Feeds:
Posts
Comments

Posts Tagged ‘investors’

Ulips

 

Unlike a pure insurance policy, a Unit Linked Insurance Plan (ULIP) is a product designed to give investors the benefits of both insurance and investment under a single integrated plan. ULIPs are insurance + investment plans suited for investors with long investment horizons. They work well with investors who may not otherwise keep the discipline of investing as they usually come with long lock ins and high exit costs.

The tempting benefit ULIPs offer is the administrative convenience of not needing to execute the two legs of transactions i.e. insurance and investments separately.

From our experience with investors, we understand that there’s a good chance you already own a Unit Linked insurance plan (ULIP) that either your parents bought for you, or you landed up buying one in the hurry scurry of tax related investments, only to realize later that one should not be mixing insurance and investments.

In the case that you may have purchased a ULIP or you may be contemplating to buy one, it is critical to know a few important items related to them so that you are more aware of what you have or might get yourself into.

 

1. Understand the purpose for purchasing the ULIP – tax planning cannot be the sole motive

While tax planning is clearly on the agenda, you should also assess the objective for which you want to purchase an insurance policy. Is the policy being bought for long term wealth creation, retirement planning or building a corpus for your child’s future? A decision that is prompted solely by the need to save taxes often results in the purchase of a wrong or an unsuitable product.

 

2. Check the charges carefully

All Ulips come with a host of charges. Understanding each of them is crucial to understanding if the product is suitable or not. Such charges include:

  • Premium Allocation Charges: As the name suggests, these fees are to cover expenses incurred by the company to allocate funds, do the underwriting, medical expenses, etc.Your agents commission is also covered under this head.
  • Policy Administrative Charges: These are the charges that are deducted on a timely basis to recover the expenses incurred to maintain the policies under the fund.
  • Surrender Charges: Similar to the exit loadin a mutual fund, these are the charges applicable when encashing a part or the full investment in a plan. As we know that in most of the Mutual Funds, exit load is at about one percent. In ULIPs, surrender charges could vary from a few percentage points to very exhorbitant amounts, basically to deter investors from exiting the plan in a short horizon.
  • Mortality Charges: These are the fees that are deducted on a monthly basis to cover the costs borne by the insurerfor providing a life cover to the policy holder. Depending on the age and the sum insured, these charges are deducted for life cover.
  • Fund Management Charges: The allocation of investment in debt and equity requires the insurer to bear the costs of managing the fund.These are charged as fund management charges.
  • Fund Switching Charges: As the name suggests, switching from one fund to another requires the insuredto pay an amount for covering the expenses borne by the company for making the switch.

 

3. Understand the flexibility to Switch

An investor’s need for liquidity, time horizon, and risk appetite will determine the initial allocation but these change over time. ULIPs offer the flexibility of switching between the funds based on changes in market cycles and changes in investor preferences. The number of free switches during a policy year, the cost of switches and the ease of switching are factors that are important evaluation points when choosing a ULIP.

 

4. Analyse and estimatperformance

With the complexity of the ULIP structure plus the huge list of charges and expenses that comes with it, it is difficult to approximate the kind of performance the product may have given during its existence. Always insist with the insurance agent/advisor to show illustrations and data demonstrating how the fund would has performed and is likely perform considering markets ups and downs. More often that not, data would help you decide better on the decision to invest or not.

 

Probably the only benefit, though largely accidental, of an ULIP is that the investor’s money is locked in due to the structure of a ULIP, forcing him to think long term. However, it is needless to say that other options must also be evaluated in comparison to ULIPs before making a choice to invest in them. The most common strategy might be a combination of Pure Term Life insurance policies along with separate investments in Mutual Funds. But like every investment decision, the first step to take is to determine the investment horizon and risk appetite and not get swayed by fancy words or past performance.

