Bet on these MF schemes for now

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 9000 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.

Infrastructure Investment Trust – what is it and is it investment worthy?

In the investment world we are all looking at newer ways to invest, always hoping that the next product coming across will hopefully give us better returns than our earlier ones. In this context the Infrastructure Investment trust bond issue from IRB Infra is now generating a lot of interest in the market. What is this and will it be a good idea to invest? Let me try and address it in this post.

To begin with, Infrastructure projects such as ports, roads and other kinds of construction are normally on a massive scale and need a lot of funding. These are also long gestation projects where the returns will only come after a certain number of years. If you look at NHAI for example, the several companies started by it for the different projects are all technically running at a loss, due to the high interest rates and depreciation that they have to deal with. Their loans are huge and though the marginal profits on EBITDA are very good, progress in some of these projects have been slow due to the adequate availability of cash at the right times.

The idea of an Infrastructure Investment Trust ( InvIT ) is to restructure these loans by paying it off with the investment they will get in the trust. The Trust will then have an arrangement with these companies to get returns from them through the profits generated. Investors in InvIT will get their returns through dividends, buyback etc. As all these companies are having pretty much assured revenue over a period of time, the returns are likely to be good.

Let us now look at the first issue of this kind by IRB Infra. The ticket size for investment will be between 10 lacs and 10.2 lacs, so if you are not having this kind of money you will not be able to invest now. This issue is opening for subscription today and will close on 5th May. Some information about the issue taken from ICICI Direct is as follows:-

IRB InvIT Fund is backed by IRB Infrastructure Developers Limited (sponsor of the trust) and the trustee of IRB InvIT Fund is IDBI Trusteeship.
What are “InvITs”?
An InvIT is a new capital market product promoted by the Government to enable Infrastructure Developers to free up tied-up capital. InvITs are designed to attract low cost long term capital from FIIs, Insurance and Pension Funds and the DIIs (mutual funds, Banks) which will also benefit to other investors including HNI clients.
IRB InvIT – An Overview
The IRB InvIT is composed of six Special Purpose Vehicles (SPVs) consisting of NHAI toll-road assets aggregating to 3,645 lane kilometers of highways located across the states of Maharashtra, Gujarat, Rajasthan, Karnataka and Tamil Nadu.
As per InvIT regulations, at least 90% of available cash flow of the SPV shall be distributed to the InvIT in proportion to its holding in the SPV. The InvIT in turn is required to distribute at least 90% of its available cash flow to the unit holders on a semi-annual basis.

Should you be investing in them? I think there are very high chances of the returns being significantly better than most MF schemes over long periods of time. The returns will be taxable, but even with that it seems to be an exciting investment. If you have surplus funds available, you should consider this seriously.

Personally, I am shifting some of my money that was there in Arbitrage funds to this issue. Returns in Arbitrage funds have been rather low and I do not see them faring any better in the near future.

There will of course be other such funds in the future, so keep on the look out for them, even if you cannot invest in this one.

MF portfolio realignment – my plan

If you are a regular reader of my blog you will know my 3 portfolio strategy for investment by now. I have portfolios in Debt, Stocks and MF. In the initial part of my working life I invested in mostly debt, the mid part was largely used to build up the stock portfolio and 2008 onward till now it has been largely MF. Of course, once I decided about giving up my regular corporate career in 2012, I boosted my debt portfolio significantly.

Over the years I have bought several MF schemes, initially with one time investments, thereafter with SIP and now back to investing at the right times. I have therefore collected a large number of MF schemes and in several of these the amounts invested are not very significant. The ones where I have done SIP obviously have some decent amounts, but even here there are several funds as my portfolio had changed over my 7 years of SIP.

In the past whenever the markets have gone up significantly, I have thought about cleaning up my MF portfolio. Somehow or the other it has never happened and I am stuck with a multitude of MF schemes, most of which I do not really want to keep. This weekend, I took a look at my MF portfolio after a long time and these were my observations.

  • I am currently investing in 4 MF schemes which are as follows. My plan is to continue investing in these for the future, at least till I have active income to do so:-
    • ICICI Focused Blue chip fund
    • ICICI Value Discovery Fund
    • HDFC Mid cap opportunities Fund
    • DSP BR Mid and small cap Fund
  • There are some other funds where I have significant investments but have dropped now. I will be keeping these for now but may want to sell them off during any annual review that I undertake. Future investments in these are unlikely:-
    • HDFC Top 200 Fund
    • IDFC Premier Equity Fund
    • Birla SunLife Frontline Equity Fund
    • DSP BR Equity Fund
    • Sundaram Select Mid cap Fund
    • Franklin India Blue Chip Fund
    • UTI Dividend yield Fund
  • There are some Close ended funds such as the ICICI Value Series Funds. I had invested in these as they give regular dividends which is useful to me. I will either continue with them or shift to other similar funds. To give readers an idea, ICICI Value Series 2 has given an XIRR of 30 % plus in the 3 year investment period.
  • Everything else, I want to get red of ASAP.

