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| May 05, 2017 |
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Impact 
On numerous occasions, you read reports about how demonetisation has disrupted growth momentum in various industries, albeit temporarily. However, this blessing in disguise has done what even expensive ad campaigns have failed to achieve so far.
Demonetisation has turned out to be a growth driver for the mutual fund industry since recently.
Numbers narrate the story…
Between November 2016 and March 2017 (5 months), Assets Under Management (AUM) jumped 9.7%; from Rs 16.94 lakh crore to Rs 18.58 lakh crore. Interestingly, proportion of equity-oriented schemes has gone up from 31.1% in November to 32.8% in March. During the same period, proportion of debt oriented funds declined rapidly from 46.3% to 42.1%. The share of institutional investors in the total AUM jumped from 44.6% in November to 45.9% in March. Since the beginning of the Financial Year (FY) 2016-17 until demonetisation was announced, the cumulative inflows were Rs 36,021 crore that jumped to Rs 99,775 crore by the end of the fiscal.
Key reasons for the rise in mutual fund investments…
- Fall in the interest rates
- Underperformance of gold and real estate in the recent past
- Sharp rebound in the equity markets from their demonetisation lows
And this looks scary now, isn’t it?
If you have noticed, investors chase mutual fund schemes; especially equity-oriented mutual funds, out of desperation to generate superior returns. In other words, they are thinking too much about the underperformance of other asset classes in the recent past, rather than focusing on the benefits mutual fund investments can bring in over a period of time. This leaves the mutual fund industry vulnerable to sudden outflows. Markets are on song at the moment, but if the music stops, the redemption pressure may mount. The good part is individual investors are choosing Systematic Investment Plans (SIPs) offered by mutual funds over lump sum investments. This will provide some stability to the growing AUM base.
If you keep switching among asset classes in search of better returns, you will rarely manage to earn high returns. Instead of focusing on finding out the attractive asset class, pay close attention to your financial goals and keeping in mind your risk appetite, design a personalized asset allocation plan. Then, irrespective of market conditions and the prevailing investment climate, stick to it. If you need any assistance in determining the right asset allocation, you may speak to a Certified Financial Guardian based on your city.
As far as investing in mutual fund schemes is concerned, you might try out PersonalFN’s latest unbiased offering.
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Impact
Some Asset Management Companies (AMCs) are struggling to run their ship and thinking about selling their businesses. Many of them fail to manage their costs and eventually end up suffering losses. The investors receive a double whammy. They face uncertainties associated with mergers and acquisitions. And many a time, they earn ordinary returns on their investments despite shelling out high sums on account of expense ratios.
In this entire process, who escapes relatively unhurt?
The top brass of the AMC.
They earn high packages, irrespective of whether or not the company is making profits, whether or not investors are earning returns and other employees in the company are compensated proportionately.
SEBI guidelines about the remuneration disclosures…
With the underlying objective to promote transparency in remuneration policies so that executive remuneration is aligned with the interest of investors, MFs /AMCs shall make the following disclosures pertaining to a financial year on the MF/AMC website under a separate head – 'Remuneration'
According to media reports, some top mutual funds (by AUM) have been complying with the rules while many others are shying away. They are creating hurdles for investors to obtain such information. Some of them are mailing these details directly to investors on request while others are creating an additional hurdle by creating a barrier of One-Time-Password (OTP) to obtain such information. This is shocking, considering the clear instructions of SEBI in this regard. And undisputedly, all mutual funds must comply with the regulations.
However, investors should ask themselves what the benefit of obtaining information about the remuneration in an AMC? Ideally, their only concern is about the expense ratio. As long as AMCs honor the threshold limits and sublimit on expenses prescribed by the SEBI, any additional information about remuneration may \be immaterial to decide whether or not to invest in a mutual fund.
In case of listed companies, remuneration of the top management directly affects the financial performance of the company, thus such disclosures matter significantly to the minority shareholders. Unlike this, mutual fund investors are not the shareholders in AMCs, they shouldn’t bother much about the profitability of the company, rather they should bother about the quality of management. A competent fund management team is the biggest asset of an AMC.
Investors can invest in direct plans offered by mutual funds, if they want to save costs. Performance track record and consistency of the performance are the most important criteria for shortlisting the mutual fund schemes for your portfolio.
