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Rakshabandhan is an auspicious day in India. The festival signifies love and affection between brothers and sisters. It is a time where brothers reaffirm their duty to protect and care for their sisters during their entire life.

Usually brothers gift cash and or gifts to their sisters as a sign of their love. But what if you could give them something that will truly be there in their life? A sound piece of contribution could end being a much more significant gesture in the long run, both personally as well as her financial future.

Sounds to good to be true? Well here are some options you can consider:

Systematic Investment Plan (SIP) Investments: An easy option, but not not many know it can be gifted or that it can be started with an amount as low as Rs 500 per month. Also, one can not only do SIPs into mutual funds (either equity or debt) but certain blue chip equity stocks as well. So forget those fancy gifts for once and gift your sister that will truly be there for her in the future

Systematic Withdrawal Plans (SWP): A rather new feature in the Indian Mutual Fund environment. Certain AMCs now allow you to initiate an SWP, which essentially is the opposite of SIP such that money flows from the mutual fund to your bank account at pre – specified periods and at specific amounts; but with the added benefit that you can chose your relatives to be the beneficiary of this inflow rather than yourself. Another benefit of such a SWP is that because this inflow would be considered a gift in the hands of your relative, there is no tax applicable to the receiver of this SWP. Perfect way to support your sister with cash flow needs!

Insurance Cover: Few things may convey that you truly care for your sister’s health than an adequate health insurance cover. Now more than ever, health insurance is the need of the hour with parallel rise in not only health costs but also increase in reports of lifestyle diseases and ailments. A health insurance cover will insure that your sister is never financially affected by these hurdles.

On the other hand, providing a term cover for your sister who may have her own financial dependants is a warm way of showing that you are there to share her responsibilities

Estate Planning: This almost always is a personal and complicated topic. But having a solid estate plan is as important as any other life decision. And as a brother you could be the trusted guide to helping her make this important decision.

Furthermore, you yourself can be a part of Estate Planning as a potential guardian to her underage children. Or possibly a trustee in case she needs to make a trust. Ensuring one’s hard earned assets are bequeathed as they intended to is a huge responsibility and who better than a brother to take this up

Gold: The yellow metal will protect her from any economic crisis and will act as hedge during volatile times.But not the cumbersome physical gold that comes with its own headaches and costs. Rather you should consider paper gold i.e. instruments that invest into gold themselves or track their prices. These instruments range from Gold ETFs to the Sovereign Gold Bonds

On this day brothers take a pledge to protect and take care of their sisters under all circumstances. We at Plan Ahead Wealth Advisors understand the enormity of this pledge. And through our experience of understanding the complexities of money and human emotions, we also pledge to help you ensure that your sister stays financially secure in her lifetime.

 

 

 

 

 

 

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bias

It is a well known fact that human cognitive abilities and emotions both have a huge say on how one goes about investing, both negative and positive. However it is the negative side of such aspects that come to front more often that not. Such obstacles are usually termed as “biases”.

This article looks to highlight and explain some of the common “biases” which tends to prove a hindrance to an investor from achieving his or her’s investment objective. As fundamental part of human nature, these biases can affect all types of investors. Therefore understanding them may help you to avoid such pitfalls.

  1. Overconfidence: It is common for people from all walks of life to see their abilities to be superior than the rest. But by definition of average, 50% of individuals would be lesser than average. Hence not everyone can be better off than others every single time. Whilst this high level of confidence can help in overcoming loss sooner, it also quite often leads to poor decision making. Examples: Taking too much risk in your strategies; Trading more often than what is required; Confusing luck for skill
  1. Anchoring Bias: This occurs when an investor is basing his decision to either buy or sell on arbitrary price levels. Example: An investor has bought a stock ‘X’ at Rs. 100 and has risen to Rs 140. However the stock price starts declining backed by deteriorating fundamentals. Here the investor holds on to the stock nonetheless in the belief that the stock will return to its previous price point of Rs 140, even though data may not back the case.
  1. Endowment Bias: Sometimes an investor adds an irrational premium to as asset that he/she is holding which would be higher than the amount they are willing to pay for that same asset if they had to acquire it. This usually happens for reasons such as familiarity/family value of the asset or simply to avoid transaction/tax cost. Example: Real estate owners often set the selling price of the property higher than the maximum prices they themselves would be willing to pay for it
  1. Problem of Inertia: The failure of a person to act on items, even those he has agreed on, is called Inertia. Inertia often acts as a barrier to effective investment and financial planning. This is usually caused from uncertainty on how to proceed forward and results in an individual taking the path of least resistance i.e. wait and watch approach. One way to bypass this is “Automation”. Putting your monthly investments on autopilot i.e. SIPs in case of mutual funds is a popular way of removing inertia and adding discipline to your investments
  1. Confirmation Bias: It is human nature for an individual to seek out views and information that support their own choices and thought process; and ignore those which do not. The same is often viewed amongst investors in their decisions.  While doing research, investors often find all sorts of positives while glossing over the red flags in trying to “confirm” the return potential of the investment.  As a result, this bias results in a poor, one-sided decision making process.

