What is the Impact of MFs Benchmarking Equity Funds against TRI

Mutual fund houses in India with equity funds have started benchmarking their funds with the Total Returns Index (TRI).

Mutual fund houses in India with equity funds have started benchmarking their funds with the Total Returns Index (TRI). Such benchmarking against the TRI provides a correct picture of the total returns generated by the particular mutual fund scheme as compared to the total returns generated by the benchmark index.

So what is TRI all about? TRI is an index that captures the movement in stock prices of companies as also the dividend paid by the companies to their investors. Since the index captures both the price stock movement and dividend distributed, it provides a true picture of the returns generated by the stock for the investors over a given period of time.

In contrast to the TRI, the normal practice of comparing the performance of the mutual fund scheme with the performance of the benchmark index captured only the movement of stock prices over a period of time. This comparison was based on the Price Return Index (PRI), which does not take dividend paid by the company into account. Since the PRI excludes earnings by way of dividend, it does not present a true picture of the total returns generated by the stocks over a period of time, hence PRI benchmarking can be said to be inadequate for comparison of returns. In other words, TRI benchmarking is the way to go for mutual funds in India.

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Top 10 Tax Saver Mutual Funds for 2018

Best 10 ELSS Mutual Funds to Invest in India for 2018

1. DSP BlackRock Tax Saver Fund

2. Tata India Tax Savings Fund

3. Birla Sun Life Tax Relief 96

4. Sundaram Diversified Equity Fund

5. ICICI Prudential Long Term Equity Fund

6. Invesco India Tax Plan

7. Franklin India TaxShield

8. Reliance Tax Saver (ELSS) Fund

9. BNP Paribas Long Term Equity Fund

10. Axis Tax Saver Fund

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Tata India Tax Savings

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HOW HAS Tata India Tax Savings FUND PERFORMED?
With a 10-year return of 11.9%, the fund has outperformed both the category average (10.4%) and the benchmark index (7.3%).

Tata India Tax Savings fund has outperformed the category average over the past decade.

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As on 30 Jan 2018

Annualised Performance (%)
The fund has outperformed across time periods.
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As on 30 Jan 2018

Yearly Performance (%)
The fund has not been consistent in recent years.
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BASIC FACTS
DATE OF LAUNCH: 31 MAR 1996
CATEGORY : EQUITY
TYPE : TAX SAVING
AVERAGE AUM : Rs 1,091.89 CR
BENCHMARK : S&P BSE SENSEX INDEX

WHAT IT COSTS

NAVs*
GROWTH OPTION : Rs 18
EXIT LOAD : NONE
DIVIDEND OPTION : Rs 81
MINIMUM INVESTMENT : Rs 500
MINIMUM SIP AMOUNT : Rs 500
EXPENSE RATIO (%) : 2.4

As on 30 Jan 2018

FUND MANAGER : RUPESH PATEL
TENURE: 2 YEARS AND 8 MONTHS
EDUCATION: B.E AND MBA

WHERE DOES THE FUND INVEST?
The fund’s portfolio is heavily diversified with modest exposure to top bets.
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How Risky Is It?
The fund’s risk-return profile is superior to many of its peers.
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Wherever not specified, data as on 31 dec 2017. Source: Value Research

Should You Buy Tata India Tax Savings
This tax-saving fund has no market-cap bias. However, it retains a slant towards mid-sized firms compared to peers, evident in its lower portfolio market-cap. The fund manager prefers growth businesses with scalability and capital efficiency. He adopts a basket approach to portfolio construction, with multiple picks across market-caps within each sectoral bet. Over the past one year, the portfolio size has grown resulting in a heavily diversified approach with modest exposure in the fund’s top picks. While the fund has not been consistent in recent years, it has outperformed its category across time periods. With a much superior risk-return profile compared to most peers, it can be a worthy pick, if it displays greater consistency in outperformance.

SIPs are Best Investments when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

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SIP Misconceptions

As the mutual fund industry celebrates record assets under management in June 2017, there’s a new phenomenon that has contributed to this feat – the runaway popularity of systematic investment plans (SIPs). But as with all good investment ideas, SIPs have also fallen victim to hype and misconception. Here, we bust three common myths about this investment tool.

