Reliance Medium Term Fund

Reliance Medium Term Fund Online

The primary investment objective of the scheme is to generate regular income in order to make regular dividend payments to unitholders and the secondary objective is growth of capital.

This is a veteran fund in the category. The regular plan’s returns are just a tad above that of the category average, with the five-year CAGR at 9 per cent plus. The direct plan is about 40 basis points ahead of the regular plan on annualised returns.

Despite its label, the fund runs a very short duration portfolio, with an average maturity that has seldom crossed 1.5 years in the last five years. This is far lower than the category and materially reduces the interest rate risk taken by the fund. The fund takes minimal exposure to G-secs and has mostly invested in corporate bonds and commercial papers.

The corporate bond portfolio leans towards safety. AAA and AA+ papers make up 62 per cent of the assets by April 2016. The fund has invested 13 per cent of its portfolio in lower-rated bonds, though not lower than AA-. However, risks are contained through a diversified portfolio, with individual bonds making up no more than 6 per cent of assets.

The expense ratio of the regular plan is 0.64 per cent while that of the direct plan is 0.24 per cent.

US focused Mutual Funds

Given an uncertain global financial environment, US-focused equity funds offer good returns compounded by the advantage of a strong dollar

Brexit seems to have pushed global uncertainties to a new high. In such a scenario, stepping out of the domestic market could appear a tad adventurist. Is it? Let’s see what a US-focused fund can bring to your investment portfolio.


With historical annualised return in excess of 15% over 15-20 years, Indian stock markets have satisfied long-term investors. However, the slowdown over the past few years has shown that these returns cannot be taken for granted. And, even for those who believe that the Indian economy is about to turn a corner, continuing to ignore the US market may not be a wise move. Having some dedicated exposure to US equities will provide a buffer to your portfolio. The US is home to global corporate giants. Even though India has its share of high-quality, highgrowth businesses, none offer the kind of global reach and scale as some of the US multinationals-Google, Facebook, Apple, Microsoft, among others.

The single biggest reason, however, for you to consider a US-focused fund is to negate the impact of a depreciating rupee on your portfolio. Heightened global uncertainties are likely to further strengthen the dollar which is seen as a safe haven. When you invest in a US-focused fund, besides earning returns from the equity market, you also benefit from the currency market–given the likelihood of a strengthening dollar and weakening rupee.Consider how the benchmark index Sensex has fared relative to the US benchmark index Nasdaq in rupee terms. Over three years, the Nasdaq has clocked 15% compared to the Sensex close to 12%. Over five years, the Nasdaq, in rupee terms, generated a whopping 21% against the Sensex’s meagre 7.5%. Over three and five years, the appreciation in the dollar has added 14% and 51%, respectively, to the actual returns from US centric equity funds.

While on the one hand, the depreciating rupee will hurt your finances owing to higher price of crude oil and other commodities, your dollar-denominated portfolio will offer you some protection. It is essentially a partial insurance for your entire portfolio. For in dividuals who expect to incur some dollar based expenditure in the future, owing to children’s higher studies or other wise, the underlying cur rency expo sure from US focused funds can prove beneficial. Such individuals can allocate upto 20% of their portfolio to US equity funds. Others may limit their allocation to around 10% of the overall portfolio.

Bala insists, however, that investors should not get too adventurous with these funds, and hold them for the long term. A longer time hori zon is advisable for these funds since these are not tax-efficient, if held for the short term. Any gains realised within three years of purchase are added to income and taxed at the applicable tax slab. Gains realised after three years are taxed at 20% after indexation.


The choice of a US-focused fund, as is the case with domestic funds, is critical. Bala reckons investors seeking US exposure should do so through a Nasdaq-focused product, since it mostly comprises technology-related firms, whose global exposure is tilted towards the emerging markets. It does not include financial and investment firms. The Motilal Oswal MOSt Shares Nasdaq-100 ETF provides direct access to this index. Being a passively managed fund, it also carries a lower expense ratio of 1%. This is the only fund with a five-year performance track record. The actively managed funds in this arena, such as the Franklin India Feeder US Opportunities Fund, Kotak US Equity Standard Fund and DSP BlackRock US Flexible Equity Fund are mostly feeder funds–invest in an offshore parent fund–and carry a much higher expense ratio. ICICI Prudential US Bluechip Equity and Reliance US Equity Opportunities are actively managed funds that invest directly in US stocks and could be possible investment options.