 

 

Advertisements

Read Full Post »

blog 2With the recent launch of the ICICI Bharat 22 ETF, a lot of buzz around Exchange Traded Funds or ETF’s has been doing the rounds. Most investors may be wondering whether it is worth investing in ETF’s?

So what is an Exchange Traded Fund?

An ETF is a passive investment instrument whose value is based on a particular index and such a scheme mirrors the index and invests in securities in the same proportion as the underlying index. For example, a Nifty ETF will invest in the 50 stocks compromising the Nifty index. ETF’s are freely marketable securities which are traded on the stock exchange.

Since ETF’s trade on the exchange, their value fluctuates all the time during the market trading hours. This is different from the working of a mutual fund scheme which has a single Net Asset Value (NAV) per day that is determined after the trading hours are over.

Theoretically, ETF’s are structured to provide a variety of advantages to investors. The most prominent among them are as follows:

  • Diversification: ETF’s can provide a variety of diversification based on following themes:
  1. Asset classes such as equities, gold, fixed income
  2. Sectors such as financial services, consumption, infrastructure
  3. Based on market cap i.e. large, mid and small cap
  • Low Cost: One of the biggest attraction of ETF’s has been it’s very low cost structure, especially in comparison to Indian mutual funds. The low costs is primarily due to the fact that an ETF is a passive investment i.e. there is no active intervention in stock selection, re balancing based on a certain view. Therefore the costs associated with hiring professionals and the required infrastructure is avoided, resulting in a significantly cheaper product. Furthermore, most ETF’s have kept the expense ratios low to induce significant inflows from institutional investors. Following are examples of some commonly known ETF’s and their respective Expense Ratios
ETF Expense Ratio
CPSE ETF 0.07%
Motilat Oswal MOSt Shares M100 ETF 1.50%
Kotak Banking ETF 0.20%
ICICI Prudential Nifty iWIN ETF Fund 0.05%
SBI – ETF Nifty 50 0.07%
Average 0.38%

(Source: Value Research, mutual fund websites)

  • Suited to Efficient Markets: it is a global observation that passively managed funds have performed significantly better over actively managed funds where markets are more efficient. This is because in developed markets, all related information that should be priced into the equity market already happens, leaving very little space for the fund managers to beat their respective benchmarks.
  • Reduced Risks: Due to its passive structure, the risk arising due to stock selections by a fund manager are reduced. Furthermore, as an ETF comprises the same stocks in the same allocation as in the underlying index, tracking error is significantly reduced to the point of it being almost negligible. Tracking Error is the standard deviation between the returns of the fund and the underlying index. A lower tracking error indicates the fund is that the ETF will mirror the index more closely and therefore its performance will be more consistent with the same index.

Despite many advantages that ETF’s can bring to the table, in India they so far have been primarily avoided for the following reasons:

  • Liquidity: One of the major disadvantages plaguing ETF’s currently is liquidity. As ETF’s are traded on the exchange like any stock, its not always you will have to opportunity to either buy or sell at the desired quantity or price, depending on the type of ETF involved. However an alternative to this problem is the use of a market maker. A market maker is appointed by fund houses. They, on behalf of fund houses, provide quotes for buying or selling an ETF based on the current NAV of that ETF. This helps ensure liquidity for investors. Any investor can approach a market maker for transaction. The difference in their quote and the NAV of the ETF is called “spread”, is the cost for the services. –
  • Lack of awareness: Distributors receive negligible commission for recommending and executing an investment into an ETF. Because of these low margins not much efforts have gone into promoting ETF’s. Thus, most investors are unaware of what an ETF is and how it can add value to their portfolio.
  • Relative Underperformance over long term: While in theory ETF’s should out perform active managed funds in an efficient market, the point to note is that India is still some time from achieving that status. Hence actively managed equity funds, especially in the top quartile, are able to beat the underlying index, and ETF’s over long term horizons. This currently results in alpha creation which ETF’s may take time to match up to. The following table is a comparison between a random mix of actively managed equity funds and equity oriented ETF’s:
  1yr 3yr 5yr 10yr
Aditya Birla Sun Life Frontline Equity 26.62 10.21 16.89 10.61
Franklin Templeton Franklin India Prima Plus 24.86 11.17 18.22 10.87
HDFC Top 200 28.42 8.39 14.99 10.65
IDFC Premier Equity 30.35 11.72 18.68 14.08
ICICI Prudential Nifty 100 iWIN ETF 27.54 8.44    
Kotak Sensex ETF 23.88 5.36 10.7  
Reliance ETF Nifty BeES 26.78 6.7 11.91 5.75
S&P BSE Sensex 25.58 5.01 11.15 5.14
NSE Nifty 100 26.97 7.55 12.71 6.08
source: value express , date (07 Dec 17), returns data CAGR        

