16,190.58

0.95

3.42

9

9.53

9.51

0.29

HDFC Short Term Opportunities Fund

����

9,564.13

1.34

3.6

8.57

9.08

9.1

0.36

Reliance Medium Term Fund

����

8,925.02

1.32

3.5

8.42

8.74

8.87

0.9

Indiabulls Short Term Fund

����

614.61

1.21

3.3

7.92

8.73

—

1.49

Franklin India Low Duration Fund UTI Banking & PSU Debt Fund Baroda Pioneer Short Term Bond Fund

10% The 1-year return of Franklin India Low Duration Fund is the highest in its category.

�����

367.04

2.01

4.26

9.08

9

9.02

0.55

Baroda Pioneer Treasury Advantage Fund

����

1,543.79

1.9

4.06

8.88

9.07

9.25

0.86

L&T Floating Rate Fund

����

517.06

1.69

3.77

8.78

8.58

8.94

0.71

Kotak Low Duration Fund

����

4,498.84

1.68

3.83

8.75

9.2

8.83

1

DHFL Pramerica Low Duration Fund

����

1,612.33

1.68

3.82

8.49

9.1

9.17

1.19

Indiabulls Ultra Short Term Fund

����

1,072.69

1.72

3.94

8.39

8.75

8.96

1.05

JM Money Manager Fund

����

110.82

1.4

3.4

8.16

8.49

8.93

—

�����

175.16

1.87

3.77

8.06

8.56

8.38

—

Principal Retail Money Manager Fund

����

31.67

1.62

3.43

7.49

8.44

8.98

0.91

Invesco India Credit Opportunities Fund

����

1,026.99

1.55

3.25

7.13

8.31

8.86

0.65

UTI Dynamic Bond Fund

����

1,486.50

0.32

5.42

13.27

11.2

10.59

1.66

ICICI Prudential Long Term Fund

����

2,136.95

-0.42

3.52

12.29

12.38

11.66

1.27

Baroda Pioneer Dynamic Bond Fund

����

25.62

0.2

3.1

10.51

11.28

—

1.87

JM Floater Long Term Fund

IDFC Monthly Income Plan

11.13 SWP: Systematic withdrawal plan

% annualised returns As on 3 May 2017

Debt: Ultra Short Term BOI AXA Treasury Advantage Fund

11.36

9.1% The 1-year return of BOI AXA Treasury Advantage is the highest in its category.

Mid Cap Cash Holdings 8.64

7.9

7.37 6.3 5.3

Debt: Dynamic Bond

All equity funds sorted on 3-year returns; debt funds ranked on 1-year returns

Exp ratio as on 31 Mar 2017 Returns as on 3 May 2017 Assets as on 31 Mar 2017 Rating as on 30 Apr 2017

DSP Franklin L&T India BlackRock India Prima Value Small and Fund Fund Mid Cap Fund

Tata Equity PE Fund

Escorts Leading Sectors Fund

% as on 31 March 2017

Did not find your fund here? Log on to www.wealth.economictimes.com for an exhaustive list.

Methodology The Top 100 includes only those funds that have a 5- or 4-star rating from Value Research. The rating is determined by subtracting a fund’s risk score from its return score. The result is assigned stars according to the following distribution: ����� ���� ���

Next 22.5%

��� Next 22.5% �

�

Large-cap: Mostly invested in large-cap companies. Multi-cap: Mostly invested in large- and mid-cap companies. Mid-cap: Mostly invested in mid-cap companies. Small-cap: Mostly invested in small-cap companies.

Top 10% Middle 35%

EQUITIES (figures over the past one year)

Tax planning: Offer tax rebate under Section 80C. (Not covered in ETW Funds 100 listing)

Bottom 10%

Fixed-income funds less than 18 months old and equity funds less than three years old have been excluded. This ensures that all the funds have existed long enough to be tracked for consistency of performance. Given the focus on long-term investing, liquid funds, short-term funds and FMPs are not part of the list. For the same reason, we have considered only the growth option of funds that reinvest returns instead of offering dividends that increase the NAV of funds. Despite these rigorous filters, the list includes 2/3 funds of each category to maximise choice from the best funds. The fund categories are:

International: More than 65% of assets invested abroad. Income: Average maturity varies according to objective. Gilt: Medium- and long-term; invest in gilt securities. Equity-oriented: Average equity exposure more than 60%. Debt-oriented aggressive: Average equity exposure between 25-60%. Debt-oriented conservative: Average equity exposure less than 25%. Arbitrage: Seek arbitrage opportunities between equity and derivatives. Asset allocation: Invest fully in equity or debt as per market conditions.

FUND RAISER

Debt: Liquid Lowest Expense Ratio 0.12 0.11 0.10

77 lakh Mutual fund folios were added in 2016-17, taking the total tally to 5.54 crore. High net worth individuals’ folios rose by 39%, while retail investors’ folios saw a 15% increase, compared to 2015-16.

0.07 0.05

BNP Paribas Overnight Fund

UTI Liquid Cash Fund Inst. Plan

DHFL Pramerica Insta Cash Plus Fund

Canara Robeco Liquid Fund

Mirae Asset Cash Management Fund

% as on 31 March 2017

% expense ratio is charged annually. Methodology of Top 100 funds on www.wealth.economictimes.com

24

Mutual Funds

The Economic Times Wealth, May 8-14, 2017

BIRLA SL FRONTLINE EQUITY

A worthy long-term choice ET Wealth collaborates with Value Research to analyse top mutual funds. We examine the key fundamentals of the fund, its portfolio and performance to help you make an informed investment decision.

HOW HAS THE FUND PERFORMED? With a 10-year return of 14.03%, the fund has outperformed both the benchmark (9.21%) and the category average (9.96%) by a wide margin.

BASIC FACTS DATE OF LAUNCH

Equity

`37,164

TYPE

Category

Large Cap

`25,849

AVERAGE AUM `16,351.84 cr

`10,000

Portfolio asset allocation 0.34%

Fund style box

Debt & Cash 3.08%

SMALL CAP

16.05% MID CAP

BENCHMARK

S&P BSE 200 Index 83.61% Index

`24,141 May 2007

May 2009

May 2011

May 2013

May 2015

May 2017 As on 3 May 2017

The fund has an impressive long-term track record of outperformance.

WHAT IT COSTS NAVS* GROWTH OPTION `197 DIVIDEND OPTION `27 MINIMUM INVESTMENT

`1,000 Fund Index Category average

Annualised performance (%) 25.60

19.26

19.01 14.92 15.74 10.15

`1,000 EXPENSE RATIO^ (%)

14.10 14.72

11.06 10.24

EXIT LOAD 1% for redemption within 365 days *As on 3 May 2017 ^As on 31 March 2017

INVESTMENT STYLE

Equity 96.92%

The fund maintains its large-cap focus, while selectively investing in mid-caps.