Whilst there are potentially more such biases that are identified, the above mentioned ones are the more common and frequent ones that should be actively avoided as far as possible. Human nature is such that there is no “remedy” for it. However by greater awareness and through taking professional advice from advisors, you could stand a higher chance of effectively navigating these hurdles.

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IPO 1

The year so far has not been going well for the equity market yet India has seen a flurry of IPOs getting launched. Between January to June 2018, India has recorded as many as 90 IPO launches, the highest globally so far. The latest to join the band wagon was HDFC AMC and coming up next is Lodha.

Does it make sense to invest in the IPOs? And if yes how do you pick one? Read to find out more.

What is an IPO?

For a company to grow and expand it requires huge amounts of capital; an IPO helps them raise much more money than what they can raise through borrowing or private equity investors. An IPO stands for Initial Public Offering; it is the very first time a company offers its stocks to the public. Prior to an IPO the company is considered private with a relatively small number of shareholders. With the IPO the company becomes public and thereafter, it’s shares can be traded through an Exchange.

Why is there a frenzy around IPOs?

Every investor is looking for a diamond in the rough. Through an IPO the investors tries to purchase the shares at an IPO price which may be significantly lower than it’s future market price when it eventually starts trading on an exchange. This is where huge capital gains can be made.

As per data, the HDFC AMC offer was over subscribed 83 times by the end of the 1st day. What this means is that there was a demand of over 83 times for the shares offered by the company. The investors saw huge growth potential in the company and every one wanted to get a piece of it. Unfortunately, getting an allotment of a hot IPO can be very difficult, if not impossible.

Understanding the IPO process

A company that wishes to launch an IPO has to first register itself with Securities and Exchange Board of INDIA (SEBI) and submit its prospectus for approval. Once the SEBI gives a go ahead, the company fixes the price and the number of shares it plans to issue through the IPO.

 There are two types of IPO issues: fixed price and book building. In the former, the price of the share is decided in advance. In the latter the company offers a prices range and the investor needs to bid for the share within that range. The upper limit is known as the cap price while the lower is called floor price.

While applying for shares the investor needs to bid as per the lot size mentioned in the prospectus. Lot size is the minimum number of shares you have to apply for during an IPO.

For eg: If the you wished to buy 50 shares of XYZ company and the lot size is 10 shares/lot then you would have to bid for 5 lots. As per the SEBI rules, one can’t bid in decimals.

It is important to note that even if you have successfully subscribed to an IPO there is no guarantee that you will receive your lot. If the issue is popular and gets oversubscribed then it becomes difficult to issue even 1 lot to each successful applicant. In such cases the lots are allotted based on a computerized lucky draw.


Things you should consider before applying for an IPO

  • Read the Red Herring prospectus. It can be difficult to analyze the performance of a private company since there is no historical data to draw on. So the red herring becomes an important document to gauge the business prospect and operations of the company.
  • Look closely at the management team; they should be capable of steering the company towards growth after it goes public. Look for how they plan to utilize the funds received from the IPO.
  • Compare it’s bid price to that of the competitors in the market. That will give you a fair idea as to if the IPO is over priced or a value purchase.
  • You will need to have a Demat account since the shares can not be received in the physical mode.
  • Some investors like to subscribe to an IPO because some lucky people had bought shares in the IPOs of companies that went on to pay huge dividends or soar in value. But just because investing in IPOs has worked for some in the past doesn’t mean you’ll get the same returns.
  • The target investor for an IPO are the institutional investors and a big part of the shares are reserved for them. This leaves a small percentage of shares available to the retail investor. Your best chance to get an allotment would be to check the “cut-off price” option in your application form. This way if the IPO is oversubscribed, then you have a better chance of getting a subscription.
  • Since you will need to block the money required while bidding, you can use an ASBA (Application Sorted by Blocked Amount)account while applying for shares. The blocked amount stays in the ASBA account and earns interest till the allotment can happen. And only an amount equivalent to the allotment is deducted.

