Inside Our Portfolio – 1

This video talks about stocks that are at advantage in our portfolio from the current result season. Intellect Design Arena, L&T Technologies, Sterline Technologies stocks in big rally mode. Trading positions in Himadri Speciality Chemicals. Top technology growth stocks in our portfolio helps us outperform the SENSEX by more than 3% this week even with 50% exposure.

A Fund Manager’s View On Market Trends

Meeting with Mr. Jayesh Gandhi, Senior Fund Manager, ABSL.

Recently, I had the opportunity to meet Mr. Jayesh Gandhi and talk about our favourite topic, “THE MARKETS”. Mr. Gandhi manages the Mid & Small-Cap funds of Aditya Birla Sunlife Mutual Fund, schemes of which have been consistent performers in the recent past.

This meeting gave me an opportunity to understand the fund manager’s view of the markets when there is a divergence between mid-cap and large-cap stocks. He follows the growth stock investing approach using a template which finds stocks that are growing in both their sales and profits.

Straight out I asked him about the underperformance of the mid-cap stocks in the recent past against the broad markets. His reasoning was that growth stocks tend to underperform when value picks give larger moves. Growth investing creates higher alpha when the markets get into a broad-based up move. When there is a correction they tend to also correct as much as the indices. The advantage here is that when staying invested in such schemes, over a period, the growth tends to out beat the benchmarks to a larger extent.

Presently the SENSEX and NIFTY have been reaching new highs while the mid and small cap space has lost considerable value. Investors are questioning the underperformance in their portfolios since they see that the Sensex is climbing higher. This divergence is due to a few stocks in the large-cap space garnering higher demand during the recent scheme re-categorization. Fund managers were forced to liquidate quality mid-cap stocks and had to add large-cap stocks to reduce exposure and meet SEBI norms.

In the large-cap space, there are no high-quality stocks which are an equal match to the mid-caps that are fundamentally strong with higher sales and profit growth. Yet, fund managers were forced to add the large-caps, creating demand for a small group of good picks, pushing these stocks further up.  A few mutual fund schemes that already held these large-caps in their portfolio are now outperforming the universe that made big gains in the 2017 rally. But, this divergence is only to stay for a short period.

Mr. Jayesh’s view on profit growth is that in our country the mid and small cap space is likely to be rise by 20 to 30% in the next 3 years. The PE multiples, presently at 25-26 levels,  will reach 14 and below 10 for the small-cap companies, thereby giving very high wealth creation possibility in the coming 3 years.

We had a good rally in the 2014-17 period and are likely to have a similar one for the next 3 years. We are going into an election year. By December we will have more clarity on the outcome of the elections and if it is positive, we should see a 40% growth in 2019-20 alone. And to be a part of this massive wealth creation and reap the benefits in full a person has to be invested now. All portfolio realignment as per SEBI categories is now over, and it will follow now to the next phase of aligning stocks that are the new leaders.

Most of the mutual fund schemes are holding a good amount of cash in their portfolios and these funds will be deployed in the next 2 to 3 months, in preparation for the next rally post elections. Next, we pondered – what if election results are not favourable?

Mr. Gandhi’s thought was that going into the election itself markets will rally about 10-15%. So if there is a correction due to unfavourable results, those already invested will only come back to present levels and not lose much. those who are in now will not lose much if there is an unfavourable condition as the correction if there is one, All the corrections that mid-caps should see is almost over and now the whole market will get aligned. There will be volatility but due to the whole market facing the same condition. Bigger as well as smaller stocks will have the same levels of downside. Whereas on the upside, there is a high potential for the smaller stocks to give higher returns. One is because they are at lows now and the other reason is that they will see higher levels of profit growth.

Oil is expected to touch $85 and probably from there it will see a fall. Exports will increase and with  support from corporate earnings from FY19 everything looks favourable.

For the investors, it is going to be a few more months of ups and downs and then launching off to the next big growth phase. Even our portfolio is doing the same, we have been adding more new stocks, reducing cash exposure and will be ready for the next rally before elections.

Add Insurance To Your SIP For Double Benefit!

Insurance is a high priority investment option in the minds of the Indian investor for decades now. In reality, it is not to be considered as an investment product at all. This option was made to look appealing by insurance companies as they provided a guarantee in repaying the principal along with some appreciation and also an insurance cover. Hence, in the unforeseen eventuality that the insurer is not alive, his dependents get a significant sum of money.

Pitfalls of Insurance as an Investment

Investors failed to realise that in return for their long-term commitment to pay premiums, what they got back was a pittance. When taking out a policy they only see the high numbers quoted and it looks like a rich reward. At the time of maturity when they receive the maturity amount, only then do they realize that the amount is not a significant growth of their monies. For creating this corpus, they would have shelled out all their lifetime earnings by paying premiums.

The tax saving advantage of the premium paid made insurance look like a much better option compared to other investment avenues available. I even heard the mother of a 2-year-old child asking her husband to take insurance for her child to meet future educational needs. It is not her fault because that is how her parents have saved.

Many are so very sincere and committed to paying the hefty premiums without realizing that, all their commitment is doing is making the insurance company rich and not them.