Top 5 sectors in portfolio (%) 30.13

Financial

13.61

Energy

9.33 8.84 8.59

Automobile

MINIMUM SIP AMOUNT

2.0 24.17 23.36

LARGE CAP

Growth Blend Value CAPITALISATION

Fund

CATEGORY

Small Medium Large

30 Aug 2002

Growth of `10,000 vis-a-vis category and benchmark

WHERE DOES THE FUND INVEST?

FMCG Technology

The fund remains heavily invested in financials.

Top 5 stocks in portfolio (%) 4.34 4.32 4.08 3.99 3.60

HDFC Bank Infosys ICICI Bank

6 month

1 year

3 year

ITC

5 year

Reliance Industries

As on 3 May 2017

The fund has outperformed across time periods.

The fund’s portfolio is heavily diversified but it takes a heathy exposure in its top bets.

HOW RISKY IS IT?

Yearly performance (%) 44.72

Fund

Category

Index

Standard Deviation

14.36

14.52

14.25

Sharpe Ratio

0.97

0.76

0.73

Mean Return

18.61

15.68

14.99

35.47 35.21

1.10 -1.48 -1.84 2014

2015

7.43

15.70 16.41 15.03 3.95 4.46 2016

2017

FUND MANAGER Mahesh Patil

The fund’s consistent outperformance has continued in the last few years.

As on 3 May 2017

TENURE: 11 YEARS AND 5 MONTHS Education: B.E, MMS, CFA

Based on 3-year performance. As on 30 March 2017

The fund’s risk-reward profile is superior to many of its peers. Wherever not specified, data as on 31 March 2017. Source: Value Research

SHOULD YOU BUY?

This large-cap focused fund has beaten its benchmark and peers consistently every year for the past decade. The fund does not deviate much from its benchmark at the sector level, but

takes healthy active positions in stocks, despite a heavily diversified portfolio. The fund manager does not limit himself to a particular style, and instead sticks to a pure bottom-up

stock selection approach. He is also comfortable taking some contrarian or tactical bets in the portfolio. A stable management team and strict adherence to the mandate has led to a

remarkable style consistency across the years. The fund continues to boast of a superior risk-reward profile and execution capability in its category, making it a worthy long-term holding.

Smart Stats

25

The Economic Times Wealth, May 8-14, 2017

LOANS & DEPOSITS ET Wealth collaborates with ETIG to provide a comprehensive ready reckoner of loans and fixed-income instruments. Don’t miss the information on investments for senior citizens and a simplified EMI calculator. Top five bank FDs

Top banks for 2 years Interest rate (%) compounded qtrly

What `10,000 will grow to

7.50

10,771

RBL Bank

7.50

10,771

DCB Bank

7.20

10,740

City Union Bank

7.10

10,729

Yes Bank

7.10

10,729

Tenure: 1 year IDFC Bank

Tenure: 2 years RBL Bank

7.65

11,636

DCB Bank

7.25

11,545

IDFC Bank

7.25

11,545

Indusind Bank

7.15

11,523

Yes Bank

7.10

11,511

Tenure: 3 years RBL Bank

7.50

12,497

DCB Bank

7.25

12,405

IDFC Bank

7.20

12,387

Yes Bank

7.10

12,351

Punjab & Sind Bank

7.00

12,314

RBL Bank

7.50

14,499

DCB Bank

7.25

14,323

IDFC Bank

7.20

14,287

Yes Bank

7.10

14,217

Dena Bank

7.00

14,148

Tenure: 5 years

Top five senior citizen bank FDs Interest rate (%) compounded qtrly

What `10,000 will grow to

8.00

10,824

Indusind Bank

7.65

10,787

Yes Bank

7.60

10,782

Karur Vysya Bank

7.50

10,771

Lakshmi Vilas Bank

7.50

10,771

RBL Bank

8.15

11,751

IDFC Bank

7.75

11,659

DCB Bank

7.70

11,648

Indusind Bank

7.65

11,636

Yes Bank

7.60

11,625

Tenure: 1 year RBL Bank

Bank MCLR

BANK NAME

MCLR

WITH EFFECT FROM

State Bank Of India

8.10

1 April 2017

Marginal Cost of funds-based Lending Rate (MCLR) is the new benchmark lending rate designated by RBI and will replace the base rate for new borrowers.

HDFC Bank

8.20

7 April 2017

Axis Bank

8.30

18 April 2017

Union Bank Of India

8.55

1 April 2017

IDFC Bank

8.65

1 April 2017

Top banks for 3 years

Top banks for 6 months BANK NAME

MCLR

WITH EFFECT FROM

BANK NAME

MCLR

WITH EFFECT FROM

HDFC Bank

7.95

7 April 2017

State Bank Of India

8.15

1 April 2017

State Bank Of India

7.95

1 April 2017

HDFC Bank

8.30

7 April 2017

Axis Bank

8.15

18 April 2017

Axis Bank

8.35

18 April 2017

ICICI Bank

8.15

1 April 2017

Bank Of Baroda *

8.50

7 April 2017

Bank Of Baroda *

8.30

7 April 2017

Punjab National Bank

8.60

1 April 2017

Top banks for 1 year

Top banks for 5 years

BANK NAME

MCLR

WITH EFFECT FROM

BANK NAME

MCLR

WITH EFFECT FROM

State Bank Of India

8.00

1 April 2017

Bank Of Baroda *

8.65

7 April 2017

HDFC Bank

8.15

7 April 2017

Punjab National Bank

8.75

1 April 2017

ICICI Bank

8.20

1 April 2017

Indian Bank

8.90

7 January 2017

Axis Bank

8.25

18 April 2017

Punjab & Sind Bank

9.10

5 April 2017

Bank Of Baroda *

8.35

7 April 2017

* Strategic Premium of 0.25%. # Business Strategy Spread of 0.30%. For any changes in MCLR rates, please email us at [email protected]

