My current Asset allocation and investments

One of the questions I get asked most is the kind of asset allocation I follow and what are the current investments I am having. While readers of my blog will understand my openness in sharing a lot of personal details, I am obviously a bit uncomfortable in sharing the direct monetary figures of this. At the same time, I do want to share as much information as possible in the blog as I know many people benefit from the same.

I have therefore come up with an idea of Financial Independence Units, where each FIU has a certain value, suppose it is X. Now if I say my net worth is 100X, then it will not reveal my real net worth for you do not know X. Yet, you will be able to understand my asset allocation and the relative investment figures that are currently there.

So, with that background, let me give you the total asset base as of last Friday, 28th September and the asset allocation thereof. Note that I mainly invest in Equity ( both stocks and MF ) and Debt. There is some Real estate I have in terms of a flat in Chennai but I do not have much plans to sell it right now. Ok, the asset allocation and breakup are as follows:-

  • Total asset base is 100X
    • Equity allocation is 41X
      • Stock allocation is 21X
      • MF allocation is 20X
    • Debt allocation is 34X
      • PPF allocation is 9X
      • FMP allocation is 10X
      • Fixed income allocation is 9X
      • Hybrid allocation is 6X
    • Real estate current value is 20X
    • Insurance allocation is 5X

Note that this is my current asset allocation and it was obviously a fair deal more before the current drop in the markets. In terms of general asset allocation principle, with the real estate and insurance out of the equation, I normally try to maintain a 60:40 ratio between equity and debt. Right now this ratio is more like 54:46 and therefore I am looking at investing more in stocks over the next 2 months or so.

The other question most people ask me is where do I get my passive income from. As of now it comes from the following sources:-

  • Fixed income allocation gives me a certain amount through interest earnings.
  • Dividend from some equity MF schemes.
  • Dividend from Stocks.
  • Capital gains from FMP redemptions.
  • Capital gains from any hybrid fund redemption.

I can also withdraw from my PPF account but I have never done it so far in my life and do not anticipate doing it for another 6 years at least.

All this basically means that my PPF will be useful for me in the age band 60-70 and beyond 70 I will be using my equity assets for the rest of my life span.

My investment strategies for the last quarter

A lot of investors are a worried lot looking at the market performance in September. It has been exceptionally poor and completely contrary to what most experts thought will happen. I had thought that after the smart recovery in August, September will be similar performance though a little muted. In reality, the market has tanked quite a bit and as of now does seem to be in a strong bear grip.

I think the next quarter is going to be a challenge in terms of the markets and unless there is some very good news on the economic or political front, I do not see any good recovery happening. Specific to the Nifty, the resistance level of 11150 is very strong and the support level of 10800 or so is not so. As such it is quite easy for it to slip down to lower levels and even breach 10500 easily. As far as my own portfolio goes, it has taken a big hit recently, going down by 15 % over the last month or so. Given that my portfolio in both stocks and MF is substantial, the absolute level of loss is a staggering one. However, given the fact that I do not need to redeem any of these investments in the next few years, I am not too worried about the impact on my net worth just yet.

So the key question for me is how do I plan to change my investment strategies for the next quarter. As I see it, despite the ongoing mayhem expected to continue, this is a real good time to invest in quality stocks. This is also supported strongly by the asset allocation principles, where you need to move some money from debt to equity. With this broad strategy as the base, here are the actions I will take.

  • Look at investing in Mid cap and Small cap MF only for the next quarter out of my active income surplus. I think these make more sense as compared to large cap or multi cap MF right now.
  • So far I was using any FMP redemption this way – use the capital gains for my regular expenditure and reinvest the Principal amount into some other FMP or Debt fund. In the changed situation, I will invest the principal amount into stocks or some close ended MF that seems potentially good to me.
  • Any other income such as interest from tax free bonds, dividends from MF schemes, dividends from stocks etc will be used to make selective purchases into my stock portfolio. There are a lot of stocks available at very attractive prices and it will really make sense to take advantage of these over the next few months.

In short, though it is a tad painful to see a lot of red in my portfolio over the last 2 months, I am rather optimistic and excited about the opportunity presented by the current markets. As I do not have to depend on my earnings from here in the short term or medium term, I believe I have time on my side. The key attribute will be to identify good companies that will hopefully stand the test of time, at least the next decade !!