Going back to the main question, should you invest in an IPO? The answer depends on your investment outlook. IPOs are definitely a good investment option if you are looking for value investing or under the radar deals but then so is everyone else.

If the company has been in the business for long, has good performance history and management team then it definitely is worth the shot but then again there is no guarantee that you would be able to get your hands on a lot or two.

If you’re not sure whether investing in an IPO will be a good move for your portfolio, consider talking to a financial advisor. A financial advisor can evaluate your investment decisions in the context of your overall financial situation and goals.

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Today marked the 3rd Bi-Monthly policy statement by the RBI for the FY 2018-19 with members voting 5-1 in favor of a rate hike.

This was largely in line with market expectations and was already priced in, as post the release of the minutes of the monetary policy bond yields did not move much in either direction.

However, the MPC also continued to maintain a neutral stance, indicating that it is trying to play a delicate balance between inflation and growth, and decisions are being taken with the objective of achieving the medium term target for CPI at 4% within the range of +/- 2% and future data prints

The MPC mentioned that domestically various indicators suggest that economic activity has continued to be strong. Significant turn around in the production of capital goods and consumer durables, Progressive monsoon and increase in MSPs of Kharif crops are expected to boost rural demand by rising farmer’s income. Vehicle sales augur well for urban income growth.

Retail inflation i.e. CPI grew to 5% in June from 4.9% in May, driven by an uptick in inflation in fuel. Food inflation remained muted due to lower than usual seasonal uptick in prices of fruits and vegetables in summer months. Adjusting for the estimated impact of the 7th central pay commission’s house rent allowances (HRA), headline inflation increased from 4.5 per cent in May to 4.6 per cent in June. Low inflation continued in cereals, meat, milk, oil, spices and non-alcoholic beverages, and pulses and sugar prices remained in deflation. Factors mentioned above have resulted marginally downward revision in inflation projections for Q2 vis-à-vis the June statement. However, projections for Q3 onwards remain broadly unchanged on account of uptick of 20 bps in inflation expectation for 3 months and 1 year ahead horizon survey of households by RBI’s. RBI’s industrial outlook survey also reported higher input costs and selling prices in Quarter 1 of 2018-19. Input cost of companies polled in services PMI in June also stayed elevated. Farm and non farm input costs rose significantly in June.

The central government has decided to fix the minimum support prices (MSPs) of at least 150 per cent of the cost of production for all kharif crops for the sowing season of 2018-19. This increase in MSPs for kharif crops, which is much larger than the average increase seen in the past few years, will have a direct impact on food inflation and possible secondary impacts on headline inflation. Uncertainty around the full impact of MSP on inflation will only resolve in the next several months once the price support schemes are implemented and procurement by the government is visible.

Based on an assessment of the above-mentioned factors, inflation is projected at 4.6 per cent in Q2, 4.8 per cent in H2 of 2018-19 and 5.0 per cent in Q1:2019-20, with risks evenly balanced. Excluding the HRA impact, CPI inflation is projected at 4.4 per cent in Q2, 4.7-4.8 per cent in H2 and 5.0 per cent in Q1:2019-20.

The MPC notes that domestic economic activity has continued to sustain momentum and the output gap has virtually closed. However, uncertainty around domestic inflation needs to be carefully monitored in the coming months. In addition, recent global developments raise some concerns. Rising trade protectionism poses a grave risk to near-term and long-term global growth prospects by adversely impacting investment, disrupting global supply chains and hampering productivity. Geopolitical tensions and elevated oil prices continue to be the other sources of risk to global growth. On account of these risks, RBI governor stated that by keeping the neutral stance, the Monetary Policy Committee have kept the option of further rate increase or decrease open and dependent on future data.