How do I plan to go about it? I have a feeling that next few weeks may be the best chance if Nifty goes to 9300 etc. Once the quarterly results  are through and the global geopolitical situation worsens, our markets are very likely to down to 8500 or even below that on the Nifty. Once I sell all my disposable MF, I will just be in cash and wait for the right opportunity.

What will I be buying with the cash I get? Well, one option is to invest in some of the stocks I had outlined in the earlier post. I am sure that if I buy these at Nifty levels of 8500 I will definitely see significant returns over the next 3 years etc. Another option will be to space out the stocks and invest in my 4 MF’s .

Unless the NIfty shows a rising trend due to a strong quarterly results, I am finally ready to pull the trigger on this. Even if it keeps rising, I will still sell when it reaches 9300, as I do not believe that is a value at which the Nifty can sustain itself.

Indices at life time highs – should you sell your MF ?

Over the last few days all indices are either hitting their lifetime highs or coming very close to them. In fact, with the issues in Syria and the impact on crude oil prices, there is a chance of some correction in the immediate future. This is probably the reason why I have got a lot of messages asking me as to whether it will be a good idea to sell the entire MF portfolio, be in cash and again buy the MFs once the markets seem to have finished the correction.

Is it possible that you will make money in the short run through this approach? The answer to that is “yes”. Is it therefore a good idea? The answer to this is clearly a “no”. in order to understand why this is so, you need to understand how MF works in the first place. The fund manager has a certain amount of money available and he is buying stocks with it. These set of stocks for a particular scheme will keep changing. The fund manager is doing these changes and you pay him for that very reason. Now if the markets are going down the fund manager may selectively sell some stocks and buy others. As such the scheme you sell and the one you buy are fundamentally different. If you are in the scheme as part of your long term goals then it makes absolutely no sense to sell off the schemes when the markets are at highs. For all you know your fund manager is taking the appropriate decisions by selling some stocks at their highs and buying others which still have a lot of value in them. Do not try to second guess a person who is professionally trained and does this for a living. Just because you can play around with spreadsheets and calculators does not make you competent to take such decisions.

Now what if these funds are not part of your long term portfolio? Well, if you are to sell them anyway then you might as well sell when they are at their highest or near it. In that case my recommendation would be to sell NOW. Yes Nifty can still go to 9500 plus this year and maybe even 10000, but those are fraught with uncertainties. You might as well sell off now and wait for a 5 % drop or more to buy funds that you want to be in for the long term. As I said before with the same fund it does not make sense to change but if you are changing your fund you might as well look at a better entry point.

What if your investments are in Regular schemes and you want to shift to Direct schemes? The same logic will hold – sell NOW and buy after a while.

Over the years I have invested in several schemes and have now reduced it to 5 only. The current market gives me a great chance to clean up my portfolio. How do I intend to do it? Read the next post to find out.

Building an MF portfolio in 2017? Try this one

In my last post I had outlined an MF portfolio that can be quite ideal for people who are willing to take some risks for the prospect of significant growth. However, most investors are really not of the type who can take extra risks. Many have told me that being in equity itself entails a certain amount of risk for their investments and they would rather not take any steps that enhance this further.

This post is about a more well rounded MF portfolio for the long term. The idea will be to invest regularly in these funds over a long period of time. Most of my readers know that I dislike SIP a lot, as it is the quintessential wrong way to buy equity. What you will need to do is fix your annual allocation in these funds and put in the money 3-4 times a year, based on the level of the index corresponding to the fund. There are several posts in my blog where you can get more details of the approach and techniques.

The recommended portfolio is again suggested in one CNBC program, though I have made slight changes to it and I do not agree with the SIP mechanism of buying. The funds are as follows with a brief rationale of their selection:-

  1. BSL Frontline Equity fund : A great large cap fund which has stood the test of time. Provides stability of Blue chip stocks to the portfolio.
  2. ICICI Value Discovery fund : An atypical multi cap fund where the focus is on stock selection. Expect it to do really well in Bull markets.
  3. DSP Small and Mid cap fund : With fresh investments in Micro cap fund stopped, this is possibly the best option in this segment. Expect to see volatility but the stock picks of the Fund Manager are mostly successful and long term returns should be worth it.
  4. ICICI Balanced Advantage fund : This is an interesting Balanced fund due to the asset allocation mechanism it follows. Expect fairly stable returns from it.
  5. Reliance Small cap fund : This has been a stellar performer even though the next couple of years may be volatile. Excellent returns are likely over the next 10-15 years.

