Money today june 2014 IN

JUNE 2014 Rs 50How auto ancillary stocks are likely to perform Things you should know while buying a home cover INSURANCE EQUITIES gains from mutual fund investments PLUS: BEST MUTUAL FU

JUNE 2014 Rs 50

How auto ancillary stocks

are likely to perform

Things you should know while buying a home cover

INSURANCE EQUITIES

gains from mutual fund

investments

PLUS:

BEST MUTUAL FUNDS RNI No DELENG/2006/18800/REGISTERED NO L/HR/FBD/258/13-

15/BPC FARIDABAD/DATE OF POSTING :EVERY MONTH

From the Executive Editor

The Indian electorate has delivered a historic mandate in

favour of a Narendra Modi-led government at the centre

By the time this issue hits the stands, the process ofconstituting the new government would have been set inmotion with Modi likely to be sworn in as Prime Minister

on May 26 The whiff of a strong government under a decisive leaderhas ushered fresh hopes for growth and development by bringing anend to the extended policy paralysis that had afflicted the outgoingregime The changing mood can be felt by developments in the stockmarket The benchmark indices scaled new highs as counting day, May

16, approached And as results trickled in indicating a clear majorityfor the National Democratic Alliance, the BSE Sensex spurted over1,400 points intra-day to breach 25,000 for the first time and touched arecord high of 25,375 The consensus view is that this may be thebeginning of an extended bull run in equities These could be goodtimes to dabble a bit in the equity market But what if you are notadept at investing in the stock market? If you do

not know the rules of the game and the way it isplayed, equity investment is fraught with high risk

It is then best to leave it to experts to manage yourmoney to help you ride the likely bull run We havealways held that the best way for those with lack ofknowledge or expertise in the markets is to adoptthe mutual fund route The mutual fund industry isamong the best regulated sectors of the financiallandscape and handles your money at negligiblecost However, even when you choose to adopt this route, there arebasic investment norms relating to the sector that you should be aware

of to maximise your gains Among these, you should know how asystematic investment plan weighs against investing a lump-sumamount You should also know how to approach sectoral funds andthematic funds and how risky are these Should you invest in new fundoffers or go for established funds that have track records? We tell youhow to tackle all these issues, and some more, in our cover story

starting on page 20 The investing tips may come in handy Though

your mutual fund investments are likely to witness less volatility, thereare market risks associated with them Little wonder the variationamong fund performances For example, the two best performing open-ended equity diversified funds, UTI Transportation & Logistics Fundand Reliance Small Cap Fund, have delivered returns of 60.95% and43.17%, respectively, for the year ended 31 March 2014, while the worstperforming funds, Sundaram Select Thematic Funds - PSU Opp andBaroda Pioneer PSU Equity Fund, delivered returns of -0.35% and1.35%, respectively In our annual mutual funds special issue, we alsobring to you the best performing funds at the end of 31 March 2014 Aglance through the comprehensive data on fund performance shouldgive you a good idea on where to place your bets

SARBAJEETK SEN, Executive Editor

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MoneyMAKES YOU RICHER TodayJUNE 2014

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Volume 9, Number 6, for the month

June 2014, released on May 25, 2014

03

M ONEY T ODAY

June 2014

@sarbajeets

DISCLAIMER MONEY TODAY aims to inform readers and impart knowledge on investment options and schemes Every possible care is taken in providing the most accurate, updated and objective analysis and data, but readers are expected to make their own decisions MONEY TODAY will not be held liable for any loss arising out

of any investment or business decision taken on the basis of features and articles published in the magazine

Cover: AJAY THAKURI

SECURE YOUR HOME

Questions that you should ask while buying a

home insurance policy

74

FAST FORWARD

Auto ancillary stocks are expected to perform

well in the near future

78

TRACKING YOUR GAINS A guide to

calculating tax on capital gains from stocks

and mutual funds

80

DONATE AND SAVE TAX

Contributing to charities and NGOs allows you

to reduce the tax outgo

Investing

Expert Speak

Advisory

Gold is unlikely toperform well in thenear future

ICICI Bank and

Axis Bank may

be rerated

MT News & Data

10

Markets Ride the Modi Wave

Cover Clause May Hit Company FDs

RBI Ends Penalty For Dormant Accounts

98

 Best Loan Buys

82

READY YOUR DOCUMENTS

Experts from Deloitte tell you aboutthe papers that you need while filingtax returns

NOT WORTH ITS WEIGHT

Gold has not been performing well oflate Investors will not lose much ifthey stay away

88

THE ART OF BATTLING GIANTS

Cases where minority shareholders made their views heard by the managements

From time to time, you will see pages titled ‘An Impact Feature’ or ‘Advertorial’ in MONEY TODAY These are no different from advertisements and the magazine’s editorial staff is not involved in their creation in any way.

ANAND RADHAKRISHNAN

CIO, Franklin Equity, FT Investments – India

The cover story of May 2014

issue (Global Dream) will

prove to be a huge help to

people who are planning to

settle abroad I moved to the

US in 2010 for two years and

I remember the process of

sorting my finances to be an

excruciatingly long affair.

Banks were of little help and

instead of helping me, the

representatives were busier

peddling all sorts of

prod-ucts I think the biggest issue

for people who move abroad

is dealing with the taxation laws in both the countries It will not be a bad idea for the Income Tax department to

set up a helpline for people who might be moving abroad but still have a source of income in India

SANJAYSINGH, Gurgaon

All disputes are subject to the exclusive jurisdiction of competent courts and forums in Delhi/New Delhi only

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liable for any consequences in the event of such claims not being honoured by the advertisers.

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How to Talk Back

Mail: Money Today, FC-8, Film City, Sector 16A, Noida, UP- 201301

I would like to bring to your attention theapathy of national banks at selling the infla-tion-indexed National Savings Securities

These bonds were launched to help investorssave at a higher rate than inflation However,when I approached the Bank of India branch

in Nagpur, the officials expressed their totalignorance about the scheme and were unable

to even list its features Due to this, our HUFwas unable to participate in the scheme andinvest our funds in time to obtain tax exemp-tion before March What is the point oflaunching a scheme if it is not marketed welland does not benefit the investors? TheNational Pension Scheme is another example

of a scheme that hasn’t been carefully keted Good schemes alone won’t suffice;

mar-they need to be made available at everybranch and the officials need to be well-informed about them Otherwise, bothschemes will fail to benefit most investors

NARESH GROVER, Nagpur

The guest column by Yurop Shrestha (Quest for a Green Card, May 2014) was

an eye-opener Given how coveted the US

Green Card is, I was surprised to read thatthe process can be initiated with $1 million.There are thousands of people who end upspending a lot more to get a Green Cardbecause they are unaware of the EB 5 route.This article will go a long way in helping peo-ple who wish to settle in the US

AJAYSHAH, Gandhinagar

The article on small-cap stocks (Adding Shine to the Portfolio, May 2014) wasinformative Although small-caps are expect-

ed to enjoy a good run, given the improvedmarket sentiments after elections, retailinvestors should not invest more than 5% oftheir core portfolio in small-cap stocks

VINAYTIWARI, Thane

‘Getting a good break’ is Arunima Mishra and not asmentioned The errors are regretted - Editor

Money Today 24x7 Untangle all aspects of personal finance by going through our

stories, tools and interactive features on www.moneytoday.in.Being a consumer is hard work You have to remain informed tomake the right choices and bag the best deal and alert to avoidcons and frauds Read our covers to make your life easier

May 2014: Peruse this story to know how

multi-asset funds are a good way to

diversify and earn decent returns Read

the story at:

moneytoday.in/multiassetfunds-risk

April 2014: This story will help you understand how focused equity funds have the potential to generate higher returns than diversified funds

Read the story at:

install-Retirement Planning

Figure out how tomaintain your cur-rent lifestyle afteryou retire

Education Planning

Calculate how muchyou will need foryour child’s higherstudies

Asset Calculator

Plan your ments intelligently

invest-to meet futurefinancial needs

Do you expect real estate prices to fall this year?