As an investor, you too should look at your situation and figure out how you want to get things done. Whatever your strategy is, keep asset allocation in mind and take advantage of the current and future market levels. For the markets, things will definitely get far worse before they get better – but that is also an opportunity that you must seize.

HELP- Holistic Engagement in Life Planning

I have been writing this blog for over 3 years now and one of the most common queries that I get from readers is whether I provide any Financial Planning services. Let me be upfront about this at the start – I do not provide such services in the way they are normally understood, nor am I a SEBI registered Financial Planner. In fact, I have absolutely no intention of being one too as I do not see this as my profession.

However, I do provide a service to select people who approach me directly. I have given the acronym of HELP to it. The expanded form is Holistic Engagement in Life Planning. In this post I will explain about this service and explain as to how interested people can avail of my services for this. As I have explained in several posts of my blog, life planning must precede financial planning. As an individual or as someone responsible for your family well being, you will need to plan the important life events as well as the lifestyle choices you want to maintain. Note that the typical financial planning process assumes that people will by and large plan for typical goals such as children’s education, marriage, own retirement etc. I find this a completely unsuitable way of doing things as the life of each individual is unique and needs to be catered as such.

So what is HELP then? As I said, the starting point is to take stock of your life in terms of where you are today and what are your dreams as a family – individually and collectively. So if you are a family of 4 with two teenaged son and daughter, your dreams could look like this when you are 42 years old :-

  • Son wants to take up a career in Bio technology, daughter wants to be a film maker.
  • Your wife is 38 and gave up her career for her kids 10 years back – she now wants to open up a boutique of her own in the next 3 years.
  • You are interested in starting your Consultancy practice by the time you are 50 and for that you need to be financially independent.
  • All of you like travelling and want to take a domestic vacation every year apart from short trips and also an international vacation every alternate year.

The idea of HELP is to bring out these life goals and lifestyle choices clearly, so that it can be determined what kind of financial support these would require and how can that be organized. Yes, the last part will involve financial planning but it will be in a very different way than just how to buy MF through SIP etc. 

As I said, I have provided HELP to several people and all these were people who have approached me after reading my blog. Some examples will make interesting reading:-

  • Advised a Colonel in Indian army as to how he could fulfill his dream of migrating to Canada in a teaching role.
  • A software professional in Kolkata was worried about longevity of job and worked out an alternate plan should such an event occur.
  • Got several people started on building a stock portfolio from scratch.

Note that in all of these cases, the people already had a financial plan made through a SEBI accredited Financial planner but they were not happy with their life and lifestyle.

The question that will definitely be asked is why am I the right person to do this? Let me start by giving some background of myself :-

  • BE in Computer Science & Engg from Jadavpur university, Kolkata in 1986.
  • PGDM from IIM Calcutta in 1988, with major in Marketing and Systems.
  • Overall experience of 30 years plus, 27 years in regular corporate roles and nearly 3 years now in my Consultancy practice.
  • I have worked almost entirely in the software services and BPO space.
  • Have worked as a CXO for 15 years plus, nearly half of this in 2 publicly listed companies.
  • Lived in Kolkata, Delhi, Chennai and Hyderabad besides having travelled widely all through the world for my work.
  • Have been financially independent since 2014 and writing a blog since 2015 June. The blog has had views in excess of 3.5 lacs till date.
  • My daughter is BE from BITS, PGDBM from XLRI and working in a Consultancy firm now. My son is in his final year at BITS, doing a dual degree – Msc Maths + BE in Computer Science.
  • I am associated with helping students in career counselling for Engineering / MBA.
  • Am in the Hyderabad panel for IIMC admissions.

I believe in the Indian context, I am one of the few people who are able to deliver a service such as HELP. This has been proven by the 10 situations where this is done.

So if you are interested in knowing more about this, how do you get started? Well, the first step will be to write to me at expressing your interest to avail of this. I will then ask a few questions over mail to assess your current situation and then we can have an introductory call. After this I will let you know if I can do this for you and what will it cost.

Typical duration for the complete exercise is 1 month, with 2 interactions over phone per week and costs can range between 20000 and 30000 for the first year. Yearly reviews after first year will be 25 % of the year 1 costs.

If you reach out to me, do not get offended on my inability to take you up ( if that happens ). I am doing this to add real value to the lives of the people and therefore cannot spread myself too thin.

Look forward to hearing from some of you – believe me, your life will undergo a serious transformation once you go through this exercise.

Current markets – how have they impacted your financial plans?