SIPs protect you from losing money
SIPs are not a separate asset class like bank deposits, equity funds or debt funds. They are only a method or tool to invest in the asset class of your choice. SIPs reduce the risk of capital losses in equity funds but don’t eliminate it.

If you start an SIP at a market high and the market falls sharply after you began investing, you will lose capital even on an SIP investment. We conducted a comprehensive study on the performance of SIPs across all diversified equity funds for the last 20 years recently. The study showed that it is only on SIPs that run on for four years or more that capital losses were a rare possibility. This again is a function of how equity markets in India have behaved. Because bear markets in the last two decades have never lasted for more than four years, SIPs too never made losses if continued for over four years.

Therefore, while investing in SIPs be aware that you still take on the risks of the asset class you are choosing. If you are doing SIPs in large-cap equity funds, there’s some risk of a capital loss. If the SIP is in mid- or small-cap funds, the risk of that loss is higher. If you are running an SIP directly in stocks, there’s an even higher probability of losses.

Start SIPs in beaten-down sector funds
Quite a few seasoned investors are enamoured of using the SIP route to invest in sector or thematic funds. But SIPs are, in reality, a very sub-optimal way to invest in sector funds. This is because sector funds, by their very nature, are designed to deliver returns for investors over short market phases of three-five years.

Stocks in a specific sector typically outperform the market when the sector is enjoying exceptional profit growth due to an upturn in the business cycle. The market then uses this opportunity to re-rate the valuation multiples of such stocks. However, after a three- or four-year spell of good returns, sector fads in the market usually fizzle out. A big meltdown then follows, wiping out all the previous gains.

Investors in sector funds, therefore, need to get their timing exactly right to capture this outperformance. They need to invest when the sector is beaten down and exit when the fad is at its peak.

Using the SIP route, however, works against this process. Just assume you think IT stocks are beaten down today and start an SIP in technology funds. The sector may be cheap when you kick off your SIP, but what’s the guarantee that stock valuations won’t run up even as your SIP is continuing?

The other problem with SIPs is that by putting your decisions on autopilot, they take away your incentive to track the markets closely. This can deplete your returns in sector funds. Before you know it, the sector may have peaked out and head downhill. So if you think IT or pharma stocks offer great value today, scrounge up the lump-sum money you can and invest it in these sector funds.

But if you lack the conviction to make this big bet, it is best to avoid IT or pharma funds altogether and stick to diversified-equity funds. No point in opting for a high-risk investment and then trying to hedge your bets!

Stock SIPs are better than fund SIPs
If SIPs work so well in mutual funds, won’t they work even better with direct equity? After all, stocks can earn multi-bagger returns which few equity funds can deliver. That’s an oft-heard argument in a bull market. In fact, many brokerages now offer daily or monthly SIPs on your favourite stocks.

Yes, stock SIPs can help average your buy price. But while signing up for them, you need to keep three checks in mind.

One, when you accumulate a stock via SIP, you can end up owning too much of it in your portfolio if you don’t keep a careful watch on the individual stock or sector weights.

When you invest in a stock, the exposure you take to it usually depends on how bullish you are about its prospects and how it compares to the other holdings in your portfolio. However, it is harder to keep track of relative portfolio weights when you invest through SIPs as compared to lump-sum purchases.

Two, multi-bagger returns in the market come from identifying stocks that are undiscovered, entering them at low prices and then tracking the business closely to ensure that it is meeting expectations. SIPs, by nature, are designed to put your investment on auto pilot. This may work reasonably well in a fund, where the fund manager takes care of your portfolio. But when you do a stock SIP, close monitoring of returns on your part is essential to avoid bets that backfire.

Three, if you’re a seasoned investor, you would know that no stock is a perpetual ‘buy’ at any price. Often, stocks or sectors that appear to be great buys at one point in time turn out to be avoidable just a few months later. When you sign up for SIP in a mutual fund, you are buying into a professionally managed portfolio, where the identity of individual stocks can keep changing. The fund manager actively reshuffles his bets at different market levels based on the options available. But with a stock SIP, it would be up to you to ensure that the stocks that you’re regularly buying are good acquisitions over time. You will have to keep a close watch on both the company’s performance and the sector’s to ensure that accumulating it remains a good idea.

