Tag Archives: Investment Advisor Chennai

PenguWIN is 4 Years Old !

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Greetings from PenguWIN:

                                             Today, the 4th July 2018, we have successfully completed 4 years of operation and entering the 5th year.

Customers are key to any business and I love this quote by Sam Walton of Wal-Mart; “There is only one boss – the customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.”  With a small tweak, “Spending to Investing” it is very much applicable to us.

There are ups and downs in any business and will continue to be there, but the support received from our Investors, Friends and Well-wishers keeps us motivated and do better. One of the key reasons why I chose this profession is the change and investment discipline that we will be able to inculcate on individuals and families, as it is directly related to their personal finance and financial goals. I am happy that we have been able to start making that impact and hope that it continues to grow. The feeling that a customer is able to accumulate his medical corpus (achieve one of his financial goals) and we playing a small role in that, gives immense satisfaction. This is why many financial advisors have titled themselves as “Finance Doctors”

On the positive side, our customer loyalty is extremely high and I try to make sure that we do our best to service them. Referrals is one of the best marketing tools and in financial services business it’s the key that helps build your client base. Some of our clients go out of the way to talk to their acquaintances about their good experience, encourage them to connect with us and even follow up with us and check if those people have reached out.   

Expanding our scope of services has always been on my agenda and a few customers have also suggested this. On this front, I am happy to convey that we have added 3 new services.

  1. Partner with ICICI Life with specific focus on Term Insurance (Pure Risk Cover) and critical illness as they act as a hedge to protect our family in case of a contingency
  2. Partner with Monexo on Peer to Peer (P2P) lending. Monexo is an RBI registered, Peer to Peer lending platform. P2P lending is an emerging trend that is changing how investing and borrowing works. This needs a separate writeup, which I will share later.
  3. Partner with NSDL e-Governance Infrastructure and Warmond Trustees and Executors to offer Will preparation services. This is one area that I have been keen on and finally made some progress.

 

I firmly believe that just becoming a partner doesn’t mean anything and I would be following my “skin in the game approach” in these new services too. I have already bought a term cover from ICICI Life and started lending using the Monexo Platform. However, my Will writing is Work in Progress.

I have always wanted to be recognized as a trusted partner in the personal finance space, maintaining high levels of business ethics and not service people with pure financial interest, that is rampant in this business. I think we still have a lot of scope to expand our business and service clients in new areas and also increase the customer base. I hope your patronage towards PenguWIN increases during the years to come.  

"Investing is not supposed to be easy, and anybody who finds it easy is stupid.”  Charlie Munger 

<Blog # PenguWIN 1060 – PenguWIN is 4 Years Old ! >   

Mystery of Missing Returns

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Warm Greetings from PenguWIN:

            I wanted to share this message with you before you might observe and become anxious. A couple of our investors have noticed it and requested for clarification. It has no effect on the value of the fund but portrays the performance in poor light. The details might be slightly technical (no impact to you) which is the reason why I was holding this message but thought that this note be shared when investors started asking for the clarification.   

The Categorization and Rationalization of Mutual Fund Schemes was initiated by SEBI, last year, to ensure that the schemes are clearly distinct in terms of investment strategy, asset allocation, uniformity in characteristics of similar type of schemes to help investors take informed decisions.

SEBI had discussed this with the MFAC (Mutual Fund Advisory Committee) and as a result of deliberations, the committee proposed the following changes in Oct 2017 to be implemented by the fund houses by June 2018.

  • Group Mutual Fund Schemes, into 5 groups including Equity (investing in stock), Debt (investing in overnight securities with 1-day maturity, money market, debt for varying durations), Hybrid (mix of stocks and debt instruments – typical balanced funds), Solution Oriented (Retirement, Children) and others (Index Funds, Exchange Traded Funds, Fund of Funds, International Funds
  • Rationalization of the Market Cap (product of no. of shares and prevailing price) definition by ranking them in descending order:   
    • Top 100 companies in terms of market cap to be referred as Large Cap
    • Companies with market cap from 101 to 250 market cap to be referred as Mid Cap
    • Companies from 251 and above in terms of market cap to be referred as Small Cap

 

This exercise resulted in Mutual Funds to adopt a uniform definition of Market Cap which was different for each fund house earlier as there were no standard definitions, like a small cap company as per Fund house A referred as mid cap company by Fund house B. The exercise also limited fund houses to have only 1 scheme per category, specifically in Equity, Debt and Hybrid resulting in merger of funds, changes to attributes and nomenclature of funds. In the past several fund houses had more than 1 Large Cap, Mid Cap, Balanced Fund and so on.  

As part of the merger of 2 funds into a new category, the assets from each fund had to be transferred into a new pool and either 1 of the exiting fund managers or a new fund manager had to be designated as the fund manager for the merged entity.

