Tag Archives: Wealth Adviser

Wishes for a Happy Diwali 2017

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Dear Friends,

                            Advance Diwali wishes from team PenguWIN !

Right from my childhood days, Deepavali day has been my favourite day of the year (birthday comes latter) as I used to be deeply obsessed with Crackers. I have even had ideas to open a fireworks shop during Diwali eve, not with money-making motive, but get a chance to visit Sivakasi and buy fireworks at cheap prices so that I get a huge quantity to burst. But till date, it remains an unfulfilled wish.

I am aware that Fireworks cause health hazards, but was unaware of its intensity – Apparently, burning snake tablets is equal (how many boxes is something that was not published and obviously it’s not just 1 tablet or a box containing a dozen tablets) to 475 cigarettes (courtesy NDTV). Fireworks have been banned in many places in NCR (in and around Delhi) and I guess it’s only a matter of time that it ceases to exist for retail consumption.

I would like to brief about a category of equity funds called Equity Savings Fund, which as a concept I am really impressed. The fund category has only a 2-year history and long-term performance is yet to be tested. All major fund houses have launched this fund, starting 3rd quarter of FY 15-16. After the 2014 budget when the Finance Minister changed the taxation of debt funds, all debt funds need to be held for 3 years for indexation benefit and subsequently taxed at 20%. Manufacturers in mutual fund industry (who create new schemes) are extremely savvy and came up with the concept of Equity Savings Fund.

For a fund to be categorized as Equity Fund, it has to have a minimum of 65% exposure to Equity (Stocks) and the balanced fund category is based on this principle, though SEBI continues to say that Balanced Fund should be 50%:50%, Equity and Debt. Meanwhile a separate category of funds called Arbitrage Funds came into existence, where the fund manager tries to identify opportunities of mispricing between cash and futures markets. Without getting too technical, Arbitrage Funds belongs to equity category but potential returns are like debt category (about 5 to 6% ROI now). There is no issue of losses in these funds as purchase and sale of securities are done at the same time.

Using the advantage of Equity for high returns, Debt for stable returns and Arbitrage for Equity tax treatment and stable returns, Equity Savings Fund was conceptualized. They take 1/3rd exposure to Equity, Debt and Arbitrage, with specific schemes taking a little higher or lower proportion of securities. They maintain a minimum of 65% exposure to Equity and Arbitrage so that the fund enjoys equity taxation. From a risk perspective, it’s a lot lower than Balanced Funds giving a comfort feel to investors.

This category of fund, caps both the upside and downside quite well through its composition and has potential to generate 10% to 12% (net of tax) over a 3-year time frame. If this fund category proves its mettle, they will become a great hit among investors who don’t have the appetite for high exposure to Equity and Tolerate Volatility. Balanced Funds have attracted huge inflows in the recent run, higher than any other equity fund category – good returns with reduced risk. Equity Savings Fund could well be the next category to bet on.  

< PenguWIN TITBIT # 103 – Equity Savings Fund>

Who is Right?

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Dear Friends,

                            Navratri wishes to all of you!

In this titbit, I am presenting a real-life case of Life Insurance and leave it open to you for response as who is right!

Mr. Mayur, aged 32, IT professional lives in a newly purchased property along with his wife Shilpa, homemaker and 1-year old daughter Niveda. Mayur has taken a home loan of Rs. 90,00,000/- to be paid over 20 years resulting in a monthly EMI of 84,000/-. He does not have any other assets and both Mayur and Shilpa will not be beneficiaries of any inheritance.

One of Mayur’s colleagues, who knows his background, suggests that Mayur should meet a professional investment advisor and seek his help to plan his finances. In the initial meeting with the advisor (Manish), which was brief and more like an icebreaker session, Manish suggests that Mayur needs to buy a life cover as any contingency to his life will be a huge burden on his family. Based on the evaluation of Mayur’s human life value (HLV) by both Income Replacement and Expenses & Liability approach, Manish determines that Mayur would need a cover of atleast 2 Crores. Manish recommends Mayur to buy a 1 Crore term cover from 2 Life Insurers totalling 2 Crores of Sum Assured (SA). The total premium for 2 Crores sum assured would cost approx. Rs. 20,000/- per year

Mayur feels happy that this insurer is going the extra mile to service him.  The representative from Insurance company 2, meets Mayur and asks him the background of the Insurance requirement. Once he understands the requirement, he makes a different pitch to Mayur. Mayur has anyway bought a 1 Crore term insurance which will not provide him anything in return and the entire money paid to the insurer will go waste. Instead he proposes a ULIP cover with a premium or Rs. 12,000/- per annum that will provide a small SA of 1 Lakhs or the value of the investment, whichever is higher.