As in the Indian economy continues its march towards being recognized as a developed nation, there is fair certainty that ETF’s will have a far larger role to play. However in current scenarios, practical hurdles continue to keep them out of favor among investors. We believe that assigning a small allocation towards ETF’s, after due diligence, is sufficient basis investor’s risk appetite and investment horizon. As Indian Equity markets evolve, so will the ETF space and this will increase investors interest towards them.

Read Full Post »

indian-stock-market-news-update-as-on-april-02-2014

India is currently among the most watched Emerging Market nations. To top that, the Indian Equity Markets have witnessed unprecedented growth in the recent months. The YTD returns for Sensex alone has been 26% (data from BSE India). The euphoria and high confidence on the Indian Equities has continued to remain, especially from the institutional investors both foreign and domestic.

This is also leading to make many individual investors question whether they should invest in equities or sit on the sidelines. While individual risk appetite and time horizon would be some of the basic factors to understand before investing, there are many other fundamental factors to track. While the debate has been raging on as to which indicators should be looked at or ignored to make sense of the valuations of the Indian equity markets, the following factors can help bring some sense of clarity to the overall picture. Factors such as:

Current Price to Earnings Ratio (P/E Numbers): One of the most traditional tools used globally at gauging the valuations of an equity market of a country. In the last one year alone (based on data from Oct 16 to Oct 17), the P/E Ratio for S&P BSE Sensex has averaged close to 22 times in comparison to its historical average of approximately 17 on a trailing basis. For the BSE Mid Cap and Small Cap of the same period, the P/E valuations are at an average of 33.8 and 81.13 times.

Corporate Earnings: P/E Ratios are directly linked to the corporate earnings of the country. As per Kotak Institutional Equities Estimates, the Expected Earnings for companies representing the Nifty 50 Index are approximately 2% in FY 2018. A variety of reasons are attributed to these low earnings expectations, most famously discussed are the implementations and effects of Demonetization and Goods and Service Tax (GST).

Crude Oil Prices: Nearly 80% of India’s energy needs are import dependent. A direct consequence of this is the risk to the country’s inflation rate if the prices of crude oil are to rise. A rise in oil prices results in lower cashflows/profits for companies and higher prices for consumers. Brent crude oil prices are currently firming up at prices upwards of 60$ per barrel. This is a definite concern from an Indian economy perspective.

Exchange Rates: The Rupee is currently considered overvalued basis its 10 year average (Source: Kotak Research). This has a dual impact on the economy i.e. (A) it increases attractiveness of imported products, resulting in increased competition for domestic companies and lower profits; (B) it decreases the value of exported products and therefore hurts the margins of export based industries such as the IT sector. Both have resulted in muted growth prospects for these respective industries.