LAST MONTH’S QUESTION

The emergence of a stable government

at the centre has also triggered a bull run which is expect-

ed to continue for the next few years.

Read this story to know how you too can take part in the run and build your wealth

Read the story at:

30 April and18 May

How much do you expect theSensex to rise by June-end?

The victory of the BJP-led National

Democratic Alliance (NDA) in liamentary elections has trig-gered a bull run in equity and cur-rency markets Analysts arealready predicting the ‘mother of all bull runs’

par-in Indian equities Some are even casting that the rupee will appreci-ate to 55 a dollar Amidst all thiseuphoria and changing invest-ment landscape, how shouldretail investors view differ-ent asset classes and build

fore-a portfolio?

Equities: BetweenMay 12, when the exit pollshinted at a comfortable vic-tory for the NDA, and May 19,the Sensex jumped close to 6%from 22,994 to 24,363 On the day

of the results, the Sensex breached25,000 before settling at the 24,100 level atthe close of day

Despite the run-up, the valuations arestill at a fair level and experts see the bull runcontinuing at least for a year Large broker-age houses have already revised upward theiryear-end target for the Nifty and the Sensex.Nomura has raised its 2014 target for theSensex to 27,200 from 24,700, while Citigroupraised its year-end target to 26,300 Thoughthe stock market sentiments are positive, theinvestment strategy has to be different fromwhat it was six-eight months ago in order tomake gains The sectoral outlook haschanged, and so has outlook for stocks of dif-ferent market caps

The large-cap and defensive sector biashas to give way to a high-beta, cyclical andmid- and small-cap strategy to gain in theshort and medium term Sectors such as ener-

Markets Ride the

Modi Wave

Illustration: PRAGATI

gy, PSU banks, infrastructure and metals are back in

focus as pharma, FMCG and IT stocks look for a

correc-tion in the short-term The infrastructure sector may

see a boost in the long-term, but analyst remains

cau-tious on the sector The focus is also on PSU oil

compa-nies such as ONGC, Oil India, HPCL and IOC as steps

like rise in gas and diesel prices, lowering of subsidy

burdens are positive for these stocks

Debt Market:The debt market has not shown the same

kind of exuberance as the equity market as it is still

cautious about the next government’s fiscal policies

Analysts feel the new government may have to borrow

more by issuing bonds in the short term, thereby

keep-ing the fiscal deficit high for some time This has led to

fall in bond prices as 10-year government bond yields

rose to 8.9% from 8.83% on May 16 “We find these fears

(the government may borrow more) unfounded We

believe that the government would go on the path of

fis-cal consolidation and sooner or later bond yields will

fall,” says Dhawal Dalal, fund manager, DSP BlackRock

Mutual Fund He sees 10-year government bond yields

at 8.5% by December this year Retail investors,

depend-ing on their risk tolerance, can invest in accrual funds

(short-term funds, FMPs) or duration funds Accruals

funds (which follow the hold-to-maturity strategy) have

given good returns in the past couple of years and can

still do well if invested at these levels

Gold: Though gold prices are internally driven, the

metal gained domestically last year due to rupee

depre-ciation and import restrictions put by the government

to control the current account deficit (CAD), a situationwhere imports exceed exports However, with improv-ing CAD due to which the new government may easecertain restrictions, and appreciating rupee, gold pricesare likely to correct in the 6-12 month period “Priceswill depend on three factors: international prices, rupeemovement and government policies vis-à-vis restriction

on gold imports If the new government eases theseimport restrictions, domestic gold prices are likely tocome down in the short term,” says Chirag Mehta, FundManager, Quantum Mutual Fund However, he says that

in the long-term, sentiments remain favourable for gold

The absence of insurance coverage for

company fixed deposits is likely to

impact the plan of companies to raise

deposits from the public This is because

the Companies Act 2013, which became

effective from April 1 2014, makes it mandatory for

companies to buy insurance cover for fixed deposits

in the absence of which they will have to pay penalty

Harish K Vaid, senior president (corporate

affairs) and company secretary, Jaiprakash

Associates, says, “As of now not a single insurance

company is offering the product It will not be possible

to launch company deposits in the near future.”

General insurers say they are looking to offer

cover that will insure corporate deposits “We are in

talks with the Insurance Regulatory and

Development Authority to allow us to offer insurancecover for company deposits,” said KK Rao, generalmanager, Oriental Insurance Company

Currently, Irda has banned credit insurance bygeneral insurers except Export Credit GuaranteeCorporation The ban came after huge defaults werereported on credit insurance policies

At present, only the Deposit Insurance andCredit Guarantee Corporation (DICGC) offersinsurance for bank deposits However, they are notallowed to offer insurance for corporate depositsunder the DICGC Act Under the scheme a sum of up

to Rs 1 lakh, including the principal and interestamount, is paid to the depositor in the event of abank being unable to fulfill its commitment due toliquidation, cancellation of licence or merger

Nomura Citi Deutsche Bank BoFA-Merrill Lynch BNP Paribas UBS

ICICI Securities

Sensex Sensex Sensex Sensex Sensex Nifty Nifty

27,200 26,300 28,000 27,000 28,000 8,000 8,100

* Target for December 2014

Riding the Wave

Brokerages expect a surge in markets

INDIA TODAY

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CAPITAL MARKETS

Market regulator Securities Exchange Board of India has

said that all trades undertaken by foreign portfolio investors

(FPIs) in the cash market will be settled one day after the

execution of the trade order

BANKING

The Reserve Bank of India has said that a minor can now

open a savings/fixed/recurring bank deposit account

through either his/her natural guardian or legally

appointed guardian The minors who have

attained 10 years of age will be allowed to

open and operate savings bank accounts

independently

An RBI panel has suggested the setting up

of a centralised bills payment system in

order to enable consumers to pay all

kinds of bills at one place irrespective of

the services they are availing and vendors

EMPLOYEES PROVIDENT FUND

In a bid to ensure that norms are adhered to while tling PF claims of foreign workers from countrieswith which India does not have social securitypacts, EPFO has asked its field staff to getthose claims verified from the head office Asper the provision, the PF accumulations arepayable on retirement after attaining 58 years

set-of age or on retirement on account set-of nent or total incapacity for work

perma-1,000 tonnes, India’s esti- mated gold demand

in 2014, according

to the World Gold Council

REGULATOR WATCH A look at recent rulings which can affect you

RBI Ends Penalty For

Dormant Accounts

In an attempt to provide some relief to customers,

the Reserve Bank of India has asked banks not

to charge any penalty for non-maintenance of

minimum balance in dormant accounts Savings

accounts and current accounts are treated as

dor-mant if there are no transactions for over two years

According to the RBI notification, banks should

not take undue advantage of customer difficulty or

inattention Instead of levying penal charges for

non-maintenance of minimum balance in ordinary

sav-ings bank accounts, banks should limit services

available on such accounts to those available to basic

savings bank deposit accounts and restore the

serv-ices when the balances improve to the minimum

required level

Banks should not levy penal charges for

non-maintenance of minimum balances in any inoperative

account Banks should also limit the liability of

cus-tomers in electronic banking transactions in cases

where banks are not able to prove customer

negli-gence, the RBI said

At present, the State Bank of India does not

charge a penalty on dormant accounts For

opera-tive accounts, HDFC Bank charges Rs 750 per

quarter if their customers do not maintain a

mini-mum average quarterly balance of Rs 10,000 in

urban centres and Rs 5,000 in semi-urban areas

Anil Rego, CEO & Founder Right Horizons, saysthe move is likely to be beneficial for customers withsuch accounts “Customers with bank balances belowthe minimum balance limit today end up withcharges being deducted which effectively reducetheir account to zero because of the deduction

When accounts are dormant, there is no service

pro-vided and hence ideallythere should be no charge.While this is negative to thebanks, the impact on themshould not be too large asthis is not a major source ofincome for them.”