For better understanding, I am taking the case of HDFC Balanced fund which is one of the top performers in the erstwhile balanced category and a significant number of our investors own this fund. HDFC MF also had HDFC Prudence, which is also a well-known name, managed by Prashant Jain, though the risk profile is higher. In this instance, HDFC Balanced fund and Premier Multi-Cap fund were merged to form HDFC Hybrid Equity fund.  As part of the merger, the value of holdings in HDFC Balanced and the invested amount has been presented in a way that all gains accrued by the fund is lost (refer to the attached picture that displays the actual transactions for an investor). The amount obtained by moving out of the old fund is portrayed as the cost of new fund (Hybrid Equity). As a result, the investment amount in the portfolio is bumped up to that extent resulting in poor returns.

In this case the actual investment made by investor was Rs. 3,61,854 (accumulated 3230 units @ 112 Rs.) and the amount received during exit from old fund was Rs. 4,75,010 which is a gain of Rs. 1,13,156/-. However, the current transaction shows a loss of Rs. 9,575/-

The only sure thing about luck is that it will change - Bret Harte 

<Blog # PenguWIN 1059 – Mystery of Missing Returns ! >    

Anticipating Budget 2018-19

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Warm Greetings from PenguWIN:

            In a few hours, Finance Minister Mr. Jaitley will be presenting the Union Budget for 2018-19. No, this is not a commentary on Budget or a wish list as Budget details are kept confidential.

In this blog, I plan to highlight an important change with respect to Equity investing. The change might not be proposed by FM (like last year when it was expected but finally did not occur), significance of the change could be lower or more. Every business vertical including Banks, SME, NBFCs, Insurance and Mutual Funds prepare a wish list and send it the F.M. However, there is no certainty whether the proposals will get accepted or turn out to be worse than anticipated.

MFs proposal include, bringing down LTCG (Long Term Capital Gains) tax of the debt funds from 3 years back to 1 year, which was the treatment until 2014, approval to launch Debt based Tax saver funds like Equity Linked Savings Scheme – DLSS, lowering threshold limit from 65% to 50% for equity-based taxation and removal of Securities Transaction Tax (STT) for MFs and Exchange Traded Funds. The ask on reversing the debt fund taxation from 3 years to 1 year is a little too much in my POV, when the FM is grappling for new resources to fund schemes for sectors like Agriculture.

Equity investing (Mutual Funds and Stocks) is attractive for 2 reasons; primary one being the potential to deliver highest and inflation beating returns, among the various asset classes (proven across the globe). Second is the unique tax aspect where LTCG is zero. i.e. principal and gains held greater than 1 year is tax free (15%, if the holding period is less than a year). No other asset class enjoys this kind of tax benefit which was Implemented in 2005, to encourage people to invest in Equity. But, the logical reasoning of Equity as a long-term investment vehicle and wealth creator is paradoxical with the tax benefit of reaping the gains in a years’ time. Equity is not a product for 1-year time horizon and because it has given excellent returns in a year like 2017, it should not be misconstrued.

There are lot of rumours going around saying that the FM will bring back the LTCG Tax for Equity. Some say it would be made 3 years instead of 1 which means the second and third year redemptions will also attract 15% tax, a flat tax rate of X% when funds are redeemed or a progressive structure (tax rate increases with the income slab). However, the same commotion happened during the run up to last years budget and finally the FM maintained status quo

Some of the major countries in the world do tax capital gains from stocks:

  • US has LTCG tax for equities which is a progressive structure
  • Germany has gains taxed fully, including a 25% withholding tax,
  • Canada has 50% deduction on CGs split between Federal and Province
  • Brazil has progressive taxation on CGs between 15 to 22.5%
  • Singapore does not tax capital gains

What will be the outcome if FM introduces LTCG in some way for Equity Investments in India?

  • In case if LTCG is announced, the chances that the markets will react negatively is high. This will be a temporary phenomenon as taxing capital gains is a practice in most countries and we need to reconcile to reality.
  • What are the alternative investment options? Can Real Estate or Gold or Bank, Govt. and Company deposits provide better returns. I can confidently say that even after taxation, Equity will continue to be the best asset class for long term wealth creation. We can take the cue from the level of equity penetration, which is far higher in countries where LTCG is in place, compared to India.
  • Investors with a short time frame and using Equity markets for short term gains will slowly disappear and only investors who want to invest with a minimum or 3 years+ will remain in the market (PenguWIN recommends pure Equity investing only for time frame of 5Y+)

Viewing budget telecast live is an interesting experience and if you have interest in finance, I would definitely recommend.

Keep a track on Sensex, Nifty and other key indices and you will see them moving up and down with every announcement that is favourable or unfavourable to markets.

At the end of the day when our CEOs are asked by reporters/analysts on how they think the budget was, I can tell that they will present a positive picture, irrespective of whether it is good or bad. A few bold CEOs will give the real perspective and ones who are close to the opposition will say that its insipid and wasted opportunity

 

<Blog # PenguWIN 1057 – Anticipating Budget 2018-19! >