Bond Yields: In an growing economy like India, both equities and bonds compete for capital. In a equity bull rally, money is taken out from bond markets and pumped into equities, forgoing risk to capital for riskier investments. Currently bond yields are inching up to the mid 2017 high of 6.987% yield for the 10yr G-Sec. However there has only been net inflows into fixed income. Foreign Portfolio Investments into Government Securities have already reached 83.94% of their allotted limit (data dated as per 6th Nov NSDL)

Inflation Rate: Inflation brings about it own risks to the stock markets. In the last Monetary Policy Committee meeting, the RBI revised the inflation projections for the rest of FY 2018 upwards to 4% – 4.5%. This may indicate a stop to future rate cuts, freezing any possibilities of reduction in lending rates. Medium term consequences for companies could possibly mean dearer than expected debt to  service, resulting in subdued profits and revenue.

Role of FIIs: The way that Foreign Institutional Investors park monies in the market can give an indication to the current picture of that market. While FIIs were very bullish on Indian Equities for most part of the calendar year, starting June they slowly but surely tapered inflows in equity, finally resulting in net outflows in the month of September and October. (Source: moneycontrol)

Global Scenario: On a global scale, economies are starting to look up, with further growth expected. According to IMF Economic Outlook, average expected GDP growth for FY 2017 is 2.5%. Globally, equity markets have participated in this growth including India. What probably may need to be put in perspective is that the rally in Indian Equities may be partly due to the global rallies taking place. Therefore the Indian equities are associated with risks in terms of foreign external factors like outbreak of war in the Korean Peninsula. Such events are likely to have negative impacts on the domestic markets.

Keeping in mind the above mentioned factors, Plan Ahead Wealth Advisors has a definite view that current equity markets are over valued and investors should exercise caution. The not so positive indicators from these mentioned factors should mean a significant correction cannot be discounted, keeping us wary of diving too much into equities without first educating investors of the potential risks in the short to medium term horizon.

 

 

Read Full Post »

1 (1) (1)In a world where access to internet is becoming more and more widespread, information on almost anything is subsequently becoming easier to find, simply by “Googling” it. Furthermore, free information quite often results in self proclaimed experts of the field, sometimes resulting in unfavorable outcomes for anyone who follows their views/advice without understanding how such individuals arrived at those outlooks.

As such it is important to separate a few facts from myths in terms of what data an individual should consider when faced with some common financial planning aspects rather than what is most commonly/easily available of the internet.

Sending children abroad for higher education is no more a matter of consideration for the upper class families. Nowadays, more and more middle class families aspire to send their children outside India for their education. As such, planning for such an major event requires careful attention. The common misconception is to take simple average rise of Indian education costs and apply the same data for education in a foreign country. However, two critical data points get missed out in such an exercise, (A) the rise in education costs in that particular country to which you plan to send your child. It is inappropriate to consider the inflation numbers would be identical or even similar to that of India. (B) the rise/fall in the currency exchange rate for the two countries in consideration. The following illustration should help clear this concept:

Particulars % Change
Rise in average education cost of  universities in the U.S. in last 10 years 5%
Rise in Currency Exchange rate in last 5 years 4%
Total Inflation to Consider 9%

Now In comparison the inflation rate for the Indian colleges is approximately 10%-11% p.a.

Talking about inflation, another topic of debate is if the Consumer Price Index (CPI) data is an adequate inflation benchmark, especially for higher middle class/ HNI families. To put things in perspective, following is a snapshot of items considered in the CPI basket and their respective weight-age:

Sr. No Particulars Weightage
1 Food and Beverages 45.86%
2 Pan, Tobacco and Intoxicants 2.38%
3 Clothing and Footwear 6.53%
4 Housing 10.07%
5 Fuel and Light 6.84%
6 Miscellaneous 28.32%

(Source: Ministry of Statistics Programme Implementation Circular Dated 14th March,2017)

As you can see, the weight age of expenses, while more suitable for the lower strata of income generating families, might not be appropriate for the higher end. Something like expenses on food/groceries would certainly not be half the expenses. As such, while current CPI numbers are around 3.5%, indicating that going forward inflation is to be expected around that range, it would be right to assume that a middle class family living in Mumbai would face the same inflation rates. A more appropriate method would be to calculate the individual inflation of major expense heads i.e. food, rent, education, lifestyle expenses and find the average of the same. You would more likely discover a very different inflation rate compared to the CPI.

