Category Archives: Mutual Funds

Welcoming New Year 2017-18

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Dear Friends,

                  A very Happy New Year to you!

For the Finance world in India the New Year starts on 1st April XXXX and ends on 31st March XXX(X+1). However, this is not a standard practice across the globe and some companies use Calendar Year as the financial accounting period i.e. 1 Jan XXXX to 31 Dec XXXX. While these 2 are the predominant periods, companies do follow other timelines for financial accounting. Ex. Oracle follows 1 June XXXX to 31 May XXX(X+1) as the accounting period.

We should feel extremely happy at this juncture, when the returns from the Equity Markets (and Debt too) have been wonderful for the period ending 31 Mar 2017. Rewind it by 1 year, 31 Mar 2016, the portfolio of most of our investors were in Red. Though none of our customers exited in fear, I was definitely worried as most of them are first time equity investors and typical investor reaction is to salvage whatever they have and exit the market. Here, I must say that the level of Composure and Maturity demonstrated by our investors was really great.

Equity Returns are never linear and the risk of equity is the volatility and not that we will lose everything like the fund scams (Sharda, EMU birds, Ponzi schemes and Gold houses in Chennai). The volatility decreases over time and that is the reason why Equities are referred as long term growth products.

A simple approach that I follow for equity investing is

  • Do not look at Equity for short term goals. It might happen that investors who started investing a year back would have made handsome returns in just 1 year, but I would say that luck was in their favour as predicting the market is impossible.
  • Never lose your conviction on Equity to deliver. Whenever there is a blood bath in the markets, eroding significant value, people tend to question their conviction and negative thoughts arise as whether they made a mistake.
  • Don’t invest in Lump-sum mode when the markets are highly valued and stagger the investments over a period of time. Valuation can be figured out through Price to Earnings Ratio (P/E) and Price to Book Value (P/BV) which is easily available.
  • Leave the investment management part to experts through MFs (I would be publishing a separate note on this)
  • The advantage of Equity investment is not just the returns that it can generate but also the taxation aspect of the instrument – currently not taxed if the investment duration crosses a year. Let’s make hay while the sun shines and before Finance Minister brings a twist.

I am enclosing some interesting data on the returns delivered by Equity in the last decade i.e. 31 Mar 2008 to 31 Mar 2017

I cannot predict if the year 2017-18 will continue to be a fantastic year for equity but the drivers are in position today, unlike the past. Investments from Domestic Institutions (DIIs), EPF, NPS and Mutual Funds have significantly improved countering the FII flows. Real Estate and Gold are not expected to improve which helps money flow into Equity

I propose to conduct year end portfolio reviews starting the week of 10th April 2017 and will reach out to you.

<Blog # PenguWIN 1052 – Welcoming New Year 2017-18>


HDFC Charity Mutual Fund for Cancer Cure

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Dear Friends,

                      HDFC Mutual Fund has come up with a unique scheme to support needy and underprivileged Cancer Patients by donating the money to Indian Cancer Society (ICS) or other eligible institutions. A total of 3168 patients from 28 states have been benefited through this scheme. A Governing Advisory Council (GAC) meets every fortnight to identify the genuine cases for financial aid

This scheme which is open for investment until 24 Mar 2017 is the 3rd in the series of funds collected by HDFC MF for Cancer Treatment, the earlier 2 being 2011 and 2014. This is closed ended fund for a period of 1136 days and premature exits will not be possible. Typically, when 1 fund house launches a product, its copied by all other fund houses. However, HDFC MF is the only fund house that runs a fund for charity purpose, since 2011. The Scheme offers 2 types of funds for the investors,

HDFC Charity Fund for Cancer Cure

Debt – Income generated through debt/money market instruments and Government Securities

Arbitrage – Income generated through arbitrage opportunities between cash and derivative markets

The minimum investment is 50,000/- and multiples of 1,000/- thereafter.

Now comes the interesting feature of the fund.

The funds collected by HDFC in both the Debt and Arbitrage schemes will be deployed to generate income. The Scheme has only dividend pay-out option and dividends are paid every 6 months, subject to availability of distributable surplus. 