Increasing Awareness and Options

Off late there is increased awareness about the poor returns that insurance gives. Even with the tax savings that the product delivers, it is not worth an investment and people have been moving to term policies.

People shied away from term policies because they will not get any amount in return if they are alive after the policy term ends. They felt bad that they the premium paid goes waste as most of them are pretty confident that they will live beyond the policy term. Little do they realize that, however healthy you are, there are still some chances that things can go wrong. Life is not fully in our control.

A New Entrant – SIP Insurance

Now, there is a new option available for those who thought that term policy premium payment is going waste. Mutual Funds have begun to give insurance cover for SIP’s. It is called SIP Insurance, where, while you are investing through your SIP’s in mutual funds, you get an insurance cover without any extra cost. Moreover, all the money you pay for the SIP earns the highest returns. Insurance comes free.

Reliance Mutual Fund gives the highest returns in this segment with 120 times the SIP amount as the insurance cover in the 3rd year of the SIP investment. Coverage begins from the second month of the SIP with 20 times the SIP amount for the first year, 50 times for the second year and 120 times for the 3rd year.

The only condition is that the SIP should not be disturbed or redeemed till the age of 55 for the investor. One can start a SIP of 10K, in the 3rd year get 12 lakh insurance cover and then stop the SIP in that scheme and take it in another scheme. At present each fund has a maximum limit of 50 lakhs, so if a person takes a SIP in 3 or more fund houses, over a period, they can have a Rs. 2 crore insurance cover.

Regular term policies have their own challenges as one’s age catches up. Many investors have been denied insurance coverage because they have some existing disease or the premium gets increased because of the pre-existing disease. In SIP Insurance, these conditions don’t exist. Any individual who is investing in a SIP and has opted for insurance gets covered, immaterial of his age or disease status.

A big sigh of relief to those who are in the above condition. This SIP Insure product option takes away the challenges of investing in insurance and getting lower returns. Get in touch to know more about this new avenue for your life savings.

Who Should start an SIP?

SIP’s need not be very big, it can be as low as 500 per month and has no upper limit. This small contribution helps you feel the pulse of how the investment is growing and then bring confidence to add more.

Also this small amount helps people to bring savings habits with children and the needy. Thereby helping them become independent.

Additional features available for a SIP investor

  • You can set up SIP for a specific goal, once the goal is reached, stop the SIP and fulfil the goal. 
  • You can have alerts set, so as to get a message when the value is down to add more funds into the investment when the market is down.

Step up SIP’s are available which has a present additions to be made to the SIP contribution after completion of a stipulated period. Like you start with a 5000 per month, after completion of 1 year add additional 500 and increase the contribution to 5500 with similar increments after every passing year.

SIP insure is a new concept which helps you have insurance cover as you save. Funds provide upto 100 times the SIP amount as insurance cover for the investor. If you are doing a Rs.5000 SIP for a 3 year period, you get Rs.6 lakhs insurance cover and it stays active till you are invested in the fund. So, no contribution to insurance and all your investment having the highest growth.

Why you should start an SIP?

The first reason is that it brings a discipline to save. And the second, the most important reason is that, it keeps you off mood swings. For example – If you decide to invest an amount every month taking time to check the market and then do it. Most of the time, you obviously get held up in some task and miss the investment. If you have the time, you would want to wait for a better price. Or think about your previous investment which is now in the negative and postpone the current one.

SIP removes all these worries about timing. It helps you have the investment happen automatic & accumulate wealth.

Axis mutual Fund has coined a tag line for SIP, Sleep In Peace. It is really so peaceful was of accumulating wealth.

Other benefits of an SIP

Apart from helping you average your investment cost which we had discussed there is one very big advantage in the SIP investment. It is the eighth wonder of the world, the magic of compounding. As the investment period is longer, the profit you earn in the first year earns similar profits in the second year and this multiplication goes on.

A ₹1000 SIP done for 10 years will have an average asset value of 2.75 lakhs at the end of 10 years. Where your contribution will be 1.20 lakhs over a period of 10 years & the profit generated will be 1.55 lakhs. Money has got multiplied 2.29 times.

Who should start an SIP?

There is no age limit or income limit to take advantage of this magic wealth creator. You can have a SIP for your just born child for his/her education or wedding expenses. You can start a SIP as soon as your first pay cheque comes to meet your goals like buying a car or a house.

You can start a SIP to accumulate a corpus for your retirement. A SIP even for a vacation, which many investors are now doing.

In Switzerland there are restaurants serving exclusive Indian cuisine because there are so many Indians visiting them. They have seen 60% increase in Indian tourists to their country. India is becoming wealthy and they are enjoying life.

Other benefits of an SIP

Apart from helping you average your investment cost which we had discussed there is one very big advantage in the SIP investment. It is the eighth wonder of the world, the magic of compounding. As the investment period is longer, the profit you earn in the first year earns similar profits in the second year and this multiplication goes on.

A ₹1000 SIP done for 10 years will have an average asset value of 2.75 lakhs at the end of 10 years. Where your contribution will be 1.20 lakhs over a period of 10 years & the profit generated will be 1.55 lakhs. Money has got multiplied 2.29 times.