Past returns is a favorite filter for most investors when choosing products of an asset class, especially stocks and mutual funds. However almost all online data provided by various service providers show Trailing Returns.. Trailing returns show how a fund has performed from date A to date B, by simply seeing the difference in NAV of those dates. But it does not show how consistently it performed in that period. A recent upswing in its performance can skew the average of say a 3 or 5 year performance. To adjust for this, Rolling Returns is considered. It does not take only one block of a 3year period but several blocks of such periods. Thus it allows you to see a range of performances across blocks of time. They therefore capture performance of funds over different market periods, giving a more reliable view of the fund’s performance

Similarly, another topic of debate is usage of Total Return Index v/s Simple Price Index as a benchmark when selecting a mutual fund. A Simple Price Index only captures the capital gains due to stock movements in the fund. But the Total Return Index considers the capital gains and dividend paid by the companies to the investors. Hence it shows a truer picture of the returns. Almost all mutual funds today benchmark their returns against the Simple Price Index. This can result in showing higher alpha generation by the fund which may not give the right picture to the investor. For example, Nifty 50 Price Index over past one year (as on 27th October 2017) was 18.63 percent and Nifty Total Return Index for the same period showed 19.75 percent. Hence a mutual fund will show different alpha based on the benchmark used.

Plan Ahead Wealth Advisors believes that Rolling Returns and the Total Price Index are the correct data points to consider.

Finally, the widespread use of the general rule of thumb when it comes purchasing a Term Insurance Plan i.e. the sum assured is to be 15-20 times the annual income. Procuring a term plan should be about covering financial risks that may befall on the dependants in case of an unfortunate event. Financial risk does not only include loss of income but also other factors such as pending liabilities, future financial goals, current assets that can be redeemed shortly to meet any obligations. Such factors also play a significant role in determining how much cover needs to be taken.

Using the right data is critical during the financial planning process. As you can see, wrong data can lead to significant errors/assumptions which can have detrimental impacts.

Read Full Post »

image 1

InterGlobe Aviation Ltd, which runs India’s largest airline by market share IndiGo, and its existing investors plan to sell around 10% of its equity.

image 2

Source : Economic Times

Quick facts

  • First big listing after Jet: IndiGo’s IPO will be the first big listing afterJet Airways’ 2005 IPO. Jet Airways (India) Ltd, then India’s largest private airline, raised 1,900 crore in its 2005 IPO. The carrier, which is part- owned by Etihad Airways PJSC, now has a market capitalization of $494 million while SpiceJet Ltd is valued at $172 million
  • Existing Shareholders:

image 3

 

  • Use of Funds: According to its share sale prospectus, IndiGo will use 1,165.66 crore to retire liabilities and acquire aircraft. It will spendRs.33.36 crore for equipment acquisition and rest for general corporate purposes.

What works for Indigo

  • Only profitable Indian carrier: IndiGo is India’s largest no-frills airline and has been the only profitable Indian carrier for the past seven years out of its nine years of existence. Indigo has won a reputation for its service quality and on-time performance in an industry characterized by debt and accumulated losses. The airline turned profitable in fiscal 2009 and has remained profitable in each subsequent fiscal through FY14. No other Indian airline has consistently remained profitable over the same period, according to consulting firm CAPA India.
  • Order Book: IndoGo maintains largest order book of any Indian carrier. The significant volumes that they generate mean that they have much better bargaining power vis a vis other players, allowing them to keep their costs down.
  • ASK (Average seat kilometers): ASK measures an airlines passenger carrying capacity. IndiGo’s carrying capacity has increase from 2004 to 2014 while in the same period for other carriers it has gone down.
  • Falling jet fuel prices: Falling jet fuel prices in the last one year Fom Rs.165.6 in September 2014 to Rs. 92.24 in September 2015 will reduce the input cost for airline industry dramatically.

