Monday, September 18, 2017

Interest rates are falling ...

Interest rates are coming down. What should one do?

This has been a common question in various forums these days. As we all know, in the calendar year 2017, the interest rates have come down by a good number. Bank deposits offer lower rates as compared to last year. Even there are discussions regarding reduction in the interest paid on the savings bank account...

Click on the link below to read the article:

Interest rates are coming down. What should one do?

Monday, September 11, 2017

Equity investments simplified

Click on the link here to read the transcript of my chat on www.moneycontrol.com today



So you haven't received the dividend from your mutual fund?

What happens to the mutual fund dividend that you have not received? Is it possible to get it back even aft6er years have passed? What care should you take to ensure you do not miss out on receiving these payments? Read my article in  Gujarati edition of today's Mid-day to get the answers to these questions.

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The English translation of the article is as under:


What if you did not get your mutual fund dividend?
“I invested in a mutual fund scheme that declared dividend some years ago. I did not get the dividend cheque. May be it was lost in transit. Will I lose that amount? Can I ever get it back?”
Well, as per the process, unclaimed dividends are deposited in an account with Investor Education and Protection Fund (IEPF). However, such transfer of funds happens only after such dividends remain unclaimed for seven years. The logic behind this was simple. If someone has not claimed the dividend for such a long period, there is a very high probability that the claim would never come.
One is not sure, but the logic used here could be in alignment with another law that states that any person missing for more than seven years is declared dead. This was required especially with respect to the distribution of that person’s wealth among the legal heirs.
The dividend rule also could have used the same time period for the purpose of depositing the unclaimed amounts in the IEPF.
However, there is an angle that is often missed out – human behavior. Some of the dividends may not be claimed for long periods purely due to lethargy. What if after a long gap someone realizes that one had not claimed the dividend?
In order to take care of such cases, the Government of India has changed a rule related to the unclaimed dividends. Even after this seven year period is over, one can claim the dividend back from the IEPF. In other terms, with one change in the regulation, the Government has taken a huge step in favour of the investor.
Having said that, it is also the investor’s responsibility to keep track of one’s own hard-earned money. Whether there is a facility to recover the money or not, being unaware of dividends for as long as seven years is not financial prudence.
So what should one do? First of all, one must review the investments on a regular basis – at least once a year. Second, please opt for electronic transfer of all the dividends into your bank accounts. In this way, you would be able to get rid of remembering whether you have received a cheque, deposited it in the bank, whether the cheque validity is over, etc. opting for electronic transfer of funds also removes various other risks related to paper movements, e.g. torn cheques, mutilated cheques, loss of cheque in transit, etc.
So, be careful with your money and take a few small but very important steps.


Tuesday, August 29, 2017

How to Estimate Equity Mutual Fund Returns?

Equity markets are at all time high levels. On one hand, many are flocking to investing in equity, while some others are developing cold feet. “Is this the right time to invest?” – This is the common question facing investment advisors and mutual fund distributors, alike.

In the last article, we looked at how to estimate returns from your debt funds. In this one, we will do the same exercise for equity funds. Understanding how much to expect should be able to help us evaluate various investment options.

Click here to read further ...


Monday, August 28, 2017

Equity investments simplified - your queries regarding mutual funds

Here is the transcript of my chat on www.moneycontrol.com today.

http://www.moneycontrol.com/news/mgmtinterviews/chats/detail_new.php?chatid=2935


Measures from mutual funds for safety of investors' money

There are certain measures taken by mutual funds to insure safety of investors' money. Some may appear causing inconvenience, but at the core is the objective of protection from possible fraud. Read on ...

Measures for safety of mutual fund investors

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The English translation of the article is as under:


Another safety feature in mutual funds
Ramesh had shifted to another location due to change of job. Incidentally, the new job also meant that the salary account changed to another bank. In the hurry of shifting to another location, and that too of one’s choice, Rameshthis person wanted to finish all the tasks at the earliest. One of the tasks was to close to bank accounts. He closed his bank account before shifting to the new location.
On reaching the new location, he needed some funds for buying a house to stay as well as for renovation. He opened his mutual fund account statement and checked the balance. He had more than enough money for the requirement. However, in the mutual fund folio, the old bank account was linked and it carried the old address. Ramesh filled in the details in the redemption slip for withdrawal of required amount of money. In the same form, he also filled in the details for change of bank account and change of address.
Three days later, he checked his bank account to see if the money was credited. He was disappointed that it had yet not happened. He called up the call centre of the fund house only to be informed that it would take longer time. Ramesh was angry and asked for the reason for the delay.
The reason was simple, yet Ramesh could not understand. The fund house kept the redemption on hold since there were three simultaneous transactions, viz., redemption from the fund, change of bank details and change of address.
While someone may consider this as an inconvenience, this was done for the safety of the investor’s funds. Let us understand this statement.
When someone wants to fraudulently take out money from someone else’s mutual fund account, the only way to do so is to change the bank account and address. As a normal procedure, the mutual funds send the funds directly to the investor’s bank account or the payment instrument (DD or a pay order) carries the bank account number of the investors as a safety mechanism. Hence, even if someone copies the signature and files for redemption, one cannot take the money out. The intimation of the redemption would also go to the investor’s registered address. That is why a fraudster must change both these along with the redemption request.
How do the fund houses know whether this is a genuine request or a fraud?
That is why they do not process the requests immediately and often they use other means of verification to ensure the money goes only to the investor’s account. That prevents a fraud from happening against the investor.
It is not an inconvenience, but a safety feature.