Why Mutual Funds May Trump Real Estate as An Investment Option?

We Indians are believers in creating assets and leaving it behind for the next generations. Saving up and funding assets is a must, for most Indian families. So, what kind of assets do we look at investing in? In a typical Indian family, it will mostly be gold, real estate (either a plot or a house), and in a rapidly growing crop of people, mutual funds and SIPs as well. So, what prompts our choices and how do we make our asset allocation decisions?

We recently shared our views on the pros and cons of gold as an investment option. So, left with the possibilities of real estate and mutual funds, let’s look at which one to choose and what are the pros and cons.

Initial investment

Many people usually save up for years to purchase a real estate asset as it is never cheap. The initial investment in real estate is always high, and at most times, apart from their entire savings, most buyers also end up taking huge loans. These loans can become a liability in the long run, if not planned for properly. Also, life is full of uncertainties – ill health, loss of job for an earning member, new family commitments, etc. can change the equation overnight.

In contrast, investment in mutual funds can start with as little as even INR 500 or 1000. You could choose to begin a Systematic Investment Plan(SIP) with a small amount per month and slowly build it up into a growing investment. In fact, many people have invested in mutual funds quite early on, from the time they have started earning and made enough profits, to invest in real estate. So, while you may not be able to purchase real estate unless you have lots of money to spare, mutual fund investments can start at an early age, and you need not wait to accumulate your savings.

The Process

Investing in real estate is not an easy process; one has to find the right property, at the right price, at the right time, at the right place. At times, you may have to involve brokers or other such third parties and pay out commissions as well. The property papers must be legally verified, and the due process of registration needs to be completed, which is again a bit cumbersome. In short, it is tedious, fraught with painful procedures.

For investing in mutual funds, however, there are no such hassles. Once you decide the amount you wish to invest, you can quickly start an investment account with your bank and transact online. Your relationship manager at the bank or a trusted financial advisor will help you maximise your returns by growing your money while reducing the risks as much as possible.

The Liquidity Factor

Any investment is made with the intention of growing one’s money and also providing a safety net in tough times. Real estate prices do rise slowly and even accounting for market slumps typically your property value would have gone up. The pain point is liquidity.  If you need money immediately to fund an emergency or new goal, selling your property for the right price promptly is difficult. Here again, the process is long- you need to find genuine buyers, and it takes time for the money to come in hand. In contrast, selling mutual funds is more comfortable, and at most times, the money is back in your account within three working days’ time.

While we all seek the safety and security of owning the roof over our head, do consider first building a growing mutual fund portfolio and then using the earnings to build a dream home.

How investing in SIPs can make you a crorepati

Everybody wants a reward while nobody would like the risk on working towards it. This is also the main reason for the popularity of systematic investment plans, or SIPs, which give investors the option of gaining from market while reducing the risk of volatility that is inherent in all financial markets.

Why to start an SIP?
Equities are growth assets and have the potential of delivering far superior returns than any other asset class if one remains invested for long-term. Sensex has delivered an annualised return of 16 per cent over the period of 39 years. Compared to it, gold has delivered an annualised return of just 6 per cent. While a bank fixed deposit is currently giving around 6-7 per cent for a 5 year fixed deposit.

Apart from this the biggest advantage with equity is taxation. Gains upto 2 year are taxed at 15% & after 1 year is taxed at 10%, the lowest among any other asset class. While in case of debt investments like fixed deposits, the interest is added to the income of the investor and taxed as per the slab. So, a person falling in highest tax bracket (30%) will effectively get less than 5% in a FD.

In case of gold, gains before 3 years are added to the income of the individual just like FDs while gains after 3 years are taxed at the rate of 20% post indexation (helps to reduce the tax burden by adjusting the gains against price rise).

How to become a crorepati?
The key to reaching this goal is to start early provided equities deliver the expected rate of return. So, start your SIP today. The early you start the more you benefit.

If you are 20 years old and you want to accumulate Rs 1 crore by the time you become 60, you just have to invest Rs.322 per month to accumulate this amount. We have assumed a rate of return of 15% per annum.

Yes, the number may look surprising but this is the power of compounding where if you stay invested you earn returns over your gains which help you accumulate faster.

If you can increase the amount to Rs 5,000, you can become a crorepati by the time you reach 42 years of age, given 15% rate of interest. If you continue investing Rs 5,000 per month till you retire, you will be able to accumulate Rs 15.50 crore when you reach 60 years of age. Therefore, your accumulation will also depend on the time you stay invested.

However, if you have lesser time in your hand, you will have to contribute more towards the goal. If you start at the age of 30, you will have to increase your investments to Rs 1444 per month to accumulate Rs 1 crore by the time you retire, given all other conditions remain same.

If you start investing at 40 years of age, you will only have 20 years in your hand, therefore you will have to invest 6679 per month to accumulate Rs 1 crore.

So start today and continue investing in a disciplined manner.

Fund houses offer a wide variety of mutual funds, take the help of your advisor to help you choose the right fund that matches your risk and return profile.