Massive Wealth Destruction World-Wide

Last few weeks have seen massive wealth destruction worldwide. Equity markets have corrected around 30% in India too.

Your investment portfolio has also taken a hit and you must be concerned about the current scenario & thinking what to do. It must be very painful to see such erosion in value of investments.

At Master Mind Financial Advisory, we are also much concerned when we see the portfolio getting hit by such falls. It all happened so fast around the globe due to Corona Virus scare that there was little time to take any suitable measures to protect the fall in value. At this stage, changing the asset class from equity to debt doesn't seem to be a good choice.

Events like these are black swan events which happen once or twice a decade.

History suggests that things eventually improve after such events.

We urge you to sit tight on your investments. We strongly suggest to continue your SIPs as they are helping you buy at lower levels.

It is to inform that buying cheap is the essence of getting higher returns and so we would also suggest you to consider buying lumpsum in 2-3 tranches if markets go down further. We know it is not easy. If you would like to give it a pass, we would understand.

We are keeping a close eye on the developments and will reach out to you if any action is required. These are extraordinary circumstances & let us assure you again that  we are on your side, always. We will together come out of this situation and see good days for the portfolio in the near future.

Act Smart, Act Wisely & Always Remember #SaarthiZarooriHai.

We are always there as your "Financial Saarthi" / "Independent Financial Intermediary"

Portfolio Valuations may vary on case to case basis. This message is purely generic in nature.

We still can mitigate the risk in portfolio but we cannot eradicate it.

Warm Regards,                           

      Varun Vaid                                               

             

 +91-9814612907
 +91-0172-4623907

Twitter: @vaid_varun; @MMFA_IN

LinkedIn  I  Facebook  I  Blog

www.mmfa.co.in

Voda-Idea rating downgrade & its impact on investments

Background

On 15th Jan, 2020, the Supreme Court rejected the petitions filed by telecom operators to review the October 24, 2019 verdict that provided three months' time to clear AGR (Adjusted Gross Revenue) dues.

As expected the telecom operators (excluding Reliance Jio) missed the 24th Jan, 2020 deadline to pay the dues. Telecos are finding it extremely difficult to meet the payment timeline given the large quantum of dues and are hoping for relief measures from the government.

The Supreme Court is likely to list the modification appeal filed by the telcos against the deadline for their statutory dues on 3rd Feb, 2020, as per Apex Court's notification stated on 30th Jan, 2020. We cannot speculate on what the Apex Court verdict will be, soon it will be known to all.

Corporates have defaulted on their obligations towards mutual funds even in the past.

Some of the names that come to mind are those of Ballarpur Industries, Amtek Auto, and Jindal Steel & Power. But the recent spate of defaults, including names like IL&FS, ESSEL Group, Dewan Housing Finance Corporation, Reliance-ADAG, Altico Capital, Sintex BAPL etc.

Even Life Insurance Corporation (LIC) has an exposure of more than Rs 20,000 crore to various entities’ debt instruments that have been downgraded to the default category by credit rating agencies.

The exposure, which is for the period ended September 2019, is across various platforms such as life funds, pension funds, and unit-linked funds.

AGR Dues 

VIL owes AGR dues of over Rs 50,000 crore to the government. VIL Chairman Kumar Mangalam Birla had earlier stated that they will have to shut shop if the Centre does not provide any relief. This puts VIL at a greater risk of default and rating downgrade.

Among other telecom operators, Bharti Airtel has better chances of survival and the ability to compete with Reliance Jio. Bharti Airtel recently raised Rs 21,240 crore through QIP (Qualified institutional placement) and FCCB (Foreign currency convertible bonds). It proposes to utilise the proceeds for any payments that may be required to be made towards AGR dues.

Franklin Templeton MF's Write-down & Side Pocketing of Exposure to Voda-Idea Debt

Franklin Templeton has the highest exposure among mutual funds to the debt papers of VIL. Other AMCs like UTI Asset management Company, Aditya Birla Sun Life AMC, and Nippon India Life Asset Management with significant exposure to VIL debt may follow suit and mark down the exposure.

In the past FTMF had exposure to toxic papers of Reliance ADAG and Jindal Steel and Power. It seems FTMF has taken a leaf from the IL&FS crisis and decided not to rely heavily on credit rating or wait for the securities to be downgraded to junk rating.

The move by FTMF is perhaps in the best interest of the investors and the AMC is well within rights to mark-down its exposure rather than waiting for an affirmation from rating agencies.

The schemes would have faced huge redemption pressure in case of rating downgrade and FTMF would have been forced to sell its high-rated and liquid securities to meet the demand. Consequently, this would have led to increased overall exposure to VIL in the portfolio.

VIL's operating performance continues to be weak. Any payout towards AGR dues would significantly impact its liquidity and affect its future plans.

In view of this uncertainty and its impact on the company's financials, rating agencies CRISIL and India Ratings downgraded VIL's nonconvertible debentures (NCDs) worth Rs 3,500 crore to CRISIL BB and IND BBB respectively, which is below investment grade, while maintaining rating watch with negative implication.