Tenure: 2 years

Tenure: 3 years

Your EMI for a loan of `1 lakh TENURE

5 YEARS

10 YEARS

15 YEARS

20 YEARS

25 YEARS

@ 8%

2,028

1,213

956

836

772

RBL Bank

8.00

12,682

@ 10%

2,125

1,322

1,075

965

909

DCB Bank

7.75

12,589

@ 12%

2,224

1,435

1,200

1,101

1,053

IDFC Bank

7.70

12,571

Yes Bank

7.60

12,534

@ 15%

2,379

1,613

1,400

1,317

1,281

Karur Vysya Bank

7.50

12,497

RBL Bank

8.00

14,859

DCB Bank

7.75

14,678

IDFC Bank

7.70

14,642

Senior Citizens’ Saving Scheme

8.4

1,000

15 lakh

5-year tenure, minimum age 60

80C

Yes Bank

7.60

14,571

Sukanya Samriddhi Account

8.4

1,000

1.5 lakh per year

One account per girl child

80C

Dena Bank

7.50

14,499

Public Provident Fund

7.9

500

1.5 lakh per year

15-year term, tax-free returns

80C

5-year NSC VIII Issue

7.9

100

No limit

No TDS

80C

6.9-7.7

200

No limit

Available in 1, 2, 3, 5 years

80C #

Single 4.5 lakh

5-year tenure, monthly returns

Nil

7.6

1500 Joint 9 lakh

5-year tenure, monthly returns

Nil

Figures are in `. Use this calculator to check your loan affordability. For example, a `5 lakh loan at 12% for 10 years will translate into an EMI of `1,435 x 5 = `7,175

Tenure: 5 years

Top five tax-saving bank FDs

Post office deposits

Time deposit

Minimum invt. (`)

Interest (%)

Maximum investment (`)

Tax benefits

Features

Interest rate (%)

What `10,000 will grow to

7.50

14,499

DCB Bank

7.25

14,323

Kisan Vikas Patra

7.6

1,000

No limit

Can be encashed after 2.5 years

Nil

IDFC Bank

7.20

14,287

Recurring deposits

7.2

10

No limit

5-year tenure

Nil

Yes Bank

7.10

14,217

Karur Vysya Bank

7.00

14,148

4

50

No limit

`10,000 interest tax free

Nil

Tenure: 5 years and above RBL Bank

All data sourced from Economic Times Intelligence Group ([email protected])

Post Office Monthly Income Scheme

Savings account

# Benefit available only for 5-year deposit

26

Non-traditional Investments

The Economic Times Wealth, May 8-14, 2017

Alternative investment returns monitor The scope and attractiveness of alternative investments is increasing. Here’s a weekly tracker of returns from such investments. But don’t compare these with returns from traditional investments since the proportion and purpose of alternative investments is vastly different. Diamond Index

Precious Metals Index

122.56 117.30

Coin Index 341.39

1,677.57

3 May 2016

Wine Index 3 May 2017

1,639.07

3 May 2016

18,100

19,000

3 May 2017

3 May 2017

3 May 2016

3 May 2017

284.51

CHANGE

3 May 2016

1 WEEK 1 YEAR

-0.55% 4.29%

-

1.68% 2.29%

1 WEEK

-

1 WEEK

1 YEAR

-

1 YEAR

The S&P GSCI Precious Metals Index comprises gold (91.33%) and silver (8.67%) and provides a benchmark for investment performance in the precious metals commodity markets. It is updated daily.

Overall Diamond Index is based on actual transactions from 20 different market players and reflects price movements in the global diamond market. The index is updated daily.

0.20% 19.99% -

1 WEEK 1 YEAR

The Liv-ex Fine Wine 50 Index tracks daily price movement of the most heavily traded commodities in the wine market. It includes only the 10 most recent vintages and is updated daily.

-

2.26% 4.74%

The Krugerrand Coin index represents the denomination of a 22 carat gold bullion coin weighing one troy ounce that is listed for trading on the Johannesburg Stock Exchange.

Penny stocks update Penny stocks as a recommended non-traditional investment? Not exactly. ET Wealth neither has the expertise nor does it recommend investing in such stocks. But since the relatively ‘low’ cost of investment attracts some investors to penny stocks, we provide a weekly snapshot of this most volatile and uncertain type of stock investing.

Top Price Gainers Stock

Top Volume Gainers

Market price (`)

1-week (%) change

1-month (%) change

1-month average volume (lakh)

1-month average volume change (%)

Market cap (` crore)

Amsons Apparels Prag Bosimi Synthetics Padmalaya Telefilms

9.79 5.62 6.62

16.83 20.60 20.80

77.68 69.28 68.45

0.26 0.18 0.78

64.81 130.80 63.91

21.81 41.80 11.25

Ind Swift

8.91

-5.01

58.82

0.49

618.17

48.25

Satkar Finlease Saptarishi Agro Inds. Vikas Granaries Regent Enterprises TPI India Tijaria Polypipes

7.60 3.14 9.51 3.00 2.84 9.99

-18.45 0.00 -11.78 -2.28 20.34 -9.02

56.70 56.22 55.39 52.28 51.87 51.59

0.18 0.02 0.22 0.04 0.00 0.59

-89.15 -81.93 413.22 0.74 -100.00 658.52

167.50 10.68 17.23 10.04 12.21 23.61

Top Price Losers Kaushalya Infra. Dev. Corp. Cals Refineries Aadhaar Ventures India SRS Arnav Corporation India Steel Works Shekhawati Poly-Yarn Urja Global Cybermate Infotech Lycos Internet

3.85 0.12 0.80 3.39 1.28 3.79 0.39 1.19 3.51 7.01

Stock

Market price (`)

1-week (%) change

1-month (%) change

1-month avg volume (lakh)

1-month avg volume change (%)

Market cap (` crore)

Midas Infra Trade

4.82

0.00

-30.95

0.12

55,690.48

58.80

Arnav Corporation Consolidated Const. Provogue India Tijaria Polypipes Ind Swift PVP Ventures Gennex Laboratories Aadhaar Ventures India Vikas Granaries

1.28 4.96 4.84 9.99 8.91 5.67 6.07 0.80 9.51

-5.88 8.06 -7.98 -9.02 -5.01 -5.34 6.87 -4.76 -11.78

-18.47 27.84 17.76 51.59 58.82 15.95 5.38 -20.00 55.39

2.68 1.12 2.03 0.59 0.49 1.98 14.57 3.41 0.22

1,199.32 678.68 672.57 658.52 618.17 583.81 574.53 546.56 413.22

11.45 197.66 112.97 23.61 48.25 138.94 76.79 12.57 17.23

Top Volume Losers -1.28 0.00 -4.76 -7.38 -5.88 1.07 -2.50 2.59 -9.77 -5.27

-34.52 -20.00 -20.00 -19.09 -18.47 -17.97 -15.22 -15.00 -13.33 -12.92

1.31 13.70 3.41 4.89 2.68 1.36 2.00 4.80 2.68 2.04

232.64 242.07 546.56 7.24 1,199.32 -47.19 -1.21 -61.25 30.17 -64.51

13.33 99.53 12.57 94.44 11.45 150.88 13.44 60.36 25.43 333.85

Assam Company India Lycos Internet Urja Global KSS Facor Alloys

7.53 7.01 1.19 0.16 4.29

-1.18 -5.27 2.59 0.00 6.45

-3.71 -12.92 -15.00 -5.88 0.70

2.58 2.04 4.80 9.84 3.00

-76.53 -64.51 -61.25 -53.60 -51.85

233.28 333.85 60.36 33.27 83.87

Excel Castronics

2.51

-1.18

4.15

1.14

-50.51

10.22

GVK Power and Infra. India Steel Works Gujarat NRE Coke Indian Info. and Software