To sum up, SIPs are great investment tools when you use them wisely, stay the course and are fully aware of the risks of equity investing. But they aren’t a magic pill that will deliver great returns, irrespective of the asset class or investment situation.

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Top 10 Tax Saver Mutual Funds for 2018

Best 10 ELSS Mutual Funds to Invest in India for 2018

1. DSP BlackRock Tax Saver Fund

2. Tata India Tax Savings Fund

3. Birla Sun Life Tax Relief 96

4. Sundaram Diversified Equity Fund

5. ICICI Prudential Long Term Equity Fund

6. Invesco India Tax Plan

7. Franklin India TaxShield

8. Reliance Tax Saver (ELSS) Fund

9. BNP Paribas Long Term Equity Fund

10. Axis Tax Saver Fund

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SBI Magnum Multicap Fund

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SBI Magnum Multicap Fund scheme would invest in equities and equity related instruments of companies spanning the entire market capitalization spectrum. The fund will invest 50-90 per cent in large-cap stocks, 10-40 per cent in mid-cap stocks and upto 10 per cent in small-cap stocks.

This was among the less-known SBI schemes a few years ago. But a steady improvement in performance has now made this fund a hard-to-ignore option in the multi-cap category.

SBI Magnum Multicap Fund has managed a strong climb up the ratings ladder from just one star in 2012 to five stars now, without any hiccups in performance in recent years.

In terms of market-cap tilt, the fund is more mid-cap tilted than its peers. In the last year or so, the large-cap allocation has been at 45-55 per cent at most times, with mid-cap weights at 25-35 per cent and small cap exposure of about 15-20 per cent. The fund is 10-11 percentage points lower than category on its large-cap exposure. This fund manages the relative weights between large, mid and small caps quite actively.

Like other SBI funds, this fund too filters stocks based on compounding ability, capital efficiency, quality of management and potential for growth.

SBI Magnum Multicap Fund has managed particularly large outperformance of the category as well as the benchmark both in 2015 and 2016, which were good years for mid-cap stocks but challenging years for large-cap stocks. Though the performance has been more muted in 2016, this show has led to its three-year and five-year returns beating its category by 4 to 5 percentage points and benchmark by a comfortable 7-10 percentage points.

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How to Invest in Mutual Funds

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Some precautions are needed while buying mutual funds so that you don’t end up buying funds which are not suitable for your portfolio and investment goals.

Mutual funds have emerged as one of the most popular investment options in recent years, particularly after the demonetisation of high-value currency notes. More because they not only provide better returns and diversification, but are also easy to buy and manage as they are managed by professionals. Still, some precautions are needed while buying mutual funds so that you don’t end up buying funds which are not suitable for your portfolio and investment goals.

Here are five factors to keep in mind while investing in mutual funds:

1. Time is Key

Time is key to your investment. If you are investing for the short term, think of liquid funds or short-term debt funds, where your money would be safe and grow conservatively. For any investment horizon over three years, pick an equity mutual fund for best returns.

2. Make Investments Goal-Oriented

Make your investment goal-oriented when you invest in mutual funds. This would help you pick the right kind of fund. For example, Equity-linked mutual funds are best suited for long-term goals such as retirement. Buying or selling a mutual fund should not be based on a fund’s popularity or a friend’s recommendation. Rather, it should meet the goal you have set for

3. Read Fine Prints

When you decide to invest in mutual funds, you should read the fine prints carefully and understand all the charges, exit load and any other fees to avoid any kind of bitter shock. Do your research well before selecting your fund. If in doubt, go to a mutual fund aggregator that will help you finalise a fund based on your need.

4. Don’t Go Only By Fund Ratings

Don’t follow fund ratings blindly as they fluctuate. It is better that you study about a fund’s long-term performance and then go for the fund which is suitable for you.

SIPs are when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

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Debt Funds are Better Investment choice compared to Bank Fixed Deposits

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Debt mutual funds do get a preferential tax treatment compared to fixed deposits when it comes to how long-term capital gains are taxed. For such funds, ‘long term’ is defined as a period that is equal to or greater than 3 years.

