Think Fundsindia - May 2016

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You cannot be as swift as the market
Did the market fall in the first two months of 2016 spook you into staying
away from investing, or stopping your SIPs? Ordid it make you think that
you could invest at a better time? Here’s what the market is telling you: “You
can’t play catch up with me!”
Yes, the almost 12 per cent fall in the Sensex from the first day of 2016 till
February end was steep, coming as it did in just two months. The markets
are now (as of April 28) flat at -0.2 per cent, 2016 to date. That means an
equal rally happened over the next two months post February.
So, what would have happened had you stopped your SIPs? You would still
be sitting on negative returns (if you had just started your SIP in January) or
marginally positive returns; whereas had you been averaging, your returns
would already be on the positive turf.
Let’s take the case of even a low-volatile fund like Franklin India Bluechip.
You would have averaged in March at an 8 per cent lower NAV compared
with the NAV in January. In more aggressive funds, this variation would have
been 11-12 per cent at least. That simply means you would have bought
more on lows. Hence, when the bounce back happened, your portfolio would
have been up in no time!
We find quite a few new investors turning uncertain in market volatility and
wondering if they should continue their SIPs. Stopping SIPs in market fall
is the worst thing you can do to your portfolio. By taking on the SIP way of
investing, you allow averaging to work for you. So, by stopping them, you take
away the fundamental reason why SIPs exist!
For those waiting to enter the market at an opportune moment, the rally
would havebeentooshort for you toidentify and enter It is. likely youwould
have lost out. It may be better to invest a sum and follow it up with tranches
on falls, if you are a lump sum investor.
If you are a SIP investor, your portfolio is best left untouched. If you think
you want more, then add lump sums to the same funds in which you have
SIPs running, when you see your funds in the negative (after you make sure
the problem is not with the fund and that it is with the market).
Avoid trying to time the market. It is too swift for you to catch. Simply stay
invested!
Vidya Bala
Head – Mutual Fund Research
FundsIndia.com
May 2016 Volume 06 05
A Social Connect
Greetings from
FundsIndia!
I am happy to
announce the launch
of a Facebook group called
‘FundsIndia Investors’. We hope to
nurture this as a virtual community.
This will be a place where current
and potential investors of the
FundsIndia platform can talk to
each other (and FundsIndia staff)
and learn about investing ideas and
methods.
Long-term investing can be an
arduous task. It requires patience,
persistence, and constant
motivation. A support system that
encourages and appropriately
guides a person to stay with an
investment plan can be of
invaluable help in this journey.
This group has already seen good
initial traction, having gained over
2,000 members who actively
engage in conversations every day.
I welcome you to join this group
and benefit from the community’s
expertise and support.
Do note that this channel is an
augmentation of our efforts to
engage with our customers and
does not replace any existing
channel. Your friendly advisory
and customer support channels are
alive, active, and always available.
Happy investing!
Srikanth Meenakshi
Co-Founder & COO
FundsIndia.com
www.fundsindia.comwww.fundsindia.com

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This is a sponsored advertisement by ICICI Prudential Mutual Fund