With an election year upon us and possible fiscal risks emanating, along with global outflows on the back of higher US interest rates and a falling rupee, this may not be the last of the rate hikes in our view.

Your Investments

Financial markets have continued to be volatile and driven mainly by monetary policy stances in advanced and emerging economies and geopolitical tensions. Globally, equity markets have been volatile on trade tensions and uncertainty around Brexit negotiations. However, it also important that public finances do not crowd out private sector investment activity at this crucial juncture.

Capital flows to Emerging Economies declined in anticipation of monetary policy tightening in Advanced Economies. Also currency of Emerging economies have depreciated against the US dollar over the last month on account of strong USD supported by strong economic data.

Equities continue to remain overpriced from a price to earnings perspective in spite of recent corrections and a better growth outlook. However, good results so far by many companies, along with good growth expectations and better capacity utilisation bode well for earnings growth going forward.

Real rates continue to remain positive.The rising G-sec yield makes dynamic bonds and long term bond funds unattractive and the exposure to the same should be minimized. Bonds with a shorter duration of 3 months to 2 years are ideal in the given scenario. We therefore, continue to believe that investors should continue to have fixed income exposure through a combination of lower duration and short term strategies.

Your Loans

With an increase of 25 basis points by the RBI, the deposit rate of the banks could further increase which would be followed by lending rate hikes. Thus we suggest looking at prepaying or raising EMI amounts on your loans to negate the interest rate hike and future hikes that could follow.

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The-Beginner_s-Guide-to-Index-Investing

According to SPIVA India Year End Report 2017, S&P BSE 100 climbed 33.3% whilst S&P BSE MidCap rose by 49.9% for the calendar year 2017. Stellar returns! Question is, did your actively managed mutual fund do the same? As per the SPIVA report, 59.38% of large cap funds under performed their benchmark, whereas 72.09% of mid/small cap funds under performed their benchmarks.

We have started to notice a trend in Indian Equities where the actively managed funds are in the nascent stages of showing continuous under performance viz a viz their respective benchmarks. Even with a three-year time line, 53% of large cap funds have under performed whilst a whopping 80% of mid/small cap funds have under performed their benchmarks!

These data points certainly raise the question of whether passive managed investment strategies should be seriously considered now. Are funds and ETFs which passively just track a particular index the next big thing?

Two major reasons to consider a passive investment option into equity are

  1. Returns especially over long investment horizons and for those who wish to nullify fund manager bias; and
  2. Lower Costs

1

As you may notice, Index Funds/ETF’s can provide sufficient returns over long terms, though they are yet not on the same level as the top performing actively managed equity funds.

2

This is where passive managed strategies truly out do actively managed funds i.e. significantly lower costs.

Besides the above mentioned points, passively managed investments also provide added benefits such as (1) reducing fund manager bias, (2) a diversification strategy that can allow for less volatility, (3) passive funds are more favourable treated from a tax perspective when compared debt instruments.

One recent event that puts passive funds in a more positive light is the recent SEBI notification and the mutual fund recategorization. Due to the clear-cut guidelines for large cap funds i.e. can only invest into stock 1-100 as per market cap, it is likely that fund managers will find it increasingly difficult to generate favourable alpha considering the high costs associated with these funds. Therefore index funds that capture the Sensex or Nifty may find significant favor moving forward as an alternate to large cap funds.

However, they are certain limitations to Index Funds/ETFs in India, such as:

  1. Fewer options: They are not a ton of options available for the investor in the Index Funds/ETF space. Therefore one requires to do thorough research before choosing which instrument to select.
  2. Onus still on Active Managed Funds: The top quartile of actively managed equity funds, which also have most of the assets under management, continue to currently outperform their respective indices in certain time horizons, despite their higher costs. And this trend will not vanish over night.
  3. Inefficient Markets: Unlike Western Countries, where efficient markets negate the need for active management, the Indian Equity Market is still somewhat far from that state. Hence opportunities continue to remain which can be exploited by experienced fund managers/investors.
  4. Liquidity and Tracking Error: For ETFs, liquidity has been a major concern. Retail investors are often forced to hold onto their investments even when they would wish to redeem the same.

