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| July 03, 2015 |
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| Weekly Facts |
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Close |
Change |
%Change |
| S&P BSE Sensex* |
28,092.79 |
280.95 |
1.01% |
| Re/US $ |
63.51 |
0.11 |
0.17% |
| Gold Rs/10g |
26,350.00 |
-15.00 |
-0.06% |
| Crude ($/barrel) |
60.88 |
-1.20 |
-1.93% |
| F.D. Rates (1-Yr) |
6.75% - 8.50% |
Weekly changes as on July 02, 2015
*BSE Sensex as on July 03, 2015
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Impact 
Everyone wants to accumulate the maximum possible chunk of money before retiring but how is a big question. Even a great saver may fall short of funds in silver years, if he doesn't invest money prudently. So one thing is clear, unless you invest wisely, amassing adequate money may be tough.
In order to help people properly channelise their retirement savings and earn good returns, National Pension System (NPS) was launched. It has about 94 lakh subscribers and has an asset base of Rs 88,000 crore or so. To expand its reach and make it more attractive, Pension Fund Regulatory and Development Authority (PFRDA) is majorly restructuring NPS these days.
After fine-tuning guidelines for public sector subscribers recently, now the PFRDA is about to introduce some key changes in the guidelines governing private sector investments in NPS.
Key changes are…
- Contributions of private sector subscribers can now be deployed to subscribing for the Initial Public Offers (IPOs) of companies, without exceeding the outer limit of 50% set on equity investments
- Even Non-Resident Indians (NRIs) can actively participate in NPS now
- Investment in real estate trusts and infrastructure trusts is allowed with a collective cap of 5%
- Minimum limit for investments in Government bonds has been reduced to 50% from 55% and subsequently that for corporate bonds has been increased from 40% to 45%
What would be the impact?
The changes that are likely to be approved in next few weeks would provide flexibility to the NPS fund managers. In rising markets such as those prevail today, one gets to see many IPOs hitting the shelf. Primary markets help companies raise capital needed for expanding and running business. Although there are always concerns with valuations of IPOs, quality of management and chances of sustainability of the revenues of companies, there are a few excellent opportunities too. It is being said that, fund managers would have to practice due-diligence before investing in IPOs. This move may be conducive to the development of the primary market and may provide good opportunity to investors as well.
Similarly, allowing NPS to invest in real estate trusts and infrastructure trust would aid in addressing the funding related issues of these capital intensive sectors. Similarly, as far as increasing the limit of investments in corporate bonds is concerned, it may help deepening the corporate bond market.
PersonalFN believes that, if fund managers to NPS follow stringent investment and risk management processes before investing, proposed changes may make NPS a better product. Moreover, clarification about NRI investments in NPS would also help expand the subscriber base.
Having said this, PersonalFN also believes, that you shouldn't depend only on NPS for retirement planning. You should assess your own circumstances and chalk out a personalised investment plan for taking care of retirement savings related needs. Within that, you should figure out, where NPS fits in.
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Impact
Putting a full stop to a long standing debate over investing PF money in stock markets, the Employees' Provident Fund Organisation (EPFO) has cleared the way to invest a smaller portion of its corpus in equity.
Last month, union labour ministry notified that EPFO can invest 5%-15% of its incremental corpus in equity markets. Based on that, EPFO has decided to start deploying money in next few weeks. EPFO has a plan to rev up equity investments from Rs 5,000 crore – Rs 6,000 Crore in Financial Year (FY) 2015-16 to Rs 30,000 in a phased manner over next few years.
Which route EPFO prefers?
It has been decided that, at least initially, EPFO would prefer the tried and tested Passive route of investing. It would invest in various Exchange Traded Funds (ETFs) floated by Public Sector Undertakings (PSUs). SBI Mutual Fund has been shortlisted as PSU fund house for now. SBI-Sensex ETF, SBI-ETF Nifty Junior, SBI-ETF Banking and SBI-ETF BSE 100 are the options available. Out of total corpus earmarked to be deployed in equity via ETFs, 75% would be invested in Nifty companies. In due course, EPFO would ponder on the idea of buying stocks directly. The trust may also ask for nominations for the job of fund manager to look after equity investments.
Is safety compromised anywhere?