How a SIP works more for you than an EMI
But this same discipline, this same giving of good sums,
this same long-term horizon is not present when it comes
to our mutual fund investments. Here, we hesitate to
commit a fixed sum. We are under-invested, content to
put in small sums of just Rs. 1,000 or Rs. 2,000 a month,
even while we commit over ten times of this to our EMIs.
So, what if we compare a house investment with a mutual
fund investment? If, instead of paying your EMI, you had
been investing in mutual funds, what would you have
ended up with?
Cost of a house
Let us assume you planned to buy a house for Rs. 37.5
lakh. This is a reasonable price to assume for a middle
class person to buy a house in the city. It also makes for
easier calculations and presentations of down-payment
and loan component.
Typically, banks ask you to put in 20 per cent of the cost
as down-payment which comes from your own savings.
For our house, this works out to Rs. 7.5 lakh, and the
remaining Rs. 30 lakh is taken as a home loan.
Assuming a reasonable interest rate of 10 per cent and a
loan tenure of 15 years, the EMI for this loan works out
to Rs. 32,238. Then, you have registration costs of the
property, which is an average of 20 per cent, though
individual states have different rates.
Registration adds a further Rs. 7.5 lakh to the cost. The
total of the loan payments over the 15-year period is
actually Rs. 58 lakh. That brings the total cost of the house
to a whopping Rs. 73 lakh (down-payment + loan +
registration).
Now, let’s see what happens if you commit this EMI
amount to mutual funds through an SIP. You will have to
pay rent as you don’t have a house. A rent of Rs. 10,000 a
month is a fair assumption for a house of Rs. 37 lakh. So
that gives you Rs. 22,238 to invest in a good equity fund
with a long-term track record.
We assume that the increase in your rent will be taken care
of by salary hikes. This apart, there is also the Rs. 7.5 lakh
each for the down-payment and registration cost, both of
which came from your savings. Let’s say you put that into
a balanced fund for proper asset allocation.
How the returns fare
Look at the table now. We have different scenarios on
appreciation in property prices. We took data on mutual
fund performance for the past 15 years (assuming also
that you bought the house 15 years ago).
Take the best-case scenario of your property growing 10
times in 15 years and compare it with Portfolio II. You
will see that mutual funds still delivered Rs. 53 lakh more.
However, the chances of a 10-fold jump in property over
a 15-year period are low. In order to beat mutual funds,
your house should have appreciated by at least 12 times.
And if a 10-time appreciation is hard, a 12-time rise is
even more remote.
So, had you patiently allowed you money to grow over
these 15 years, your mutual funds would have fetched
you better returns.
Clearly, the SIP had delivered much higher, and that too
with a lower investment amount every month (Rs. 10,000
lesser than your EMI as a result of rent).
www.fundsindia.com
Lakshmi Narasimham
Buying a house means long-term commitment by way of EMI. The EMI amount is not small
by any means either. But that has never been a deterrent for most of us. We are willing to take
a 15-year loan and pay our huge EMIs diligently, and ensure that we never miss a payment.
“We are in a globalised world. Whatever you do, you are an integral part of the global supply chain.
Whatever you produce, think big in terms of the world.”
- Amitabh Kant, CEO, NITI Aayog

FOR HOME
Cost structure
Down payment for home loan Rs. 7.5 lakh
Registration cost Rs. 7.5 lakh
Total EMIs for loan period
(principal and interest) Rs. 58 lakh
Total cost of buying a house Rs. 73 lakh
Value and returns
Scenario I
After 15 years, assuming an
appreciation of 4 times Rs. 1.56 crore
Yield 7.90%
Scenario II
After 15 years, assuming an
appreciation of 10 times Rs. 3.75 crore
Yield 16.50%
Assumptions
EMI started on January 1, 2001, with a loan period of 15 years.
Amount of EMI is Rs. 32,238, for a loan of Rs. 30 lakh, at
10 per cent interest rate.
FOR MUTUAL FUND
Portfolio I - Franklin India Bluechip & HDFC Balanced
Cost structure
Total SIP investment in Franklin
India Bluechip* Rs. 40.25 lakh
One-time investment in
HDFC Balanced Rs. 15 lakh
Total investment cost Rs. 55.25 lakh
Value and returns
Value of investment after 15 years Rs. 3.71 crore
Yield 18.30%
Portfolio II - HDFC Equity & Tata Balanced
Cost structure
Total SIP investment in
HDFC Equity* Rs. 40.25 lakh
One-time investment in Tata Balanced Rs. 15 lakh
Total investment cost Rs. 55.25 lakh
Value and returns
Value of investment after 15 years Rs. 4.28 crore
Yield 19.60%
Assumptions
Monthly SIP amount of Rs. 22,238, starting on January 1,
2001, for 15 years. One-time investment amount equivalent of
down payment and registration costs
www.fundsindia.com
Index 1 Year 5 Years 10 Years
Nifty 50 -4.7 6.4 8.2
S&P BSE Sensex -5.9 6 7.8
Nifty Free Float Midcap 100 4.3 10 9.9
Nifty Free Float Smallcap 100 -4.9 6.5 6
Nifty 100 -3.9 7.1 8.6
Nifty 500 -2.8 7.4 7.9
Nifty Bank -8.2 7.9 13.9
Nifty Energy 1.2 -1.8 4
Nifty FMCG 1.2 15.5 12.3
Nifty Infrastructure -16.9 -2.7 0
Nifty IT 0.9 10.7 9.9
Returns (in per cent as of April 29, 2016) for less than one year
is on an absolute basis, and for more than one year on a compounded
annual basis.
Equity Performance Snapshot
So, what about this?
- One, if you showed the patience and ability to commit
high sums for a long period of time, like you do with your
EMI, you would be able to build a far superior corpus for
your long-term goals.
- Two, you need not be in a hurry to take a loan and buy
a house in your initial years of high saving.
Lakshmeenarasimhan S.
Analyst – Mutual Fund Research
FundsIndia.com

