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MUTUAL FUND HANDBOOK JANUARY 2021

MF HAND BOOK

 

INDIAN MUTUAL FUND INDUSTRY SNAPSHOT

Handbook 1

Handbook 2

THE SIP STORY

Handbook 3

Handbook 4

BROAD-BASED INDUSTRY FLOW PRINT

Handbook 9

ASSET CLASS HIGHLIGHTS – EQUITY

Handbook 6

ASSET CLASS HIGHLIGHTS – DEBT

Handbook 7

ASSET CLASS HIGHLIGHTS – HYBRID + GOLD

Handbook 8

 

Invest On Or Before 31st March 2021 To Get 4 Indexation Benefit

Invest On Or Before 31st March 2021 To Get 4 Indexation BenefitDebt investments are recognized for their tax efficiency vis-à-vis traditional investment instruments. Qualifying as a tax-savvy structure on passing of financial year, you can get 4 Indexation benefits by 1 timely debt fund investment. Here’s all you need to know & do for the same:

  1. Long term capital gains (holding period of over 3 years) from debt mutual fund schemes are taxed at 20% plus applicable surcharge and cess with the benefit of indexation.
  2. Government notifies Cost Inflation Index (CII) for each financial year taking into consideration the prevailing inflation levels
  3. The cost of purchase for computation for tax is adjusted for inflation using CII, thereby reducing the capital gains from tax perspective.
  4. A debt mutual fund investment near the end of financial year (March 2021) with holding period of >3 years (April 2024) makes you eligible for CII application for >5 financial years, resulting in 4 indexation benefit.

You can avail 4-indexation benefit, if you invest in the required manner on or before March 31,2021 and redeem during FY25

Note: Above table is an illustrationInvestors to be aware that fiscal rules/tax laws may change and there’s no guarantee that current tax positions may continue indefinitely.

You May Consider Opting For Debt Mutual Fund Schemes Right About Now.

SBI Retirement Benefit Fund

SBI Retirement Benefit Fund

Retirement is often pronounced as the end-all goal of working-cum-investing, marking the beginning of a new phase in one’s life. On a lighter note, retirement is characterized in 1 of 2 ways:

  1. Waking up in the morning with nothing to do, and having retired before doing it
  2. That period when you stop lying about your age and lying ‘round the house

Retirement is the 1 common goal we all aspire to enjoy care-free irrespective of working age, and socio-economic differences. 

However, while India enjoys one of the healthiest work-friendly demographic distribution vis-à-vis other countries, it suffers from lack of planning for post-work life. This behavior has found new found attention across media outlets too, as is evidenced below:

In the interest of saving your time (read as: use saved time to plan for retirement!), let us summarize the observations made across the links mentioned below:

  • In India, private sector does not contain a robust pension policy with little-to-none government social security programme. This makes having retirement planning all the more necessary 
  • ~50%+ survey participants do not have any financial plan for post-work life, while allocating ~60% of income to current expenses
  • Retirement takes a back seat in financial priority with child and spousal security and even fitness ranking ahead
  • ~50% are not aware of total financial plan required in and after retirement age
  • Barely 1 in 5 Indians considers the impact of inflation on returns while planning for their retirement

Your tomorrow (retirement) is going to defined by how you plan-&-act today. Lack of planning for post-work life will have you constantly dependent on a stream of regular income with no room for interruption, which in essence, is top contender for financial sin. 

Unfortunately, the covid-19 lockdown transformed above observation into practice as working population resorted to loans and (more importantly) loan moratoriums to stay sans-scarce on a monetary front. A RBI study revealed how ~50% of total retail customers depended on moratorium facilities to curb pandemic hits.

In light of this information, remember that in today’s world, the only financial goal for which there is no loan facility is retirement.

As you get more worried and inclined about planning to save for retirement, SBI AMC brings forth their Retirement Fund NFO to soothe your stress by doing it for you. 