If you need more guidance on mutual fund investing, you may like to consider unbiased mutual fund research services offered by PersonalFN.
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Impact
A new technology called augmented reality (AR) changes the way in which we experience life. Once a futuristic concept, this technology enhances the real world with digital information and media. Essentially, computer-generated data will enrich what we see, hear, and feel.
It won’t be long before this technology dominates the financial services space. Financial transactions via smartphones and other mobile devices are on the rise and augmented reality can dramatically personalise and enhance your experience.
AR is already moving from gaming apps to mobile banking apps. Belatrix, a US-based software consultancy, implemented an augmented reality map to help users easily locate nearby ATMs, simply by using the camera on their phone. The app combines a live view of a street with location-based services. The nearest ATM is indicated onscreen, based on the direction the phone is pointed at.
While financial services firms are exploring the scope of AR, the technology world has already moved on to environments that offer Mixed Reality (MR) and Extended Reality (XR). Very soon, such applications will influence the way you save, invest, and plan your finances.
The trend is slowly catching on across the mutual fund industry too.
To read more about this story and Personal FN’s views over it, please click here.
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Impact
The interest rates on your bank fixed deposit are dropping further…
Reasons for this is :
- Primarily, there’s excess liquidity in the system. According to the Reserve Bank of India (RBI), surplus liquidity in March 2017 was to the tune of Rs 4.8 lakh crore (though down from the peak of Rs 7.9 lakh crore in January 2017).
- Further, credit growth in the economy post-demonetisation has been rather tepid. The outstanding credit of all Scheduled Commercial Banks (SCBs) has dropped to Rs 2.5 lakh crore in the fortnight ended April 14, 2017.
- Banks aren’t finding much prudence in holding on to high cost deposits, as borrowing rates too have come down.
- Many banks are offering a higher rate of interest on saving bank accounts; to balance this, reducing deposit rates seems warranted.
State Bank of India (SBI) — the country’s largest public sector lender — has reduced its term deposit rates by upto 50 basis points (bps) for medium to longer maturity buckets for an investment amount below Rs 1 crore owing to this scenario.
Thus now, a 2-year to less than 3-year term deposit (or FD) with SBI offers a ‘non-senior citizen’, a rate of interest @ 6.25% p.a. vis-à-vis 6.75% p.a., and if you’re a ‘senior citizen’, a 50 bps more i.e. 6.75% as against 7.25% for the said tenure.
To read more about this story and Personal FN’s views over it, please click here.
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Impact
The Indian Rupee (INR) is gaining ground against US$ and against its emerging market peers.
Last month, the INR reached a 20-month high against US$. It has raced 5% over the greenback already since the beginning of 2017.
A sharp Jump in INR against US$
Data as on May 02, 2017
(Source: ACE MF, PersonalFN Research))
Usually, the strength of any domestic currency highlights the underlying strengths of the economy.
But, this baffling rise in the value of INR may look more worrying when the economy is struggling to grow and create more jobs.
Well, some of the factors responsible for the unique strength of the INR have to do with developments in India, while others pertain to external events.
To read more about this story and Personal FN’s views over it, please click here. |
April 30, 2017 was the deadline to submit the self-declaration under Foreign Account Tax Compliance Act (FATCA). Non- compliance on the part of investors will now result in freezing financial transactions until they make the self-declaration. However, as per the fresh clarification issued by the Pension Fund Regulatory and Development Authority (PFRDA), NPS accounts won’t be frozen. This will offer relief close to 40 lakh investors. |
3 Reasons Why A Smart Investor Should Opt For SWP
Why You Should Strategically Structure Your Portfolio Now?
5 SIP Features That Every Mutual Fund Investor Should Know
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Tactical Asset Allocation: Tactical asset allocation is an active management portfolio strategy that shifts the percentage of assets held in various categories to take advantage of market pricing anomalies or strong market sectors.
This strategy allows portfolio managers to create extra value by taking advantage of certain situations in the marketplace. It is as a moderately active strategy since managers return to the portfolio's original strategic asset mix when desired short-term profits are achieved. |
Quote: “"Understanding the value of a security and whether it's trading above or below that value is the difference between investing and speculating." - Coreen T. Sol
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