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HDFC MF Debt Funds

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Recent credit policy review was along our expected lines with the MPC reducing policy repo rate by 25bps in a surprisingly unanimous decision. In its post policy conference call RBI highlighted that the current 1.50% to 2.00% real neutral rate is a time bearing concept and with decline in global real rates the more appropriate real neutral rate for India is around 1.25% to 1.75%. This is a significant positive announcement and in our view will provide space for further easing of rates going forward.

Additionally, still high real yields, low and stable level of core inflation, continuing weak private investments, and potential of strong capital flows from debt FPIs are all supportive of lower yields going forward. In line with the above, our recommendation to investors would be to remain invested in duration funds.

Below bubble chart for positioning of our Debt Funds wrt Average Maturity of our Funds Vs AAA/G-Sec exposure. Size of bubble represents AUM as on 30th Sept’16. Also, refer subsequent reckoner for our products positioned as Low maturity/ Accrual strategy and High maturity/ Duration strategy

YTM APM MD AUM ( AAA* Below AAA* Cash* G-Sec / T- Bills CD/CP/BRDS Exp. Ratio Exit Load Load period (m)
7.99% 4.86 3.37 1,793 32.0% 37.3% 2.9% 27.9% 1.10% 0.25% 1
7.49% 3.57 2.84 6,885 75.8% 0.9% 23.3% 0.0% 0.36%
7.87% 3.46 2.53 1,565 60.6% 28.9% 10.5% 5.8% 0.65%
9.02% 3.79 2.88 8,811 20.7% 74.4% 3.3% 1.4% 1.75% 2% / 1% / 0.5% 12 / 24 / 36
8.87% 2.02 1.69 3,584 23.2% 71.1% 1.0% 2.2% 10.0% 1.52% 0.75% 12
7.45% 1.67 1.44 7,719 72.4% 9.7% 3.3% 14.6% 2.9% 0.36%
High Maturity / Duration Strategy Yield & Maturity Corpus Portfolio Concentration Expenses & Loads
Scheme Name YTM APM MD AUM ( AAA* Below AAA* Cash* G-Sec / T- Bills CD/CP/BRDS Exp. Ratio Exit Load Load period (m)
7.10% 15.99 8.21 2,579 -0.1% 100.1% 0.77%
7.38% 17.07 8.59 2,605 4.0% 11.3% 2.0% 82.7% 1.95% 0.50% 6
7.50% 13.12 7.30 1,908 5.0% 14.4% 2.1% 78.5% 1.52% 0.50% 6
6.76% 4.75 3.57 386 21.9% 78.1% 0.38%

Long Term Debt Funds

For once, the bond market is mimicking the equity market and witnessing a rally of its own. The yield on the 10-year benchmark government bonds have softened substantially. Declining yields mean bond prices are inching upwards, since bond prices and yields move in opposite directions. Where does that leave investors in bond funds?

For over a year, debt fund investors held on to long duration funds in anticipation of the interest rates softening. When interest rates fall, bond prices move up, and longer maturity instruments benefit the most from this movement. Long duration funds such as gilt funds and income funds being among them. Despite a cut of over 150 bps in interest rates since early last year, long-term bond yields did not budge much until recently, leaving investors in long duration funds with a bad taste in the mouth.

Unsurprisingly, gilt funds have seen heavy outflows since December last year. These investors would be ruing their decision to sell with benchmark bond yields dropping from 7.76% in December to 7.29% now. Gilt funds have benefited from this rally and delivered a healthy 10.35% over the past one year. Short-term and ultra short-term funds, on the other hand, have yielded 8.6% and 8.4% respectively. How should investors position their portfolios as this rally plays out?

Most fund managers admit that the rally could last for some more time, but advise caution against taking any aggressive positions in long-term funds. The bond market appears overenthusiastic about its near term outlook, Inflation is on the higher side, which could prevent the RBI from cutting interest rates anytime soon

One of the main reasons cited for the bond market’s enthusiasm is speculation that the soon-to-be appointed RBI Governor is likely to be more inclined towards carrying out rate cuts. Current Governor Raghuram Rajan’s term ends in September, when his replacement will take over. But not everyone is so enthused. While the new RBI Governor is expected to be inclined towards softer interest rates, he doesn’t see the central bank cutting interest rates aggressively, irrespective of the governor’s preference.