When an investment in one of these funds is held for such a period and then sold, profits from such a sale are taxed at a rate of 20% after indexation (essentially, after the rate of inflation in that holding period) has been factored in. Oftentimes, this tends to bring down the rate of tax to low single digit. In recent years, there have even been instances where the entire capital gains have been taken care of by indexation, whereby no tax was owed by investors.

On the contrary, interest earned from fixed deposits are always taxed at the marginal tax rate that an investor belongs to, according to her tax slab. So, unless an investor is in the 0% tax bracket, debt mutual fund investments can yield a higher post-tax return than fixed deposits.

There is a reason that this differential tax treatment is in place. When an investor puts money in a fixed deposit, they are taking practically zero risk since the return is fixed and guaranteed by the institution. On the contrary, debt funds provide no such guarantee and are subject to the returns obtained by fund managers in the debt market. Such risk taking by investors gets rewarded by the government in the form of a beneficial tax regime.

Could the government remove this disparity? It is not outside the realm of possibility, but it is very unlikely. Capital gains have a taxation structure in place that has always been different from how interest is taxed, and this difference is unlikely to be removed since it applies to a wide variety of instruments apart from debt mutual funds. However, even if this disparity is removed, debt mutual funds would still remain a good investment option since they have the potential to provide a better return to the investors. The guarantee that the bank provides comes with a cost that is higher than the fund management cost incurred by a mutual fund investor. This has been borne out by historical returns data. For example, if you had invested in a fixed deposit 2 years ago, it would have fetched a return of 7.5% annually. But, the average short-term debt fund returned 8.3% with good, recommended funds in the category doing even better. As long as mutual funds invest in a wide range of instruments and pass on the returns to you (less a management fee), this return differential will exist. This margin may be high or low at times, depending on prevailing rate scenarios, but it will persist. And, of course, at this time with the preferential tax treatment in place, debt funds are definitely the superior debt investment choice compared to fixed deposits.

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Mirae Asset Emerging BlueChip Fund

With markets scaling new highs almost every other day, it makes sense to be invested in schemes that are conservative in their approach as far as stock selection is concerned. Also, if these schemes have a reasonably good exposure to large and mid-sized companies, the likelihood of their outperformance is quite high. One such scheme is Mirae Asset Emerging Bluechip.

One of the distinct features of Mirae Bluechip is its fund manager Neelesh Surana’s ability to pick midcap stories that have consistently proved to be potential largecaps. There are three main parameters Surana takes into account before selecting a stock:

quality of earnings, products and

presence in the industry in which it operates,

management (corporate governance) and valuation.

The fund invests 25-30% in top 100 companies by market capitalisation.

Due to its focus on quality stocks, the scheme has beaten its category peers by a considerable margin. In the past three and five-year periods, the scheme has given 25.7% and 30.5% returns while its benchmark index, Nifty Free Float Midcap 100, has given 18.3% and 18.7%, respectively, during the same period. The fund has also performed well when markets have seen selling pressure.

In the past six months, the scheme has invested in quality mid and large-sized companies across sectors, which include Yes Bank, Finolex Cables, Apollo Tyres, and Glenmark Pharmaceuticals Ltd.

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L&T Short term opportunities fund

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L&T Short term opportunities fund

We are including another fund from the L&T stable as we like a conservative approach on the debt side. The fund is jointly managed by Jalpan Shah and Shriram Ramanathan. Launched in December 2011, this fund is a low-risk option in the short-term funds space. The fund’s portfolio has AAA-rated securities largely from high-quality private sector companies and a few public sector entities. Its average maturity is kept around 2 years but at times moves to about 2.5 years or so, when market opportunity demands.

Returns are in line with the conservative approach. It is not a top-performing scheme in the category. However, over 5 years the fund has shown greater stability in returns as compared to the category. While the scheme saw negative return for a brief period during 2013, when global debt and currency markets were thrown off by the announcement of pull back in quantitative easing, it recovered soon and maintained its long-term returns stability. It is meant for investors looking for alternatives to fixed deposits, rather than top-of-category returns. Its steady accrual portfolio has delivered 8.75% annualised returns over a period of 5 years. At 0.70%, expense ratio of the scheme is not high.

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FLEXI SIPs

While a flexi SIP promises higher returns, an expensive market over the long term dilutes its potential.

