Tag: Mutual funds

16 Feb 2018
Mutual funds

Invest in SIPs and take control of your Finances

Albert Einstein is supposed to have remarked: *Compounding is the 8th wonder of the world – one who understands it, earns it; one who doesn’t understand it, pays it!!*

Compounding as a benefit of Mutual Fund is been a very talked about subject. But as a layman not many know how does it work.

Compounding is simply an activity in which the earnings of the original investment also earn the same rate of return as an original investment.

Now in the case of Mutual Funds let’s say you invested in the fund when the NAV is Rs. 20. Now assume NAV goes up by 25%, in that case, the New NAV will be 25. Again markets go up by 20%. Now the new NAV will be Rs. 30 which is 20% above Rs 25. If there were no compounding than the return would be 20% over Rs 20 which was an original investment. This is compounding in Mutual Funds for you.

I would like to say is that for a long-term investor compounding will work in his / her favor. In fact, I must say compounding is the magic which magnifies your return over the long term.

It is a way which allows an investor to take control on the finances and Systematic Investment Plans are the way to manage finances with ease of investment.
05 Jul 2016
Inputs on 7th CPC Questionnaire

Inputs on 7th CPC Questionnaire

1) What are 5 things you advice government officials should do with increased pay and arrears once the pay hikes come?

  1. The 7th Pay Commission money will come to the Government officials in two forms– approximately seven months’ pay arrears and the monthly increased money.

Unlike the earlier pay commissions which took a long time to finalise their recommendations (6th CPC took 30 months), this one has done it pretty fast, implying that there is likely to be just about seven months of arrears that become due. Hence, the arrears are going to be quite small, just about equal to a month’s salary post-tax. For this reason, there is neither much excitement about the arrears nor could there be great plans required to be made to spend it. However, since it will become available anyway, the best way to utilise it is to retire debt, if any. This implies that one should try to reduce the loans taken – costlier loans first. A logical order to pay off the loans should be Personal loans, product loans (taken for vehicles, durables, jewellery etc), loan against property, and lastly home loans. It not only reduces the interest payment, but there is a big psychological relief too when a loan is paid off, however small. After the loans have been paid off, if some money is left, a contingency fund, typically equal to about three months’ expenses (including all loan payments) should be created or topped up, as the case be. Any further money available should be directed towards tax related savings for the financial year. Given the small amount of arrears likely to be available this time, these priorities should take care of it more than adequately.


More important this time will be the monthly increments that will become available. It has been clarified that this additional monthly amount is likely to be in the range of about 15-20% over and above what one is already getting. Rather than aiming to go in for a ‘better lifestyle’, or buy that long-pending big car on loan and pay EMIs, it will be better to take a look at your long term goals and how this additional monthly increment can be used to fortify them. This could go to increase your PF contribution, start or increase of mutual fund SIPs (Systematic Investment Plans) or even recurring deposits. That way, this increase would help you meet your dreams, responsibilities and obligations that you would’ve otherwise struggled to meet. Children’s higher education, marriage, home, etc are all more easily achievable if these small droplets are accumulated to make an ocean. It should not happen that few years, or maybe even few months down the line, you do not know how timely non-utilisation of the additional increment of money simply went to your lifestyle expenses without actual increase in your quality of life.


2) Could you give some good Mutual funds to invest?

Good funds would depend upon three main aspects – risk profile of the individual, his future requirements (or financial goals), and the market conditions. If one is a novice and entering mutual funds for the first time, primarily debt funds should be gone into with some balanced equity funds. As one becomes comfortable with equity, large cap and multi cap funds can be added. However, if one is knowledgeable about equity, a portfolio of large cap, multi cap, mid & small cap and balanced equity funds can be made. The ratio in which each fund is taken would depend on the three factors already enumerated.


3) How much of portfolio should be invested in gold?