6.15 3.79 2.61 0.22

-1.44 1.07 -1.14 0.00

-0.16 -17.97 -0.38 -4.35

7.48 1.36 4.92 14.01

-50.16 -47.19 -43.54 -43.49

971.21 150.88 418.79 22.12

The stocks have been selected using the following filters: Price less than `10, one-month average volume greater than or equal to 1 lakh and market-capitalisation greater than or equal to `10 crore. Data as on 3 May 2017. Source: ETIG Database and Bloomberg

Pick of the Week

27

The Economic Times Wealth, May 8-14, 2017

HPCL: Set for steady growth Relief from subsidy burden and low crude oil prices have set the stage for HPCL’s growth.

P

Crude oil production from shale reserves in the US is compenSU oil refining and marketing firms, such as Hindusating the production cuts imposed by OPEC (Organisation of stan Petroleum Corporation (HPCL), have always the Petroleum Exporting Countries). Since shale oil producexcelled in operational performance, even though tion, at most sites, becomes viable at $60 per barrel, the chancthey have been held back by the government-imes of oil sustaining above this level are remote. After crossing posed subsidy burden. But with the current ad$55 per barrel in the recent past, it has been falling and is now ministration’s oil sector reforms, subsidy burden seems to be a below $45 per barrel. Crude at lower levels has also led to inthing of the past. There was no subsidy burden on HPCL in the creased demand for petroleum prodthird quarter of 2016-17. ucts, benefitting companies like HPCL. The company has reported good Since refining capacities are not getnumbers for the first nine months of ting added fast, the gross refining mar2016-17 because of the relative stability gin (GRM) of refineries are also strong in crude oil prices. Compared to the 7 now. HPCL is expected to report a GRM same period last year, its sales and net Sell of around $6 (`385) in the coming years. profit increased by 9% and 90% reTo capitalise the situation, HPCL is planspectively. The trend is expected to 24 ning to increase its capacity. The compacontinue into the fourth quarter of Buy ny has already got environmental clear2016-17 as well. Increased growth rates ance for its capacity enhancement plans are also a result of low base: HPCL had at its Vaisakh and Mumbai refineries. seen heavy inventory losses in the 6 fourth quarter of 2015-16 because Hold Selection Methodology: We pick the crude had fallen below $30 per barrel. stock that has shown the maximum inEven though the base effect will gradcrease in ‘consensus analyst rating’ in ually wane in the coming quarters, the past one month. Consensus rating is HPCL is expected to report good numSplendid revenue and net profit growth, low arrived at by averaging all analyst recombers in 2017-18 as well. Its interest cost crude oil prices, relief from subsidy burden, mendations after attributing weights to burden will also remain at lower levels and rise in demand for petroleum products each of them (5 for strong buy, 4 for buy, because of lesser working capital rehave made HPCL analysts’ top pick. 3 for hold, 2 for sell and 1 for strong sell) quirement. Subsidy burden was one and any improvement in consensus anabig reason for high working capital relyst rating indicates that the analysts are quirement in the past. getting more bullish on the stock. To make sure that we pick HPCL’s fundamentals will improve further if the government only companies with decent analyst coverage, this search is resticks with its oil sector reform. Though the possibility is low, stricted to stocks that are covered by at least 10 analysts. You the government could re-introduce price restrictions if the can see similar consensus analyst rating changes during the crude flares up again—as it did in 2002. However, analysts are past week in the ETW 50 table. not really worried on this front, because a sudden jump in —Narendra Nathan crude oil prices is an unlikely possibility in the near future.

Analysts’ views

Fundamentals Actual

Consensus estimate

2014-15

2015-16

2016-17

2017-18

Net Revenues (` cr) 2,16,395 Operating Income (` cr) 2,236

1,86,760 7,112

1,83,769 8,570

2,15,661 8,896

1,499

4,921

6,085

5,659

15

48

57

54

Net Profit / Loss (` cr) EPS (`)

Valuation

PBV

PE

Dividend yield (%)

Hindustan Petroleum Corp. Bharat Petroleum Corp.

3.17 3.77

9.08 12.09

2.17 2.12

Indian Oil Corp.

2.79

12.74

1.61

Reliance Industries

1.68

14.81

0.81

Latest brokerage calls Reco date

Research house

28 Apr ’17 17 Apr ’17

Axis Capital Macquarie

12 Apr ’17

Jefferies

11 Apr ’17 10 Apr ’17

IDFC Securities Morgan Stanley

07 Apr ’17

Nomura

Advice

Relative performance Market price: `531.15

Target price (`)

buy outperform

655 650

buy

618

outperform Overweight

650 629

buy

640

191.77

120.02

100

4 May 2016

Sensex

HPCL

4 May 2017

Performance of HPCL compared with the Sensex. Figures are normalised to a base of 100. Source: ETIG Database & Bloomberg

What experts advise

BUY Stock

Navin Fluorine Indo Count Industries JSW Energy Zee Learn

Research house

JM Financial

Centrum Wealth

J P Morgan

Edelweiss

Advice

Buy

Buy

Overweight

Buy

Market price* (`)

3,075 207 63 47

1-year target price (`)

3,500 286

Comment Initiate 'buy'. Navin Fluorine is one of India’s largest manufacturers of fluorochemicals with over five decades of experience in fluorination and a portfolio of more than 60 fluorinated products. Initiate 'buy'. Indo Counts’ unique asset-light business model, better capital efficiency and focus on value added products are likely to drive its growth.

70

Retain 'overweight'. The worst is behind JSW Energy. Operating performance has bottomed out in the past two quarters. Expect quarterly earnings performance to improve now.

80

Maintain 'buy'. Debt restructuring, low capex requirement and operational efficiency will result in improved margins and free cash flow generation in the coming years.