Furthermore, how well the fund/ETF tracks the relative index needs to be assessed. A lower tracking error would justify the inclusion of that instrument into your portfolio.

3

What should you do?

At Plan Ahead Wealth Advisors, we feel as an investor it is crucial to introduce passively managed instruments into your portfolio at this juncture. While the debate of active v/s passive will go on, it feels certain to us that a blend of strategies is the need of the hour. What instruments you choose and the allocation of them in your portfolio depends on your risk profile as well as your investment objectives and return expectations.

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retirement

It is one of the biggest, if not biggest, money question that often keeps people awake at night. The uncertainty of whether what you have earned and saved is enough for that dreamy retirement life can be quite stressful. And it is this ambiguity that often leads to making incorrect assumptions which, in a vicious cycle, leads to misguided money decisions.

Through this blog, we hope to focus of some items that need to be looked at to better judge just how much preparations you need for your Golden Years.

  1. Goals:

First of all, it is important to accept that your retirement will not mean doing absolutely nothing for the remainder of your life. Chances are you would still be at least partially responsible for your child’s post graduation/ marriage. If not those, then planning for those holidays and long travel plans, or having a dedicated medical corpus or even starting philanthropy or your own consultancy would need financial planning and funds.

There even might be recurring goals to consider such as cars. If you drive a Honda City today, chances are you would want similar car throughout your life. Assuming a Honda City costs Rs 13.75 lakhs as of today, you would need Rs 65.8 lakhs at the start of retirement just to fund purchasing the same car every 5 years (accounting for 7.7% inflation)

 

  1. Your Current Expenses:

While we usually have approximate amounts in our heads, rarely do we know our exact expenses for a year. If you think you may know, even so the detailed expenses are not known. If you do track and compare average expenses of the year versus that of two years ago, you would probably see higher than expected changes. This is due to inflation and lifestyle changes. It is critical to keep tabs on your expenses, as discretionary expenses tend to creep up and inflate your overall expenses.

  1. Changing Expenses during Retirement:

It is common notion that expenses will reduce once you retire. But data and experience shows otherwise. For example: Travelling and Medical costs tend rise whilst dependent cost tend to go down and groceries tend to remain the same.

Also, how expenses change depend on the stage retirement you are at. Early on during retirement sees uptick in expenses due to higher travel and entertainment costs. Then they slowly start coming down in the intermittent phase of retirement. Towards your super senior years, they tend to same constant.

  1. Medical Costs:

As per Willis Tower Watson Global Medical Trends Survey Report 2018, medical inflation in India is currently at 11.3% p.a. In other words, the cost of the same surgery will double every 6.5 years! Your retirement needs to plan for this.

  1. Lifestyle Expenses:

Urban inflation is around 7.7% p.a. on an average in the past 20 years. But that does not account for everything. We aspire for better things during our retirement. For example, you would have a Sony Home Theatre System which would cost approximately Rs 35,000. But aspirations would strive for a Bose System which is closer to Rs 90,000. That is a 181% jump! It is crucial to have both sets of inflation accounted for during retirement.

  1. Life Expectancy:

An incorrect assumption of life expectancy can have significant consequence. Data shows the life expectancy of Indians is closer towards 70 years and above. Furthermore, it is a fact that women have higher life expectancy than men. So planning for your spouse’s life expectancy is something which is not given adequate thought.

Life expectancy in developed countries are much higher. And as India steadily progresses to that status, it can be reasonably assumed that our life expectancy will only increase.

These are just some items, amongst others, that need to be carefully looked at to ensure you are planning for a good enough retirement corpus and are financially well placed to live your retirement years in peace.

To provide an even deeper understanding, Plan Ahead Wealth Advisors is conducting a seminar on Planning for Retirement on the 7th of July 2018.

For a complimentary invite do write in to us or leave us a comment to this blog.

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Retirement-Coin-Jar-Thumbnail

National Pension Scheme (NPS) which is a defined contributory savings scheme was introduced by the government with an intention to provide retirement solutions for Indian citizens.

Under the NPS there are two types of accounts – Tier I (pension account) and Tier II (investment account).

  • Tier I is the a mandatory account which allows limited withdrawal options until the person reaches the age of 60.
  • Tier II which is a voluntary savings/investment account is more flexible and allows the subscribers to withdraw as and when they wish without any restrictions.

