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Monday, September 10, 2018

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.

Friday, March 16, 2018

Cost of Investment in Mutual Funds are expected to reduce


Dear Readers,

Earlier scenario for Mutual Fund houses was difficult as far as business beyond, Metros and tier-1 cities. It changed over a period of time. In the recent past, B15 cities have recorded faster growth as compared to that recorded by T15 cities. 

As per the AMFI (Association of Mutual Funds in India) data released for February, contribution of B15 in the Assets under Management (AUM) of the mutual fund industry grew by 41.7% as compared to that during the same time last year. Between February 2017 and February 2018, industry’s total AUM grew at 25.3%.

The rationale behind is falling interest rates in bank deposits and subdued performance of gold and real estate. Mutual fund houses are reaping the benefits of various investor education initiatives. 

Reaching out to investors from the smaller towns was always a challenge. To overcome this, Securities and Exchange Board of India (SEBI) allowed mutual funds to charge 30 basis points (bps) additional expense ratio on new inflows on them satisfying the following criteria:

New inflows from B15 cities shall be at least 30% of gross new inflows in the scheme.
Or
New inflows from B15 shall be 15% of the average assets under management (year to date) of the scheme.

Now as per recent amendment issued, SEBI circular dated 2nd Feb, 2018, the capital market regulator decided to substitute T15 with T30 and B15 with B30 respectively in relevant places.

In other words, the reward of additional 30bps in the Total Expense Ratio (TER) will be given to a mutual fund house only if it garners the pre-specified percentage of total AUM from beyond the top 30 cities.  

The regulator is also going to push the mutual fund industry to further reduce its TER.

Usually bigger schemes enjoy economies of scale; but when the AUM decreases, they start losing out economies of operation and start charging existing investors higher TER.

To deal with this loophole, SEBI had asked mutual funds to plough back the exit load to the scheme, which until then was going into the profit and loss account of the Asset Management Companies. And to compensate for this loss, it allowed mutual funds to charge additional expenses of 20bps.  

Now that mutual fund inflows are extremely stable and the investor base is also expanding, SEBI feels mutual funds can easily absorb the redemption pressure without being compensated by 20bps of additional expenses. This in general happens whenever the market is in bull phase, though vice versa has never been witnessed.

At the board meeting scheduled on March 28, 2018, SEBI will take up this topic for discussion. The capital market regulator is expected to reduce the compensation fee from 20bps.

Let us suppose if its 5bps then, as a result investing in mutual funds is likely to get cheaper by 20%. The impact would be felt prominently on equity schemes. TER of equity diversified schemes (under regular plan) ranges from 3.31% and 1.09%. This range might shift lower to 2.65% to 0.87%; which will be a sure shot positive for the industry overall. 

For direct plans the TER of equity diversified schemes currently range from 2.65% to 0.22%. Now their TER may revolve in the range of 2.12% and 0.18% depending on the AMC and the scheme AUM.

SEBI is trying to make it more transparent, especially the disclosures about TER. The capital market regulator has already made it mandatory for mutual fund houses to declare the TER of all schemes on daily basis under a separate head – “Total Expense Ratio of Mutual Fund Schemes.”

What investors should do?

Although, investing in a scheme that manages its costs well is important, lower TER shouldn’t be the sole criterion to invest or not to invest in a scheme. Impeccable track record is the most important parameter when selecting one mutual fund scheme over others.

Thumb Rule: “Always focus on your financial goals, risk profile & opt for availing the services of a professional before investing in mutual funds.” – Varun Vaid

Regards,

Varun Vaid & Master Mind Financial Advisory Team

+91 – 9814612907; +91 – 0172 – 4623907

Twitter: @vaid_varun


Wednesday, February 28, 2018

3 reasons why you should opt for Monthly SIPs over Daily SIPs

Dear Readers,


As per analysis done over the five-year period starting from March 1, 2013, Master Mind Financial Advisory compared the Daily SIP returns with the Monthly SIP returns of 147 equity-oriented schemes, in terms of returns, there is hardly much difference between a Monthly SIP and Daily SIP. The quantum variance in returns will change over different market cycles. Hence, you need to choose an option that is simple and convenient.
Here's is where Monthly SIPs score over Daily SIPs.

1.       Convenience – Over a five-year period, there will be over 1,200 Daily SIP transactions. This compares to just 60 transactions through a Monthly SIP. Imagine viewing your bank statement with daily entries on entries because of mutual fund investments through a Daily SIP. If you invest in multiple schemes through Daily SIPs, the number of entries multiplies.

You certainly do not want important bank transactions to get lost in sea of SIP entries. The same goes for your mutual fund transaction statement. Imagine the inconvenience of reading through the statements in order to identify non-SIP transactions.