In a simple and systematic manner, the retirement fund factors in many pre-&-post retirement expenses so you are best prepared to circumvent unexpected episodes. A few of them are:

blog SBI

The Retirement NFO takes care of another key challenge in factoring in total amount needed post retirement in a financially savvy manner. An illustration of the same is shown below:

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Another essential element in saving for retirement is to act early. Many were caught off-guard last year in the wake of the pandemic cause of poor planning. The chart below highlights how delaying retirement planning significantly increases cost with delay interval of 5 years:

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As is observed, delay of 5 years (Between Age 30 & 35) can increase your SIP amount by Rs. 24,982. The difference increases as lag increases.

Already excited to go hunting for a mutual fund to take care of your retirement need? SBI AMC introduces their Retirement Benefit Fund so you can wait to enjoy your retirement life but not wait to plan for it.

 

SBI Retirement Benefit Fund

SBI Retirement Benefit Fund is an open-ended, retirement solution-oriented scheme. Per SEBI, the investment amount is locked in

for 5 years or until retirement (i.e. completion of 65 years), whichever is earlier. Also, No investor above the age of 65 years will be allowed to subscribe to the scheme. 

The NFO will offer 4 different plans for investors across life stages as shown below:

Blog 1

The NFO comes with many investor friendly features. A few are:

 

  • Asset Allocation:

This can be undertaken in 1 of 2 ways:

  • Auto Transfer:

Investment plan is chosen based on the investor’s age per table shown above. As the investor advances in age, the invested assets get automatically transferred to the next low risk investment plan corresponding to the investor’s age. No exit load is applicable in case of this switching of assets between plans. However, tax will be applicable as per prevailing taxation laws.

  • My Choice:

Initial investment plan chosen by investor will continue irrespective of advancement in age. Incremental investment will also be added to initial plan. Further, any number of switches are allowed between the four plans of the scheme.

  • Insurance Benefits With SIP:

SIP registered under this with a tenure of 3 years plus, has insurance benefits wherein in case of an unfortunate event the nominee stands to get the benefits as mentioned below:

  • Year 1: 20 times the monthly SIP installment
  • Year 2: 50 times the monthly SIP installment
  • Year 3: 100 times the monthly SIP installment
  • Year 4 onwards: 100 times the monthly SIP

 

  • Cash Flow Management With SWP

Investors can opt for this facility and withdraw their investments systematically on a Quarterly basis (applicable quarters are end of December, March, June, September). Withdrawals will be made/ effected on the 25th of every month of that particular quarter and would be treated as redemptions.

(The above features are subject to terms & conditions. Kindly enquire about the same with your financial advisor) 

Key Details

Blog 2

 

Macroscope – Inflation CPI Inflation For The Month December 2020

macroscope

What is the latest reading?

India’s retail inflation eased for 2nd straight month after touching its highest figures in last 6 years in Oct’20. Inflation came in at 4.59% in December vs 6.93% in November, with it coming in-line with RBI tolerance level after staying above it for 8 consecutive months. Core CPI eased to 5.34% after rising to highest in ~2 years at 5.51% in the month prior.

macro

Inflation in December is at its lowest levels in last 15 months, falling in-line with MPC’s tolerance band of 4 (+/-2)%, for the 1st time since pandemic inception. With inflation reducing & IIP contracting, country macros send mixed signal with sustainability continuing to be a faltering feel.

Element Inflations

macro 1

Investor Takeaway

The fall in inflation can be credited to fall witnessed in vegetable prices which slipped 10.4% YoY vs uptick of 15.6% in month prior.

High base-effect came into play too in seeing inflation picture a softer print. The base play can misguide real inflation figures in H1CY2021, courtesy of extraordinary inflation seen in comparison figures.

The continued downtrend in veggie prices were countered with broad-base increase in other food items. The after-effect of unlockings has translated into higher oil prices as prices follow an upward trajectory, thus posing as risk to inflation metric in coming times.

Correction in prices of sub-indices under the Greens category helped deflate stepper inflation values.