In Jan 2018, the PFRDA (NPS regulator) relaxed the withdrawal norms and allowed the subscribers to withdraw up to 25% of the balance after the completion of 3 years. The purpose of withdrawal included treatment of specified illness of a family member, education of children, wedding expenses of children and purchase or construction of house.

Partial withdrawals – some more options now

The PFRDA has recently added two more events under which partial withdrawal from the NPS can be made before retirement. They are as follows:

  • Partial withdrawal towards meeting the expenses pertaining to employee’s self- development/ skill development/ re- skillingwill be allowed. This includes gaining higher education or professional qualification for which the employee might require in and out of India. However, if such activities on request of the employee are sponsored by the employer then these will not be considered as a class for withdrawal as in such cases the employer bears all the expenses.
  • Partial withdrawal towards meeting the expenses for the establishment of own venture or a start upshall be permitted. However, if an employer-employee relationship exists, then in that case the partial withdrawal will not be applicable.

There are certain limitations to the partial withdrawal clause which remain unchanged:

  • The subscriber should have been a member of NPS for a period of at least 3 years from the date of joining.
  • The subscriber shall be permitted to withdraw accumulations not exceeding 25% of the contributions made by him or her, standing in his/her credit in his or her individual pension account as on the date of application from the withdrawal without considering any returns thereon.

For instance, if you have Rs. 2 lakhs in your account out of which Rs 1 lakh was contributed by you and Rs 1 Lakh was contributed by your employer, then you will be able to withdraw only Rs. 25000 or 25% of your contributions.

  • The frequency of total partial withdrawals shall remain unchanged i.e. the subscriber shall be allowed to withdraw a maximum of 3 times throughout the entire tenure of the subscription of the NPS. For the withdrawal, the subscriber must make a request to the central record keeping agency or the Nodal office.


Adding equities to your retirement corpus

In addition to adding more withdrawal options, there have also been increases in the allowed equity percentage to the retirement corpus. The percentage of equity assets that a subscriber can choose under active choice have been increased. The percentage of equity assets allowed has been increased to 75% from 50% (applicable for non government employees).

All in all the PFRDA is trying to make the NPS more attractive as a retirement solution. Depending on your age, time horizon, risk profile and current retirement corpus investments, the NPS could still prove as one of the avenues that you could consider using for building a retirement corpus.

 

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Oil has always had a major influence on India. Whether it be politics, stock markets or the general state of the economy, oil continues to have it’s say in these matters. And this is so because India is a net crude oil importer to meet it’s ever growing demands, and it is not just about energy requirements.

brent crude price chart

Oil in the last year has gone up 48.5% (Brent Crude Price in USD), whilst in the last three months alone it is up by 16.9%! This huge surge can and probably has started to show it’s effect across the various aspects of the economy. But as an investor into that economy, we hope to underline the impacts of this event on your portfolio holdings.

EQUITIES

  1. Inverse Relation:Data indicates that Nifty and Crude Oil prices have an inverse relationship. Between 2014-2017 whilst oil prices saw a significant drop the equity markets showed significant upwards trends. However the latest data seems to suggest that this inverse relation is currently not being witnessed, at least temporarily, with both the markets undergoing volatility and oil prices sky rocketing. Oil price rises however do impact both debt and stocks and hence need a careful watch.

nifty vs crude

  1. Oil Sector:Oil Marketing Companies (OMCs) are directly impacted by oil price movement. While retail prices have been continuously raised for the last few days, the worry remains that the government may ask these companies to absorb further hikes rather than passing them to end consumers for controlling inflation. Such a move could dampen their stock prices in the immediate future. Therefore if your stocks portfolio has high exposure to such stocks its time to review the same.
  1. Other Sectors:Besides oil companies, other sectors that do get affected are the Aviation and Consumer Durable sectors. For airlines, jet fuel is the single largest cost. Hence rises in oil prices prove serious strain on their margins. This can also be seen through their Q4 results. Also, a lot of companies such as rubber, paints, lubricants, chemicals and even footwear are heavily dependent on oil derivatives as raw materials for their products. Therefore a higher oil price has an indirect impact on their profit margins.
  1. Any positives?:Higher oil prices invariably lead to a slide in the Indian Rupee (which we will discuss below). But a weaker rupee can be a positive for IT and Pharma companies as a lot of their business in exports of services and goods.