SELL Stock

Marico Ambuja Cement HDFC

*Market price as on 27 April

Research house

Prabhudas Lilladher

HDFC Sec

Ambit Capital

Advice

Reduce

Sell

Sell

1-year target price (`)

310 244 1,564

Comment

281

Downgrade to 'reduce'. Its current valuations are alarmingly high. It is trading at a premium of 7% to Hindustan Unilever and 40% to Dabur.

200

Maintain 'sell'. High valuations: Enterprise value at 15-times its expected 2017 EBITDA. Reduced availability of fly ash, likely punitive taxation on pet-coke and adapting to GST are sectoral challenges.

1,154

Reiterate 'sell'. Muted operating growth. Loan growth in core retail book was at a five-year low—16% year-on-year—operating income as a percentage of AUM was flat despite easing funding costs.

28

Career

The Economic Times Wealth, May 8-14, 2017

team on how she expects everyone to rise to the challenge and meet daily targets. Liking Your audience is easily influenced by you if they like you. If you are in sales, you will sell more if you are well groomed, impeccably dressed, speak in a polished manner and are humble in your interactions with the client. But your sales will hit the roof if you connect emotionally with the client, become a personal friend instead of vendor, and are able to discuss non-business stuff of the time. Similarly, if you are well liked by the team, your leave application is always sanctioned because others step in to do your work when you need a break. Scarcity People want more of what they perceive to be scarce. Announce a limited period offer for your customers and see your sales go up. Or get your entire sales team together and announce a special bonus for the person with the highest sales that month. The announcement of the single prize in the presence of competing colleagues will improve every individual’s numbers, even if the cash value of the prize is not significant. GETTYIMAGES

How to be more persuasive The art of persuasion can help you get things done. Devashish Chakravarty lists the eight principles that can enhance your ability to influence people.

P

ersuasion is a positive word! It’s not about forcing someone to choose something harmful or making them do what they dislike. It is the art of getting people to work in both their own and your best interests. Ever wondered why your new manager is so amazingly persuasive? Or why your junior colleague has more influence over your boss and the team than you do? The guru of social influence, Dr Robert Cialdini, researched the art of persuasion and came up with these eight principles, which can enhance your ability to get things done. Reciprocity Cialdini defines reciprocity as a principle of persuasion where your listener feels the need to reciprocate and return a favour that you have done. So, when you mentor individual members of your team, don’t be surprised when, in return, they volunteer to work over the weekend to help you com-

plete a critical project. Or when you use your personal network to get a top doctor’s appointment for your client’s mother, and your business with the client grows afterwards. Now you know why the ‘good cop, bad cop’ strategy works, and how the good cop manages to get what he needs from the target, in reciprocation for his kindness and empathy. Commitment People have a strong desire to stick to commitments they have made, and thus, be consistent with their projected image. So, when you ask a colleague to write down and share the minutes of the meeting where he reluctantly agreed to a common plan, he is more likely to stick to his individual promises, simply because he has now made a written commitment. Similarly get your team leader to make a public commitment to your team or a salesperson to record his promises on email and both your team leader and the salesperson’s firm will go to great lengths to fulfil it.

CREDIBILITY FRAME

THE 5 FRAMES OF PERSUASION

Ask the CEO to tell your sales team about how he used that new sales technique to successfully close deals. Thus, you are leveraging the credibility of the speaker (CEO) to gain easy acceptance. Aristotle called this ‘Ethos’– an appeal to authority.

EMOTION FRAME ‘Pathos’ is your appeal to the emotion of a listener. When you want a reluctant team member to join a tough project, ask him: “Won’t you regret not knowing if you have it in you to crack it?” Ads do this routinely, telling you to be a better parent by buying their healthier products for your kids.

Social proof Cialdini says that people copy what they see others do, in order to conform with the crowd. Are you unable to convince one maverick colleague to follow the new safety protocol? Don’t worry! Change the behaviour of everyone else around him and in some time the lone warrior will follow suit. Similarly, as a team leader, start behaving and communicating in the way you want your team to behave. At first, the newcomers and freshers will start emulating you. Slowly the rest of the team too will come around. Authority People tend to obey what authority figures tell them. Get yourself published regularly in an industry journal that is read by your colleagues and you will see a jump in your influence because now you are perceived to be an expert. Want your team to work long hours to meet the difficult demands of a client? Ask the senior-most manager to speak to your

LOGIC FRAME ‘Logos’ means logic or perceived logic, which is the third of Aristotle’s techniques where you rely on reported facts or believed truths. Tell your sales team that with a 5% cold call conversion rate, the harder they work, and the more cold calls they make, the greater will be their sales and commissions.

Unity People are more strongly influenced when they perceive a shared identity with you. For instance, in a job interview, if you were to find out and share with the interviewer that she grew up in the same town and attended the same school as you did, your chances of landing the job would shoot up dramatically. Similarly, when you build a team culture where everyone feels that they can identify with the team like a family, colleagues start helping each other complete their assignments without being forced to do so. Timing When you are trying to influence someone’s decision, the timing of your request is critical for it to be accepted. Submit an assignment that is important for your supervisor and your immediate request thereafter for a coveted role is likely to be accepted quickly, in keeping with the principle of reciprocity. Similarly, if you ask a customer to sign up for an exclusive service package that costs a little extra, immediately after closing a large sale with him, he is likely to accept it right away, because it represents a minor addition to the base amount that he just agreed to.

The writer is Director, Executive Search at QuezX.com.

LOSS FRAME Reframe your argument to show your audience what they stand to lose if they ignore your suggestion. Don’t say “You will get a 10% hike and the maximum bonus if you achieve the new target. Instead, say “Your maximum bonus is guaranteed, but you will lose 10% of it if you don’t achieve the new target”.

EPISODE FRAME When you draw the attention of your listener to a specific episode or story the influence is greater. So, if you want to impress the need to double-check the data upon your data entry team, speak about the colleague who didn’t get her increment when an audit found discrepancies in her recorded data.

Your Queries

The Economic Times Wealth, May 8-14, 2017

QUESTION OF THE WEEK

Q A &

Q

I am 73 years old and am looking to generate a regular monthly or quarterly income from mutual funds. Since debt funds give better returns than fixed deposits, I want to invest in them. Please suggest schemes.