He convinces Mayur by showing him different scenarios of the return potential of the ULIP, with 100% equity investment. The Equity market soared that year and the ULIP bought by Mayur attained a value of 16,000/- for an initial investment of 12,000/- Mayur continues to pay for both the Term Cover and ULIP and at the end of 5 years finds the value of his ULIP to be about 1.25 Lakhs while the 10,000/- premium that he pays for the Term Cover has gone down the drain leaving him confused and thinking whether the decision of taking a Term Cover was right.

< PenguWIN TITBIT # 102 – Who is Right?>

PenguWIN’s 3rd Anniversary

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Dear Friends,

Today, 4th July 2017, PenguWIN steps into 4th year of successful operations. It has been an exciting journey so far with ups and some downs. Our humble and sincere thanks to all our clients, well-wishers and partners for imposing faith and supporting us. There have been many instances where some of our existing clients have referred their friends/colleagues/relatives to benefit from our services and follow up with them on a regular basis, until they become our clients. I presume that only delighted clients would go so far.  

Personally, the learning have been immense and the confidence that we are able to build among our clients has increased significantly with magnitude of returns their portfolios have achieved. We have struck to our original objective of maximizing the value delivered over revenues. In this profession, if your focus is always on revenues and profits, then you tend to compromise on the kind of products and services that you offer to the clients. I believe that certain professions are to be run in this fashion or otherwise the person should not have chosen this. Professions including Doctors, Civil services have to be run in this fashion and not purely for the sake of money. We do keep hearing that doctors are given targets on performing surgeries and ‘Bureaucrats have become more corrupt than politicians’.  It’s not that these professionals should not make money, (and for the hard work that goes into their profession) but have to draw a clear line between what is ethics and what is not.

When we started 3 years back, the business has to be built from scratch with less than half a dozen investors who were very close friends of mine. A significant proportion of our clients that we work with today are new to financial investments, especially equities. However much historic data and facts are presented, unless the investors experience it personally in their portfolios, the conviction will not be there. Now, after 3 years of operation, I can confidently say that clients with whom we have worked for 2 years and above have made excellent returns in their portfolio. Though the market valuations (slightly on the higher side) is one of the reasons, the discipline of investing systematically and the pedigree of funds invested also play a key role.

Sensex from 4 July 14 to 4 Jul 17

 

From 25,962 on 4th July 2014, Sensex has moved to 31,321 (today’s opening) which is annualized return of 6.88%. But all our clients have made significant alpha (Fund returns over Sensex) over this period. The markets are almost at all-time high. But people who think that it is probably a time to sell need to understand that 12k, 16k, 22k and even 25,962 when we commenced operation (4-Jul-14) was an all-time high at that point in time. There is no doubt that Sensex will continue to grow further as long as the companies make profits (earnings) and the macro environment is good in India. While we don’t recommend lump-sum investments at this point in time, continuing your systematic investing (SIPs and SWPs) is a discipline that you have to adhere to. Selling should be done only based on our goals, when we have planned commitments and the fund managers are in a better position on judging the market. 

Equity as an asset class provides the best returns over longer time frames (3 to 5 years, minimum, depending on the product type). Investors who aspire to create wealth, should have conviction on Equity. Yes, it would not be a smooth journey and have minor and major jerks. But, this is the risk premium for fantastic returns that it provides, way above the other Asset classes. Don’t panic (investors typically get worried when the markets tank and at the same time the market touches new highs), remain cool and you will definitely make good returns and we are there to handhold you in this long journey. Please remember that “time” is a very important factor for success in Equity investment and allocation of short term funds to equity is one of the key issues that creates dissonance among people.

I want to repeat the following once again and ‘n’ number of times:  Our sincere thanks to all our esteemed clients for their support and encouragement without which we would not be where we are today. We strongly believe that references and word of mouth of delighted customers is what helps us grow rather than marketing gimmicks which are ephemeral.

 ‘The only place where success comes before work is in dictionary’ – Vidal Sasoon.

 

<Blog # PenguWIN 1054 – PenguWIN’s 3rd Anniversary>