As pressures on perishable food prices ready for a go on the downside, other factors such as increased input and output costs, higher labor charges and rising oil prices can dampen hopes of drop in inflation in coming times.

Core-inflation is expected to chart a similar trajectory as demand-side factors continue to battle the covid brunt.

In last bi-monthly monetary policy meeting, the central bank kept its key interest rates unchanged while maintaining its accommodative stance. Continuing to focus on growth via polices and packages, RBI is to use an arsenal of unique liquidity and similar supportive strategies to maintain current pace of expedited growth.

Broad-based domestic and global economic recovery should improve aggregate demand, posing an upside risk to inflation. Favorable base effect, appreciating rupee and any risk of second or third wave of covid led slowdown, will be a tailwind for CPI inflation.

It is likely for RBI to remain on pause in February meet and consider rate-cutsin near future after efficacy in transmission of prior rate-cuts.

Click here If you want to read the complete CPI Inflation press release

INDIAN MUTUAL FUND INDUSTRY SNAPSHOT

Mutual Fund book Dec 2020

Data

Blog

THE SIP STORY

blog2

blog3

BROAD-BASED INDUSTRY FLOW PRINT

blog4

blog5

ASSET CLASS HIGHLIGHTS – EQUITY

blog6

blog7

ASSET CLASS HIGHLIGHTS – DEBT

Blog8

blog9

ASSET CLASS HIGHLIGHTS – HYBRID + GOLD

blog10

Blog11

 

Risk-O-Meter Redefined – Here’s All You Need To Know

Risk o meter

“Mutual Fund investments are subject to Market Risks, read all scheme related documents carefully before investing”

In watching TV, reading paper, or hearing a radio – the above phrase has become the poster-boy phrase for our mutual fund industry.

Mutual funds today rope in higher count of diverse investors, economically & geographically, as is evident in growing AUM and city coverages. Hence, in the interests of investors, MF body regulators in SEBI, and AMFI, design and re-design policies in-line with evolving financial acumen across state borders.

The variety of risk is determined per mutual fund’s category (asset class) and sub-category. This variety is then assigned a label per the risk-o-meter.

What Is The Mutual Fund Risk-O-Meter?

The Risk-O-Meter is a tool designed to help investors gauge the level of risk in a mutual fund via a meter. Ranging from low to high, the scale helps in uniform labeling of a fund to help investors assess true level of portfolio risks. 

Below is a pictographic representation of the current Risk-O-Meter:

1

A key limitation in current risk rating system is subjectivity in labeling practice, highlighted by the decision-making abilities resting with AMCs per their scheme objectives.

Another limitation lay in sans-scoring of various key parameters to give fund an overall risk score, but rather scores being assigned on a more holistic basis.

Such limitations prompted the need for the risk profiler to be given a new face. 

In-line with the philosophy, SEBI has introduced a new Risk-O-Meter with effect from January 1, 2021. 

What Does The New Risk-O-Meter Encompass?

The new meter is designed to better factor in range of risks associated with respective asset classes, when assigning risk label. The biggest difference is broadening of labels on the higher risk hierarchy, thus clearly defining boundaries between riskier instruments.

2

What Are The Benefits Of The New Risk-O-Meter?

  • Dynamic Risk Setting

Mutual funds to disclose risk level of schemes on March 31 of every year, along with number of times the risk level has changed over the year. Further, every fund house will evaluate risk-o-meter on monthly basis, making risk-reading more dynamic.

  • Parameter/Component Scoring

The new Risk-O-Meter introduces practice of scoring key parameters (determined by asset class), with final output being 1 weighted average of component scores. The risk level corresponding to final number will print the risk level for said fund.

The parameter scoring is to be undertaken for every portfolio security to reduce subjectivity in reading to the minimal. 

For equity funds, 3 risk parameters will print market fund risk. They are as follows:

  • Market Capitalization
  • Volatility 
  • Impact Cost

For Debt Funds, 3 risk parameters will print market fund risk. They are as follows:

  • Credit Risk
  • Interest Rate Risk 
  • Liquidity Risk

For schemes that invest in more than one asset class, the risk score of respective asset classes will be calculated and then, added up.