Debt funds are a better choice than fixed deposits, especially if you fall in the higher tax bracket. Interest income from fixed deposits is taxed at marginal rates but the income (capital gain) from debt funds is taxed at 20% after indexation—if held for three years or more. For you, short-term debt funds focused on accrual income will be suitable as traditional income funds can be quite volatile. You may consider investing the lump-sum amount in short-term debt funds and may opt for systematic withdrawal plans (SWP). SWPs are tax efficient compared to dividend plans, provide more predictable monthly cash flows and work best with funds that give stable returns such as accrual debt funds. The current yield to maturity (return generated by the fund, if held till maturity) of accrual debt funds stands at around 8.5-9%. So, you can easily withdraw 7-7.5% per annum. You may choose from among the following accrual debt funds: DSPBR Income Opportunities, HDFC Corporate Debt Opportunities, ICICI Pru Corporate Bond, UTI Income Opportunities and Birla SunLife Corporate Bond.

RAHUL PARIKH

Our panel of experts will answer questions related to any aspect of personal finance. If you have a query, mail it to us right away.

Q

I am 27 years old and invest `2,000 in Kotak Select Focus Fund and `1,500 in Quantum Long Term Equity Fund via monthly SIPs. I want to invest `10,000 more each month to build a corpus for buying a house—15 years, from now—and for my children’s education—20 years. Please suggest schemes.

You can consider doubling the investments in your existing funds and invest the remaining in HDFC Balanced Fund. It is advisable that you determine how much you wish to save for purchasing a house and for your children’s education and maintain separate portfolios for the two goals.

CEO, BAJAJ CAPITAL

Q

In case of an emergency, if my employer-provided insurance pays less than the `5 lakh sum insured because of sub-limit conditions, such as room rent cap, even though the cost incurred is, say, `10 lakh, will my personal cover of `10 lakh, with a deductible of `5 lakh work?

Yes, your personal cover of `10 lakh, with a deductible of `5 lakh will cover hospitalisation expenses above the deductible limit, provided your deductible policy doesn’t have any restrictions on room rent. You can pay the initial `5 lakh through your employerprovided insurance and from your own pocket—so as to meet the deductible limit. Bear in mind, your insurer will pay the claim amount over and above the specified deductible according to your policy’s terms and conditions—waiting period, pre-existing disease cover, sub-limits, room rent cap, etc.

SANJAY DATTA C.R. CHANDRASEKAR CEO AND CO-FOUNDER, FUNDSINDIA.COM

Q

My wife has been investing in mutual funds and PPF. Some 80% of her mutual fund investments are in balanced funds and 20% in large- and mid-cap funds. She is retiring in July. Should she continue with this strategy after retirement as well?

Your wife’s portfolio has a moderate risk, which is a sound strategy. However, since she is close to retirement, she should start reducing her equity exposure in a phased manner, while ensuring that taxadjusted returns are higher. After she retires, she should move some of the balanced and equity funds into fixed income options such as the Senior Citizens’ Savings Scheme (SCSS) where one can invest up to `15 lakh. Currently, SCSS offers an annual interest of 8.4%. She can also consider the Post Office Monthly Income Scheme or annuity plans offered by the insurance companies, though the interest there is lower at 6.5% and 7.5% respectively.

29

CHIEF, UNDERWRITING CLAIMS AND REINSURANCE, ICICI LOMBARD

Q

I have retired and just received my Provident Fund in lump sum. I want to gift a part of this sum to my wife. She already earns some interest income from her savings, but it is not in the taxable range. What will be the tax implication of the money I gift her?

A gift of more than `50,000 is treated as income and taxed at marginal rates. But gifts from certain relatives, including the spouse, are exempt from tax. While the gift to your wife will have no tax implications, any income earned by investing that money will be added to your income and tax accordingly.

Q

I am 33 years old and covered by a health insurance policy provided by my employer. It has an insurance cover of `2 lakh. Should I buy an individual health insurance policy as well?

It is advisable to buy an individual health insurance even if you are covered by an employer provided mediclaim policy. An individual cover is a safeguard against all kinds of medical emergencies at all stages of life. Healthcare costs have seen a significant rise in the past one decade and will continue to grow in the years to come. The group cover from your employer may not be sufficient. Also, your organisation’s HR policies may change or you may switch to another company which may not have a group mediclaim policy. Since you are young, you can buy an individual health insurance policy at a lower premium, depending on your requirements. It will be expensive five years from now. For a typical 33-year-old, the premiums could start from as low as `15 a day

YASHISH DAHIYA CO-FOUNDER AND CEO, POLICYBAZAAR.COM

Ask our experts ANIL REGO FOUNDER AND CEO, RIGHT HORIZONS

RAKESH BHARGAVA DIRECTOR, TAXMANN

Have a question for the experts? Mail it to [email protected] with Query as subject.

30

Taxation

The Economic Times Wealth, May 8-14, 2017

TAX OPTIMIZER

NPS, perks cut tax by 20% Sudhir Kaushik of Taxspanner.com advises readers on how to restructure their income, investments and expenses to optimise their tax.

INCOME FROM EMPLOYER INCOME HEAD

CURRENT

SUGGESTED

Basic salary

8,10,000

8,10,000

House rent allowance

4,05,000

4,05,000

13,03,600

10,60,600

Transport allowance

19,200

19,200

Medical reimbursements

15,000

15,000

Leave travel assistance

50,000

50,000

Special allowance

Fuel and conveyance reimbursements

Nil

1,20,000

Communications reimbursements

Nil

36,000

Books and newspapers

Nil

6,000

97,200

97,200

Nil

81,000

27,00,000

27,00,000

Employer contribution to Provident Fund Contribution to NPS under Sec 80CCD(2d) TOTAL

INCOME FROM OTHER SOURCES Interest income

12,000

Nil

Capital gains

Nil

Nil

Rental income

NIl

NIl

12,000

Nil

TOTAL

15,000

G

Manoharan has a high salary, but his salary structure is not very tax friendly. More than 17% of his income goes in tax, which is quite high. Though the options are limited, Taxspanner estimates that Manoharan can reduce his tax by nearly `80,000 if his company offers him some tax-free perks, he invests in the NPS for retirement and avoids tax-inefficient investments. Manoharan should start by asking his company to reduce his special allowance and instead give him tax free perks such as reimbursement of expenses on fuel, conveyance, telephone and newspapers. If he gets even `13,500 under these heads per month, his annual tax will reduce by `50,000. Next, he should ask his company to put 10% of his basic pay in the NPS under Sec 80CCD(2d). This will reduce his tax by `25,000. Manoharan does not claim exemption for leave travel assistance (LTA) because he does not travel too much. The LTA is tax free if claimed twice in a block of four years for actual expenses incurred on travel with family and dependents. If he claims exemption for LTA, Manoharan’s tax will come down by another `15,450. He can also save tax by shifting his investments from fixed deposits and bonds to debt funds (see page 16).