Monday, August 14, 2017

Liquid mutual funds offer the facility to get instant access to your money

Many do not know this facility offered by certain mutual funds - instant access to your money. Though, it is is for a limited amount currently, it still remains to be a great facility. Click here to read further.
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The English translation of the article is as under:


Many people keep large sums of money in current and savings accounts. They do it for a simple reason: what if the money is needed urgently?
Well, how urgent could be the need? And how much money may be required in such an emergency? It is in just a handful of exceptional cases that one has bothered to consider these two questions.
Most others operate out of fear. The fear is fully expressed in the earlier question about the urgent need. They support this argument further by stating that the emergency comes unannounced. It gives no time for any preparation. The argument is correct that there is no prior notice before an emergency. However, consider any situation – the emergency may come unannounced, but is there some time before money may be required? Even in case of hospitalization, how much money is required upfront? Will the hospital deny admission?
This is where one may consider some unconventional options to put the money to a better use. These options are the innovations in the financial markets that can be used to your advantage.
One such innovation is the liquid mutual funds that can be used for parking money for very short periods of time. One may also consider parking money for as short a period as three to four days. There is no limit on the maximum period for which such funds can be used. The beauty of these products is that there is no maturity period and the investor also need not specify for what period the investment is being made.
These funds have the potential to deliver more than what one gets from savings bank accounts or bank deposits of less than a year’s maturity.
Through a recent development, the regulator has allowed instant redemption facility from these liquid funds upto a maximum of Rs. 50,000 per account or 50% of the balance in the folio, whichever is lower. On redemption, the bank account would be credited within half an hour. This is a fantastic facility in case of emergency.
So go ahead and utilize this facility from the liquid funds.

- Amit Trivedi
The writer is the author of a book "Riding The Roller Coaster - Lessons from financial market cycles we repeatedly forget"

Monday, July 31, 2017

Whether in equity fund or debt fund - all can benefit from the disciplined investing through SIP

A lot has been written about the benefits of SIP in equity funds. However, little has been discussed about the same in the context of debt funds. Click on the link to understand how SIP in debt funds can be useful to you:

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The English translation of the article is as under:

“My daughter is studying in the 10th standard now. She would be ready for the college in a few years. I want to be financially ready to fund her education.” A proud father of a daughter was talking to his friends. Let us analyse the situation.
The daughter is going to college for higher education in just three years. There is a possibility that they have figured out what kind of course and college that she may attend. It does not matter whether the girl and the parents have decided on the course. Whether they have decided or not - whatever the case, there is a need to be financially ready. If one has not done anything so far, one needs to start investing as soon as possible.
However, in this situation, the goal is very close – just three years away and a serious one at that. Due to such a short time period, it would be unwise to take an exposure to equity. That means, one should avoid investing into equity mutual fund in such a case. At the same time, one has 36 months to accumulate the money. Such an investor should consider investing through SIP.
The option now for the investor is to consider doing a regular monthly investment in a fund that is not risky, i.e. one may consider a debt fund (especially short term debt fund or an ultra short term debt fund). Such funds invest in debt securities issued by various companies, banks and even government. since the investments are in debt securities, the funds are a lot safer than equity mutual funds.
Since most of the discussions on SIP end up talking about long term goals and SIP in equity funds, many are not aware that it is possible to fund near-term goals through SIP in fixed income funds, too. While discussing the benefits of SIP, majority of the experts highlight two benefits (1) Rupee cost averaging, and (2) Power of compounding. The former is derived due to the volatility inherent in equity, whereas the latter too is a function of the nature of equity to potentially provide high returns in the long run. As can be seen, both the major benefits talked about are related to equity. However, some of the underplayed benefits of SIP are as under:
·      SIP brings discipline to one’s savings approach
·      SIPs allow large sums to be accumulated even by saving small
·      It helps automate the savings approach
In the situation described earlier in this article, or any such similar situation, it is possible to accumulate the required amounts through SIP in debt funds.