Investor Takeaway

In introducing scoring of broad parameters with investor-friendly output via rating scale, the regulators have made current risk control system more robust. Fund peer reading can now become more scientific, as investors can map fund performance to risk taken vis-à-vis peers.

AMC’s may be deterred to wear higher risk metrics, due to new visibility on the latter. This will keep investors disincentivized to switching to relatively safer funds. 

As 2021 continues to pass, it will be interesting to see how funds balance the risk-return profile of funds to maximize upside while minimizing downside.

All-in-All, the modified risk-o-meter will help investors in making more informed decisions by aligning personal risk appetite with that of a fund.

We continue to recommend investors to solicit advice from investment professionals before putting their monies into a particular fund.

Please click here – SEBI Risk-O-Meter Revamp Circular – for more information.

The Signal: Worried About Market Levels?..Here Is Why You Shouldn’t

The Signal

Markets have welcomed 2021 with post-covid euphorias as is reflected in it crossing the 14,000 mark for the 1st time since inception. Looking at markets today humbles the realization that we are less than 2 months away from India’s Covid-lockdown anniversary. As the markets look ahead to 2021, it is sound for investors to realize where and how we stand today.

To put market returns in context, read the table below to visualize the bounce-back in Indian markets amidst the world’s biggest health crisis:

Signal 1

The bumper returns are a culmination of many direct and indirect events within and outside country borders. 

The fast-paced bullish sentiments which have carried markets so far are now on the brink of welcoming yesteryear-like conservatism. The intensity in rebuttal of markets has taken participants by shock, with many questioning further buying or booking profits.

To investors who fall in this basket, we say to act not out of inferences but out of information. 

In addressing the biggest current concern of market sustainability, look at the chart below to scratch your market performance itch:

Signal 2

As is observed above, post 2018 market fall, market rally has been concentrated and led majorly by growth stocks. Going forward, the market rally is expected to be more broad based, courtesy of expansionary policy measures by global central banks, and other covid solution practices.

To put it simply, most of the market growth that we see today has come from a handful of stocks in adhering to the “big gets bigger” principle. As we near the exhaustion of the too-big-to-fail syndicates, Indian markets will expectedly fall on the performances of the mid, small and micro institutions. Wider inclusion across market-caps will not only reduce dichotomy between markets and economy fundamentals but also reflect true health & wealth of the sync between them.

The fact in growth being pegged to sans-large indices is clearly reflected in figures of the remaining muted market-caps, in their evolution of garnering relevant investor attention. 

The graph below shows the calendar year return of major indices across Nifty & Sensex benchmark in calendar-year 2020:

Signal 3

As can be seen above, the Mid-&-Small cap indices have outperformed their large-oriented counterparts. 

In fact, investors who were diversified across market-caps in their portfolios saw stronger performance vis-à-vis Large-cap MFs and broader markets. 

The graph below highlights the same:

Signal 4

The funds taken into considerations were uniform across 1 AMC, with portfolio equally diversified across all market-caps. In numbers, following were the calendar-year results

  1. Portfolio delivered absolute return of 23.0%
  2. Portfolio delivered alpha of 3.2% vs Large-Cap fund
  3. Portfolio delivered alpha of 8.2% vs broader market index

 

Investor Takeaway

Markets are a tool for investors to learn-&-earn. It has and always will be the case. The 1 commonality it has enjoyed across the many crisis it has faced in years past is its long-term outcome, which is an upward sloping curve.

However, returns have rarely been this visible as the markets have rarely been this polarized. In capturing the growth that lies ahead, it is advisable for investors to diversify their equity portfolios across market-caps and not arrest upside potential by favoriting 1 segment of the market. 

The degree of exposure of to mid-&-small segments should be done via your risk-return appetite. Those wearing a higher risk profile should look to aggressively expand flavor profile across sans-large indices and vice-versa. 