ACTIONS TO TAKE Reduce this taxable portion of the pay package.

These perks are tax free on submission of actual bills.

Up to 10% of basic pay out in NPS is tax deductible.

Avoid tax inefficient FDs and invest in debt funds instead.

All figures are in `

MANOHARAN’S TAX TAX ON OTHER INCOME

TAX ON SALARY

TAX-SAVING INVESTMENTS

CURRENT

CURRENT (`)

SUGGESTED (`)

Provident Fund contribution

97,200

97,200

Housing loan principal

60,000

60,000

`4,80,680

NPS under Sec 80CCD(1b)

50,000

50,000

SUGGESTED

2,00,000

TOTAL ADMISSIBLE

2,00,000

Leave travel assistance Medical cover under Sec 80D TOTAL ADMISSIBLE Denotes suggestion to increase

SUGGESTED (`)

2,00,000

2,00,000

Nil

50,000

30,000

30,000

2,30,000 Denotes suggestion to reduce

2,80,000

0

`3,86,435

WRITE TO US FOR HELP

CURRENT (`)

3,708

`4,76,972

OTHER DEDUCTIONS Home loan interest

TAX ON CAPITAL GAINS

LTA exemption can be claimed twice in a block of four years.

Paying too much tax? Write to us at etwealth@ timesgroup.com with ‘Optimise my tax’ as the subject. Our experts will tell you how to reduce your tax by rejigging your pay and investments.

Nil

Nil

`3,86,435 TOTAL TAX SAVED

`94,245 PER YEAR

TAX RATIO (Total tax as % of annual income) CURRENT

SUGGESTED

17.7%

14.3%

Your Feedback

The Economic Times Wealth, May 8-14, 2017

31

Readers’ response, online and in print, to ET Wealth stories has been overwhelming and enlightening. We pick some that add information and perspective to our articles from previous issues.

Use Aadhaar, not PAN to open NPS account Your cover story, ‘the best NPS funds’ was informative and the step-by-step guide for opening an account was especially useful. But you also need to warn investors not to use their PAN to open an NPS account. If they use the PAN and get it verified by their bank, the bank becomes their PoP. Any future contribution, whether offline or online, results in a deduction of `20 per transaction. The PoP gets this money for doing nothing. To avoid this charge, the investors should use their Aadhaar for verifying their details, not the PAN.

Tax treatment of buybacks incorrect

investment going sour is quite another. Investments in real estate face high risks. It is common to see projects getting delayed by several years. You never know if a housing project will get completed in time. If media reports (not those funded by developers) are to be believed, more that 95% of projects are not delivered on time. Real estate only suits those who have loads of black money to hide.

The impact of the various corporate actions was very well analysed in the article ‘It pays to know what corporate actions mean’. However, the tax treatment of long-term capital gains in a buyback was incorrect. As the buyback proceeds are not subjected to securities transaction tax (STT), the long-term gains in the hands of the shareholder are not tax free. The shareholder can claim indexation benefit and pay 20% tax on the post-indexation gains or 10% tax without indexation.

Raaj, e-mail

Francis Xavier, e-mail

Real risk in real estate This has reference to Dhirendra Kumar’s column ‘Where do real estate profits come from’. A mathematical analysis is one thing, while the practical experience of an

The article by Dhirendra Kumar is an eye opener for those who blindly invest in real estate. In the past, the appreciation in real estate was due to the prevailing high interest rate and high inflation scenario. It will not be replicated in future. Only stock investments can beat inflation. But there is a risk associated with stocks.

Timely warning

J.N. Kar, Bhubaneswar

Natanam Iyer, e-mail

The feature on the pitfalls of using social media was very timely. In their craze to be popular on social media, young people often ignore the basic precautions. Your article offers very good advice to youngsters who are misled in their social media dealings and postings. Thank you for the timely warning.

K.B. Mukund, on e-mail

ET Wealth responds: This was true when shareholders sold their shares directly to the company. Now most buyback offers are routed through stock exchanges. STT is payable on such transactions so the longterm gains are tax free.

Sane advice The story ‘Should you sell in May and go away’ was a good read. At a time when some experts are predicting that Sensex will touch 100,000, your advice on profit booking may dampen the spirits of many. But it appears the sane thing to do, given that markets have scaled record highs. It would have been interesting to know the reasoning behind the ‘Sell in May and go away’ saying. Sangeeta, on e-mail

No loans please Apropos the feature on nocost EMI loans for medical emergencies, I would say it’s best to take adequate health cover. It will serve one better. HImanshu, on e-mail

Corrigendum The Tweet Corner of the 1 May issue carried a wrong picture with Pankaj Tibrewal’s tweet. The error is regretted.

35 lakh home loans in past five years A TransUnion CIBIL study says the number of home loans grew at a fast clip of 23% per year between 2102 and 2016. HFCs now have a bigger share of the pie than PSU lenders

In 2016, `30,400 cr worth of loans were sanctioned. But ticket size of loans reduced.

4.7

68%

4.9 4.9

HFCs PSUs

47% 4.6 4.4

1 Maharastra 6.53 lakh 2 Madhya Pradesh 5.60 lakh

37% 4.2 4.3

States with the largest number of new home loans in the past five years

4.1

3 Gujarat 3.13 lakh 4 Tamil Nadu 2.65 lakh

22%

5 Andhra Pradesh 2.28 lakh 2009

2010

2011

2012

2013

2014

2015

2016

2009

2016

These five states account for 55-60% of the total number of new home loans. Their share in the total loan amount sanctioned is also roughly the same.

Average ticket size of home loans in ` lakh

Delinquency The delinquency rate has mostly remained stable The delinquency rate on affordable housing loans was 1.1% in 2016.

The Economic Times Wealth, published by Bennett, Coleman & Co. Ltd. exercises due care and caution in collecting the data before publication. In spite of this, if any omission, inaccuracy or printing errors occur with regard to the data contained in this newspaper, The Economic Times Wealth will not be held responsible or liable. The content hereof does not constitute any form of advice, recommendation or arrangement by the newspaper. The Economic Times Wealth will not be liable for any direct or indirect losses caused because of readers’ reliance on the same in making any specific or other decisions. Readers are recommended to make appropriate enquiries and seek appropriate advice before making any specific or other decisions.

