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| June 09, 2017 |
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Impact 
Mutual fund houses want to grow their AUM (Assets Under Management). And, that’s fair considering they work for profit. However, what’s unfair is perhaps the way they try to grow their business.
There’s a phrase that best describes the mindset of many mutual fund houses —“Make hay while the sun shines." Do you think these are harsh words?
Consider this…
Some mutual funds are trying to come up with thematic schemes focusing on the Government’s ambitious programme “Housing for All by 2022”. So, please don’t be surprised to see mutual fund houses floating “Housing Opportunities Funds” in the upcoming months. Now, what’s going to be so special about them?
Do fund houses mean, diversified opportunities funds won’t be good enough to capture the growth prospects of the housing sector and allied industries? The “Housing Opportunities Funds” are likely to invest 70% of their assets in equity and equity-related securities, and the rest 30% would be deployed into REITs (Real Estate Investment Trusts), InVTs (Infrastructure Investment Trusts), and debt instruments issued by real estate companies.
Now it would be a miscalculation to assume that, only listed companies are going to be the biggest beneficiaries of the Government’s ambitious housing programme. And for mutual funds investing in unlisted companies may not be easy considering regulatory constraints. Currently, only a handful of listed real estate companies have high exposure to affordable housing projects. Even after considering the potential opportunities that may unlock over the next few years, the financial position of many companies is extremely weak and the net positives on their performance is expected to be limited.
As remains the question of investing in allied sectors such as cement, ceramics, and housing finance companies; they already form a part of the portfolio of many opportunities funds. Points above are good enough to believe that, mutual funds are trying to sell old wine in a new bottle. Do you recollect them launching infrastructure funds one after another between 2005 and 2007? We know what happened to them later on. Infrastructure funds turned out to be damp squibs. Are housing opportunities funds are turning out to be “new infrastructure funds? Well, only time can tell.
What’s certain is, investors don’t need more products. They need the right guidance. To become a successful investor, you need not invest in tens of schemes, but by staying invested with a few equity diversified funds that have proven their mettle exhibiting a respectable performance record across time frames and market phases.
If you need superlative guidance to invest in the best mutual fund schemes, opt for PersonalFN’s unbiased and independent research service, FundSelect. We will share with you the 6 Ultimate Secrets to Beating the Market by a Whopping 70%! We strongly recommend you opt in to know which equity mutual fund you should buy, hold and sell.
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Impact
implementation of the Goods and Services Tax (GST) Act is likely to be mixed on various sectors of the economy. A few sectors will witness the indirect tax rates being lowered under the GST regime, while a few others will see tax rates going up. Most services are likely to become dearer post its implementation.
Before the rates were announced, there were expectations that, the GST may bring more services into the ambit of indirect taxation. Residential rental income in the hands of owners was expected to fall under the purview of GST. There were speculations that the GST council would advise 18% tax on rental income earned through a residential property.
The council’s verdict, however, pleasantly surprised property owners, who had kept their fingers crossed. There won’t be any tax imposed on rental income earned through a residential property.
Possible reasons for not charging rental income are:
- Imposing a tax at 18% would have dragged down the new property sales.
- It could have worsened the problem of high inventory.
- Would have dampened the property prices thereby dragging the value of collaterals of banks and other financial institutions.
- A further slowdown in the real estate segment may have caused a spillover effect in the other sectors too.
What should property owners bear in mind?
Although the price appreciation in the real estate segment isn’t uniform, in general, the property prices are going up only moderately across various real estate markets.
Thus, rental yields have become even more relevant. If you are buying a property from the investment point of view, you should have a fair estimate as to what rental yields you can command on your investments. For example, if you are buying a property from an investment perspective in a real estate market that has reached a point of price saturation, you can expect a 3%-4% yield. Otherwise, property maintenance, taxes, and interest on loans (if any) will push the net earnings in negative.
You need to have a prudent approach to investing in any asset class. Ideally, you should diversify across asset classes that share the least correlation with one another. While you do this, you should consider your financial goals and risk appetite.
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Impact
Debt funds primarily run two risks —the interest rates and the credit risk. Interest risk suggests that market value of tradable securities held in a debt fund drops when the interest rates in the economy rise. As a result, the Net Asset Value (NAV) of a fund drops. Since securities are redeemed at par value on maturity, those who can hold out until maturity don’t suffer much, but speculators do.
The credit risk or risk of default is a much bigger concern for debt fund houses. This is because, if the company issuing securities goes belly up, debt funds incur losses that can’t be recovered easily.
You’re probably aware that Indian banks, especially, the Public Sector Banks (PSBs) are facing a serious problem on the asset quality front. Big ticket industrial loans sanctioned in the previous economic boom phase are now turning bad, and this provisioning has dented the profitability of banks. The list of companies facing troubles includes some eminent business groups. Raising funds from the banks isn’t the only step but they have resorted to many other funding options. Mutual Fund Houses have invested in many such companies in search of higher yields on investments. But now, it looks like fund houses that have invested in securities of stressed companies were keener on the profile of business groups rather than assessing their financial condition.
To read more about this story and Personal FN’s views over it, please click here.
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Impact
In the Financial Year (FY) 2016-17, Indian banks recorded a flat growth in credit of 4.5%. However, they managed to woo their retail customers to take on additional credit cards. In the last fiscal, credit card issuance grew by massive 57%, while debit cards recorded a growth of 36.95%, as reported by Daily News & Analysis dated June 02, 2017. The banking system issued 53.37 lakh credit cards in FY 2016-17. Attractive reward-point schemes and customer-centric marketing strategies are believed to have helped banks accelerate growth in the credit card segments. As revealed by bankers, the card spends have also gone up post demonetisation since individuals preferred electronic payment options. Nonetheless, banks have managed to issue 12.31 crore debit cards outnumbering credit cards by a fair margin. This suggests that a huge jump in the credit card segment springs from a relatively smaller base, and the usage of credit card is still restricted to spendthrifts. However, the increased spending through credit cards calls for some attention.
To read more about this story and Personal FN’s views over it, please click here. |
Extending the ease of conducting business initiatives to the mutual fund industry, the Securities and Exchange Board of India (SEBI) established an online registration platform for mutual funds. Only for the purpose of records, the relevant documents will have to be submitted in the physical form. However, this won’t affect the progress of the online application. Online registration will speed up the registration process of a mutual fund, thereby encouraging the competition in the sector—a good initiative.
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Yield To Maturity (YTM): Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until the end of its lifetime. Yield to maturity is considered a long-term bond yield, but is expressed as an annual rate. In other words, it is the internal rate of return of an investment in a bond if the investor holds the bond until maturity and if all payments are made as scheduled.
(Source: Investopedia)
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Quote: “Successful investing is anticipating the anticipations of others”- John Maynard Keynes
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