What kind of returns can you then expect from such a portfolio? Predictions are really hazardous over the long term in equity and for the purposes of planning I do not ever recommend you work with anything more than 12 % XIRR. However, if things go right with the Indian economy, this one can easily give you an XIRR od 18 % plus.

That will of course mean you keep investing regularly as well as buy your units at the right time. Mindless SIP where you put the same amount of monthly money even when markets are at their peak, can only give you sub optimal returns, even with the best of portfolios.

My stock portfolio – the third set of 5

While most investors may be going through the MF route to buy equity as an asset class, there is a lot of interest in the stock portfolios of seemingly successful investors. This is amply demonstrated by the numerous requests I get for stock tips and readers wanting to know about my portfolio. In the last 2 post I had written about my top 10 holdings. Here I will write about the next 5.

The first in the list is ITC and some observations are below.

  • My motivation for buying the stock was to get a well run mass consumer company in my portfolio. I also have HUL but ITC has performed better over the years.
  • My first purchase was in 2006 August and the last in January 2015. I had also sold off some of my shares in the interim when it hit the figure of 400.
  • The stock has seen a lot of corporate action in terms of bonus and I too got benefited by a 1:1 bonus in 2010 and a 1:2 bonus in 2016.
  • It has normally been a good dividend paying company with 500 % to 850 % rates in the last 4 years.
  • In terms of potential, this is clearly one of the best examples of an Indian company which is benefited from the local consumption story. I think it is quite possible for the stock to double over the next 2-3 years, even with the challenges in the cigarettes business.
  • My investment in the stock is now at an average price of 98 Rs.
  • I do not have any real plans to sell the stock, now or in the near future.

The second in the list is Mindtree and some observations are below.

  • My motivation for buying the stock was mainly to invest in a relatively new IT services company run by a management that had great pedigree.
  • My first purchase was in July 2007 and the final one in September 2008.
  • The stock had declared a 1:1 bonus in 2014 and  in 2016.
  • It has normally paid good dividends in the range of  100 % and more.
  • In terms of potential, the company is facing serious challenges now and this is being reflected in the declining price. However, I think it will recover in this year and it is quite possible for it to reach 1000 levels in a couple of years.
  • My investment in the stock is now at an average price of 134 Rs.
  • I have no plans of selling this stock now or in the near future.

The third in the list is Hindustan Zinc and some observations are below.

  • My motivation for buying the stock was to have a commodity based company in my portfolio and this was one of the better run companies.
  • My first purchase was in 2007 June and the last in March 2009.
  • The stock has not seen corporate action in terms of bonus or splits after my purchases.
  • It has normally been a good dividend paying company and in the last 2 years the dividends have been 300 % and 400 %
  • In terms of potential, this is clearly one of the best examples of an Indian company which has dominated locally and well on course for it’s global journey now. I think it is quite possible for the stock to double over the next 4-5 years.
  • My investment in the stock is now at an average price of 542 Rs and it is about 5 % of my portfolio value at CMP.
  • I do not have any real plans to sell the stock, now or in the near future.

The fourth in the list is TCS and some observations are below.

  • My motivation for buying the stock was it’s prominent place in the IT sector as a major global player.
  • All my purchases of this stock was between January 2008 and June 2009.
  • The stock had seen a bonus of 1:1 in June 2009.
  • It has normally been a great dividend paying company and mostly paid 45 Rs dividend per share in 2016.
  • In terms of potential, this is clearly one of the best examples of an Indian company which has gone global successfully. I think it is quite possible for the stock to double over the next 3-4 years, despite the obvious challenges.
  • My investment in the stock is now at an average price of 399 Rs and it is about 4 % of my portfolio value at CMP.
  • I do not have any real plans to sell the stock, now or in the near future.

The final one in the top 5 list is L & T and some observations are below.

  • I bought some convertible debentures way back in 1992 and this effectively got converted into shares at a value of 60 Rs.
  • The stock has seen bonuses in 2006, 2008 and 2013 where  my numbers went up and I also sold off some at a decent profit.
  • It has normally been a great dividend paying company at around 800 % and more.
  • In terms of potential, this is clearly one of the best examples of an Indian company having made it both locally and globally. I think it is quite possible for the stock to double over the next 2-3 years.
  • My investment in the stock is now at an average price of 20 Rs and it is about 4 % of my portfolio value at CMP.
  • Based on this purchase I also got shares of Ultratech Cement free 🙂
  • I do not have any real plans to sell the stock, now or in the near future.