As the market situation continues to tumble from bad to worse, many investors who were confident of the long term market story are also getting the jitters. While I do think that personally the current fall is not much of an issue as I do not need to take money out of equity for the next 10 years, I can well understand that it may not be the case for many others. Over a small period of 1 month there has been a serious destruction of wealth for many retail investors and it may indeed take a long time for them to recover it.

Why is the situation different for retail investors today, when such ups and downs have always been part of the markets? Over the last few years the market returns have been good and this made the long term returns look rather optimistic. Many people who started investing in MF though the SIP route, were sucked into believing that a double digit market return over the long run was a given and even 15 % returns over a long term is quite possible. A lot of financial planning for important goals in life were done on this basis and is therefore now a problem in most cases.

Let us look at the Sensex returns over the different time periods till September 27th 2018. This data is from HDFC MF site and the returns if anything are actually much poorer now after the carnage of last week. All returns are in percentages.

  • 15 year return on the Sensex is 12.96
  • 10 year return on the Sensex is 14.18
  • 7 year return on the Sensex is 12.99
  • 5 year return on the Sensex is 11.40

To understand the real impact of the market fall, look at the reduction in your portfolio value for the equity portion. For me the reduction has been to the tune of 15 % and I do have a considerable equity portfolio, so even in absolute terms the drop is huge. I had suffered a similar experience in 2008, only the size of my portfolio was much smaller then. I would imagine that for most people investing through SIP in the last 7-10 years, the drop in portfolio value would be between 12 and 18 %.

Is this a passing phase? In other words, will the wealth that you have seemingly lost today come back? Yes, it will as the markets will recover over a period of time, the key question being when. However, this takes a serious toll on your portfolio as the growth goals you had assumed in your financial planning may undergo a serious change now. The extent of the impact is based on how long do you have till your goals and what types of goals these are. While, it will be difficult to address all possible situations, I will try to give some pointers to different categories of people.

If your goals are still a fair distance away, say at least 7 years or more you need to try the following:-

  1. Rejig your financial plan if you had taken 15 % or greater CAGR for equity growth. I would go fairly conservative and 12 % will be the maximum figure.
  2. Check your asset allocation now. For people with significant goals coming up in the next decade make sure that you have at least 40 % in Debt instruments.
  3. Your financial plan must be such that your goals can be met through debt instruments if that becomes necessary.
  4. Look at the possibility of targeted one time investments in MF, based on market situations. SIP does not really work well in a secular bull market and some of the current portfolio losses are a proof of that.

On the other hand if your goals are in the next couple of years, here is what you should be doing:-

  1. In case your goal was financial independence or early retirement, accept the fact that It will probably take more time than what you thought. Continue the current activities you are engaged in for earning active income till you reach a point where such a goal can be actualized.
  2. If your goal is mainly consumption oriented, that is you want to purchase an asset like a car/home or go on a vacation etc. you need to consider postponing the goal. Do not try to get this done by taking more loans than what you can afford, this will reduce your investment capability in a market where you do need to invest.
  3. For other goals that cannot be postponed, such as child’s college admission etc try to mobilize money from your debt portfolio to meet the current required cash flows. In case you cannot do that consider taking an Education loan with the understanding that you will pay it back quickly.
  4. If you do not have a significant debt portfolio start building it by transferring money from sources other than equity to this – for example if any insurance or ULIP policy is maturing then put the proceeds in some debt fund.

In general, the only immunity that you can have in a falling market is your ability of not needing money from your equity portfolio till the time the markets have had a sufficient chance to recover.I have no idea of how much time this will take but in my portfolio I can even wait for 10-15 years if need be, before I touch it for redemption.

I am happy to see many people have got started out here. Also, become a part of my Facebook group Market Musings where a lot more is discussed on the general market situation and also individual stocks.

Interested readers may pls follow my blog on email by clicking on the relevant button on the right hand panel. I will shortly be stopping the practice of posting the links in different Facebook groups. Following the blog will ensure you get intimated whenever there is a new post.

The levels of Indices tell a story now

I have been away from the blog for a week now owing to a travel to Mauritius. It was nice to see that the blog had good readership even in the absence of any posts from my side and that I got several requests to post something on current market situation.

Of course, while I have been away from writing posts in the blog, I have not been away from the markets. In the present state of financial independence, the markets are quite important to me and, despite my significant experience with them, it will really not be very true to say that the volatility has not really caused any anxieties in me. Of late the indices have plummeted again after a good recovery where both Nifty and Sensex had reached their life time highs. Does this mean the recovery is over and we are back in a bear market? The short answer to this question is No. For the long answer, let us look at the levels of indices.