The Investors have 2 options:

50% Dividend Donation Option – Under this Option, Investors can donate 50% of the dividend amount, they earn and the rest shall be paid to them.

100% Dividend Donation OptionUnder this Option, Investors can donate 100% of the dividend amount.

In addition to this, the dividends donated by the investors is eligible for Income Tax deduction as per Sec 80G.  To claim this as a part of IT filing, a certificate with PAN of the investor will be provided.

HDFC MF will not charge any fund management expenses for this scheme and also match the contribution of Investors donation through dividends

At the end of 1136 days the scheme will be closed and the principal will be returned back to the investor.

Dividends paid by debt funds are taxed at 28.4% (Dividend Distribution Tax, DDT) while Arbitrage fund enjoys equity status and hence Tax Free. So, even if is we get a lesser return through Arbitrage, the taxation will make a difference making Arbitrage fund attractive over debt

Most of our clients know that we do not recommend a product that we will not buy and preach only what we practice. So, our contribution is definitely there for this fund.  

<Blog # PenguWIN 1051 – HDFC Charity Mutual Fund for Cancer Cure>

Tax Savings under Sec 80C – Deduction of 1.5 Lakhs under ELSS


I had already written a detailed article on tax saving schemes during the last Financial Year and thought of reminding you as the Finance/Payroll folks starts to chase us.  Most of the content is valid today also and I have added the content in specific areas to reflect the changes for the current scenario.
  • After retaining the popular Public Provident Fund  (PPF) Interest rate at 8.7% for quite some years, Government in Feb 2016 decided to Peg the interest rates of all small saving schemes including PPF, SCSS, KVP, Post Office Time deposits , MIS, Suganya Samrithi to the Government Securities or G Sec. yields for the previous 3 months. This rate will be reset every quarter going forward. This has resulted in PPF rates going down to 8.1% in April – June Quarter and Jul-Sep Quarter, FY 2016-17. Subsequently, starting 1st Oct 2016 the rate has been further lowered to 8% and remain the same till Financial Year Closure, i.e. 31 Mar 2017. I have taken PPF as an example since it a popular tax saving option among small savings. The reduction is applicable to the other products too with variations in Interest Rates (SCSS, Suganya Samrithi enjoyed higher rates than PPF earlier and the difference continues)

  • Bank Fixed deposit rates has been coming down sharply due to RBI Repo rate cuts and limited credit off-take. This has resulted in the popularity of Tax saving Bank Fixed Deposits going down. 
  • Since 2014, retail investor participation (via Mutual Funds) has been increasing with the Inflows touching all time highs month on month in CY 2016. The participation of Provident Funds and increasing NPS (National Pension Scheme) flows has resulted in the Domestic Institutional Investors (DIIs), investing huge money to counter the Foreign Institutional and Portfolio Investors. The markets react negatively whenever the FIIs and FPIs pull out, going down, which was a cause of concern. With the flows from DIIs increasing, the stability of the market has been improving 
Equity Linked Savings Schemes investing in Equity Markets has the minimum lock in period among all other options in 80C. Typically systematic investments is recommended for Equity but many of us think about submitting the proof of investments only when the company starts chasing us. So, you could still invest on a weekly basis for this financial year and plan to do more systematically from next financial year. Investors who are averse to Equity shoud use this opportunity to take small exposure that you are comfortable with.
India is moving towards an Economy where investments in Real Estate and Gold are not attractive options anymore (like most developed countries). This makes Equity Investment almost a mandatory option unless your wealth is significantly huge that even if it lies in Savings A/c, it will last for 2 generations!!! 
$$ Axis Long Term Equity, Birla SL Tax Relief 96, DSP Black Rock Tax Saver, Franklin India Tax Shield, Invesco  India Tax Plan and Reliance Tax Saver are some of the funds with a good track record


<Blog # PenguWIN 1048 – Tax Savings under Sec 80C – Ded. of 1.5 Lks under ELSS>