As you will see from here, investing in good companies and holding them for a long period of time has really worked for me here. There are some other holdings I have that may be of interest to my readers. I will share it in a future post.

My stock portfolio – the next 5

While most investors may be going through the MF route to buy equity as an asset class, there is a lot of interest in the stock portfolios of seemingly successful investors. This is amply demonstrated by the numerous requests I get for stock tips and readers wanting to know about my portfolio. In the last post I had written about my top 5 holdings. Here I will write about the next 5.

The first in the list is Kansai Nerolac and some observations are below.

  • My motivation for buying the stock was to get a Paint company in my portfolio. As I wanted to get a growth oriented company I chose this over Asian Paints.
  • My first purchase was in 2008 January and the last in January 2009.
  • The stock has seen a lot of corporate action in terms of bonus and I too got benefited by a 1:1 bonus in June 2010.
  • It has normally been a good dividend paying company at 100 % and in the past 2 years this has gone up too.
  • In terms of potential, this is clearly one of the best examples of an Indian company which is benefited from the local consumption story. I think it is quite possible for the stock to double over the next 2-3 years.
  • My investment in the stock is now at an average price of 29 Rs and it is about 5 % of my portfolio value at CMP.
  • I do not have any real plans to sell the stock, now or in the near future.

The second in the list is TVS Motor and some observations are below.

  • My motivation for buying the stock was mainly to participate in the two wheeler segment and I chose it over Hero Motocorp.
  • My first purchase was in October 2006 and the final one in December 2006.
  • The stock had declared a 1:1 bonus in 2010.
  • It has normally paid good dividends in the range of 75 % to 100 % and in the last 2 years this has increased to 200 % plus.
  • In terms of potential, the company is poised to grow aggressively due to the aspirations of our population. It is quite possible for the stock price to double in the next 2 years or so.
  • My investment in the stock is now at an average price of 49 Rs and it is about 5 % of my portfolio value at CMP.
  • I have no plans of selling this stock now or in the near future.

The third in the list is Dr Reddy’s Lab and some observations are below.

  • My motivation for buying the stock was it’s prominent place in the Pharma sector and the focus it had on research as an Indian company.
  • My first purchase was in 2007 June and the last in March 2009.
  • The stock has not seen corporate action in terms of bonus or splits after my purchases.
  • It has normally been a good dividend paying company and in the last 2 years the dividends have been 300 % and 400 %
  • In terms of potential, this is clearly one of the best examples of an Indian company which has dominated locally and well on course for it’s global journey now. I think it is quite possible for the stock to double over the next 4-5 years.
  • My investment in the stock is now at an average price of 542 Rs and it is about 5 % of my portfolio value at CMP.
  • I do not have any real plans to sell the stock, now or in the near future.

The fourth in the list is TCS and some observations are below.

  • My motivation for buying the stock was it’s prominent place in the IT sector as a major global player.
  • All my purchases of this stock was between January 2008 and June 2009.
  • The stock had seen a bonus of 1:1 in June 2009.
  • It has normally been a great dividend paying company and mostly paid 45 Rs dividend per share in 2016.
  • In terms of potential, this is clearly one of the best examples of an Indian company which has gone global successfully. I think it is quite possible for the stock to double over the next 3-4 years, despite the obvious challenges.
  • My investment in the stock is now at an average price of 399 Rs and it is about 4 % of my portfolio value at CMP.
  • I do not have any real plans to sell the stock, now or in the near future.

The final one in the top 5 list is L & T and some observations are below.

  • I bought some convertible debentures way back in 1992 and this effectively got converted into shares at a value of 60 Rs.
  • The stock has seen bonuses in 2006, 2008 and 2013 where  my numbers went up and I also sold off some at a decent profit.
  • It has normally been a great dividend paying company at around 800 % and more.
  • In terms of potential, this is clearly one of the best examples of an Indian company having made it both locally and globally. I think it is quite possible for the stock to double over the next 2-3 years.
  • My investment in the stock is now at an average price of 20 Rs and it is about 4 % of my portfolio value at CMP.
  • Based on this purchase I also got shares of Ultratech Cement free 🙂
  • I do not have any real plans to sell the stock, now or in the near future.

As you will see from here, investing in good companies and holding them for a long period of time has really worked for me here. There are some other holdings I have that may be of interest to my readers. I will share it in a future post.