EPFO officials claim that, they have designed a plan in such a way that equity investments through ETFs become virtually risk free. The trust also seeks concessions from SEBI in some mandatory payments such as expenditure on investors' education.
PersonalFN is of the view that, considering smaller exposure to equity, risk profile of EPF still remains more or less the same. The longer time horizon and continuous inflows make things little easy for the fund managers. Furthermore, strategy of investing corpus allocated to be deployed in a month, on single day when markets are down by 4% and that assigned for weekly deployment, at one stroke when markets are down by 2%, may work in favour of subscribers. Having said this, it is noteworthy that, equity investing is not risk-free in any form, even when done through ETFs on smaller scale.
As a long term strategy, main focus of EPFO may be to keep risk involved under check but accelerate returns. Recent changes made to the investment strategy of EPF also suggest that efforts are being made to make EPF more attractive as compared to NPS. The Budget 2015-16 introduced several changes such as providing special deduction for investing in NPS and making EPF optional to those opting for NPS, which required EPF to hone its structure.
PersonalFN is of the view that, while EPF may help you accumulate money for retirement, it may not be enough. Therefore, you must decide upon what amount would allow you to retire comfortably and draw an investment plan accordingly. Systematic Investment Plans (SIPs) offered by mutual funds are a great tools to generate wealth in long term.
Do you think investing in equity would make EPF a risky product? Share your views here.
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Impact
India, a rising superpower with burgeoning metropolises is seeing a flurry of growth in equity investment from new and upcoming cities. According to Business Standard one out of every five rupees in the domestic Rs 12 lakh crore mutual fund (MF) sectors now belongs to investors in smaller cities. Assets under management (AUM) from beyond the top 15 cities (B15 cities) have ascended over double the pace of overall segment.
So, what is the reason for this stupendous growth?
Well, an increasing number of Indian investors are now aware of the benefits of investing in mutual funds. The growth of urban centres has facilitated more Indians to mobilise their savings into equity as an asset class for its trait of creating wealth over the long run. Also there appears to be a paradigm shift from the traditional Indian risk-averse mind-set during periods of risk-on and exuberance. The Modi-led-NDA Government's vision to start 100 new cities is also a testament to the growth of Indian urbanization.
However it is surprising to see that investors from these B15 cities have a riskier asset allocation than the investors from major urban centres. Nearly 44% of the assets from these centres are in equity schemes, up from 42% in May 2014; while only 28% of the assets from the top 15 cities are in equity-oriented schemes.
With Mr Modi at the helm the Indian equity market has delivered stunning returns over the last one year as electorates rest hopes on "Acche Din" or a better tomorrow. The positive investment sentiment has also led mutual fund houses expand their distribution channels and have resorted to educating investors through various ways.
To know more about this and PersonalFN's views over it, please click here.
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Impact
As you may be aware, Mr Kenneth Andrade, IDFC Mutual Fund's star fund manager recently put in his papers. He has decided to move on.
Given the appealing performance delivered by mutual fund schemes managed by him thus far, the exit of Mr Andrade has left many investors jittery. This is because, they perceive that absence of Mr Andrade may drag the performance of mutual fund schemes so far managed him. Wealth managers too, in such a scenario are hesitant to recommend schemes which are so far managed by Mr Andrade.
To read more about this news and our views, please click here.
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- As we near the last date of filing income tax returns for the Assessment Year (AY) 2015-16, many of you must be calculating your tax liability. If you need any help there, things have become a lot simpler for you.
Recently, Central Board of Direct Taxes (CBDT) launched a tax calculator with a motive of assisting tax payers in computing their tax dues. This is a computer programme based tool made available on the official website of the Income Tax (I-T) Department. (Click here to visit the page).
Although online tax calculator will be of great help to individual tax payers, it is advisable that you should still take professional help in case you are not sure about anything pertaining to filing of tax return.
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Primary Market: "A market that issues new securities on an exchange. Companies, governments and other groups obtain financing through debt or equity based securities. Primary markets are facilitated by underwriting groups, which consist of investment banks that will set a beginning price range for a given security and then oversee its sale directly to investors."
(Source: Investopedia)
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Quote : "Too many people spend money they haven't earned, to buy things they don't want, to impress people that they don't like." - Will Rogers
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