Gold could be looking attractive now due to it having zoomed up lately. But please remember the old adage – ‘Gold zooms when the world is Doomed’. Due to large uncertainties associated with global economy, financial markets have been very volatile lately. Hence the rush to perceived safe havens like Gold. But these very uncertainties and rush times have also made Gold very volatile! We do not advocate more than 5-10% allocation to Gold at any time and this is true of bulk investments as also monthly ones.


4) What are the best tax-saving investment options?

There is a large variety of tax-saving options available under Income Tax Section 80C. However, the key issues are the safety, returns and tax status while investing, of its returns periodically received and when it matures or is redeemed. PPF is the best tax saving avenue for the risk averse as it gives decent interest of 8.1% as on date and enjoys the E-E-E (Exempt-Exempt-Exempt) status. If you find the returns low and are prepared to accept some volatility of returns, tax saving mutual funds (called ELSS – Equity Linked Savings Scheme) are very good. If chosen carefully, they also provide E-E-E status, are likely to provide higher returns than PF, can be contributed to regularly through automatic ECS from bank account and provide the option of continuing as long as you want. They also have the shortest lock-in period of all tax-saving investments of just three years. But please remember that their returns are market linked. Apart from these, five year tax-saving bank FDs, Insurance policies and NSC also are 80C investments. But low returns take their sheen off. NSC are E-E-E provided the interest received is shown re-invested in the Income Tax Returns each year (except the last year when it matures) and bank FDs are in the E-T-T bracket.

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09 Dec 2014
MFs your Financial Supermarket- humfauji.in

MFs your Financial Supermarket

There are a lot of misapprehensions in the minds of most of the people about Mutual Funds. Despite the fact that they are one of the best financial avenues to invest and save while giving a lot of flexibility and convenience to the investor, they have not been able to capture the investing space of a large number of people.

My article below in Times of India today (National Edition, Page 7, 09 Dec 2014, Tue) tries to bring out that Mutual Funds are the most versatile financial instruments, for any period of time and purpose while giving you all the flexibility which no other financial instrument can match. You may also look at the link http://humfauji.in/blog on our website to read more about it.

(Please enable ‘Display Images Below’ in your browser to see the newspaper clipping)

MFs - Your Financial Supermarket

18 May 2014
Post Election Result analysis- humfauji.in

Post Election Result analysis

Lotus has Bloomed!! Will you again get late to catch the bus?

The Indian equity markets welcomed the change in Government at the centre as they cheered and went over 1,000 points (or +4.0%) in early hours of Friday’s trade on 16 May 2014 when result announcement was in progress. However, since the outcome of the election was much in line with expectations, they gave off some gains due to profit booking by the day-end, since most run-up had already taken place in the recent past. One major difference between this election and previous ones is that market volatility has been much lower so far than during past elections. In the 2009 elections, the Indian stock markets rose 17% in the two days following the results. In the 2004 elections, the Indian stock markets fell 17% in the two days following the results.

On the election-results eve (on the night of 15 May 2014), we had sent you a mail which talked of 3 election scenarios. The First Scenario given out was as below, which has eventually played out:

“The exit polls are wrong and Modi and team will win over 320 seats: the market could:

  1. surge by another 10% in one day; so the S&P BSE-30 Index may cross 25,000,
  2. then there will be a pause to see who will be in the cabinet,
  3. then there will be a reaction to the new policies and budget which will be announced by the end of June,
  4. if the budget is good, then the Index may stay in the 25,000 to 27,000 range but if the budget or policies are seen to be like those crafted by President Pranab Mukherjee when he was Finance Minister in 2012, look for an Index closer to 18,000!!”

So, What do we Say now?

We have been cautious so far all through in the past four years. We told you to get into equity through the safer route of SIPs in your equity diversified mutual funds since ultimately slow-and-steady wins the race. We told you to take fair exposure to safer debt mutual funds if you were keen on tax-efficient safe returns. We also said that you should have patience since the country’s macro-economic condition was not getting any better – hence, not to expect any miracles with your financial investments.