Adhil Shetty, chief utive officer,

exec-BankBazaar.com secondsRego and says, “Thisdecision is likely to come

as a sigh of relief for anumber of dormant accountholders as they get the free-dom to withdraw their fundsthat was left unclaimed for somany years.”

We tell you all that you should try

to unearth while buying a home insurance policy

| By Teena Jain Kaushal SECURE

Hyou heard of instances

when people boughtinsurance only to findthat it did not protectthe one item they sought to cover?Home insurance is certainly not thefirst cover on most people’s list, butnevertheless it acts as an importantbackup in case things go wrong.Like any other insurance, you willeither know, or be informed of, themost important questions that youneed to ask before you buy it.However, do not think twice beforeasking questions that may seemuncommon, or even stupid Themore questions you ask, the betteryou will understand the matter

To begin with, the one reasonwhy you must not take the seller’sword on face value is, because yourcoverage may not be as thick as youthink Say, if the common watertank of your apartment leaks It issafe to assume that you are cov-ered, right? Maybe not You havesuffered loss due to negligence ofyour tenant Are you covered? May

be yes While you must get down tothe nuts and bolts of your policy tounderstand what it actually promis-

es, it is important to understand thebasic elements of your policy A typ-ical householder policy consists ofaround 10 sections under which itcovers various risks ranging fromfire and allied perils, earthquake,floods to loss of baggage Generally,fire and allied section is compulsorywhile you have the option to choosefrom other sections The more youchoose the more comprehensive thecover becomes Consider this: thetheft by your maid will not be cov-ered unless you opt for a sectioncalled ‘housebreaking including lar-ceny and theft’ It is, therefore, pos-sible that despite having a policyyour insurer still denies you cover

To help you make an informedpurchase here are a few not-so-fre-quently asked questions on homeinsurance This will help you under-standing your policy better

MY HOUSE IS ON TENTH

FLOOR HOW MUCH COVER

SHOULD I TAKE?

Home insurance policy does not

cover the cost of land It only pays

you for cost of construction of the

house which is arrived at by

multi-plying the carpet area of the flat

with cost of construction in that

city So even if your house is on the

tenth floor you would be paid for

cost of construction The floor of

the building is not a consideration

for cost of construction

KK Rao, general manager, The

Oriental Insurance Company,

says, “In many cases a society

takes a common cover for all the

buildings of the society Along with

this common cover each flat can

take householder policy for

cover-ing the contents of the house.”

DOES THE POLICY COVER

LOSSES DUE TO

NEGLIGENCE OF TENANTS?

If you have given your house on

rent, you can take insurance for

the structure as well as for

con-tents Sanjay Datta, chief

under-writing and claims, ICICI Lombard

General Insurance, says, “Damage

caused by insured perils may get

covered for act of negligence

unless caused by a willful act.”

The view, however, may differ from

company to company Since there

are a few insurers who do not

cover losses due to tenant

negli-gence, it is always better to check

the details beforehand Specific

covers are also available in themarket For example: L&T GeneralInsurance offers a cover called

‘Liability of Tenants to Landlord’

It protects you against legal ity arising from damage to land-lord’s property and permanent fix-tures This liability would be appli-cable if it is specified in the tenan-

liabil-cy agreement that you as tenantwill be held liable for any suchdamage

I AM A TENANT I HAVE INSURED THE CONTENTS OF

MY HOME I AM NOW ING OUT WILL MY POLICY STILL COVER ME?

MOV-If you have moved out to anotherplace, you can get the policy

endorsed for change of address forhousehold contents

I LIVE WITH FRIENDS CAN I STILL BUY INSURANCE?

If the house belongs to you, youcan take an insurance cover forthe structure and your part of con-tents Your friends too can takeinsurance policies for their part ofcontent Insurer can, however, alsodeny you cover if it gets difficult tosegregate contents of the house

Joydeep Roy, CEO and wholetimedirector, L&T General Insurance,says it is difficult since it is noteasy to separate your contentswith that of your friends

IF WATER LEAKS THROUGH

A COMMON TANK, WILL CONTENTS BE COVERED?

17

M ONEY T ODAY

June 2014

Types of cover Home insurance pays you for the cost of construction and not for the cost of land

The standard fire and special perils policy covers your building structure and con- tents against fire and allied perils, including earthquake

The second layer of cover protects against burglary, house-break, hold-up and breakdown of mechanical or electrical appliances, etc

The third layer of cover protects you against peripheral risks such as loss

of passport

IN CASE OF LOSS DUE TO NATURAL

DISASTERS, INSURERS USUALLY RELAX THE

CLAIM SETTLEMENT PROCEDURE AND ASK

FOR MINIMUM DOCUMENTATION.”

KK RAO | General Manager, The Oriental Insurance

Experts say water leakage due tocracks, etc is not covered as thesame can be taken care by propermaintenance However, home insur-ance policy covers damaged caused

by bursting and/or overflowing ofwater tanks Again, you need to askyour insurer as this may vary frominsurer to insurer

WHAT HAPPENS TO THE ICY IF THE HOUSE IS SOLD?

POL-In case the house is sold then theowner of the house (insured) needs

to inform the insurance companyand get the policy cancelled as theinsured no longer has an insurable

interest in the property It is ommended that the new ownerpurchases a fresh policy in his/hername for the new house

rec-WHAT HAPPENS AT THE TIME OF CLAIM IF I TAKE PARTIAL COVER FOR CONTENTS?

If a person has not taken an quate cover for the contents inthe policy, it leads to underinsur-ance, and claim gets proportion-ately reduced In many policies,the coverage is offered on a first-loss basis: the cover is pre-defined as the policyholderassumes that his or her entireproperty will not get damaged in

ade-a single event For exade-ample, youcan buy a cover of only Rs10 lakhfor work of arts worth Rs 15 lakh

If claim is made only Rs10 lakhwill be paid to you even if theentire work gets damaged TARamalingam, chief technicaloffice, non-motor insurance,Bajaj Allianz General Insurance,says, “In such a scenario, duringthe claim if the losses incurredare greater than the cover thenthe company will only pay for thelosses to the contents coveredunder the policy Insured will beconsidered his own insurer forthe difference and shall bear theremaining loss or damage.”

AT THE TIME OF DAMAGE

MY HOUSE WAS UNOCCUPIED IS THIS DAMAGE COVERED?