I will look at Nifty 50, Nifty Midcap 100 and Nifty Smallcap 100 as these will give us a very good view of the overall market. Thanks to SEBI, the definitions are now quite clear and investors can invest in both stocks and MF with a lot more clarity than before. 

What is Nifty telling us based on current levels and DMA?

  • Closing value today is 10967, about  800 points shy of lifetime high. Note that the lifetime high was achieved in the previous month itself.
  • YTD returns as well as returns for all periods up to 3 years are positive, except the 1 month period. The range is 9.7 % for 6 months and 39 % for 3 years. For 1 month it is -3.7 %.
  • Current level of Nifty is well below 30, 50 DMA and just more than 150 and 200 DMA.
  • Based on this I predict that Nifty still has some downside left and can well go to earlier territory of 10500 or so in the near run.
  • However, it is likely to get support thereafter and be range bound between 10500 and 10800.
  • Unless some out of the way good news is there on the political or economic front, I do not see it going above 11000.
  • If BJP loses the upcoming state elections then a drop to 9500 or so cannot be ruled out.

What is Nifty Midcap 100 telling us based on current levels and DMA?

  • Closing value today is 17847, just above 52 week low of 17430, and well below the lifetime high of 21840.
  • YTD returns and returns for other periods in this year are negative. 1 year return is also negative at -3.1 % while 3 year returns are nearly 43 %.
  • Current level of Nifty Midcap 100 is significantly lower  than 30, 50 and 150 and 200 DMA. 
  • Based on this I predict that Nifty Midcap 100 still has some downside left and can well go to 17500 or so in the next 1 month.
  • However, it is likely to find support thereafter and be range bound between 17500 and 18500.
  • Unless some out of the way good news is there on the political or economic front, I do not see it going above 19000.
  • If BJP loses the upcoming state elections then a drop to 17000 or so cannot be ruled out as it will very likely breach the 52 week low levels.

What is Nifty Smallcap 100 telling us based on current levels and DMA?

  • Closing value today is 6722, just above 52 week low of 6644, but well below the lifetime high of 9656.
  • YTD returns and returns for other periods in this year are negative. 1 year return is – 13.3 % while 3 year returns are nearly 33 %.
  • Current level of Nifty Smallcap 100 is significantly lower  than 30, 50 ,150 and 200 DMA. 
  • Based on this I predict that Nifty Smallcap 100 still has some downside left and can well go to 6300 or so in the next 1 month.
  • However, it is likely to rebound thereafter and be range bound between 6800 and 7500.
  • Unless some out of the way good news is there on the political or economic front, I do not see it going above 8000.
  • If BJP loses the upcoming state elections then a drop to 6000 or so cannot be ruled out as it will very likely breach the 52 week low levels.

So what does all this mean for your investments and how should you tackle your existing MF portfolio? Well, this post is already quite long, let me address that in the next post.

PPF versus ELSS is a false comparison

As most of the readers of this blog know, I have been a great fan of PPF over a long time now. Apart from the obvious EEE benefits that it brings to the table, I use PPF as a great foundation to my portfolio. Once it had crossed the 15 year period with a substantial corpus, the benefits of compounding are visibly evident every year and it is a great hedge against any forced distress sale of my equity assets in the event of a market crash.

PPF has been in the news last week as the interest rates for Small Savings Schemes were increased for the next quarter. While this was always on the cards, many investors were skeptical as to whether the government will actually do it. In this case, I think the government was somewhat forced to do it as there are many other reasons why the policy rates need to be hiked. Be that as it may, the reality is that PPF and other schemes will have fluctuating rates over the next decade or so. I see the rates being at a median of 8.5 % with a spread of 0.7 % either way, depending on the situation.

As usual, there were a lot of articles in blogs and postings in Facebook and WhatsApp groups as to whether one should invest in PPF or ELSS for 80 C benefits. This is a very old debate but as the blog has a lot of new readers this year, let me try and address it once more. Firstly, the comparison by itself makes no sense. People are comparing on returns and then coming to the conclusion that ELSS will make you a great deal richer if you invest for 10 years etc. As the English proverb says you cannot compare Apples with Oranges for they are very different fruits in every manner. PPF is a classical debt product and has compounding as the basic benefit, even though the rate of returns will be conservative. ELSS is an Equity product with inherent risk and volatility, having the potential of high returns over a long term duration. This essentially means that their presence in your investment plans must be for very different reasons – just because they both qualify for 80 C exemptions they cannot be compared directly.

