In this video, we talk about Bullish September & the actual market. Using SWP to have regular income from Mutual Funds
When a person invests his earnings be it in any asset class, either Real Estate, Fixed Deposits, Gold, Mutual Funds or Stocks, the one single minded approach here would be to beat the benchmark or how is my investment doing against its peers?
Whatever be the condition, all of us want to be the best, the same holds good with investments too. We should be making the best returns when compared to others. If we find that our investments are giving double the returns against other assets, there is full of joy. If we find that we are marginally above the benchmark, say the SENSEX is 10% and we are 11%, still we are happy, because we are outperforming.
Suppose we find that we are negative to the benchmark, say the SENSEX is 10% and we are 9%. There is worry and it is good too, because, this is the condition where thinking process comes to play. Should I hold on or shift my investments? In most of the situations where there is below average growth in investments, people have missed to observe and take action of this condition, where, the investment is under-performing and they have not taken action.
To help our clients know how their investments are performing against the SENSEX or NIFTY, we have begun an initiative to report the performance of our portfolio against that of NIFTY every fortnight, with details about what is right and wrong. It will be of help to our investors to know if the money is safe and give confidence about the future.
From the time that we have been tracking the performance of our portfolio since December 2012, our portfolio has managed to have 61% profits against the NIFTY returns of 33%. We had an advantage as our portfolio consisted of strong growth stocks. As we come to the shorter periods, in the last 1 year, our portfolio was positive with a near 1% profit where the SENSEX had lost 5.63%.
Whereas on the last 6 months and 3 months period, we are trailing the benchmark, the reason behind the underperformance is that, most of the stocks in our portfolio were exited following the market weakness in December and January 2016. After the sell out that our markets had, which was overdone following the Global slowdown, our exposure in the markets were down to less than 15%. Cash was moved to debt funds to protect the account from any further weakness.
On a normal process, stocks move in and out based on their fundamental strength, now that our portfolio has exited almost all its holdings, it will take a couple of quarters to load stocks to it, from the sectors that show renewed strength.
Till the September results are out, markets are likely to be range bound while adding a couple of stronger stocks, that show strength on their earnings.
Following the good run up our stock markets had in 2014-15, the confidence among retail investors have increased considerably. On a normal course when the markets correct, even though it is a regular process and will get back and move up soon, people used to get weary of losses. They used to stop SIP’s and pull out their investments.
And most of the times the timing would be against them, when the decision is made to get in, that would be the time when the markets were exhausted and begin to move down, and when they decide that, enough of the pain from losses and get out, that will be the time the markets will begin to move up into a new bull market.
No one can time the markets perfectly, so, one of the methods to ensure that we are there for the bigger haul is to stay invested, and for that SIP is a best way to go. It helps us have the cost averaging, and help us achieve a better return than the benchmark, say the SENSEX.
For the first time in the history of the Indian markets, retail investors have maturity; they have decided to stay invested using the SIP route. There is a 26% increase in SIP’s registered this year and the average live SIP has moved up from ₹3368.40 to ₹3449.80.
The increase in investments to Equities is not only because people have become smart, it also because of the fact that other investment avenues like banks and real estate are having lack lustre performance and is forcing them to move into equities. Unlike the earlier years, if the retail investors stay invested for a longer period, they will taste the richness of equities and will continue to have it as one of their preferred investment asset.
What about the risk?
As we have the advantage of cost averaging which will get us more units when the markets are down and lesser units when the markets are up, so that we are at the receiving end always. Does that mean the investment is zero risk?
No, risk still remains the same, there was a research made on SIP’s with the SENSEX for a 10 year period, the returns were not phenomenal, it was the same as the index. Then, fund managers complained, “Don’t check the returns with the SENSEX, instead use the NAV of any Mutual Fund”. So it went on and got tracked using the oldest NAV based Mutual Fund scheme in India – UTI Mastershare. The chart above shows that, it is mimicking the SENSEX, the returns were from a low of -6% to a high of 28%, proving that Long term SIP’s are not risk free.
How we can make it at our advantage?
Select the top performing schemes for investment and let the SIP done only for 12 months. After 12 months, check whether the same schemes continue to lead, if not, move to the next best scheme. The existing investment shall continue to be invested until the last SIP clears the exit load factor, then move the funds to the prevailing top performing funds. Rarely do Mutual Fund schemes continue to be top performers for more than 12-15 months, leaderships change as the markets move.
This activity will force a person to review his investments at least once a year and also ensure that the growth is healthy. If there is a prolonged downtrend in the markets, one can even move from Equity to debt and return back to Equity when the bullish sentiments comes back, which will require a little extra knowledge to do, which your fund manager can help you with.
So, any investment, if left for a longer period assuming that it will grow on its own, will only give average returns, which will mostly match the prevailing bank rates and would always be below the inflation rate.
The second quarter results are likely to be subdued and will impact the markets in the coming weeks as results get announced. The list published in ET on 9th October 2015 shows some companies that have the potential to outperform the current quarter on the growth front. Among the 11 companies that are listed above, our portfolio have 6 of them.
As we can see in the list of expected top performers, the highest concentration is from the Pharma sector followed by the NBFC sector. In our portfolio too, we have increased exposure towards Pharma and NBFC segments a couple of months back & this happened as a dynamic process.