In case the insured has taken ahouseholder package policy thenany losses for the content will not

be payable Under this policy,Ramalingam, says, any losses withrespect to the content insured willnot be payable if the house isunoccupied for a consecutive peri-

od of 7 days or more “However, ifthe insured has taken a stand-alone fire policy for the structure

and the contents then the damagewill be covered, excluding valu-ables, if any.” Since the definition

of non-occupancy varies, it is ter to check in advance with yourinsurer

bet-HOW AM I SUPPOSED TO INTIMATE MY INSURER AFTER THE DISASTER?

In such a scenario the insuredneeds to intimate the claim to thelocal office or to the company’scall centre The insurance com-pany deploys the surveyor andthe claim is settled once theinsurable interest is identifiedand the losses assessed Theinsured just needs to produce aKYC document that will help theinsurance company identify theclaimant Rao, says, “In case oflosses due to natural disasters,the insurance companies usuallyrelax the claim settlement proce-dures that involve minimum doc-umentation At times we only askfor the date and the year whentheir policy got issued so that wecan check it in our data base andquickly settle the claim.”

IF RAINS FLOOD MY MENT, WILL THE DAMAGE

BASE-BE COVERED?

It will be covered if you havedeclared it in the proposal formand the sum insured is calculatedafter including your basement

WILL MY CAR PARKED IN THE GARAGE BE COVERED?

Your vehicle can be covered under

a separate motor insurance policy

It will not be part of your holder policy It is important tounderstand that despite the vari-ous clauses, in the end your policymight not cover you for certainconditions but it is still better thanhaving none at all

house-Section-wise coverage

per-ils, including earthquake

risks

or valuables due to accident

computer and laptop

of the total cover is the usual

annual premium for home loan

insurance

MT

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MUTUAL

Stock markets are anything but ble Sample this On May 16, as elec- tion trends showed that India is set

sta-to get a stable government, the Bombay Stock Exchange (BSE) Sensex zoomed more than 1,400 points to 25,375 However, as trad- ing progressed, heavy profit-book- ing ensured that it closed the day, marked by several sharp ups and downs, just 216 points up from the previous day’s close For regular stock investors, such swings are not unknown The Sensex, for good measure, had started rising in early February itself, from 20,000-odd levels,

in anticipation of the election results This gave

investors 18% return in 2013-14, a phenomenal figure compared to 2012-13 when it delivered 8%, or the year prior to that when it fell 24% Should such

sharp swings bother you? If not, what is the best course of action, considering that your exposure to markets, equity as well as debt, is most likely to be through mutual funds?

These are complex questions So, as we got ready

to work on MONEY TODAY-Value Research Annual Best Mutual Fund Rankings to help you choose the best schemes to park your money, we thought the current market swings, and the likely rally, are a good time to revisit the basics of mutual

fund investing, lessons that have stood

their followers in good stead over any

number of market ups and downs

By Renu Yadav & Tanvi Varma

“SIP provides the convenience ofinvesting small amounts and brings dis-cipline Also, different SIPs can bealigned with different goals such as chil-dren’s education, retirement, etc,” saysTanwir Alam, founder & CEO, Fincart, afinancial advisory firm.

For first-time investors not used tovolatility in markets, SIPs iron out upsand downs One keeps buying at markethighs as well as lows, averaging out thelong-term returns

“Investing through the systematicroute and diversifying across assets isthe best way to deal with market volatil-ity and benefit from it,” says AnandRadhakrishnan, CIO, Franklin Equity,Franklin Templeton Investment–India

It’s best to avoid attempts to “timethe market” by investing lump sums

Timing the market is not easy Even thebest of experts fail to get it right most ofthe times SIPs help you get over thisproblem

“Timing the market is extremely ficult Regular investing insulatesinvestors from this trouble,” says Alam

dif-of Fincart

In lump-sum investing, it is tant to get the timing right Otherwise,the losses can be huge We saw this in2005-08 Equity mutual funds recordedthe highest-ever inflow of Rs 1 lakhcrore during this period Half of thismoney came in 2007 and the first half of

impor-2008, close to the market peak In themeltdown that followed a few monthslater in 2008, a lot of this money waswiped out A slow and steady SIP invest-ing would have limited the damage

Figures suggest that those who investedthrough SIPs during market peaks werebetter placed than those who investedlump sums

The first time the Sensex crossedthe 20,000 mark was in January 2008

Many people who invested lump sumsduring the period have still not recov-

Changing Fortunes

Sector funds are risky as no

SIP is the best

MOST CONSISTENT PERFORMERS

Birla Sun Life Frontline Equity Fund

61.12007

117.32007

202007

-14.32008

40.5

2009 322010

9.52011

46.62012

112013

-652008

104.32009

9.22010

-47.72011

34.72012

-5.62013

-52.22008

83.9200933.42010

-31.62011

56.72012

-9.42013

Figures show returns in %

ered from their losses despitethe fact that the Sensex is again

at an all-time high But SIPinvestors are sitting pretty Theyhave earned positive returnsfrom all except five funds thatwere available for investing on 8January 2008 In case of a lump-sum investment, 28% funds arestill in the negative territory Theworst performing, JM Basic, isstill 63% down from its 2008level Its SIP returns are close to2%

Going back further, had a son invested in the Sensex duringthe peak (11 Feb 2000) of the techboom, he would have earned28.29% and 19.60% through SIPs

per-in the next five and ten years,respectively, and just 11.25% and10.53%, respectively, if he hadinvested lump sums

SIP is also about convenience

“Its key benefit is that it removesemotional biases from investmentdecisions through discipline andconvenience,” says Manoj Nagpal,CEO, Outlook Asia Capital

So, is SIP a sure-shot way ofachieving good returns? No, it haslimitations as well It is based onthe principle of rupee cost averag-ing It is a simple mathematicalexercise in which the cost of buy-ing an asset is averaged out Asmarkets fall, the same amountfetches you more units So, overthe long term, an SIP investor hasmore units in his portfolio com-pared to a lump-sum investor butprovided the market has beenvolatile in between

In case markets keep risingfor a long period, the SIP may notgive higher returns “In a continu-ously rising market, a lump-suminvestment will fare better This isbecause every new SIP purchasewill be at a higher NAV,” says AnilRego, CEO & founder, RightHorizons

“Market levels should not ter, especially in case of equities,

mat-which are supposed to be longterm investments,” says JimmyPatel, CEO, Quantum AMC

Track record

As stock markets rise, fund

hous-es try to cash in on the upbeatsentiment by launching newfunds This year, as markets rose,around 30 equity new fund offers,

or NFOs, hit the market till thefirst week of May In the 2006-08bull market, around 127 equityNFOs (excluding various options)had hit the market

Experts say that it’s best tostay away from NFOs This is true

of all funds, even if they have a bigcorpus Take Reliance NaturalResource fund, which was mergedwith Reliance Vision fund lastyear Reliance Natural Resourceraised Rs 5,660 crore at launch,just before stock markets col-lapsed in January 2008 At thetime of the merger, its NAV was Rs7.53, 27% down from the launchNAV

The Rs 10 trap

Many investors think or are made

to think that the NFO price of Rs

10 per unit is low and so theyshould prefer NFOs to establishedfunds whose NAVs are usuallyhigher But mutual funds are dif-ferent from stocks The price of astock is determined by demandand supply while that of a mutualfund unit depends upon the value

of the underlying assets

Investors should understandthat what matters is how muchreturn the fund is giving, whetherthe unit price is Rs 10, Rs 100 or

Rs 1,000 doesn’t matter Forexample, assume that a personinvests Rs 5,000 in an NFO (hegets 500 units at Rs 10/unit) and

Rs 5,000 in an existing fund with

an NAV of Rs 20 (he gets 250units) Now, if the portfolio of boththe funds rises by the same level,for instance 10%, the money will

sector does well for long

S&P BSE Healthcare

19.31 18.46 17.37 20.45 20.24 - - - - -

132.82009

31.62010

-15.72011

-1.22012

59.82013

-32.92008

69.2200934.22010

-12.82011

38.5

2012 22.62013

122.1

2007

-59.82008

74.32009

-6.3

2010 -402011

10.92012

-14.62013

Returns as on March 2014

23

M ONEY T ODAY

June 2014

Gupta

WHICH WERE THE FUNDS IN WHICH YOU INVESTED IN2008?