The risk in debt funds
Before getting into specifics, long-term debt is riskier than
short-term debt for the simple reason that it’s harder to
predict where interest rates will be in the next five years.
Two, uncertainties over company finances are higher in
the long term.
Duration
One risk in debt funds stems from the fact that interest
rates change over time. This is called duration risk. If
interest rates move lower, newdebt instruments issued
will consequently have lower interest rates. But older
instruments that are already issued still carry the old – and
higher - interest rate. This makes them more attractive
than new instruments, and therefore their prices move up.
Take, for example, a bond with a face value of Rs.100 and
an interest rate of 10 per cent. Then say interest rates
moved down and new bonds issued carry an interest rate
of 9 per cent. The old bond, in order to bring its yields in
line with the new rate, will see its price move up to around
Rs 110. The reverse happens when interest rates rise.
Bond prices move up when interest rates fall, and move
down in a rising rate scenario. There are other factors
influencing bond prices as well, such as supply and
demand.
Changes in bond prices cause fluctuations in debt fund
NAVs. If bond prices are rising, it’s going to take the
fund’s NAV up with it (and vice versa). Funds can sell
bonds when prices rally, besides earning the interest
accrued up to then. Such price changes are the most in
government bonds as these are the most liquid.
So, when debt fund managers anticipate a downward rate
cycle, they usually up holdings of long-term government
bonds and make neat gains through capital appreciation.
In a static or upward rate cycle, they can move into
short-term debt. Dynamic bond funds are the ones that
typically try to play the interest rate cycle and actively
juggle their portfolios between long-term and short-term,
corporate or government debt.
If volatility in debt returns is not your cup of tea, then
you should stay away from such funds. Go instead for
income accrual funds that seek to hold debt instruments
(mostly corporate bonds) to maturity and earn interest
income.
Credit
The second risk is that the borrower can delay or default
on payments, or credit risk. Companies (i.e., borrowers)
are graded on their ability to make timely interest and
principal repayment, captured as its credit rating. Credit
rating is done based on the company’s fundamentals – its
business, industry, prospects, utilisation of debt and so
on. A high-credit quality company will find it easier to
raise debt. A low-credit quality company is riskier and will
thus have to pay higher interest rates on its borrowings.
Debt funds can have a strategy of investing in such
low-quality but high-yielding debt. While the risk is high,
the potential pay-off is also high.
In these funds, the NAV is vulnerable to a change in its
credit rating (besides the risk of payment delays).
A change in the company’s (or even industry’s)
fundamentals can either improve or worsen the credit
rating. When the credit rating is lowered, the company will
have to pay higher rates if it is to borrow as it becomes
riskier. This higher risk perception and the fact that the
existing bonds have lower rates results in a mark-down of
the bond’s value. The fund’s NAV will thus reduce as the
www.fundsindia.com
Bhavana Acharya
With equity, the risk aspect is accepted. That the stock market can tank and thus returnsdrop
is something most investors are reasonably aware of. When it comes to debt though, most get
startled when their fund NAVs decline. Debt, while certainly far less risky and much more stable
than equity, is not zero risk. Here’s what you should know about debt fund risks.
“Our current growth certainly reflects the hard work of the government and the people of the
country, but we have to repeat this performance for the next 20 years before we can give every
Indian a decent livelihood.”
- Rajan, Governor, RBI