2.      Better tracking – With a reduced number of entries under Monthly SIP, you will be able to track your investments better. Imagine comparing your bank statement to your mutual fund statement to check if all transactions were successful. This would be easier to track if you invested through the Monthly SIP route. Also, when it comes to calculating the returns, you would be able to do it faster with investment through a Monthly SIP.

3.    Ability to plan better – If you are salaried, you get a monthly salary credit. Thus, you can smoothly plan what proportion of your salary can be invested every month. And this can be effortlessly being converted into a mutual fund investment through a monthly SIP. Many opt for a Monthly SIP date that is a few days after their salary credit. Unplanned expenditures towards the end of the month may lead to a lower bank balance; hence, nobody wishes to take the risk of the SIP installment getting returned. This can get a little tricky with a Daily SIP. Hence, with a Monthly SIP, you should be able to plan your finances better.

In times of volatility, a SIP would undoubtedly be a prudent route as compared to investing your corpus as a lumpsum. As seen in our analysis above, a Monthly SIP will be a prudent choice.

When investing in equity, it is important to keep a long-term investment horizon of five to seven years or more, even if you are investing via a SIP. The returns may be a few percentage points lower as compared to a lumpsum investment, but it will still be sufficient to meet your financial goals.

It is important to note that there are several benefits of investing via a SIP as a regular form of investment.

The top three reasons why you should invest in mutual funds through SIPs:

1.       A hassle-free investment route
2.      Deals with market volatility
3.      Devoid of behavioral biases

Clearly, SIP-ping into mutual funds, with all these benefits and much more, will help achieve your financial goals.

Regards,

Varun Vaid & Master Mind Financial Advisory Team

+91 – 9814612907; +91 – 0172 – 4623907

Twitter: @vaid_varun

Blog Archive

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Disclaimer - All investments in Mutual Funds and securities are subject to market risks and uncertainty of dividend distributions and the NAV of schemes may go up or down depending upon factors and forces affecting securities markets generally. The past performance of the schemes is not necessarily indicative of the future performance and may not necessarily provide a basis for comparison with other investments. Investors are advised to go through the respective offer documents before making any investment decisions. Prospective client(s) are advised to go through all comparable products in offer before taking any investment decisions. Mutual Funds and securities investments are subject to market risks and there is no assurance or guarantee that the objectives of the fund will be achieved. Information gathered & material used in this document is believed to be from reliable sources. Decisions based on the information provided on this newsletter/document are for your own account and risk.


In the preparation of the material contained in this document, Varun Vaid has used information that is publicly available, including information developed in-house. Some of the material used in the document may have been obtained from members/persons other than the Varun Vaid and which may have been made available to Varun Vaid. Information gathered & material used in this document is believed to be from reliable sources. Varun Vaid however does not warrant the accuracy, reasonableness and/or completeness of any information. For data reference to any third party in this material no such party will assume any liability for the same. Varun Vaid does not in any way through this material solicit any offer for purchase, sale or any financial transaction/commodities/products of any financial instrument dealt in this material. All recipients of this material should before dealing and or transacting in any of the products referred to in this material make their own investigation, seek appropriate professional advice.


Varun Vaid, shall not liable for any loss, damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential, as also any loss of profit in any way arising from the use of this material in any manner. The recipient alone shall be fully responsible/are liable for any decision taken on the basis of this material. All recipients of this material should before dealing and/or transacting in any of the products referred to in this material make their own investigation, seek appropriate professional advice. The investments discussed in this material may not be suitable for all investors. Any person subscribing to or investigating in any product/financial instruments should do soon the basis of and after verifying the terms attached to such product/financial instrument. Financial products and instruments are subject to market risks and yields may fluctuate depending on various factors affecting capital/debt markets. Please note that past performance of the financial products and instruments does not necessarily indicate the future prospects and performance there of. Such past performance may or may not be sustained in future. Varun Vaid, including persons involved in the preparation or issuance of this material may; (a) from time to time, have long or short positions in, and buy or sell the securities mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation in the financial instruments/products/commodities discussed here in or act as advisor or lender / borrower in respect of such securities/financial instruments/products/commodities or have other potential conflict of interest with respect to any recommendation and related information and opinions. The said person may have acted upon and/or in a manner contradictory with the information contained here. No part of this material may be duplicated in whole or in part in any form and or redistributed without the prior written consent of Varun Vaid. This material is strictly confidential to the recipient and should not be reproduced or disseminated to anyone else.


Varun Vaid also does not take any responsibility for the contents of the advertisements published. Readers are advised to verify the contents on their own before acting there upon.


Published Credits goes to following sources & all the mentioned sources as footer below the published material- Bloomberg, Valueresearch Online, Capital Market, Navindia, Franklin Templeton, Kitco, SBI AMC, LIC AMC, JM Financial AMC, HDFC AMC, The Hindu, Business Line, Personal FN, Economic Times, Reuters, Outlook Money, Business Standard, Times of India etc.