HOW MANY OF THEM WERENFOS?

I did not invest in an NFO in 2008.

WAS IT A LUMP-SUM INVESTMENT OR ANSIP INVESTMENT?

I invested through SIP in most of the funds.

HOW MUCH DID YOU LOSE IN2008?

I did not lose in 2008, but yes I lost money in infrastructure funds and in direct equity trading.

HAVE YOU BEEN ABLE TO RECOVER YOUR MONEY?

Yes, SIPs have given me really good returns I kept on redeeming the SIP units to book profits.

IS THERE ANY FUND WHICH IS STILL IN NEGATIVE TERRITORY?

I have already redeemed all units of Tata Equity P/E fund and Tata Infrastructure fund Both these funds have not delivered good returns

HAVE YOU CHANGED YOUR STYLE OF INVESTMENT FROM LUMP SUM TOSIP?

Yes, now I invest lump sums in only treasury or ultra short-term funds or short-term duration funds I do only SIPs in equity funds

\

grow to Rs 5,500 in both cases But

NFOs are not a complete no-no An

investor can opt for one if the fund has

something unique to offer which appeals

to him Before investing, he must

under-stand the objective and strategy of the

fund and see how it will add value to his

portfolio

“One must also check the

invest-ment process and philosophy of the fund

house as these don’t change with

funds,” says G Pradeep Kumar, CEO,

Union KBC Mutual Fund

Sector/thematic funds

One purpose of investing in mutual

funds is diversification So, among the

multitude of offerings is a category

called sector or thematic funds These

focus on one or selected sectors or

invest according to their chosen theme

However, these are risky compared to

diversified funds due to their limited

mandate

The returns from a sector fund

depends on the performance of one

small section of the market This may

differ in degree and direction from the

overall market Therefore, these funds

carry a high concentration risk

Sector funds have the capacity to

substantially outperform diversified

funds However, at the same time, they

may get hit harder in downturns In

2007, the metal sector was the best

per-former as the S&P BSE Metal index

delivered a return of 121% compared to

47% rise in the Sensex But when

mar-kets tanked the next year, the metal

index fell 74% while the Sensex

deliv-ered a negative return of 52% The

broader market was cushioned by the

presence of other sectors, for instance

defensive ones such as FMCG, which did

not do as badly as others

Investors should understand that

due to cyclical nature of businesses, a

few sectors will do better than others at

any given point in time The graphic,

Changing Fortunes, shows that no

sec-tor index has topped the charts for long

“I am not a big fan of thematic and

sector funds,” says Kumar of Union

KBC Mutual Fund

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DID YOU INVEST IN MUTUAL FUNDS AT THE2008 PEAK?

Yes, a majority of my investments were done in 2007-08

WHAT LED TO YOUR INVESTMENT DECISIONS AT THAT POINT

OF TIME?

I invested to save tax and to take advantage of the rising market

WHICH WERE THE FUNDS YOU INVESTED IN? HOW MANY OF THEM WERENFOS?

I did not lose in 2008, but yes I lost money in infrastructure funds Two

of them were NFOs—Tata Indo Global Infrastructure and HDFC Mid Cap Opportunity Fund

WAS IT A LUMP-SUM INVESTMENT OR ANSIP INVESTMENT?

All my investments were through lump sum.

HAVE YOU CHANGED YOUR STYLE OF INVESTMENT FROM LUMP SUM TOSIP?

Yes, after the market fell in 2008, I have been investing only though SIPs

Thematic funds, however, have a

broader investment universe compared

to sector funds But investors chase the

top performing theme and buy when it

has already had a good run For

instance, in 2005-07, many fund houses

came out with infrastructure funds

These were beaten badly in 2008 and

failed to make a comeback in the

subse-quent rally in 2009 In the past five

years, infrastructure has been the worst

performing category with an annualised

return of just 8%

“Sector funds can provide extra

returns to the portfolio if you can get

both the legs of the investment, the

upturn as well as the downturn, right,”

says Nagpal of Outlook Asia Capital

“It is advisable to invest in

diversi-fied mutual fund schemes which invest

in multiple sectors This mitigates risk

One can invest in a sector/thematic fund

strategically if one is expecting a rally

(in that part of the market),” says Anil

Rego of Right Horizons

Here’s a snapshot of how different

funds and fund categories have

per-formed over the last one year

Equity Funds

Equity mutual funds beat all other

assets in the year ended March 2014

The large-cap funds delivered an

aver-age return of 18%, the large- and

mid-cap ones 19% and multi-mid-cap funds 20%

The outperformer is the mid- and

small-cap category (27% returns), followed by

tax planning (22%)

Among sector funds,

pharmaceuti-cal posted 33% returns to top the charts

as health-care companies did well due

to high return ratios Technology funds

were close with 30% returns as rupee

fall helped IT companies Banking funds

returned a meagre 7% owing to the

pressure on public sector banks

Another category that has been out of

the limelight for some years,

infrastruc-ture funds, returned 14% compared to

negative 2% in the year ended March

2013

Banking has done better than many

others on the basis of five-year returns

(23% a year) But the last year’s

SCHEME NAMEQuantum Long Term Equity

returns are just 7%, the lowestamongst all equity fund categories

This can be attributed to the pressure

on banks due to volatility in interestrates and rising non-performingassets due to economic slowdown

But there are some banking fundsthat have done well ICICI PrudentialBanking and Financial Services Fund

- Regular Plan and R* SharesBanking ETF have returned 16% and14%, respectively The former is theonly fund with a 5-star rating in thecategory Funds focusing on PSUbanks, Goldman Sachs PSU BankBees and Kotak PSU Bank ETF, havereturned a negative 6%

The infrastructure categoryturned around and returned 15%

owing to expectations of huge ment spending after the new govern-ment takes charge However, the cate-gory has been among the worst per-forming on the basis of three- and five-year returns Franklin Build India isthe top fund in the category, just likethe previous year, with 25% returnsand the lowest risk grade

invest-Broadly, the returns given by cap equity funds have been in line withthe rise in the Sensex, with top per-forming funds delivering 20-25% Out

large-of 77 such schemes, two-thirds havemanaged to beat the Nifty ICICIPrudential Indo Asia Equity Fund hasthe highest score with a low riskgrade It returned 21%, followed byBNP Paribas Equity Fund and AxisEquity Fund, a new entrant in the top

10 list ICICI Prudential Top 100 Fundhas added a star and become 5-star; itreturned 25% The category has newentrants in the top 10 list such as AxisEquity Fund, UTI Equity Fund andTata Pure Equity The notable miss isFranklin India Bluechip Fund