PUBLISHED FOR THE PROPRIETORS, Bennett, Coleman & Co. Ltd. by Rajeev Yadav at Times House, 7, Bahadur Shah Zafar Marg, New Delhi-110 002, Phone: 011-23322000, Fax: 011-23323346 and printed by him at The Times of India Press, 13 & 15/1, Site IV, Industrial Area, Sahibabad, UP. Regd. Office: Dr Dadabhai Naoroji Road, Mumbai 400 001. EDITOR: Babar Zaidi (Responsible for selection of news under PRB Act). © Reproduction in whole or in part without written permission of the publisher is prohibited. All rights reserved. RNI NO. DELENG/2011/37994. MADE IN NEW DELHI VOLUME 07 NO. 19

32

Last Word

The Economic Times Wealth, May 8-14, 2017

Minting money from scrap This Faridabad-based e-waste management startup has seen splendid growth in the past two years. VINAY DWIVEDI

W

hen people come to know about my business, their reaction usually is: Kabadiwala,” says Akshay Jain, Founder, Namo E-waste Management, an e-waste recycling startup. Mocking though hasn’t discouraged this 28 year old. “Snide reactions have simply motivated me to change the image of the traditional Kabadiwala to that of a recycler with professional degrees and an organized setup,” he says. Jain was doing his MBA from Greenwich Univiersity in the UK where he first saw how organized waste management worked. “Waste was properly segregated, identified and disposed of according to specified norms across the UK. I was inspired by the robust recycling mechanism in place and wanted to do something similar in India,” he says. After graduating, Jain returned to India and, in January 2014, founded Namo E-waste Management. “I focused on e-waste because of a near total lack of awareness about it and also because it is the fastest growing solid waste stream here,” he says. It took almost an year to get the logistics in place and the company stated operations in August 2015. Less than two years into its operations, NCR-based Namo E-waste now has a presence to 12 states and Union Territories through its

Akshay Jain, Founder and Managing Director, Namo E-waste Management.

e-waste collection centres and channel partners. “We have been able to reach 70% of the e-waste generated in the country,” says Jain. The startup has entered into contracts with large corporates to collect their e-waste. Some of the prominent clients include Flipkart, Havells, Voltas, TataSky, Godrej and Telenor. The company also has a B2C vertical and collects e-waste from housing societies, resident welfare associations and individuals. It is looking to expand its B2C business further and is in the process of launching an app, Planet Namo, to facilitate collections from in-

dividuals. “We have found that people are even willing to donate their low-value e-waste for charitable causes. There’s a market out there,” says Jain. The e-waste collected by the company is segregated and usable devices are refurbished. These are then sold through online marketplaces and a dealers’ network. The waste which is of no use is broken to extract commodities like copper, aluminium, iron, etc., which are sold to foundries. Seeded with an investment of `2 crore— the major chunk was invested by his father, who is a sleeping partner in the venture—the

startup generated a revenue of `4.4 crore in 2016-17. Namo E-waste’s challenge has been countering the lack of awareness among people about e-waste disposal, competition from the informal sector, and high costs. While a more efficient e-waste collection system has reduced logistical costs, little awareness on how to responsibly dispose of e-waste continues to be a challenge. “Due to the lack of awareness, e-waste is mostly routed to unorganised players, who may offer a better price but do not adhere to the proper recycling norms,” says Jain. Namo E-waste, which has run awareness campaigns to educate the people on this issue, has received welcome help in the form of the government’s thrust on waste management. “The government is coming up with massive reforms in handling of e-waste, and the intent shown in the recent times for waste management across the country has boosted our morale,” says Jain. Winner of the ‘Best Green Startup’ and ‘Refurbisher of the Year’ awards by Franchise India, Namo E-waste is now looking to set up a precious metal recovery plant to extract gold and silver from e-waste. “This will make us one of the most prominent e-waste management facilities in the world,” says Jain.

Please send your feedback to [email protected]

Buy gold bonds from secondary market Earlier tranches of the Sovereign Gold Bonds are trading 5-6% lower than the price of new bond issues BABAR ZAIDI

Four of seven Sovereign Gold Bonds are in losses

S

Gold ETFs bought on the same day would have given better returns.

hweta Agnihotri was furious with her bank manager in August last year because he failed to submit her application for sovereign gold bonds (SGB) in time and she missed the issue. Agnihotri should actually thank him. Had her application gone through, her investment would be down by more than 10%. The fourth tranche of the SGB, issued at a price of `3,119 per gram in August 2016, are trading below the issue price. The bonds closed at `2,839 on Friday. Even after factoring in the `42.90 paise earned as interest in February this year, the SGB is 10.55% in the red. The three other tranches of SGBs issued later are also making losses. Only the first two tranches of the SGBs, which were issued at prices below `2,700 a gram, have generated positive returns (see table). The calculation takes into account the interest income from the bonds which is paid out every six months. It’s interesting to note that though SGBs are considered the best way to invest in the metal, ETFs have given better returns. We looked at the returns from ETFs bought on the same

Tranche

Issue date

Issue price `

Current price `

Returns earned (%)

ETF* returns (%)

1

5 Nov 2015

2,684

2,760

5.09

5.73

2

18 Jan 2016

2,600

2,752

6.61

6.26

3

8 Mar 2016

2,916

2,796

0.12

-2.72

4

5 Aug 2016

3,119

2,799

-10.55

-9.19

5

1 Sep 2016

3,150

2,825

-15.32

-10.59

6

2 Nov 2016

2,957

2,773

-13.78

-11.09

7

27 Feb 2017

2,893

2,787

-17.82

-17.36

* Reliance ETF GoldBEES. Data as on 5 May 2017, Source: NSE

days as the different tranches of the SGBs. In five out of seven cases, the ETFs have fared better. Observers point out that SGB trading volumes are not very high in the secondary market. On a typical day, the combined traded volumes of the seven series are around 2,000-3,000 bonds. “If you want to buy 10-

20 bonds, you can get lower prices in the secondary market. But if someone wants to buy a larger quantity, say 100-200 bonds, he will have to bid higher prices,” says Manoj Nagpal, CEO of Outlook Asia Capital. Even so, a patient investor can gradually accumulate SGBs from the secondary market at prices lower than the issue price of fresh SGBs.

GETTY IMAGES

For instance, the eighth tranche of the SGB, which was open to investors last month, was priced at `2,901 per gram. But savvy investors could have purchased SGBs of earlier tranches at a lower price from the secondary market. However, very few investors actually take that route. “Though earlier tranches of SGBs are trading at lower prices in the secondary market (by 5-6%), most investors prefer to buy directly from the issuer,” says Deepak Jasani, Head Retail Research at HDFC Securities. “Either investors are not financially aware or not comfortable buying from anyone other than the issuer,” he adds.

Please send your feedback to [email protected]