Secondly, it makes great sense to invest in both even if it means you exhaust your 80 C limits. If you are having a PF account and cover about 1 lac through it then look at investing the rest 50 K in PPF. I am assuming here that you can invest in equity separately and, if so, look at other MF schemes for your equity investments. There is no need to invest in ELSS just for the 80 C exemptions. Of course, If you do not have surplus after 80 C investments then try to divide your investments between PPF and ELSS. In my opinion even investors who have a PF account must open a PPF account. You can decide on the investment amount based on your context.

Thirdly, some people compare the lock in period of 3 years versus 15 years and so on. Again the comparison is baseless for we are comparing products from two very different asset classes. In any event, for most investors, these are long term investments for future goals and they do not really want to redeem these investments in the next 3 years etc. In fact, the 15 year lock in period of PPF can be seen as an advantage here as you will be having a long term debt product where you can invest every year.

Fourthly, let me give you an example on the returns front, so that people understand the basic difference between the two products :-

  • Assume that an investor has 50 lacs in a PPF account today and he also has 50 lacs in a MF portfolio. He has built this over the last 15 years or so.
  • Let us take the current PPF rate of 8 % and Equity returns at 12 %.
  • In 9 years time PPF will be 1 crore and Equity MF portfolio will be 1.38 crores. After paying taxes on Capital gains for MF, it will be about 1.34 crores.
  • However, let us just assume that in the 7th year the MF portfolio tanks by 15 % as there is a market crash. In the 8th year there is no increase and in the 9th year it again tanks by 10 %. This is not unusual, can happen very easily with equities.
  • In this case, the equity MF portfolio will be at 76 lacs by the end of 9th year.

The point is, equity as an asset class has both volatility and risk as it’s characteristic and the investor needs to understand this. In the above example, if you had a goal of 1 crore in 9 years then PPF will get you there. Equity MF can also get you there handsomely with a big surplus BUT there is a risk that you may not reach your goal too. This is the most important reason for investing in debt products such as PPF. They prevent you from redeeming your equity portfolio at the wrong time due to your needing money for one of your life goals.

So there you have it – next time an expert tells you to junk PPF and put all your money into ELSS, explain to him why that is a bad idea. As I said, you do not need equity or debt investments, both should be part of your portfolio. In fact, PPF is a must have investment and you can have any MF schemes based on your preference, it does not have to be ELSS.

Some model portfolios based on CRISIL ratings

I received a lot of feedback on my earlier post about the CRISIL ratings of MF schemes. Many readers expressed surprise that their schemes were not in the Rank 1 or 2 categories, while others wanted to question whether the CRISIL ratings are really trust worthy. Well, the report is available in the public domain so I will definitely recommend that you get hold of it and read it, it does contain a lot of useful information. As far as my opinion goes, I found the report to be quite a good one and fairly objective in assessment of the different MF schemes.

So why are the erstwhile favorite schemes such as HDFC top 100, DSP small cap fund, Sundaram Select mid cap etc not doing well according to this report? Well, the issue is largely with the funds and not so much with the rating. You need to remember that the strict rules by SEBI has led to a fair bit of portfolio churning for several MF schemes and these are now really aligned to their respective categories. So it is now not possible for a fund manager of a Large cap fund to take some Small cap bets in order to increase the returns. All of this will be great in the long run but can have a dampening effect on the performance of the more popular funds in the short run. As I said, there is no need of a knee jerk reaction right away, wait for a couple of quarters to see if they recover.

However, if you are starting off with a new portfolio, then it surely makes no sense to invest in the funds that are currently doing poorly, such as the HDFC Top 100 etc. It will be way better to look at funds that are doing well in the context of the past few quarters. As I have said repeatedly in my blog, a well constructed MF portfolio should have about 4-5 funds from different categories. As we are talking about an initial MF portfolio here I will look at 4 types of funds, 1 in each category namely, large cap, multi cap, mid cap and small cap. The allocation can differ based on the risk temperament but for a long term portfolio, it will be fine if you invest equal amounts in each of them.