In 2014 our portfolio had more exposure into Auto Ancillary companies, as months passed the stock price movement of these stocks began to slow down, showing signs of tiredness. About 2 weeks before the Volkswagen issue came to light, almost all of our Auto segment exposure began to take exit. When Volkswagen issue got reported and the market collapsed, where most of the ancillary companies having presence in Germany took a big hit, out portfolio sustained lower damage. Just about that time the₹15000 Crores, Amtek Auto default got reported, which shook the debt Mutual Fund market where JP Morgan fund had big exposure and they had to split the fund and bring controls on redemption. There are many PSU Banks which are likely to take a hit from this default.
Following our exits, the overall exposure in stocks got reduced to 75% of the capital, thus protecting the portfolio from the negative bias the markets had prior to RBI policy announcement reducing interest rates.
RBI decision came as a surprise, which Raguram Rajan has made us accustomed to since September 2013. Markets began to rally; mostly short covering, took the market to higher ups, while the strength seems to be waning now as the expectations from result season is tepid. Following results announcement, if there is going to be any weakness; our portfolio has got fairly protected due to our lower exposure and having investments into companies that are likely to give out good results. While the market began to gain strength, a couple of new stocks like BEML, Deep Industries, India Bulls housing have got added to our portfolio.
As the result season unfolds, there would be more clarity about which companies have greater strength in performance and those companies will automatically get added to our portfolio, from where, we will be prepared for our next big journey in the market rally. Being invested into the best businesses gives great confidence about the performance. In the last 3 years since we have been tracking the portfolio performance, we have achieved 68.50% gains, whereas in the same period the SENSEX has grown 38%. We have managed to achieve twice the return provided by the benchmark.
One good question on Quora that interested me and for which I wrote a lengthy answer, it can be helpful to many small investors who think Mutual funds are not good investment assets.
Hi Deiva Ramesh, Today you answer my question 25 years IT employee from middle class family investment. One of my friend suggest me this, Kotak Mahindra Bank (3 in one) Savings Account cum Trading Account. It has a good research team. Every month save some amount from your salary and deposit in Kotak Mahindra Bank. Slowly buy 4 SBI shares every month. Later if you get a promotion you can start investing in Mindtree and ITC. L&T is also a good stock. Do not invest in Mutual Funds.
At first, thank you very much for your compliments.
Why do we invest, any investment for that matter?
To grow our money right?
We go to stocks assuming that we will be able to grow it much faster and know that there is a little higher risk involved to attain this goal.
Now comes the quantification of the risk. How much risk you are willing to take?
At the most about 10% of your capital or a little stretched up to 15%. Assume that you have invested 25k on a slow process and you find your investment value is 20k, will you still have the same enthusiasm to put the next month’s investment into the same stocks?
Mind will naturally check to see other alternatives, probably another stock or maybe even other asset class. Once a person reaches this stage, his tracking of the previous investments will fade and over a period, it will be junk investments.
And in case of employed people, no one can guarantee that they can give the same attention to the events in their life as they give at any particular period.
Again even this is pretty much natural for any human being.
After a certain period, you will lose interest and the investment will be losing more due to loss of time value.
One can just not park money into something without knowing how it will be 6 months down the line, a year from now etc., if there is no clarity, he will end up losing the investment.
I have a client of mine; he is emotionally connected to investing in L&T and SBI. For the past 8 months, he has been buying both these stocks; L&T from it was 1850, now it is 1450. SBI from 280 and now it is 240.
Of all the stocks why these two?
On the back of the mind, there is a thought, these are pretty good companies, even if India has to collapse, these companies won/t collapse.
He used to regularly put 10K each month, now he has slowed down.
Having investment in few companies is more higher risk, and in today’s context there are retail investors coming to the markets to buy large cap stocks, just because they feel that the valuation is pretty low than what they had seen just a few months ago.
For some companies that have good fundamental strength it is true, they are available cheap now. While it is not the same for many front line companies.
Our research has proved that being invested the top mutual fund always, churning the portfolio by taking out under performing ones and replacing it with a top fund gives us an edge to have return on invest higher than the senses,
This strategy works at all periods, but needs discipline to monitor the position on a regular basis. We at Bravisa Temple Tree strive to give our customers an experience that gives them so much comfort, they only have to track the performance and be happy about the growth.
Can there be another investment class which has such low entry levels and the option to accumulate your savings through smaller monthly investments. The advantages of SIP is that if the investment is not overburdened as we payout, over a period you will realise the magic of having a good corpus.
Following is the performance report of our advisory based investment in the top funds in comparison to the Nifty performance. At all levels, our funds have fared better –
As the broad markets get into correction mood, the top Mutual Funds still stayed positive. The current ranking table shows clear strength in the Technology space, followed by the service sector funds. Many investors shy away from sector funds because of the losses that the sector as a whole would face in the eventuality of something getting wrong in the sector and they will be caught on the wrong foot.
But, with active involvement in the investments, we can easily take the decision to exit when there is something brewing up. On a regular basis I have tracked these sector funds which eventually outperform the broad markets. So, being active pays well.
In the last 6 months even SIP’s in these top fund have given 80% more profits than the SENSEX, would anyone want to miss such a great opportunity?
The fund line up this month
ICICI Prudential Technology
SBI IT Fund
ICICI Export and Service
ICICI US Bluechip
Birla SL India Opportunities.