Large- & mid-cap funds havereturned 19%, in line with large- andmulti-cap funds The top performingfund in the category, ICICI PrudentialDynamic fund, has delivered 30%,while the worst performer, SBI PSU,has returned 1.45%

Quantum Long Term Equity fund

SHARPERATIO

16.83 16.23 16.04 11.75 13.32 12.48 10.71 11.27 9.49

-18.17 19.83 23.71 19.28 20.44 16.37 24.14 15.40 22.61 22.96

5.24 -2.13 -1.81 -3.66 -3.55

- 4.91 -2.99

- 5.60

- 4.80

- 4.87

- - - -

-EXPENSE

SHARPERATIO

RETURNS (%)

1-year 3-year 5-year 10-year

28 %

funds available inJanuary 2008 arestill in the negativeterritory

Data as on 31 March 2014; expense ratio as on 30 September 2013; returns of over one year are annualised

26.42 27.59 21.39 23.69 23.07 20.74 20.11 22.91 21.44 -

16.09 16.12 17.11 16.17 14.09 15.69 15.08 16.83 15.14 15.59

0.25 0.25 0.24 0.23 0.26 0.24 0.24 0.19 0.19 0.18

0.88 0.90 0.96 0.85 0.76 0.83 0.83 0.95 0.83 0.86

4.55 4.50 4.54 4.19 4.09 4.13 4.02 3.78 3.36 3.32

- - 22.57 - 21.44 - 19.31 19.19 -

-29

M ONEY T ODAY

June 2014

has maintained the top slot with best

combined score (risk & return) of

9.17 It gave a return of 24% The

sec-ond biggest equity fund, HDFC Top

200, has moved to the large-cap

cate-gory along with UTI Equity FT India

Life Stage FOF 20s, which was in the

top 10 list last year and was rated

5-star, has fallen out from the top 10

list The biggest equity fund, HDFCEquity, has maintained its 3-star rat-ing Kotak Select Focus has made it tothe top 10

For those who had the riskappetite to invest in them, mid- andsmall-cap funds have done wonders

to portfolios The category has givenreturns of 27%, beating both mid- and

SCHEME NAMEICICI Prudential Indo Asia Equity

1 2 3 4 5 6 7 8 9 10

small-cap indices by a wide margin

The list has seen a churn with theentry of Mirae Asset EmergingBluechip, SBI Magnum Midcap,Franklin India Smaller CompaniesFund and Axis Midcap Fund SBI AMChas three funds among the top 10 inthis category SBI Magnum Midcap is

on top with 41.86% returns

Multi-cap funds invest without anysector or market-cap bias This givesthem a wide choice of stocks This isreflected in the category returns(19.05% in 2013-14) There has been amajor change in the list of top 10 funds

in the category from last year Onlyfour have managed to stay in the list

Tata Ethical Plan A has been

upgrad-ed to 5-star Its returns have been ond-best in the category (24.65%) Thebest fund is a new entrant, MiraeAsset India-China Consumption Fund,which has returned 24.73%

sec-Tax planning funds, better known

as equity-linked savings schemes, orELSS, delivered 22% on an average,comparable to other equity funds

Within this category, Axis Long TermEquity has maintained the top slotwith 5-star rating, the highest score of4.44 and a low risk grade Its one-yearreturns are 35.40% It is followed byReliance Tax Saver (33.50% returns)

Both Quantum Tax Saving Fund andFranklin India Tax Shield Fund havefallen from 5-star to 4-star Three addi-tions to the top 10 list are BNP ParibasTax Advantage Fund, Reliance TaxSaver Fund and ICICI Prudential TaxPlan

Hybrid equity-oriented fundsreturned 8% on an average Known asbalanced funds, they invest a majority

of assets (65%) in equities and the rest

in debt The top performer, JMBalanced, delivered a return of 27%

and moved up from 1-star to 3-star

The worst performing, fund, EdelweissAbsolute Return, returned 10% Thenew entrants are Reliance RegularSavings—Balanced and PrincipalBalanced

Hybrid debt-oriented conservative,better known as monthly income

One needs to see what the NFO is offering If it

is the same as a fund with an established record, it is advisable to choose the latter

SHARPERATIO

RETURNS (%)

1-year 3-year 5-year 10-year

Data as on 31 March 2014; expense ratio as on 30 September 2013; returns of over one year are annualised

21.97 18.07 - 20.12 22.09 23.58 19.96 - 21.35 18.53

13.42 13.44 15.45 17.35 15.33 15.54 13.36 14.18 15.90 16.16

0.23 0.24 0.24 0.22 0.20 0.18 0.14 0.14 0.09 0.09

0.71 0.73 0.86 0.95 0.85 0.87 0.75 0.78 0.89 0.90

3.46 3.56 4.15 4.27 3.54 3.18 2.23 2.42 1.83 1.86

- - 17.58 17.20 - 18.14 - 17.89 14.64

28.59 29.45 32.54 31.01 30.38 29.67 30.78 33.87 -

-16.86 18.07 16.40 18.08 14.92 18.27 16.08 17.23 16.58 18.35

0.62 0.59 0.58 0.54 0.57 0.50 0.52 0.47 0.50 0.45

0.83 0.83 0.80 0.87 0.66 0.90 0.77 0.84 0.70 0.88

10.88 11.06 10.00 10.26 8.88 9.61 8.80 8.59 8.62 8.80

- - - 24.47 - - - - -

-31

M ONEY T ODAY

June 2014

plans, or MIPs, invest up to 20-25%

assets in equities and the rest in debt

The category gave a return of 9.20%,

close to that returned by ultra

short-term and liquid funds The best

per-former over the past one year, ICICI

Prudential Child Care Plan - Study

Plan, delivered 17%

On top of the list on the basis of

risk-adjusted rating scores are twofunds from the HDFC stable, MultipleYield-Plan 2005 and Multiple Yield

The last year’s topper, Birla Sun LifeMIP Savings 5, has slipped to the fifthposition Reliance MIP is no longer apart of the top 10 BNP Paribas MIP, a2-star fund last year, has gained twomore stars Peerless Income Plus

SCHEME NAMEMirae Asset India-China Consumption

1 2 3 4 5 6 7 8 9 10

2013 to 9% in March 2014

When interest rates rise, bondyields rise and bond prices fall,impacting funds that are holding them

Reflecting this, income funds havereturned 5.3%, medium- and long-termgilt funds 2.78%, short-term debt funds7.93% and liquid funds 9.16%

To start with, liquid funds havedelivered 9.16% on an average com-pared to the 9.54% rise in the CRISILliquid fund index This is, in fact, thebest in the debt category consideringthat interest rates and bond yieldshave been on an upward trajectory,impacting returns from other longerduration assets Among the liquidfunds, Peerless Liquid has returned9.67%; it has the highest rating score

of 0.90

In the debt category, ultra shortterm funds have delivered the bestreturns after the liquid fund categoryowing to the short tenure of theirassets The 9.14% average returnsare comparable with bank fixeddeposit rates There is an interestingcandidate in this list, ReligareInvesco Credit Opportunities Fund, acredit opportunities fund whose port-folio is similar to that of ultra-shortterm funds Three of the top 10 funds

in the category are institutionalplans

Although short-term funds ered 8%, this is nowhere close to the10% figure for the year ended March

deliv-2013 The category returns are 7.49%,less than bank fixed deposit rates

Debt income funds have not had anexciting 2014 due to volatile interest

Broadly, the returns given by large-cap equity funds have been

in line with the rise in the Sensex, with top performers delivering 20-25%.