For those thinking, mid-&-small cap indices are risky, let us remind you of how your portfolio is probably exposed to only 1 market segment, thus making your portfolio riskier than you would like it to be. Especially when that segment has delivered to the fullest and more.

Remember, Diversification is important not only across asset classes but within them too.

If you wish to share your opinions, do write to us. As always, we excitedly await them.

Wish you a happy weekend

 

The Signal: The Week Highlights

The-Signal-Week-and-more-1

News letter 1

 

1. India Paces Growth In Becoming New India

The virality of the virus’ has finally met its match in economy unlocking and ‘Aatmanirbhar Bharat’ package as green-shoots of economy emerge turn from roots to shoots. The rise in GST, PMI, IIP and business confidence figures are a sign of us coming to terms with ‘New-Normal.

India reinstates its position as the apple of the (investor) eyes, by doctoring itself out of current cry-sis. Govt.’s marquee policies and packages, in support with RBI’s financially prudent intervention has India kick-start its economy in the higher gears. When peers are entering lock-downs, India looks to lock-in monies across borders, ready to become the fastest growing economy in the coming times. 

 

2. India Embodies, “Spending Money To Making Money” Mantra

Overall spending (including revenue expenditure) by Centre and states will rise ~15% on YoY basis to ~INR 33 lakh crore in H2. Surge in public capex will benefit fixed investment rate, giving strong support to gross capital formation. Govt. is cognizant of lacking economical spending support in Q2 as its consumption expenditure fell 22% on YoY basis. However, govt to step up investment regimen to pump country with credit and infra projects

Public-sector fixed capital formation has been go-to oven meals amidst times of no grocery shopping (pvt. Funding). Contribution of state govts have been vital in past as country looks to maximize on current macro-&-micro positions via packages  & policies to wish health-&-wealth in economy.

 

3. Bright Indicators Indicate Brighter Prospects

The virality of the virus’ has finally met its match in economy unlocking and ‘Aatmanirbhar Bharat’ package as green-shoots of economy emerge turn from roots to shoots. The rise in GST, PMI, export sales and business confidence figures are a sign of us coming to terms with ‘New-Normal.

Covid 19 has country racking up debt at startling rates to refurbish current broken economy. However, from troughs come peaks, although the journey uphill is 1 tough battle. In trying times, we must remember the merit debt financing brings! So, if the cards play out right, the current debt overhang can be a long-term blessing in disguise

 

4. IMF Endorses As Investment As Covid Antibody

Public investment will play a “central role” in recovery of both emerging and advanced economies from Covid-19. Increasing investments by 1% of GDP could raise private investment by 10%, employment by 1.2%, GDP by 2.7% along with overall confidence in the recovery.

Public’s health is country’s wealth’  is the motto emblazoned on every financial body today – global or domestic. Spurring demand-&supply will require Govt.’s to open their vault’s floodgates to tide over current credit crunch and breathe life inti economies everywhere.

 

5. Rising NPA Can Fracture India Growth Legs

Indian domestic banks carry highest NPA count in the world after getting Rs2.6 lk Cr. In past years which is now inflated, courtesy of Covid crisis. GNPA to touch 12.5% this fiscal – highest in 2 decades as banks are coerced into flushing economy with cheap liquidity to revive economy. 

As institutions grapple with the after-effect of Covid 19, those who lend find themselves in similar waters with those they lend to! As Covid-support policies come in from the top to stimulate money flow, the channel of distribution works like a malfunctioned pipe rather than a water-rich river.

Macroscope – PMI Services PMI for the month December 2020

Macroscope Dec 2020 PMI Services

What is the latest Services PMI reading?

India Services PMI fell to 52.3 in December 2020 from 53.4 in month prior. Touching its lowest in 3 months, the reading still maintained growth trajectory for 3rd month in a row.

A reading above 50 denotes expansion and below 50 denotes contraction.

Macroscope1

The slowing services PMI adds to uncertainties about strength of current economic recovery, as other high-frequency indicators such as IIP, auto sales, railway freight, power demand, and exports—have exhibited mixed trends in recent months.