Given the current scenario, experts are advising investors to stay focused on short term bond funds. As the end of the rate cut cycle draws closer, the window to benefit from a reducing interest rate environment is getting progressively narrower. Even though we may see one or two more rate cuts, we expect short-term bonds to outperform in the coming months,. Yields on the 10 year government bond are likely to touch 7%-7.15% before we witness a rebound, and while a bid on long term bonds may pay off over the next 6-12 month period, short and medium-term bonds appear to be more attractive on a risk-adjusted basis.

Jain adds that he may look to trim duration of his own funds going forward, depending on how the new RBI governor plays his cards. In bond terminology, duration is a measure of the sensitivity of a bond portfolio to changes in interest rates. When fund managers extend or reduce portfolio duration, they essentially buy or sell longer maturity instruments within the portfolio.

According to experts, investors should assign more weight to accrual funds in their debt portfolios at this juncture. This includes short term and ultra-short term bond funds.

Unlike duration funds, accrual funds or credit funds derive a significant chunk of their returns from the interest income yielded by the underlying bonds. Since these funds do not play on interest rate movements, they don’t have as much exposure to risks related to interest rates as duration funds do.

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BSL Equity Fund

Invest Birla SunLife Equity Fund Online

"Buy the dips" is a phrase referring to the practice of purchasing stocks or mutual fund units following a decline in prices. After a significant dip in the price of securities, investors should increase positions on what is seen as an eventual upswing.

The Sensex has time and again shown that the returns following bearish phases are staggering. The below table substantiates this claim:

Bearish periods Sensex returns Bullish periods Sensex returns
Apr’92 – May’93 -43.60% May’93 – Aug’94 109.24%
Aug’94 – Jan96 -36.10% Nov’98 – Feb 2000 93.80%
Feb’00 – Apr’03 -45.66% Apr’03 – Dec’07 585.42%
Dec’07 – Feb’09 -56.17% Feb’09 – dec’10 130.66%
Dec’10 – Dec’11 -24.64% Dec’11 – Feb’15 89.98%

Birla Sun Life Equity Fund follows a multi cap style of investing without any sectoral or market cap bias and looks to invest in growth stocks at reasonable valuations. The multi cap style of investing allows the fund manager to be in the most well priced stocks / sectors at the right time as also play on any emerging trends in the market from time to time.

The fund is declaring its annual dividend for FY 2016-17, an amount of Rs 7.7/unit (approx. dividend yield of 8% under Regular plan), record date being 30 November 2016. Following are few key features of this fund:

· The fund has a solid performance track record spanning more than 18 years and has been a wealth creator for investors delivering CAGR 24.44% p.a since inception (Aug 27 1998)

· Since inception, the fund has declared 24 dividends amounting to Rs 90.8 as dividend payouts, basically paying out over 9 times of initial investment through dividends alone!!

Franklin India Taxshield Fund

As the last date of filing income tax approaches, tax saving schemes which also offer the benefit of equity market growth would be the priority for investors.

Among such tax saving schemes, Franklin Tax Shield is one such scheme which sticks to a clear mandate of investing in large-sized companies which are not only attractive on valuations but also generate increasing cash flows. The scheme’s fund managers Lakshmikanth Reddy and R Janakiraman consistently follow a bottom-up approach in picking stocks. Almost 70% of the scheme’s portfolio is dedicated to large-sized companies. This lends stability to the portfolio. Besides this, close to 25% of the scheme’s portfolio is invested in mid-and-small-sized companies. These companies also play a crucial role in boosting the scheme’s returns. crucial role in boosting the scheme’s ret This strategy has worked for the scheme and it has beaten its benchmark Nifty 500 in the past one year, three-year and five year by a reasonably good margin. In the pas t one-year, three-year and five-year periods, the scheme has given 23.1%, 17.6% and 15% returns respectively, while its benchmark index has given returns 23.7%, 16.8% and 12.5% respectively.

In the past six months, the scheme’s fund managers have invested in HUL, Bajaj Auto, Lupin and Kansai Nerolac Paints. This shows that they are playing theme of investing in companies which have high cash flow generation, good dividend paying record, market dominance and high revenue visibility.


You can Redeem Liquid Funds Instantly

Liquid funds with instant redemption facility offer investors a clear advantage over bank FDs.