SHARPERATIO

RETURNS (%)

1-year 3-year 5-year 10-year

Data as on 31 March 2014; expense ratio as on 30 September 2013; returns of over one year are annualised

33 %

is the return given

by pharma funds in2013-14, the bestamong sector funds

25.07 18.41 25.20 21.98 20.61 24.20 - 20.63 22.27

-12.39 10.71 18.76 16.65 13.18 14.48 14.75 17.49 18.08 18.52

0.68 0.42 0.19 0.20 0.22 0.17 0.15 0.12 0.10 0.09

0.60 0.51 1.02 0.92 0.66 0.74 0.77 0.95 0.99 0.97

8.69 4.76 4.13 3.80 3.27 2.84 2.59 2.57 2.37 2.18

19.07 13.38 - - - 19.10 -

21.12 24.10 26.86 21.24 23.86 24.31 19.03 20.36 23.22

-15.33 13.74 21.94 17.42 17.52 15.55 15.94 18.55 17.18 14.41

0.59 0.41 0.26 0.24 0.24 0.26 0.24 0.22 0.21 0.22

0.82 0.74 1.08 0.92 0.94 0.83 0.87 1.00 0.93 0.79

9.46 6.00 6.34 4.75 4.70 4.41 4.35 4.59 4.13 3.65

- - 21.79 - - - 15.24 - 18.32

-33

M ONEY T ODAY

June 2014

rates The category has delivered

abysmal returns of 5.3% compared to

10% in the previous year However,

two funds, ICICI Prudential Long

Term Fund and Birla Sun Life

Medium Term Plan, have managed to

return 10% Conspicuous by their

absence are IDFC Dynamic Bond

Fund and Sahara Income Fund Both

were rated 5-star last year

Consistent performers

We know that investing in equitymutual funds entails risk It is imper-ative to know that any given fund maynot be in the top quartile all the time

Hence, for investors who are notchasing toppers and are willing to be

1 2 3 4 5 6 7 8 9 10

con-Anil of Right Horizons says thatduring a bull run most funds performwell “It is advisable to check a fund’sperformance during a bear phase also

If it is better than the benchmark, onecan consider it ideal for investment,”

he says

Keeping in mind the volatility in

performances, Money Today and

Value Research have identified 10funds that have delivered consistentreturns over the last five years

To qualify, the funds needed a ing history of over five years Then, wefiltered out funds which have neverfallen below 3-star rating on a month-on-month basis for five years The 10selected funds have achieved the max-imum number of stars during the lastfive years The Value Research’s rat-ing analysis is based on the fund’srisk-adjusted return score

rat-The oldest: Let us start with thelongest standing equity fund(launched in December 1993),Franklin India Bluechip Fund, whichhas delivered 21% a year return overthe last five years

“The fund’s single biggest focus is

to invest in best large-cap stocks andstick with them through ups anddowns, irrespective of the currentflavour or any political or rupeechanges,” says Anand Radhakrishnan,CIO, Franklin Equity, FranklinTempleton Investments

“The fund invests in companiesthat have transparent managementsand are careful about allocating capi-tal, are run in the best possible wayand, hence, are able to withstandadverse business cycles,” he says

The fund’s top 3 sector holdings arebanks and software and pharmaceuti-cal companies “Also, the fund refrainsfrom stocks with corporate governanceissues and companies with high gov-ernment intervention,” he says

Beating the benchmark: Birla SunLife Frontline Equity Fund manages

Funds focusing on PSU banks, Goldman Sachs PSU Bank Bees and Kotak PSU Bank ETF, have returned a negative 6%.

SHARPERATIO

RETURNS (%)

1-year 3-year 5-year 10-year

Data as on 31 March 2014; expense ratio as on 30 September 2013; returns of over one year are annualised

9.16 %

Is the return given

by liquid funds, thebest in the debtfund category

11.53 11.56 8.56 - 8.70 7.22 7.18 9.81 - 10.37

3.36 3.53 2.19 2.74 3.45 2.68 3.26 4.39 4.84 3.68

0.64 0.60 0.80 0.62 0.50 0.55 0.53 0.41 0.40 0.43

0.53 0.62 0.34 0.56 0.61 0.34 0.64 0.86 0.97 0.67

2.49 2.50 1.97 2.04 2.10 1.68 2.12 2.33 2.54 2.00

- - - 11.01

19.03 20.18 23.35 21.15 18.13 19.79 - 17.33 21.29 16.74

10.80 11.76 12.88 11.97 13.19 11.40 12.55 11.16 14.34 13.34

0.56 0.50 0.33 0.35 0.24 0.23 0.21 0.21 0.20 0.16

0.76 0.84 0.88 0.87 0.94 0.80 0.91 0.73 1.03 0.97

6.73 6.53 4.96 4.91 3.98 3.29 3.35 2.98 3.70 2.92

15.49 16.04 17.47 17.41 17.38 - 14.52 - 12.67

-35

M ONEY T ODAY

June 2014

Rs 3,900 crore It is a 4-star fund

with average risk grade The fund

has returned 23.4% a year since

launch Its five-year annualised

returns are 23%

“The fund may not be a top

per-former during all time frames, but it

is our aim to beat the benchmark by

300-400 bps every year,” says

Mahesh Patil, Co-CIO and fund ager of Birla Sun Life FrontlineEquity Fund

man-Adding value: We also have a few

value funds in this category One such

is ICICI Prudential Value DiscoveryFund “The fund invests in stocksthat offer differentiation and cheapvaluation The stocks may or may not

ICICI Prudential Long Term Fund - Regular Plan

1 2 3 4 5

SCHEME NAME

A total of 11 fund categories have been considered for this study These have been ranked on the basis of risk- adjusted returns score.

Risk: To calculate risk, monthly/weekly returns were compared with monthly risk- free returns for equity and hybrid funds;

for debt funds, weekly risk-free returns

were considered SBI’s 45 to 180 days term deposit rate was assumed as the risk-free return For months/weeks that the fund had underperformed the risk-free return, the magnitude of underperformance was added This was then divided by the cate- gory average to get a risk score, which was ranked with those of similar funds,

be a part of the index The returns could

be back-ended but substantial,” saysMrinal Singh, fund manager, ICICIPrudential AMC

The fund’s consistency can be uted to its decision to stick to valuestocks and not being swayed by greedand fear “We buy cheap, hold tight andlet the value realise,” says Singh

attrib-For instance, private sector banksare a big part of the portfolio, followed

by stocks from pharmaceutical and nology sectors, besides the agriculturaland shipping space The fund refrainsfrom investing in high leveraged busi-nesses such as real estate

of underperformance At this point intime, cyclical, mid-cap and high-betastocks did well, while the fund stuck toits strategy of investing in large-caps “Aslong as we know the reason for theunderperformance and are comfortablethat it is for a good reason we are fine

We try to navigate without changing tours too much,” says Radhakrishnan

con-Radhakrishnan says a run fund will not be in the top quartile allthe time; it will most likely be in the sec-ond quartile most of the time A veryhigh risk fund can keep you in the firstquartile for just one or two years MT

consistently-@vtanvi

@moneyrenu

SHARPERATIO

RETURNS (%)

3-month 6-month 1-year 3-year

and a relative risk score assigned.