Risk factors

  • Continuing to apply the low cost carrier model: The airline industry is characterized by low profit margins and high fixed costs, including lease and other aircraft acquisition charges, engineering and maintenance charges, financing commitments, staff costs and IT costs.

Significant operating expenses, such as airport charges, do not vary according to passenger load factors. In order for them to profitably operate their business, they must continue to achieve, on a regular basis, high utilization of their aircraft, low levels of operating and other costs, careful management of passenger load factors and revenue yields, acceptable service levels and a high degree of safety.  Some of these factors are not under their control. Therefore, profits may vary. Any change in fuel costs could significantly impact profitability.

  • Production delays for Airbus A320neo aircraft: Production delays in the order placed for Airbus A320neo in 2011 could impact their expansion plans.
  • Foreign Exchange Risk of depreciating Rupee against Dollar: With substantially all their revenues denominated in Rupees, they are exposed to foreign exchange rate risk as a substantial portion of their expenses are denominated in U.S. Dollars, including their aircraft orders with Airbus.

Quantitative Factors:

image 4

Comparison with industry peers

image 5

Note: The above shares have a face value of Rs.10

IndiGo is the only profitable airline currently, though Spicejet has just started to turn profitable post the change in its management.

Other Ratios (Source: Mint)

image 6

 

Recommendation

The company’s track record and focus on the basics provide comfort to investors, whilst its dividend payout strategy prior to the IPO has raised quite a few eyebrows and negative questions around governance. With India being one of the fastest growing markets for air travel, a well managed fleet expansion plan could pay off well for long term investors, especially as low cost airlines have tended to be the only category of the airline business that have made monies for investors.

Investors could look at investing in the Indigo IPO.

Read Full Post »

Recent census data seems to indicate that the median household size is now less than four for the first time in urban India. This means that family sizes are shrinking, and over 70% of households are not multigenerational any more. As India as a society becomes more nuclear, planning for retirement becomes even more critical, with children not being a dependable retirement plan any more.

We find that most investors tend to start working seriously on their retirement plans between the age of 35 and 40. Considering that life expectancy in India is increasing rapidly and medical advancements make it very likely that we will live much longer than we currently envisage, creating a corpus that can outlive us can be quite a challenge. To put it into perspective, someone starting his retirement planning at 40 will save and invest for 15 to 20 years till he turns 60, and expect these savings to support him and his family for a 25 to 30 year period.

Most investors have certain investments in their portfolio that are earmarked for retirement. The moot question is – Will those be enough? Since a monthly expense of Rs 40000 per month today would be close to Rs 2.75 lakhs per month after 25 years assuming an inflation rate at 8%, these may just not be enough. So how does one plan to retire rich. Here’s our six step guide:

Step 1: List – Make a list of your current monthly and annual expenses

Step 2: Analyse – Critically evaluate each expense head to see whether these expenses are likely to increase or decrease post retirement.

Step 3: Inflate – Apply an appropriate inflation rate to these expenses to arrive at the likely expenses at retirement age.

Step 4: Estimate – Estimate the corpus required for the inflated expenses to support you during the period of retirement till death.

Step 5: Invest – Evaluate the amount you need to save each month/year to achieve the desired corpus. Invest the amounts in a diversified portfolio that can help you achieve the desired corpus.

Step 6: Monitor – Revisit the plan annually to ensure that it is on track.

Since the rate of return on their investment portfolio is a variable that investors can target to change if they wish to achieve their targeted retirement corpus, we strongly advise that investors look at investment strategies that, although riskier over shorter time frames, have the potential to outperform over longer periods. Investments in asset classes like equities for a retirement portfolio should be looked at very closely for their potential to deliver superior returns over longer time frames.

In addition to the quantitative aspects of retirement, we also urge investors to answer two questions when they plan for retirement

  1. What would your ideal day be like when you retire?
  2.  And will this continue to be your ideal day if you do this day after day?