With all that out of the way, here are my model portfolios:-

  • Model portfolio #1 
    • Axis blue chip fund
    • Principal multi cap growth fund
    • L & T mid cap fund
    • HDFC small cap fund


  • Model portfolio #2
    • HSBC large cap equity fund
    • UTI equity fund
    • Axis mid cap fund
    • Reliance small cap fund


  • Model portfolio #3
    • ICICI Prudential Bluechip fund
    • Kotak standard multi cap fund
    • Edelweiss mid cap fund
    • L & T emerging businesses fund


  • Model portfolio #4
    • Reliance large cap fund
    • Mirae Asset India equity fund
    • HDFC mid cap opportunities fund
    • Franklin India smaller companies fund


  • Model portfolio #5
    • UTI Mastershare unit scheme
    • Motilal Oswal multi cap 35 fund
    • Kotak emerging equity
    • SBI small cap fund

You can take any of these portfolios ans start investing for a year, keeping a look at how their ratings change every quarter. After one year if you are not happy about the performance of any scheme, look at changes.

My feeling is that sustained investment in any of these portfolios over the long term will create serious wealth and help you achieve all your life goals.

Best MF schemes as per CRISIL – do you have them?

With the recent categorization of MF schemes by SEBI, there have been several changes to the portfolios of many schemes. In the current context, it becomes important to rate the performance of the schemes, not only on the basis of annual or historic performance but also by how these have performed in a quarter. CRISIL is one of the rating agencies that has high credibility and reputation and they have recently come up with their MF schemes rating for the June 2018 quarter.

It is important to understand that the CRISIL ratings focus more on the current performance both against the benchmark indices as well as the peer category schemes. I think this gives a much better handle as opposed to historic performance. Many financial advisers will tell you to look at a scheme only if it has a 10 year history etc. Believe me, that is absolute nonsense – an MF scheme has a portfolio and what is important is the quality of the portfolio today, when you are putting in money. It is of no use at all to invest in a fund just because it is 15 years old and had been number 1 some 4 years back.

If you look at your portfolio you may find several schemes which had been very good earlier but are doing poorly now. Before I share the results from CRISIL let me outline the rating method employed by them. The ratings are from 1 through 5 with 1 being the best. There may be more than 1 fund ranked 1 etc. In general funds ranked 1 and 2 are the ones doing rather well, schemes ranked 3 are just about ok and rest to be avoided.

So without further ado let me give you the rankings in the different categories:-

  • Large cap funds
    • Rank 1 : Axis blue chip, HSBC large cap equity
    • Rank 2 : ICICI Prudential blue chip, Reliance large cap, UTI Mastershare
    • Rank 3 :ABSL Frontline equity, Kotak blue chip, SBI blue chip, HDFC Top 100
  • Large and Mid cap funds
    • Rank 1 : Canara Robeco emerging equities, Sundaram large and mid cap fund
    • Rank 2 : Mirae Asset emerging blue chip, Principal emerging blue chip
    • Rank 3 : DSP BR equity opportunities, Franklin India equity advantage
  • Multi cap funds
    • Rank 1 : Principal multi cap fund, UTI equity fund
    • Rank 2 : Kotak standard multi cap, Motilal Oswal multi cap 35 fund
    • Rank 3 : ICICI Prudential multi cap, SBI multi cap
  • Mid cap funds
    • Rank 1 : Axis mid cap, L & T mid cap
    • Rank 2 : HDFC mid cap opportunities, Kotak emerging equity
    • Rank 3 : ICICI mid cap, Sundaram mid cap, Franklin India Prima
  • Small cap funds
    • Rank 1 : HDFC small cap fund
    • Rank 2 : L & T emerging business, Reliance small cap
    • Rank 3 : Franklin India smaller companies, SBI small cap

Now many of you may be feeling that your funds are not there in Rank 1 or 2 and that is not really an immediate problem. However, if your fund is not there in Rank 3 too then you need to worry. One example I can easily give is that of DSP BR small cap fund, whose erstwhile name was DSP BR micro cap fund. This fund has had a great run over the years and had to even stop subscription as the AUM was getting to be unwieldy. However, in the last year several other funds have done well and the DSP fund has a Rank of only 4 now. Does it mean you should get out of it, if you have invested in it for long, like I have? Not yet, I suggest you look for another couple of quarters before taking that call. For new investors though, it makes no sense to invest in funds that are not Rank 1 or Rank 2.

I will do a couple of posts on the CRISIL June rankings – one on some sample portfolios the investors can have and the other on how some of the best known funds have fared badly in the ranking and why.