We are about to change all that we said so far! Please read the following carefully which articulates our changed views now:-

  • Indian stock markets are now on the cusp of a bull run and in a true Sweet Spot. If the new Govt utilises its new-found mandate correctly, the current situation may be better than even the 2004-2007 golden run of the stock markets. Remember, Narender Modi said words to the effect during his election campaign that Rajiv Gandhi wasted the great mandate given to him in 2004 and should never be forgiven for that by the people of India. Even today, in spite of past weak market years, the past 1 year, 3 years, 5 years and 10 year returns have been fantastic for the patient investors and better than any other asset class, including real estate.
  • Markets have run up but are not high. On a P/E ratio of 18 today, markets are only rightly priced. The speed and certainty of decision making of a majority Govt are still not factored in the market numbers. If Govt starts out with some good policy announcements, potential is immense. Most of the retail investors are under-allocated to equity now. They need to utilise this opportunity and enter now rather than when all the biggies of the markets have already entered at lower level, as typically happens in any bull run.
  • In the whole world, India is in the best position to grow. The US, Europe, China and other emerging economies are beset with serious internal and external problems. Hence, commodity boom, which could offset most of the progress that we make, is not likely to happen. Our problem so far was that we were our own worst enemy. If governance improves, we should be off the starting block.
  • On the currency side, Rupee is itching to strengthen below 58 to a US Dollar. However, as the economy strengthens, RBI would like to buy $ to reach its forex reserves target of US$ 400 bn. Thus, we expect Rupee to move in a narrow 58-60 range. This RBI intervention is likely to provide the much needed liquidity to the system, along with the expected FII inflows. As uncertainty on liquidity disappears, interest rates may move down.
  • The WPI is 5% while CPI is at 9.5% right now averaging over past two years. We expect WPI not to go below 4.5% but the CPI may move down to about 5-6% in next two years. This implies a softening of interest rates, making long-term allocation to debt mutual funds very attractive.
  • Any Black Swan events that can upset the apple cart? El Nino (bad monsoons), deteriorating of fiscal deficit by more than 0.5% below the current 4.2%. With good governance, they should be passing blips. Fiscal deficit should get controlled to 3.5% range in next 2-3 years. Of course there are risks to any prediction, but the current risk-return analysis rules in favour of going ahead. Index at 30,000 is possible if GDP gets into the 6-6.5% range – currently it is in the 4.9% range.


So what do we advocate for YOU now:-

  • If your risk aptitude allows, this is a good time to enter the markets, preferably through the mutual funds route rather than direct equity. Get into mid caps, diversified multi-caps etc. If for some reasons markets go down temporarily, use it as a good opportunity to accumulate more, rather than doubt your decision of entering the markets. See the fantastic returns our investors are currently sitting on, who continued with their SIPs through the past lean years. If you are already in the markets, allocate more.
  • Have a long-term view rather than be in-and-out of the market on your short term predictions and fears. We are likely to see a structural change in Indian economy and it will take time to play out fully. Patience will get rewarded. Impatience can get punished even in a structural bull market. Markets will never move up in a straight line. Link your investments to your long-term goals to stay the course.
  • If you do not have the risk appetite for equity, go for long term debt mutual funds. As the interest rates move down, you will create far better and tax-efficient wealth than if you invest in bank FDs, post office products, insurance policies, etc.
  • Have the mindset of a millionaire – save more, have patience with wealth creation, set an agenda and don’t get out of your investments till the goal is achieved. Remember, millionaires follow the equation: Earnings – Savings = Expenditure, and not the equation: Earnings – Expenditure = Savings. Set targets to Savings and not to expenses first.

How can we help you do this?