We find that these answers are also very difficult for most investors to find, as a calculator cannot answer this for them. We urge investors to think deeply about these answers today so that they are prepared for retirement not only financially but holistically.

This article was written by Vishal Dhawan, CFPCM 

Read Full Post »

The suspense over the Fidelity review of its India mutual fund business is finally over, with Fidelity announcing that its India mutual fund business is being taken over by L&T Mutual Fund. The good news is that the speculation around who is going to take over the fund is now over, a matter that has been the matter of great speculation and discussion over the last few weeks. The other good news is that with multiple suitors for the Fidelity India  business willing to pay a decent sum for the Fidelity India business ( 5% to 6.2% of Assets under Management), other mutual funds obviously continue to view India very favourably  for their mutual funds business. Thus, the exit of Fidelity should definitely not be viewed as a negative.

The bad news is that the equity team of Fidelity, which boasts of one of the best track records in the country as far as domestic equity fund management is concerned, is not going to move to L&T Mutual Fund and is only going to assist with the integration. Whilst this takeover is subject to an approval from SEBI and Competition Commission of India ,  and the integration post that is likely to take a few months, a large number of investors would be contemplating on what should be done next.

Here’s how we think investors need to approach this:

Broadly, Fidelity funds in India can be classified as under:

1.  Domestic equity funds – Fidelity India Equity Fund, Fidelity India Growth Fund, Fidelity Tax Advantage, Fidelity India Special Situations Fund and the Fidelity India Value Fund are the funds that are prominently in this category.

2.  Debt funds – Fidelity India Short Term Plan, Fidelity Flexibond and Fidelity Flexigilt are the funds that are prominently in this category

3.  International Funds – Fidelity International Opportunities Fund and Fidelity Global Real Assets Fund are the funds that are prominently in this category

4.  Hybrid funds – Fidelity Childrens Gift Fund and Fidelity Wealth Builder are the funds that are prominently in this category

Whilst L&T as a brand does give a great deal of comfort to a large number of Indian investors, and a large number of domestic Indian managers have done very well vis a vis foreign fund managers ( HDFCs mutual fund schemes are a very good example),the performance of equity funds of L&T so far have not been very inspiring. L&T has been working towards strengthening its fund management team, with M Venugopal( ex co head equities – Tata MF) having joint as head of equities at L&T recently. Whilst it is very early days to measure his performance at L&T, L&T equity funds have so far underperformed Fidelity funds and their peer group fairly significantly. Thus, both domestic equity funds and hybrid funds that have varying amounts of equity exposure in them will need to be tracked carefully and if there is a drop in performance of any of the erstwhile Fidelity funds due to the new changes at the helm over the next 3-6 months, we would recommend that investors move to other funds. It is critical that this measurement is done against the relevant peer group and an appropriate index so you may need to take the help of your advisor for this purpose.

As far as the debt funds are concerned, L&T has been a reasonably good track record. In most debt fund categories there is little to choose between performances of Fidelity and L&T schemes. Therefore we do not see the need for an immediate change. However, we do recommend that investors track these performances closely as well to ensure that there are no slippages on this front.

As far as international funds are concerned, there is no clarity yet on how these will be managed as the fund management processes and access to global resources that Fidelity has, due to their large international presence, will be hard to replicate for L&T. We will need to await clarity on how this part of the business will be managed, as managing these portfolios without the support of an international business will be very challenging. As soon as clarity  on the fund management process for international funds is clearer, the decision on whether or not these investments need to be retained can be taken.

Whilst taking the final decision on staying invested or deciding to exit, tax implications, lockins and exit costs will also need to be considered. Therefore, do not react immediately to this news but evaluate this in the context of multiple parameters before you finally decide.

This article was written by Vishal Dhawan, CFPCM 

 

Read Full Post »

Older Posts »

%d bloggers like this: