April 13, 2017
Weekly Facts
  Close Change %Change
S&P BSE Sensex* 29,461.45 -245.16 -0.83%
Re/US $ 64.67 -0.13 -0.20%
Gold Rs/10g 29,145 460.00 1.60%
Crude ($/barrel) 55.16 1.29 2.39%
F.D. Rates (1-Yr) 5.25% - 7.10%
Weekly changes as on April 12, 2017
BSE Sensex value as on April 13, 2017

These days, there's a clear discomfort among investors with low or moderate risk appetite. 
Even banks have become aggressive in slashing interest rates.

As a result such investors are finding it difficult to scout the right investment opportunities.

Increasingly, investors have been looking at debt funds as alternatives to bonds and fixed deposits.

Do you perceive that debt funds are safe?

They might be safer than the equity oriented funds, however, if you think you won't lose capital in them, you are probably wrong in your assessment.

To understand why they are not risk-free, you first need to know how they function. In principle, debt funds earn interest/income by investing in bonds and other fixed income bearing instruments. Moreover, they also generate returns by trading in bonds and taking advantage of price volatility. As you may know, bonds prices share an inverse correlation with interest rates. Put differently, when interest rates fall, bond prices rise and vice-a-versa.

What's the present scenario?
In the aftermath of demonetisation, Indian banking system is flooded with liquidity. Since the credit growth has been insignificant, there isn't much pressure on banks and Non-Banking Financial Companies (NBFCs) to raise fresh funds.

As a result, their borrowing cost has fallen remarkable over last few quarters—so much so that Certificates of Deposits (CDs) issued by banks and Commercial Papers issued by well-run NBFCs are being auctioned at a rate lower than the Repo rate—the rate at which RBI lends to banks for meeting their liquidity requirements. Currently, the repo rate is 6.25%.

Does this affect you, the investor? It does. Here's how.

When there's a slosh of liquidity in the system and investors are chasing yields in the view of interest rates are moving lower, even poor quality businesses manage to raise money cheap. In other words, liquidity causes the disequilibrium between the risk and interest rates. In the past, we have witnessed embarrassing situations where well-renowned mutual fund houses have made mistakes that naive investors commit often.  

The RBI has already shifted its monetary policy stance from accommodative to neutral; which means depending on the macroeconomic conditions it will exercise any of the options available to it—it may lower rates, maintain status quo or even raise rates.

Recent inflows in debt funds indicate that, there's some amount of desperation among investors to capitalise on the rally in the bonds.  This is highly speculative in nature and may result in ill-assessment of credit opportunities.

PersonalFN believes, when you invest in debt funds, top priority should be given to the risk management measures set out in the investment processes and systems followed by the fund house. Then the investment strategy the fund would adopt to build its portfolio to achieve its investment objectives should be carefully read. 

If the scheme's investment objective will not address the financial goal(s) you've envisioned, clearly stay away. This will help you have only the appropriate schemes in your portfolio.  Before choosing from liquid, short-term, medium-term and/or long-term debt funds, take cognizance of your investment horizon. PersonalFN is of the view that, you should first consider your time horizon before committing money to debt funds and refrain from investing more than 20% of your allocation in long-term debt funds.

You should not invest in a debt scheme solely based on past returns. Pay attention to the quality of debt securities the scheme holds. 

PersonalFN's DebtSelect research reports can help you select debt mutual fund schemes prudently and provide valuable guidance on the path to wealth creation. You can be rest assured about the ethical and unbiased nature of this service.


Industrial growth measured by the movement of Index of Industrial Production (IIP) touched 4-month low in February. As against the growth of 1.9% recorded in February 2016, this year there's been a drop of 1.2%. However, equity markets seem to be too optimistic at the moment. Despite the lull in the economy, market indices are near all-time high and valuations are expensive.  

Under this market condition, cautious investors are shying away from deploying money in equity oriented funds and have been finding solace in balanced funds. The pain of loss is felt more than the joy of gains. You do not want to be in a situation where the value of your portfolio is being eroded.

Balanced bunds—receiving unprecedented inflows

Data as on March 31, 2017
(Source: AMFI, PersonalFN Research)

Here are the prominent reasons why investors have been preferring balanced funds

  • For the risk-averse investor, debt provides stability to the portfolio. A balanced fund's exposure to debt securities provides the right cushioning from the volatile equity portfolio. These maintain an allocation of 25%-35% to debt, while a predominant portion being invested in equities. The allocation to debt serves two purposes. Apart from providing stability and earning interest, the returns are enhanced in a falling interest rate environment (as bond yields and bond prices are inversely related to each other) facilitated by a flexi-debt portfolio as far as the maturity profile is concerned.
  • The diversification of assets across equity and debt and within the respective asset classes lowers the risk a balanced fund exposes you to.
  • When you invest in balanced funds, you stand to gain with a tactical allocation to equity and debt. But in a bull market, where the returns from equity run ahead of debt, the equity portfolio of a balanced scheme may command a slightly higher weightage than 65%-70%. Thus, to maintain the required allocation, the fund manager may book profits in the equity segment and shift the proceeds to debt. As a result, the gains are captured in the schemes. Conversely, if the stock market falls, the allocation to equity may drop below the desired level. Hence, to raise the allocation to equity funds, the fund manager may shift the assets from debt to it. Deploying this strategy, the fund manager tries to tactically allocate assets actively.

In short, balanced funds are better equipped to handle the disposition of nascent investors who aren't willing to take very high risk. You get the benefits of both worlds—equity and debt—in a single fund. To deal with market risk, you can invest in balanced funds through a Systematic Investment Plan (SIP) to power your portfolio with the benefit of compounding and gain from rupee-cost averaging. Nonetheless, largecap funds with a proven track records are also dependable.

Please don't forget you should always follow your asset allocation plan and invest regularly, irrespective of the market conditions. This is one of the most tried-and-tested ways to achieve your financial goals.

In case you are unsure about how to plan for your financial goals, you might take the help of a certified financial guardian.


The millennials are tech savvy. 

Therefore, any business that wishes to service and retain their loyalties are increasing its digital presence. 

The financial industry is not immune to this trend, rather it's a step ahead. It is on the cusp of seeing the magnificent growth of robo advisory platforms. 

Does that mean investors will soon stop seeking advice from human advisors? 

Not really, but the acceptability of robo-advisors is growing at a jaw-dropping pace. 

Not really, but the acceptability of robo-advisors is growing at a jaw-dropping pace. 

And as you know, there's a tipping point when…

Something gains popularity, turns into a trend, craze, and acts like a magnet. 

To read more about this story and Personal FN's views over it, please click here.


Mr Arjun Malhotra, a 30-year-old architect, holds investments in several mutual fund schemes across 5 AMCs. He independently researches and takes a call on where to invest in based on his current understanding or knowledge of the market. 

But often he's frustrated with the amount of paper/administrative work he has to encounter with every fresh investment. He has presented multiple cheques for multiple schemes, invested in multiple folios, and watching out for his mutual fund investments turns into a problem.

Can you relate to what Mr Arjun is going through? Have you faced this situation and end-up feeling frustrated? 

Some of you may have given up halfway, hindering the path to creating wealth with investment portfolios vide mutual funds.

But, now there is a way out… 

To read more about this story and Personal FN's views over it, please click here.


Passing the bill on the Goods and Services Tax (GST) is considered a revolutionary step in the direction of aligning Indian taxation system with globally-compliant practices. The GST is likely to improve tax compliance, and consequently, tax revenue as well. 

As a result of the combined effort of parliamentarians, it's likely that India will adopt the unified indirect taxation system, GST, with effect from July 01, 2017. 

But the impact of GST won't uniformly affect industries and consumers. While manufactured goods are expected to become cheaper, services are likely to get dearer. Moreover, the ambit of services taxed will also go up. 

And what impact will GST have on the mutual fund industry? 

To read more about this story and Personal FN's views over it, please click here.


Flashback to the 2007 market euphoria …

Business channel hosts are all smiles and it feels like it's Diwali, their studios all decorated. Media portrays the event as a big win for India.

Every few months, newspaper headlines announced the Sensex crossing a new milestone—16000, 18000, 20000! You had brokers jumping for joy, quotes from experts, and probably even your neighbourhood shopkeeper.

To read more about this story and Personal FN's views over it, please click here.

Soon, receiving Employees' Provident Fund (EPF) claims through a mobile app will become a reality. The Government has been developing an app—Unified Mobile App For New-Age Governance (UMANG) which will allow the Employees' Provident Fund Organisation (EPFO) to resolve the nearly 1 crore queries that come up every year.  

4 Reasons Why Sipping Into Mutual Funds Is Better Than RD

5 Reasons Why You Should Invest In Equity Diversified Funds

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.

(Source: Investopedia)

Quote: "You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets." - Peter Lynch


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