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As Systematic investment plan (SIP) seeks to help investors ride out the market volatility, and even benefit from it. When the stock market–and, by extension, a Mutual fund’s net asset value (NAV)

Do not change your Mutual Fund quickly

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I had been lucky with the choice of my first pair of running shoes. I managed to get one that suited my posture and comfort perfectly. A year later it was time to change as the soles wore out. The idea of change brought some excitement. Even though the Asics Gel Kayano I had was good enough, I began research for something better. I found what I thought to be a better shoe at an even better price. What a deal! I had nailed this change.

Six months into running with the new pair, I developed a persistent pain in my foot. Soon I was limping a bit. It confirmed what I had felt for some time, the shoe I researched and thought was better, actually wasn’t a good fit. I should have remained with the good-enough pair. The risk of sustaining an injury with an unsuitable pair of shoes, it dawned on me, was simply not worth taking.

It got me thinking: are we guilty of wanting change for the sake of it? Often the desire for change can overlook the proportionate risk that comes with looking for something better than one that is already working just fine. Have you found yourself reviewing your investment portfolio at the end of a year with the thought of replacing some current holdings with funds or securities that offer potentially more returns, better performance? Making investment choices, be it a review of existing funds or fresh investments, is predisposed to starting with a peer group performance comparison. I too am guilty of this first step of glancing through returns. However, before making a final choice, a broader analysis follows: other factors like fund house processes, fund manager ability, consistency, portfolio attributes and risk are applied. Many times at the end of the process I find the funds that are already there in the portfolio are good enough, and so I have to resist the urge for change.

Why was I quick to change the good-enough shoe but prudently refrain from redeeming the good-enough fund? Maybe I understand risk in the latter slightly better. Running is relatively new in my routine as compared to mutual funds; hence, for me it’s an easy decision. For example, I know not to add more in a mid-cap fund despite better performance than say the large-cap peer if I am already over allocated to that segment of the market. Adding another fund will mean higher risk. Sorting through the individual scheme choices is a conscious decision on both risk and return characteristics. With the choice of shoe the decision was harder to make, took several days and I made the wrong choice anyway.

Not knowing the product well enough can lead to wrong choices. Today, many people are investing in mutual funds the money they would otherwise allocate to fixed deposits. The various types of mutual fund schemes do provide a solution for all kinds of investment requirements. However, investing without proper knowledge of risk-return dynamics can lead you to make the wrong choice. For a fixed deposit investor, shifting directly to equity or balanced funds—indicating assured monthly dividend—can hurt when the market corrects. Unless one understands the nature of equity investing and the risks in short-term allocation to equity, this shift may be not sustainable.

Moreover, the starting point should not be about higher returns. Nevertheless, intuitively the first point of reference is always the checking up on relative return: does a mutual fund give more return than a fixed deposit? Is my existing fund good enough or shall I see if I can invest in something with higher returns? Nothing wrong with looking at performance, provided you understand the reason you are investing in a particular product, its characteristics and the risk that comes along.

Think about other factors that can have an impact on your investment journey. Here’s the thing, while I realised the wrong choice with the new pair of shoes, simultaneously there were other changes. Each week I had started something we call interval runs, which requires several sprints in short bursts of 500-700 m in addition to a steady long-distance runs. To sustain, I needed to stretch and strengthen leg muscles—which I wasn’t focusing on. A kind runner friend advised me correctly, which has helped along with my decision to revert to the original shoe type for my long-distance running.

For fund selection too there are many factors at play. Along with risk and return, be mindful of aspects like your financial goals, asset allocation, the external market cycle and last, the fund portfolio characteristics, fund house and fund manager.

In any discussion on fund selection, I find all arguments lead back to getting the right type of advice. I was lucky to have shared my running dilemma and get the right advice from a more experienced runner and trainer. Seeking out good advice from advisers is a must if filtering through all these factors and risk and return of schemes doesn’t come naturally to you.

Changing your fund or investment security just because another seems like an even better one is a decision that can’t be based on performance alone. Don’t make the mistake I did by getting excited about the idea of change without considering the potential limp it can cause — be it your health or wealth.

SIPs are when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

For further information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

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