Monday, July 17, 2017

How do fund managers manage debt funds


Debt funds, also known as income funds or fixed income funds invest in a mix of government securities, certificates of deposits of banks, corporate debentures, and some other debt and money market securities. These investments are safer than equity securities in that these do not exhibit the price fluctuations as much as stock markets.
While we have talked about various categories of debt funds, some features of these as well as the risks involved. Today, we will discuss how these funds are managed by the fund managers.

Click here to read further ...

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The English translation of the article is as under:


How do fund managers manage debt funds?
Debt funds, also known as income funds or fixed income funds invest in a mix of government securities, certificates of deposits of banks, corporate debentures, and some other debt and money market securities. These investments are safer than equity securities in that these do not exhibit the price fluctuations as much as stock markets.
While we have talked about various categories of debt funds, some features of these as well as the risks involved. Today, we will discuss how these funds are managed by the fund managers.
The function of fund management team is to generate higher returns for the risk taken or to reduce risk for a given level of risk. In other words, they have to reward the investors for the risks taken. The reward should be higher than what an investor would be able to achieve by oneself.
For that purpose, the fund managers need to manage the risks. Or in other words, they need to take calculated risks. In debt funds, there are three major risks that the fund managers manage in order to generate desired fund performance in line with the scheme objective.
These three risks are:
1.     Credit risk:
When you lend money to someone, there is a contract that the principal amount as well as the interest on it would be returned at a pre-agreed time. However, in certain cases, the borrower is not able to honour this commitment. The possibility of such an event is known as credit risk. In other words, the risk can be mentioned as: “what if the principal or interest payments are not received in time or not received at all?”
The companies where such a risk is high, is expected to pay higher interest, else nobody would lend money to them.
The fund managers understand this risk through a careful study of the financial statements and business of the company, as well as an analysis of overall economic situation. With this analysis, they try to find out securities where the future returns could be higher for the suggested risk.
2.     Interest rate risk:
When interest rates in the economy fall, the existing debentures become more attractive, as they carry higher interest rates. Due to this, investors queue up to buy these debentures from the secondary market, which pushes their market prices up. Thus, as interest rates in the economy went down, the prices of existing debentures went up. The opposite of this is also true.
This sensitivity of debentures to changes in interest rates is called “interest rate risk”. Securities with short maturity period are less sensitive as compared to those with longer maturities.
Fund managers may take a view on the possible change in interest rates in the economy and shift the portfolio accordingly. When the rates are expected to rise, the fund managers sell securities with long maturity and buy those with short maturity. When the rates are expected to fall, they do exactly reverse. In this way, they try to reduce the negative impact of rising rates and maximize the impact of falling rates.
3.     Liquidity risk:
When any investor wants to sell a security, there should be a buyer in the secondary market. In the absence of a buyer, there is no liquidity, or one would be required to sell the same security at a discount. At the same time, if a security is known to be illiquid or less liquid, the interest rate is normally high to compensate for this lack of liquidity.
Most mutual fund managers buy illiquid securities only (1) if the scheme’s objective allows it, or (2) the expected redemptions are less than the liquid component of the portfolio. By maintaining proper balance between liquid and illiquid securities, the fund managers are able to get higher interest income as well as provide redemptions without hassles to investors.
So, go ahead and enjoy the fruits of professional management by investing through debt funds.
- Amit Trivedi

Monday, July 3, 2017

Mutual fund expenses - how are these calculated and charged?

How are mutual fund expenses charged? Do I pay both at the time of entry and exit? In such a case, does it not become costly? There are many questions around the fund expenses. Read on for the answers

http://epaper.gujaratimidday.com//epaperpdf/gmd/03072017/03072017-md-gm-12.pdf

The English translation is as under:


Understanding mutual fund expenses
We have already covered the expenses charged for the management of a mutual fund scheme in one of our earlier articles. Mutual fund companies are allowed to levy only two types of charges, viz., (1) exit load – chargeable at the time of investor’s exit from the scheme in certain schemes only if the exit is within a stipulated period of time, and (2) fund expenses – chargeable to meet expenses and payment of fees to various constituents.
We will elaborate on the second in this article today.
There are various constituents working to make the mutual fund run professionally in the best interests of the fund’s investors. These constituents need to be paid their fees for the services provided. This fee is payable through charging each scheme a certain percentage of the fund’s corpus.
These expenses are mentioned in terms of percentage of the scheme’s AUM (Assets Under Management) or the scheme’s corpus. SEBI regulates the maximum expenses that can be charged to the scheme.
These expenses are mentioned as annualized percentages with respect to the scheme’s AUM, but charged on a daily basis such that the scheme’s NAV accounts for the expenses on a daily basis. Let us understand the nature of these expenses with a calculation.
Let us say, a scheme’s corpus is Rs. 1,00,000 and the expenses are 2% p.a. In such a case, the expense charged for the day would be as under:
Expense charged for the day = Scheme’s corpus X fund expenses (% p.a.) / 365
In the example given,
Expense charged for the day = Rs. 1,00,000 X 2 % p.a. / 365
                = Rs. 5.48
If the scheme corpus goes up the next day, a higher amount would be charged for that day. At the same time, if the scheme corpus drops, the expenses charged would be lower. Taking the calculation further, if the scheme’s corpus goes up to, say Rs. 1,10,000 the next day (corpus can change on account of change in the market prices of the securities as well as fresh inflow by investors or redemptions or payment of dividends).
Expense charged for the day = Rs. 1,10,000 X 2 % p.a. / 365
                = Rs. 6.03
On the other hand, if the corpus had falled to Rs. 95,000; the expenses charged would reduce.
Expense charged for the day = Rs. 1,10,000 X 2 % p.a. / 365
                = Rs. 5.21