www.fundsindia.com
fund adjusts the value of its holding to the new value, or
marks it to market as it is officially termed.
This is what happened recently to funds from the Franklin
and ICICI stables as JSPL, which was widely held by these
two AMCs, was downgraded by rating agencies. When
downgrades are steep, as it happened with Amtek Auto
and JSPL, where the downgrade was 2-3 notches, the
mark down in value is greater.
But here’s the important point. The NAV change is a
result of fall in bond prices or book value only – it’s
notional. The fund may still hold the bond. A credit
downgrade does not mean the company has completely
defaulted on its payments or even that default is definite.
It’s just that the risk has moved up.
If the company continues to pay the interest and principal
payment, the fund will recover its entire investment. The
loss in NAV due to market price will then neutralise
eventually after the bond matures. Unless the fund
manager sees a risk of default or further downgrades,
such bonds will continue to be held in the portfolio. All
you have to do wait it out. If you cannot take credit risk,
even if you are a long-term investor, stick to funds that
invest in top-rated debt only.
The reverse can also happen; a company can see a credit
rating upgrade. Its existing bonds carry higher interest
rates and the lower risk perception sends bond prices
higher. The fund’s NAV will therefore move up as it marks
to market. The fund can book capital appreciation in such
cases. Even if the fund held an unlisted instrument, it will
enjoy higher coupon in such a bond (as it entered earlier),
as fresh issues would come at lower rates.
After the upheaval over downgrades in the past several
months, both fund managers and SEBI have reworked
risk mitigation measures. Funds now are reducing the
portfolio concentration towards individual debt
instruments to minimise the impact of a mark down in
value. Exposure to debt of a particular group (like the
Tatas or Reliance) is also capped, as is exposure to
individual sectors.
Bhavana Acharya
Analyst - Mutual Fund Research
FundsIndia.com

www.fundsindia.com
Q: I wish to invest through SIPs. But I readanarticleon how the market has not moved anywhere in the last six years,
especially if one considers inflation. So, is there any point in investing through SIPs?
A: The capital gains inflation index (cost inflation index) grew 8.5 per cent annually in the past six years. Between 2010
(which was a market high after the 2009 lows) and now, the Nifty delivered about 6.5 per cent annual returns, point
to point. But with point-to-point there is always the risk of timing the market.
The Nifty’s significant underperformance over this period was due to two reasons: One, it is commodity heavy and
took a deep hit in theprolonged commodity fall. Two, it is bank heavy, and that also hurt near term performance.But
as a mutual fund investor, you are not really investing in the Nifty, unless you chose an index fund.
If you had chosen equity funds(other than sector funds)six years ago, the average returns would have been 10.1 per
annually, about1.5 percentagepoints higherthan inflation.If you take funds with a 3-star rating the return moves
up to 11.5 per cent. And with 4-star ratings and above, it would be 13.6 per cent annually. And that is just point to
point, where you can still time your entry wrong.
With SIPs it was far better. Over these six years, even a middle order fund in the point to point list delivered 15-16
IRR. There are two takeaways here: One, the index’s performance is not really reflective of fund performance.
Good funds mostly perform much better. Two, SIPs are a far superior way to participate in the equity market,
especially when markets remain volatile for several years.
Vidya Bala
Head – Mutual Fund Research
FundsIndia.com
Q & A
cent
per cent