The active manufacturing and distribution of covid vaccine will expedite gradual recovery process and help with uncertainty regarding pandemic and input inflationary pressures (rose at fastest pace since February of last year).

Another impediment was observed in continuous job shedding, courtesy of liquidity concerns, labour shortages and subdued demand. Payroll numbers witnessed decline for the 9th time in the last 10 months.

Reduced workforce with higher raw material cost saw new business and output rise at the slowest pace in last 3 months. This spillover of crunched top & bottom-lines dampened overall positive sentiment vis-à-vis month prior.

Global COVID-19 restrictions, particularly travel bans, reportedly restricted international demand for Indian services at the end of 2020. New export business decreased sharply, but at the slowest pace since March.

Sub-sector data highlighted Transport, Consumer Services, and Finance & Insurance as the brightest spots where sales and output expanded in December. Contractions were noted in Information & Communication and Real Estate & Business Service.

As is seen globally, manufacturing PMI continues to out-perform its services counterpart, courtesy of the latter being hit harder by Covid-19.

The coming times can see risk tilting towards the upside due to possible faster recoveries in population mobility and household spending. Agencies revising their growth estimates for India in short-term bodes well for country’s macro indicators.

The key risks will continue to be unforeseen events resulting from the virus, and current steep rates of inflation.

Click here If you want to read the complete Services PMI HIS Markit press release

Macroscope – Purchasing Managers’ Index (PMI), December 2020

Macroscope Dec 2020

What is the latest Manufacturing PMI reading?

India Manufacturing PMI recovers from 3-month low in November of 56.3 to record 56.4 in December. In October, it recorded the highest figures in 12 years at 58.9. The PMI reading has maintained growth trajectory for 5th month in a row. 

A reading above 50 denotes expansion and below 50 denotes contraction.

Macroscope

The Indian manufacturing sector continues to remain on the right path to recovery aided by recovering domestic demand. A worrying development remains higher input prices, which may add to output prices, especially as demand conditions normalize.

Business closures in 2020 saw manufacturers pump up production, and purchased input stocks at quickest rates seen in nearly a decade. Increased New orders led to decline in inventories.

Loosening of covid restrictions was reflected in improving market conditions and factory orders as expansion rates remained healthy despite component figures easing to 4- month low. Employment continues to be dark horse as jobs saw shedding in December.

Strong internal climate and weak external climate has fostered new-found foreign attention in India. This spilled over into increased export order book, albeit, at slowest pace in last 4 months, courtesy of cross-water lockdowns.

Increase in new orders resulted in higher raw material purchases, relaying growing momentum for 5 months in succession. Purchases grew at quickest pace since March’11.

Strong sales, courtesy of growing demand led to decline in finished stocks. The rate of depletion was steeper and faster than any seen prior to April.

As mentioned above, payroll saw cuts in body and bank count, stretching shedding sequence into its 9th month. Much of it is credited to guidelines issued by the government. The progressive unlockings of the economy will help these figures see positive territory too.

Input prices continued to increase in December, with inflation accelerating to a 26-month high and outpacing its long-term average. Selling prices followed suit, rising by par-plus rate. However, rate of increase continues to be below historical averages.

Looking ahead, manufacturing firms are foresee growth business activity in for next 36 months.

As is seen globally, manufacturing PMI continues to out-perform its services counterpart, courtesy of the latter being hit harder by Covid-19.

The latest PMI results for the Indian manufacturing sector continued to point to an economy on the mend, as a supportive demand environment and firms’ efforts to rebuild safety stocks underpinned another sharp rise in production.

On combining the latest 3 months data, performance of manufacturing industry for Q3FY21 is notably better than in Q2FY21. The 3-month PMI average rose from 51.6 to 57.2

The key risks will continue to be unforeseen events resulting from the virus, and current steep rates of inflation.

Click here If you want to read the complete Manufacturing PMI HIS Markit press release

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