Following this Franklin Templeton MF created side pockets for six of its schemes with exposure to VIL debt. The other three fund houses decided against creating a segregated portfolio despite rating downgrade and are waiting for further developments before taking any decision.

What are the stances of Aditya Birla SL AMC, UTI AMC, and Nippon AMC?

Aditya Birla SL AMC, UTI AMC, and Nippon AMC are no strangers to side-pocketing. In the past, these fund houses had created side pockets for its exposure in downgraded papers of Adilink Infra & Multitrading, Altico Capital, and Reliance Capital, respectively.

As per our understanding these AMCs have possibly decided not to segregate its exposure to VIL as the company has not actually defaulted on any payment yet and are hopeful of relief measures in the near future.

What should the investors do?

It is important for you, as an investor, to approach debt mutual funds with caution and your eyes wide open. Do not assume debt mutual funds, including the one with shorter duration, to be risk-free.

Before investing in debt funds, understand the credit risk involved & have a clarity by consulting an advisor.

As the professional financial advisor has to pay attention to the portfolio characteristic of a debt mutual fund scheme or else it can result in making the wrong investment choices, leading to erosion of your wealth.

As an investor or an advisor it must be clearly understood that, credit risks can randomly knock on doors and avoiding them is almost impossible -- even for a seasoned fund manager or a financial advisor.

We at Master Mind Financial Advisory believe in opting for a fund house whose focus is up on process-driven approach, less dependence on concentrated exposures (for generating higher returns), and focus on portfolio characteristics can help reduce the risk involved while choosing a debt mutual fund scheme.

For case by case discussion of investments into mutual funds suggestions would vary. Feel free to be in touch with us.

Warm Regards,                         

      Varun Vaid                                               

             

 +91-9814612907
 +91-0172-4623907

E-mail: director@mmfa.in; operations@mmfa.in

Twitter: @vaid_varun; @MMFA_IN

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www.mmfa.co.in

Recent Measures Announced by RBI to Make More Secure Your Debit Card, Credit Card

Due to rising volume & value of transactions through debit and credit cards, the RBI has introduced new features to improve user convenience and increase the security of card transactions. 

These new features will come into effect from March 16, 2020 under Section 10(2) of the Payment and Settlement Systems Act, 2007 (Act 51 of 2007).

All new cards (whether physical or virtual) at the time of issue/reissue will be enabled only for usage at ATMs and Points of Sale (PoS) within India. The cards will no longer come with a default facility for international transactions or online transactions.

Cardholder will have the facility to enable or disable domestic or international transaction as per their discretion. If the cardholder wishes to enable online transactions, they will have to apply to the issuer to avail these services.

Online and international thefts/frauds are difficult to trace. A tighter control over such transaction can go long way to protect cardholders against fraudulent transactions.

Further, no card will be enabled for contactless transaction by default. Contactless cards allow users to pay just by tapping their card at payment machines without PIN or signature, making it an easy target for theft.

For existing cards, issuers may take a decision, based on their risk perception, whether to disable the following:

1. Card not present (domestic and international) transactions

2. Card present (international) transactions,

3. Contactless transaction rights

Existing cards which have never been used for online (card not present) / international / contactless transactions shall be mandatorily disabled for this purpose.

For every type of transaction viz. domestic and international, at PoS / ATMs / online transactions / contactless transactions, etc., cardholders will have the facility to switch on / off and set / modify transaction limits (within the overall card limit, if any, set by the issuer).

The cardholder will be provided alerts / information / status, etc., through SMS / e-mail, as and when there is any change in the status of the card.

Prepaid gift cards and those used at mass transit systems are not covered under this provision.

Previously, RBI had asked banks to replace the magnetic stripe debit card of their customers with a new Europay, Mastercard, and Visa (EMV) card in the wake of increase in the online/ATM fraud through magnetic stripe cards. EMV cards provide enhanced level of security against misuse in the form of skimming, cloning, etc. making it difficult for fraudsters to copy your data. Magnetic stripe debit card of both public and private banks are to be blocked from January 1, 2020.

Precautionary measures to be taken by cardholders

If you come across any unauthorized transaction in your bank account, bring this to your bank's notice immediately. RBI has issued instructions which states that if a customer informs the bank regarding such transaction within three working days of receiving information, his/her liability will be nil. Bank shall credit the amount involved in such transaction to the customer's account within 10 working days from the date of information by the customer.

Furthermore, for better safety of capital, diversify your deposits across different banks instead of parking all your savings in one bank. You may also diversify your investment across other asset classes such as mutual funds and provident funds.

Warm Regards,                           

      Varun Vaid                                               

             

 +91-9814612907
 +91-0172-4623907

Twitter: @vaid_varun; @MMFA_IN

LinkedIn  I  Facebook  I  Blog

www.mmfa.co.in

Compounding is magic but, patience is the key

15 x 15 x 30

INR 15,000 SIP at an assumed CAGR of 15% for 30 years can give you return of INR 10 Crores upon maturity. 