Returns: The monthly/weekly returns of each fund

(adjusted for dividend, bonus/rights) were compared

with the monthly/weekly risk-free return to get the

fund’s total returns in excess of the risk-free return.

The monthly average risk- adjusted return was

then divided by the average category return to

arrive at the final score In case of a negative

cat-egory average, the risk-free return was used as the benchmark The returns were then ranked with other funds of the same type and a relative return score assigned All return estimates assumed reinvestment of dividend adjusted for bonus or rights Finally, a composite risk- return score was obtained by subtracting the risk score from the returns score

Data as on 31 March 2014; expense ratio as on 30 September 2013; returns of over one year are annualised; data source: Value Research

10.04 10.44 8.49 8.67 8.73

0.44 1.91 0.50 1.89 1.49

5.51 1.66 2.84 1.12 1.19

0.01 0.35 0.02 0.26 0.28

2.41 3.44 1.44 2.33 1.99

9.67 10.45 8.31 9.10 9.63

8.98 8.63 9.34 9.02 8.57

0.43 0.35 1.76 1.59 1.30

4.93 5.18 1.61 1.40 1.39

0.16 0.11 0.45 0.41 0.29

1.86 1.66 2.13 1.57 1.35

9.80 9.64 10.61 9.20 9.20

9.67 9.58 9.29 8.46 8.50

0.18 0.23 0.19 0.15 0.22

13.67 10.03 11.31 8.38 5.71

0.07 0.10 0.04 0.03 0.06

2.29 2.17 2.03 1.22 1.17

9.59 9.49 9.25 7.91 8.33

BALANCING ACT

Proper asset allocation is the only way to generate high returns from a mutual fund portfolio Here’s how you can get it right | By Shoaib Zaman

The key to building a good mutual fund

port-folio, one that can help you meet your goals,

is getting the asset allocation right “Asset

allocation is to investment what oxygen is to

human life,” says Rohit Shah, a

Sebi-regis-tered investment adviser

“It has been seen that 91% performance of the

port-folio is linked to asset allocation A person typically lives

for 40-50 years after he starts earning Over such a long

period, we believe that one’s ability to move in and out of

the right assets is a key determinant of the return on

investment,” according to a paper, ‘Determinants of

Portfolio Performance II: An Update’, written by Gary PBrinson, Brian D Singer and Gilbert L Beebower inFinancial Analysts Journal, May-June 1991

Ajit Menon, executive vice president, DSPBlackRock, agrees “Right asset allocation is the bestway to determine the right outcome Close to 93% out-come is determined by asset allocation and not by thestocks or products that you choose.”

Here’s a guide on how you can get it right

PART -1

Building a portfolio is an art as well as science It’s an

0.00 32,0000

JAN’04

Equity Multi-Cap

6,40,000 9,60,000 12,80,000 16,00,000 19,20,000 22,40,000 25,60,000 28,80,000

art as the first step, the most treacherous one, is

esti-mating the risk appetite

“The investor should link investments to goals and

map the schemes according to his risk profile,” says

Shah

The second part starts with a question—how to go

about building the portfolio? This, say experts, involves

careful planning

Menon of DSP BlackRock explains “The risk

pro-file has two parts - risk tolerance and risk capacity.”

The risk capacity, he says, may vary, as it is based on

circumstances, while risk tolerance is a natural bent

and doesn’t change dramatically over a period

For instance, he says, a person may love trekking

but refuse to go on a difficult trek when it’s raining

This doesn't mean he is not an adventurer Therefore,

risk tolerance is an inherent attitude towards risk

However, risk capacity is a different ball game For

instance, if you have small children, your risk-taking

capacity is usually low This is unlikely to change over a

short period

Typically, we all want best returns by taking the

lowest possible risk However, experts say that this is a

wrong approach The first step towards building a folio, they say, is being risk-aware instead of being risk-averse “If we are seeking good long-term returns, ourrisk appetite needs to be congruent with the desiredreturns,” says Puneet Chaddha, CEO, HSBC GlobalAsset Management

port-To ensure correct risk assessment, it’s advisable totake help from a financial advisor

After knowing the risk profile, write an investmentpolicy with goals and timelines This should be periodi-cally reviewed

“It is a good practice to have everything

document-ed as both the investor and the advisor must be clear onthe expectations and deliverables,” says Chaddha.Sanjay Chawla, chief investment officer, BarodaPioneer AMC, says, “Since risk profile and goals willchange over time, it is important that the policy isupdated at least once a year.”

PART – 2

The main purpose of asset allocation is optimal sification Different assets do well over different peri-ods This means the only way to ensure portfolio sta-

diver-How Asset Allocation Works

A balanced portfolio (with Rs 10,000 SIP) has grown at a much decent pace than most individual assets

bility is investing in different assets depending

upon your goals, time horizon and risk

appetite

Even within asset classes, different sub-sets

rise and fall differently Take 2013 Large-cap

funds returned 6% on an average whereas

mid-and small-cap funds returned 3% In the debt

category, income funds returned 5% and the

cat-egory liquid funds around 8.76% However,

tech-nology funds returned a whopping 52%

This is what active asset allocation seeks to

address by adjusting exposure to different

assets on the basis of their relative promise,

giv-ing the best possible outcome

HSBC’s Chaddha says asset allocation does

not ensure a profit or guarantee against a loss

The aim is to deliver better risk-adjusted

returns over time “Hence, active asset

alloca-tion adjusted for the risk profile could provide

good results,” he says

Asset allocation is also the key to wealth

protection This is supported by a study carried

out by Karan Datta, National Sales Head at Axis

Mutual Fund

“If we take the three base assets that are

available to investors easily by way of mutual

funds—equities, bonds and gold—then in any

single year two outperform and one

underper-forms Timing this is difficult Our study shows

that an equally weighted portfolio in the last 15

years would have given negative returns in just

one year and that year is not 2008 but

mid-1990s.”

PART – 3

Now comes the nitty-gritty of building a

portfo-lio There are various asset allocation models

you can consider once you have established

your basic policy Although the advisor will

cus-tomise the plan for you, there are three

com-monly used models – Strategic Asset Allocation,

Dynamic Asset Allocation and Risk & Time

Matrix Asset Allocation

Strategic allocation: In this, the composition of

the portfolio depends upon your time horizon

and risk appetite You must stick with the plan

till the goal is achieved The idea is to maintain

the balance The allocation that has been

decid-ed, for instance 60% equity and 40% debt,

should be rebalanced once a year This requires

less monitoring and management fee The risk,

too, is lower

AN MF PORTFOLIO

Understand your risk appetite Take professional help, if

required

Be clear on time horizon, liquidity needs and taxation

Have separate asset allocation for each goal

Assign a deviation range For instance, if the equity portion goes up from

the ideal due to rise in stock values, sell some shares and invest in debt to

maintain the desired asset allocation

Ideal monitoring interval is three-six months

Do not get smitten by market news and stay on track

Courtesy Biju Behanan, Investment Advisor

1 Investment in equity funds should be for at least five years; it’s best

to stagger the investments

2 A mutual fund portfolio should have just four-six schemes so that it

can be easily tracked and managed

3 The basis of product selection should be the pedigree of the fund house, its record of generating returns and the record of the fund manager However, don’t place too much emphasis on the fund

manager, as he can change jobs

The first step towards ing a portfolio, experts say, is being risk-aware instead of being risk-averse