www.fundsindia.com
LIC Housing Finance Ltd
This stock has been trading between Rs. 395 and Rs. 515
for the past year. It needs to close above the 200-day SMA
at Rs. 465 to trigger a strong upside momentum, with a
medium-term target of Rs. 585. Resistance is at Rs. 515
and Rs. 545. Support is placed at Rs. 435 and Rs. 395. The
upward trend will continue as long as it trades above Rs.
395. Stop loss is placed at Rs. 390.
This column is targeted at investors who are registered customers of
FundsIndia for trading and investing in equity as well as prospective
investors who wish to open an equity account with FundsIndia.
The Nifty clocked a positive performance for the month
of April 2016. The short- and medium-term trend remain
positive at this juncture and there is a strong possibility
of a continued rally towards the immediate target level of
8,320. The Nifty is currently trading above the latest
200-day Simple Moving Average (SMA) of 7,863. Crucial
support is at 7,760 and 7,520. Major resistance is at 7,980
and 8,120. The 50-day SMA is 7,479. The trend will
remain positive as long as the index trades above 7,520. A
close below 7,480 will lead to further weakness to test
7,200.
Perumal Raja
Technical Analyst - Equity Research Desk
FundsIndia.com
Glenmark Pharmaceuticals Ltd
The short-term trend for this stock has been trading in a
tight band of Rs. 760 and Rs. 842. Major resistance is
placed at Rs. 880 and Rs. 920. Strong support is at Rs. 780
and Rs. 760. We recommend a buy at the current price for
a target of Rs. 960. The stock can be accumulated on
declines. The latest 50-day SMA is at Rs. 780. Stop loss is
placed at Rs. 745.
Technical View Nifty
Disclaimer:Mutual fund investments are subject to market risks. Please read the scheme information and other related documents before
investing. Past performance is not indicative of future returns. Please consider your specific investment requirements before choosing a fund,
or designing a portfolio that suits your needs. Wealth India Financial Services Pvt. Ltd. (ARN code 69583) makes no warranties or
representations, express or implied, on products offered through the platform. It accepts no liability for any damages or losses, however
caused, in connection with the use of, or reliance on its products or related services. The terms and conditions of the website are applicable.
Think FundsIndia, a monthly publication of Wealth India Financial Services Pvt. Ltd., is for information purposes only. Think FundsIndia
is not, and should not, be construed as a prospectus, scheme information document, offer document or recommendation. Information in
this document has been obtained from sources that are credible and reliable in the opinion of the Editor.
Publisher: Wealth India Financial Services Private Ltd. Editor: Srikanth Meenakshi
“In the direction that the economy is following, there cannot be a situation where the bank lending
rates have to come down but the deposit rates are high. They both are linked.”
- Arun Jaitley, Finance Minister, Government of India

We are social
At FundsIndia, we make every effort possible to reach out
to our customers and engage with them. That is why we
are active on all major social media platforms.
You can connect with us on:
1 The Government of India has extended safeguard
duty on steel imports till March 2018. The purpose
of this move is to protect Indian industry from cheap
imports from which country?
2 According to a recently released UNIDO report,
what is India’s rank among the world’s 10 largest
manufacturing countries?
3 Which country’s Prime Minister had to resign from
his post after the Panama Papers leak?
4 Which country has become the 189th member of the
International Monetary Fund (IMF) and World
Bank?
5 Which airport has become the world’s first airport to
completely operate on solar power?
Answers may be sent to quiz@fundsindia.com.
Answers for April 2016 Investment Quiz:
1. ICICI Bank 2. March 15 3. 9 per cent
4. Fazle Kabir 5. Kochi, Bhubaneswar and Coimbatore
The winner of the April 2016 Investment Quiz is Nikhil
Mohan.
www.fundsindia.com
FundsIndia Select Funds Investment Quiz
Hybrid Equity-oriented Funds - Moderate Risk
These are funds that invest over two-thirds of their corpus
in equity and the rest in debt. The recommended minimum
holding period is 3 years.
HDFC Balanced Fund (G)
ICICI Pru Balanced Fund (G)
L&T India Prudence Fund (G)
Tata Balanced Fund (G)
What is FundsIndia Select Funds: This is a listing of
mutual funds that we think are most investment worthy for
a regular investor. We review this list on a quarterly basis.
Do note, however, that past performance is not a guarantee
of future results. Please consider your specific investment
requirements before designing a portfolio that suits your
needs.
Please click here for a complete listing of our preferred
funds.
About us: FundsIndia.com is India's leading online investment platform. It offers a wide range of investment options
such as mutual funds, equities, corporate deposits, and bonds, to name a few, in one convenient online location.
FundsIndia.com also offers a host of value-added services such as free investment advisory services, different types
of Systematic Investment Plans (SIPs), trigger-based investing, mobile apps, and more that further enrich your
investment experience.
“Macros are not fully aligned so we will not get the benefit of getting sector selection right. Also,
we have no idea where the upturn in the economy will come through. The levers are in place, but
will it be two quarters or four?”
- Vetri Subramaniam, CIO at Religare Invesco AMC
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Think Fundsindia - May 2016

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