FIXED INCOME

  1. Widening Current Account Deficit (CAD) and Fiscal Deficit:As India imports most of it’s oil needs, rise in oil prices means more money spent for the same amount of oil. This increases the Fiscal Deficit i.e. our expenditure is more than the revenue. As such the government then has to borrow more to meet this gap. This also puts serious pressure on the gap between total imports and exports and invariably leads to a ballooning CAD, resulting in loss of foreign exchange reserves.
  1. Weakening Rupee:As mentioned above, oil affects the CAD of our country which in turn has a direct impact on the currency due to higher Fiscal Deficits, Increased Borrowings and Current Account Deficits.

Year Rupee Dollar Exchange Rate % Change Avg. Brent Crude Oil Price per barrel ($) % Change
15-06-2008 42.48 91
15-06-2009 47.75 12.41% 58 -36.26%
15-06-2010 46.45 -2.72% 77 32.76%
15-06-2011 44.7 -3.77% 100 29.87%
15-06-2012 55.51 24.18% 110 10.00%
15-06-2013 59.53 7.24% 110 0.00%
15-06-2014 60.06 0.89% 110 0.00%
15-06-2015 63.6 5.89% 58 -47.27%
15-06-2016 67.5 6.13% 35 -39.66%
15-06-2017 64.62 -4.27% 55 57.14%
15-06-2018 67.45 4.38% 76 38.18%
  1. Inflation:Rising oil prices means rising input, freight and transportation costs for companies, which finally means bills and expenses increasing for the end consumers. In other words, strong reasons for rising inflation in the country.
  1. Where is the actual Impact?:For fixed income investors currently holding debt mutual funds, the above event has a negative impact on the underlying benchmark I.e. 10 year G Sec Bonds. As such, the yields of current 10 year G Sec bonds goes up, which results in a loss in value of bonds held (both sovereign and corporate). In fact, for any investor who may have recently put money into debt mutual funds may be experiencing a notional principal loss!

While elevated oil prices have certainly bought about uncertainties in both fixed income and equities, as an investor it is crucial to know the fundamental reasons of investing into your current investments, along with a certain understanding of when you would require the monies i.e. your time horizon. Like oil, there are always other factors that have short term impacts on portfolios, but by ensuring your appropriate asset allocation through consistent professional advice, your portfolio will likely navigate such times.

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bonus 4

Anxious times lie ahead for employees across India as the season for the annual bonus starts in full swing. People often consider bonuses as “money found” rather than “money gained” and therefore almost always consider using these pots of income for discretionary expenses such as gadgets and treats and vacations. While there’s nothing wrong in indulging oneself, it is also equally important to have the big financial picture in mind.

And whilst the list of to-do items can be endless, we at Plan Ahead Wealth Advisors have distilled that list into a few essential options.

  1. Payoff those Debts: As crucial as it can get, reducing those crushing debts can go a long way to ensuring long term financial happiness. With that thought in mind, one should ideally those pay the ballooning credit card and personal loans which have very high interest cost. This could be followed by any car or educational loans, though do remember that an educational Loan has certain tax benefits. If nothing else, prepaying your home loan should also be considered though the pros and cons of prepaying the loan might be best arrived at after consulting with a registered investment advisor.
  1. Replenish Emergency Funds: Keeping funds aside for unforeseen events is a handy tool. And ensuring that tool is always at optimal levels is critical. Therefore, if you had dipped in those funds previously, the bonus is a good opportunity to return them to their originally intended levels. Ideally, anywhere between 3-6 months of expenses, including any EMI or insurance premiums, should be available in such funds.
  1. Revisit your Insurance Needs: Speaking of insurance premiums, it is common knowledge that with age, insurance requirements change. Chances are high that as you age, your health insurance premium might be bumped up or that you realize that your life cover is inadequate and needs an increase. Using your bonus for such needs is a prudent way to utilize the same.
  1. Pay attention to your unfunded Financial Goals: There may be certain milestones that may not have been attended to by you earlier. Some may be upcoming in the next year, while others could be years away. Earning a bonus is always a great time to re look at those goals and use the bonus to bridge any gaps that may be there to fund such items. This could also be, but not limited to, ensuring adequate investments into tax saving instruments as appropriate.
  1. Invest in yourself: They say the biggest asset anyone can have is himself/herself. Therefore, using the bonus to upgrade your skills/knowledge can be a rewarding decision for the future either by increasing your prospects for that next big professional leap or even increasing your earning capabilities.