Interest rates on bank fixed deposits are likely to fall further because of the surplus liquidity that’s been pumped into the system after the demonetisation exercise. Liquid and ultra short-term funds have emerged as a more viable alternative for parking the excess cash lying in bank savings accounts. These funds offer a much higher yield for investors.

However, while bank fixed deposits (FD) offer instant liquidity to investors, liquid funds, until recently, took at least one business day to return investors’ money.This has changed recently, with two prominent fund houses–Reliance Mutual Fund and DSP BlackRock Mutual Fund–offering instant redemption facility on their liquid funds.

Both these ultra-short term schemes, allow investors to withdraw their money any time by placing a redemption request and the money is credited to the investor’s bank account instantaneously. Investors can redeem up to 95% of the amount in their account, subject to a maximum of `2 lakh per day. The minimum withdrawal amount is `500 for Reliance Money Manager and `100 for DSP BlackRock Money Manager Fund. While other fund houses are expected to follow suit, the market watchdog, Securities and Exchange Board of India (Sebi), is reportedly exploring the option of making instant withdrawals, subject to certain caps, mandatory for liquid funds.

Reliance mutual fund also offers Any Time Money Card–an ATM cum debit card–which offers easy accessibility to money parked in its liquid schemes through Visa-enabled ATMs. Investors can withdraw upto 50% of their corpus in the scheme, or `50,000 per day, whichever is less. It also doubles up as a debit card, where investors can spend upto 50% of the corpus or `1 lakh, per day. This facility has been extended to investors of Reliance Liquid Fund–treasury and cash plans–and Reliance Money Manager Fund.

The added benefit of easy liquidity makes liquid funds a better alternative to both savings bank account and bank FDs. “With instant redemption facility, liquid funds now carry a distinct advantage over the traditional savings avenues.They are particularly useful for those with a large balance in their savings accounts, which is highly tax inefficient for interest income in excess of `10,000. Even a sweep-in fixed deposit facility–where funds can be transferred between savings bank and fixed deposits–would yield sub-optimal returns compared to Investing money in a liquid fund.

Liquid funds are essentially very low-risk funds, investing in highly liquid money market instruments with a residual maturity of not more than 91 days. As such, the volatility in these instruments is very low. Liquid funds have delivered around 7.6% over the past one year.Since these are debt funds, gains are taxed in accordance with one’s income tax slab, if held for less than three years. Assuming a 7.5% return on liquid funds, after-tax returns work out to be 6.8%, 6% and 5.3% respectively for individuals in the 10, 20 and 30% tax bracket. This currently works out higher than the after-tax return from bank fixed deposits.

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Mutual Fund made Money for Investors over various time horizons

The message that comes across over the 10-year horizon is that trailing returns of large-cap funds (12.36 per cent) were better than that of broad market benchmarks like the Nifty or the Sensex. Returns for gold (standard gold Mumbai) were slightly higher (12.84 per cent) than the average for the large-cap category. Public Provident Fund (PPF) returns have been lower at 8.32 per cent compound annually over the past decade.

Fixed deposit rates, if you use the SBI one-year term deposit as our benchmark, have ranged between six per cent and 10 per cent over the past decade (though some other banks may have offered slightly higher interest rates). Trailing returns of other categories of diversified equity funds like multi-cap (13.55 per cent), mid-cap (15.63 per cent) and small-cap funds (14.39 per cent) were higher than that of the large-cap category over the 10-year horizon

If you had a 40 per cent allocation to large-caps, 30 per cent to multi-cap, 20 per cent to mid-cap and 10 per cent to small-cap funds, your weighted average return over the 10-year period would have been 13.57 per cent, better than that of gold and fixed-income instruments. Over the three- and five-year horizons, equity mutual funds trounced the market benchmarks (Sensex and Nifty) and gold, PPF, and fixed deposits quite easily. It is only over the one-year horizon that the trailing return (the rate you earn when you invest a lump sum amount) of diversified equity funds (barring small-cap) lag that of gold and fixed income products.