  • Write to us at contactus@humfauji.in or contact us on 9999 022 033. Our professional, ethical and efficient service is available to you. We will make your portfolio, review your existing portfolio, invest it in your name and monitor it on a quarterly basis for a small yearly fee. A dedicated financial planner will be available to you to sort out any issues and answer your related queries. We aim to be a one-stop-financial-solutions-destination for you: equity and debt mutual funds, life-time financial planning, retirement planning, children’s planning, income tax filing, corporate FDs, Govt bonds and much more.
  • Our services are available to only armed forces officers and their very close relatives. We also wish to assert that our portfolio services are only for the long-term investors and we do not encourage short term investing and speculations – goal based investing is our forte and we take delight in that.

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01 Feb 2014
Investing in Debt through Mutual Funds - humfauji.in

Investing in Debt through Mutual Funds

What does debt investing mean? I understand ‘debt’ to be money borrowed. But I want to invest!

When you lend your money to a bank (by putting your money into your savings bank account or making a bank deposit) or to a company (by investing in a company deposit) or to the government (by investing in bonds offered by state institutions such as IRDA – Insurance Regulatory And Development Authority & SIDBI – Small Industries Development Bank of India, etc. or making your Public Provident Fund (PPF) deposits or by investing in post office schemes), you are making ‘debt’ investments. While for you it actually means saving or investing money, for the borrowing entity (the bank, the company, the government, etc.), it means borrowing money.

Debt investing – through Mutual Funds! But I thought Mutual Funds only invest in equity?

Mutual funds are actually money managers. They offer different schemes to investors:-

*       Equity Schemes mainly invest in equity shares of companies;

*       Gold Schemes invest in physical gold or in shares of companies whose business is gold mining or gold processing

*       Debt Schemes invest in debt securities such as treasury bills, government securities, corporate bonds, money market instruments and other debt securities, which are not linked to stocks or shares.

Does that mean that Mutual Funds invest in the same debt investments that I can directly invest in? If that is so, then why should I invest through mutual funds? I can invest directly!

There are 3 reasons why it makes sense to invest in debt through Mutual Funds:

  • Mutual funds give you access to certain debt securities such as government securities (money market, treasury bills, etc.) which you would probably not be able to invest in directly.
  • Your debt investments are professionally managed by experienced debt fund managers. In fact, debt fund managers trade in debt securities on the debt segment of the stock exchanges with an aim to earn capital gains on these debt securities. This may help you get additional returns on your debt investments.
  • Investing in debt through mutual funds offers you tax benefits too. For instance, interest earned on a bank deposit is tax deductible if it exceeds Rs. 10,000 while dividends earned on your debt mutual funds are tax-free in your hands. Besides, if you hold your debt mutual fund for more than a year, the capital gains you earn are taxed at a reduced rate of 10% [Tax on long term debt mutual funds is 10% without indexation or 20% with indexation, whichever is lower].


So, how do Debt Mutual Funds work?

Mutual funds offer various debt schemes (income funds, gilt funds, short term debt funds, etc.). These schemes invest in a portfolio of fixed income instruments like bonds, debentures, treasury bills, commercial papers etc.

A debt scheme can be an ‘open ended’ one or a ‘close ended’ one. An ‘open ended’ scheme is available for investing all the time while a ‘close ended’ scheme is available for investing during the New Fund Offer (NFO) period only, and is later listed on the exchange where it can be traded.

Mutual funds collect money from investors in a debt scheme and then invest this money in debt securities as per the scheme’s objectives.

Just like equity is bought and sold on a stock exchange, there is a debt market where fund managers trade in debt securities. . While most securities are traded over the counter, Gilt or Government Securities are traded on the NDS platform, operated by the Reserve Bank of India. The market price of a debt security varies with interest rate movements. So, a portfolio of debt securities could incur capital gains or losses depending on the interest rate movement at the time of sale or valuation. This gain or loss is realized at the time of sale of the security and is typically reflected in the NAV movement of the debt scheme.

Please remember that Debt Mutual Fund investments are subject to interest rate risks due to fluctuations in interest rates prevalent in the economy.

(Source: ICICI Prudential write-up on www.myuniverse.co.in)


Col (retd) Sanjeev Govila

CEO, Hum Fauji Initiatives

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