I know a lot of people read my posts but would love to see more comments on the blog. Do go ahead and comment about this post after you read it.

Should you invest in Tata Capital NCD’s

While debt investments are a must in any investment portfolio, in the current financial climate it is a somewhat difficult task to get the right type of returns. The tried and tested avenues are giving low returns right now and the ones with higher returns, such as some Corporate FD’s, come with their fair share of risks attached. In this scenario, people looking at fixed income for their regular retirement expenditure are the hardest hit.

Tata Capital Financial Services Limited ( TCFSL ) is a trusted name in the area of financial services and they are coming up with some Non Convertible Debenture (NCD) which may well be worth a look. Let us first look at the salient features of these NCD’s and then I will outline as to whether it will be a good idea to invest in them.

  • Issue size is Rs 6000 crores in secured redeemable NCD and the face value of each NCD is Rs 1000 . Unsecured, subordinate rated NCD part is Rs 1500 crores.
  • Issue opens today and will close on September 21st. However, allotment is on first come first served basis.
  • Minimum lot is 10 debentures and you can increase it by any amount thereafter.
  • The NCD’s will be listed in both BSE and NSE.
  • 3 year, 5 year and 10 year coupon rates for retail investors are 8.8 %, 8.9 % and 9.1 % respectively.
  • The 10 year NCD invests in Unsecured, subordinated, rated and listed securities.
  • Retail investors can invest up to Rs 10 lacs in this issue, HNI investors can put in more money than that. Coupon rates for both categories are the same.
  • Ratings of these NCD’s are AAA from both CRSIL and CARE.
  • You must have a Demat account to invest in these NCD’s.
  • Income from these will be treated as interest income and treated accordingly for the purposes of taxation.
  • Capital gains will follow taxation treatment for Debt investments – your slab rate without indexation if held for lass than a year and 10 % without indexation if held for more than a year.
  • There will be no TDS on paid out interest, which is annual in nature.

Based on the above, who should look at investing in these NCD’s? I think it will make sense to people who are looking for regular passive income, whether they are in the FI state or retired. Choose the secured route and 5 years tenure only, I am generally uncomfortable with unsecured securities.

For retired people who have maxed out their VVY, SCSS, Tax free bonds and PPF from where they get regular income and still need some amount to run their regular expenses, this can be a really good option. As the payout is annual, you can use it for goals which are annual in nature – examples can be a vacation, health insurance premium etc. The company is a completely trustworthy one and you need not have any worries about your payments. Go ahead and invest in this with confidence.

For others too, if you are looking at 89000 Rs every year for some expenditure, it will be a good idea to invest. It will work out the best for people in the 10 % or 20 % tax bracket. In any case you are having FD’s then it is a good idea to put the money here.

I will be happy to answer any queries on this investment.

Look at these MF schemes for great risk adjusted returns

We are passing through rather interesting times in the Indian economy and markets. The rise in the indices have had investors thinking as to whether it will be a good idea to keep buying as of now. By all conceivable logic, there is a correction round the corner. Is it likely to be momentary or very deep? We can only speculate in an intelligent manner.

In my opinion, it does not really matter much if there is a correction soon. Nifty will probably find support at 10800 plus levels and that is something none of us expected a couple of months back. In the scenario I see unfolding, we are very much in a structural bull run and corrections are going to be price based rather than time based. To that extent you need not really change your investment plans a great deal.

What about people who are starting off building a MF portfolio or ones who want to realign their portfolio to better funds, taking advantage of the current highs? Which funds should we bet on for the next 15 years or more? I gathered some inputs from experts managing HNI money and this is what they had to say:-

  • A good fund manager has generated 4-5 % alpha over the indices in the past 2 decades. For this reason avoid Index ETF in our markets right now.
  • There may well be a structural bull run in our markets over the next 10-15 years.
  • Multi cap funds will be the best suited for this time frame but look at other categories like large cap and mid/small caps too.

So which are the funds to bet on? Here are a few for you to consider:-

  • ICICI Focused Blue chip
  • Kotak Select Focus
  • Reliance Vision
  • SBI Pharma
  • Kotak 50
  • Franklin High growth
  • MOST 25
  • MOST 35
  • ICICI Value Discovery

You will not find many of your known funds here, but then these are futuristic in their likely performance. Go with them if you are willing to take some risks for potential higher returns.

However, if your existing funds are doing well, do not change for the sake of change.