While the above are some of the “to-do” items with bonuses, there are also certain “do nots” that one should look out for, such as:

  1. Although quite common, never over spend beforehand, especially with credit cards, with the assumption that you will receive adequate bonuses in time to cover for the same.
  1. Money in savings accounts usually vanishes quicker than one expects. So, don’t wait too long on deciding what to do with that bonus. You may find out that by the time you decide what to do with it, it has already been spent somewhere unknowingly.

Bonuses are the result of your hard work throughout the year, so ensuring that your bonus works as hard as you have, can go a long way to a financially secure future. By considering the items listed above, you are more likely to arrive at the right choice of what to do with your bonus. And if you are still confused, it is always advisable to bring on board professional advice to ensure that you are on the correct path.

 

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Like it or not, your Mutual Fund holdings, at least some if not all, are already undergoing significant changes. While the changes in some were predictable, there are instances where the proposed changes were never imagined. Now, everyone from advisors and distributors to AMCs and mostly importantly the investors are starting to scramble to make sense out of the commotion!

Since the mutual fund AMCs have started to list out the changes in their schemes, there have been plenty of eyebrows raised with some of their decisions.

For example, one particular AMC had a Liquid Fund and a Money Market Fund prior to re- categorization. As per the new re-categorization rules, there is a Liquid Fund and a separate Money Market Fund Category. The AMC has gone ahead and moved their existing Liquid Fund into the Money Market Fund category and vice versa!

Another major example is that of another AMC, where they have changed the mandate of an existing MultiCap Fund to that of an Aggressive Hybrid Fund (where only up to 80% can be invested into equities ) as per the new rules. In addition, they have decided to merge one of their existing Balanced Fund with this newly formed scheme. The N.A.V. of this newly merged entity would be that of the earlier existing MultiCap Fund.

The same AMC has dealt another googly by changing an existing pure Equity scheme to a Balanced Advantage Category Fund (a fund that manages debt and equity allocation on a dynamic basis). Note that there is no cap on either asset class as per new rules. Furthermore, they have merged another existing Balanced Fund into this new scheme, while keeping the N.A.V. of the prior equity fund. The fund could now theoretically go 100% into debt or the other way as per the discretion of the fund manager.

Another example is that of an AMC that had an Ultra Short Term Fund and separately also ran a debt fund that primarily invested into bonds of Banks and PSUs. Post the introduction of the re- categorization rules, the AMC has merged the above Banking and PSU fund into the Ultra Short Term Debt Fund. It has further gone on to change the mandate of an existing Short Term Debt Fund into a Banking PSU Fund as per new rules. Now imagine the plight of an investor who was anyways confused with the huge universe of schemes. If he/she is not careful, he/she might end up investing into the current Banking and PSU fund expecting to remain in that category when it actually will get merged into an Ultra Short Term Fund. Or he/she may invest into the current Short Term Debt Fund not realizing it will become a Banking and PSU fund shortly. These unintentional errors could have big implications later on the mutual fund portfolio.

There are thousands of mutual funds schemes out there. And if not selected right, which can often be the case, investors end up with a plethora of funds in their portfolio over time. Now imagine looking at your fund list and realizing that a lot of them are going changes and may come out as something new and unintended. In such a context, it is easy to make unintended errors or make ill informed decisions in deciding what to do next with your mutual fund portfolio.

It is with this concern in mind that Plan Ahead Wealth Advisors is conducting a seminar tomorrow at The Regus, Andheri West to enlighten both our clients and their friends and families, on the impact this massive reorganization of mutual fund schemes will have on their portfolios and how they can navigate these changes in an efficient way.

While it may seem a little inconvenient to come out on a Saturday 19th May 2018 to attend this event, the take away from this event could lead to much better decision making on your current mutual fund holdings in the immediate future!

 

 

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