Simply by increasing your tenure by 15 years one can get 10 times more return. The investment amount is INR 54 lakhs & the amount accumulated will be INR 10 Crores.

This is why compounding is so powerful. But do note that 15% CAGR means 15% average return over a period of time and not 15% annual return.  

One can experience a 20% return one year and -20% the next year. The average will be 15% over the period of time. Equity funds have beaten inflation and all the other asset classes in the long term (10 – 15+ years).

                                                                                Benefits of SIP Investment

 

 Rupee-Cost Averaging

When a fixed amount is invested regularly over a period of time through different market cycles, one can get more units when the price is low and fewer units when the price is high. This reduces the average cost of investment in the long run.

Levels out market fluctuations

Since mutual funds units are being bought regularly by way of SIP, short-term market fluctuations are leveled out. Also, one has to ensure they are not investing in a SIP way too regularly. For example, weekly or fortnightly. If one has a weekly or fortnightly systematic investment plan, they will look at their investments too often. The short-term ups and downs might affect their investment decisions, which can be avoided by a monthly systematic investment plan.

Disciplined Investing

By investing a fixed amount out of regular savings, one is forcing themselves to get used to a fixed investment pattern. This will help them build a corpus for their long-term financial needs. Money not invested often gets spent on consumption and compromises the long-term goals of the investors.

Simple and easy to monitor

With a regular monthly investment, tracking of investments becomes easy and convenient. Also, SIP investment has become much simpler just at the click of a button.

Flexibility

A SIP can be stopped any time at one’s convenience. The SIP can be paused, or the SIP amount can be increased or decreased at any time during the SIP’s tenure.

Long-term gains

SIP gives return only over a period of long-term. Its important one sticks to an investment for at least a period of 10 years for higher returns. Patience is the key to success. Stay invested for long to earn higher returns. Focus beyond returns or performance & focus up on Goal Achievement.

“Compound interest is the 8th wonder of the world. He who understands it earns it and he who doesn’t pays it.” – Albert Einstein 

The value of the investment keeps growing at a geometric rate (always increasing) than at an arithmetic rate (straight-line). Your money keeps on multiplying over a period of time.

Be Smart, Be Wise & Act Now as its in your own interest. Instead of opting for Direct Plans focus on Regular Plans & look in for ethical, honest, unbiased professional.

Choice is yours, as money is yours. But, remember wealth & health both require professionals. 

 Warm Regards,                             

      Varun Vaid                                               

           

 +91-9814612907
 +91-0172-4623907

E-mail    Twitter    LinkedIn  Facebook   Indiamart

 

Best time to redeem Mutual Fund Investments

Dear Investor,

Quite often we at Master Mind Financial Advisory come across with a question that what is the best time to sell our mutual fund investments. In this newsletter we have addressed our revert for your kind perusal.

• Your financial goal is falling due for fulfilment:

For example, you invested in mutual fund schemes to finance the higher studies of your child. In the next six months, your child is applying for a post-graduate programme. You should start redeeming your mutual fund investments under such circumstances to fulfil your goal.

• When your asset allocation has deviated significantly from your original allocation:

For instance, you originally invested 60% of your investable corpus in equity mutual funds, 30% in fixed income instruments, and 10% in gold. But last month you discovered that the proportion of your equity assets in your portfolio has gone up 80%. Under such circumstances, you might book some profit in mutual funds and reduce the weight of equity assets to 60%.

• When mutual fund schemes in your portfolio have been consistently underperforming their benchmark and peers:

You recently found that a mutual fund scheme in your portfolio has been underperforming its benchmark and the category peers consistently across time periods: 5-years, 7-years and 10-years. Perhaps this is the time to eliminate these schemes from your portfolio and replace them with better alternatives.

• The fundamental attributes such as risk profile, investment preferences of the schemes have changed:

Assume, after the implementation of SEBI’s reclassification norms, a mutual fund scheme decided to convert its mid-cap oriented scheme in a multi-cap oriented scheme. You being an aggressive investor, the fund might have become unattractive to you. Under such circumstances, you might redeem a mutual fund scheme.

At Master Mind Financial Advisory we believe it’s not only important to carefully select the mutual funds but to know which funds suit your portfolio best after availing services of an advisor. 

Before you invest in mutual funds, you should know: 

• The age bracket you are in

• Your current financial health

• Your risk profile

• Follow advice of an unbiased advisor

• The estimated ballpark figure for your financial goals

• Time horizon in hand before financial goals befall

• Chart out a personalised asset allocation chart, which is done by the professional

• Performance track record across timeframes and market phases to invest in best mutual fund schemes, where in expert will be better guidepost.

Aren’t sure which mutual fund scheme you should invest in? This is where a professional plays a vital role. The key to your investment success is quality advice and astute selection of mutual fund schemes by an advisor. You should choose your advisor after due diligence only.