SIP trumps lump sum

Our number crunching over 10 years also demonstrated unambiguously that Systematic Investment Plan (SIP) investing is a much better way to ride diversified equity funds than lump sum investing. Only over the three-year horizon have SIPs underperformed lump sum investments. This was a period when the markets rose around 40 per cent, and SIPs tend to underperform in such rising markets. Over most other investments, SIP investments have trumped lump sum investment. Experts attribute the better returns from SIP investing to high volatility. Says Vinit Sambre, vice-president and fund manager, Since the financial crisis of 2008, the equity markets have witnessed many bouts of volatility. This volatility, which affects equity investors and causes them agony, has proved a boon over the longer term for those who have used the SIP route. Those who don’t stop their SIPs when markets decline are usually rewarded with handsome returns over the long term.

Another fact that the comparison of trailing and SIP returns throws up is that more volatile fund categories like mid-cap and small-cap funds benefit more from SIP investing. Over most investment horizons, SIP returns of mid- and small-cap funds have been higher than their trailing returns. Being volatile in nature, these funds fall sharply, allowing SIP investors to average down their cost of purchase.

Don’t ignore lump sum completely

Investing through SIPs does not mean that investors should avoid the lump sum route entirely. When the markets fall steeply, savvy investors can take advantage by putting in additional lump sum in the same funds in which they invest via SIPs. Also remember while mid-cap and small-cap categories have given higher returns in the past, they are very volatile. Investors should have only a limited exposure of 20-30 per cent of their equity portfolio to these funds.

Investors should avoid making lump sum investments over a short to medium-term horizon of three-five years. However, do not jettison a fund in haste. Don’t redeem a fund if there is short-term underperformance. Markets and fund managers both tend to go through lean phases. But, if a fund lags its benchmark or category average consistently over a year or more, get rid of it.

Diversify the portfolio

To reduce volatility, have a mix of equity and debt funds in most portfolios. PPF offers an interest rate of 8.1 per cent. Returns from PPF are tax-free and you also enjoy the benefit of Section 80C tax deduction. PPF is suited for investors who have a long investment horizon and low need for intermediate liquidity. Its interest rate is, however, subject to revision every quarter (unlike in the NSC, where it is fixed).

Another favourite of conservative investors is the bank fixed deposit. While fixed deposits are simple, safe and liquid, interest rates on them have been declining. Five years ago, you could have earned 9.55-10.50 per cent on the one-year deposit; today, this rate has come down to around 7.25-8 per cent. Investors relying on them run the reinvestment risk: When your FD matures, you may have to reinvest it at a lower rate. FDs are also tax-inefficient for those in the highest tax bracket. Finally, gold acts as a good portfolio diversifier since it has low or negative correlation with equities. But, it tends to be volatile. Limit your investment in it to eight to 10 per cent. By investing in sovereign gold bonds, you can earn 2.75 per cent on your initial investment.

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Turnover Ratio of Mutual Fund

Investors are keen to know how many times a fund manager changes his portfolio in a year. This can be measured by using the portfolio turnover ratio. Turnover ratio is a measure of how a fund’s portfolio holdings change in a given year. This ratio indicates how much a fund is trading. Understanding turnover ratio helps in gaining insights into a fund’s performance.

1. How is it calculated?

Portfolio turnover is calculated by taking either the total amount of new securities purchased or the amount of securities sold -whichever is less -over a particular period, divided by the total net asset value (NAV) of the fund. This is usually done for a 12-month time period.

2. What is its significance?

Higher the churn in the portfolio, more is the transaction cost.

Aggressively managed funds will generally have higher portfolio turnover rates than conservative funds.

Analysts say a low turnover figure (30% to 50%) indicates that the fund adopts a buy and a hold strategy . On the other hand, if you no tice a fund having a turnover ratio of over 100%, it indicates that the portfolio has been churned over entirely .

This indicates a very high buying and selling activity in the fund.

Such high turnover will add to the expenses of the fund by means of transaction costs and may affect returns.

3. What does a high turnover ratio indicate?

A high turnover ratio may not be necessarily bad. In a long bull market, one may see a high turnover ratio as the fund manager makes the most of available opportunities, while in a falling market, the fund manager prefers to buy and hold select companies to stem the fall in portfolio.Funds that have a dynamic asset allocation, which buys and sells based on valuations of the market, also tend to have a higher portfolio turnover. If the scheme in consideration, due to its underlying strategy , has a high turnover ratio, it could mean the fund relies on short-term trades compared to a buy and hold strategy .

Analysts suggest not using the portfolio turnover ratio in isolation. They suggest comparing portfolio turnover of funds within the same category . If the fund has a high turnover ratio and has delivered higher returns consistently , it means churn has helped the fund.

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