If someone stayed invested only for three days and then took the money out, the expenses charged would be only for the three days that one stayed invested. Also please note that this is not charged at the time of entry or exit, but on a daily basis. Thus, the expense is charged fairly to all fund investors in proportion to the amount invested as well as their stay with the fund.
Hope this clarifies some doubts that one might have.


Friday, June 30, 2017

Estimation of Debt Fund Returns…

“Kitna return milega?” This is a very common question majority of investment advisers and distributors of investment products face. Very regularly. Many simply look at the historical numbers and gave some projections based on the past. Some others stick to various thumb rules, e.g. equity returns = GDP growth plus inflation. In the case of fixed income mutual funds, many assume that the fund should return net YTM to the investors (Net YTM = YTM – fund expenses)...

Click here to read my article on www.networkfp.com's blog


Monday, June 19, 2017

What you should know about mutual fund switches

Mutual funds offer a facility called "switch", which allows an investor to shift money from one fund to another within the same fund family. Let us know more about this facility. Click on the link below to read my article about this facility:

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The English translation is as under:


One of the facilities that mutual funds offer is to shift from one scheme to another. This facility is called “switch”. This shift could be for the full balance or even a part of it. This facility is available to only open-ended mutual funds and not in case of close-ended funds. This is because, anyway, one cannot transact with the fund in case of close-ended mutual funds.
Are there any restrictions? How many switches are allowed per year? There are no restrictions in case of open-ended funds, except for applicable exit loads. One can do unlimited number of switches. The only restriction is the pay-in / pay-out cycles in case of fund schemes.
For example, if you redeem from equity funds, the redemption proceeds are paid on a T+2 basis., the applicable NAV in liquid fund would depend on availability of clear funds. Hence, in case of switch into a liquid fund from an equity fund, the switch would be effective only after the redemption from the equity is processed. This would reduce the total number of switches that can be done.
If any exit load is applicable, the same would be charged in case of switches, too.
One big restriction is that switches are allowed only across schemes within one fund house. That means, you are not allowed to switch money from a scheme managed by a fund house into a scheme managed by another fund house.
Why does an investor need this facility?
There are various reasons why an investor may need this facility.
First of all, many investors park their lump sum investment in a liquid fund and then transfer the same regularly into an equity fund over a period. This periodical system of switching is also called STP or Systematic Transfer Plan.
Secondly, some investors take a view on the markets and shift money from one scheme to another. So when equity markets appear costly to an investor, one may want to shift from equity fund to a debt or a liquid fund.
Many switch from equity fund to liquid fund when they want to book profits.
At the same time, some use the facility to switch from liquid fund to equity fund when the equity market appears to be cheap.
Those who believe in the benefits of asset allocation also rebalance the portfolio through the process of switches.
However, this facility is for the benefit of the investors and must be used only when required. It should not be misused.
Finally, please remember that a switch is redemption from one scheme and a simultaneous purchase into another. Hence, the scheme from which one is exiting, there could be applicable taxes.
Both the exit loads and taxes reduce the overall return on investment and hence one must be very careful about these two.
- Amit Trivedi

Thursday, June 15, 2017

This or that? Should I buy stocks myself or invest through equity mutual funds?

Often we are faced with choices and on many such occasions, making the choice is too difficult – sometimes we lack the information, at other times the trade-off is too tough and at some other times, we have to choose between some very good offers only because our resources are limited.
In this blog, we will take up some such choices related to money and give our own perspective. While your methodology and decisions may be quite different from us, it is important to have a good framework for making good decisions.

Click here to read the article



 

Tuesday, June 6, 2017

On Facebook live with Bloomberg Quint


Investor Expectations – A Risk That Nobody Talks About

We hear a lot of discussion about managing the investor expectations, but have you ever looked at the investor expectation is a risk? Can we really call it a risk? This point can be endlessly debated. However, here is a perspective why we prefer to call it a risk. ...

Click here to read my article on the subject ...

Monday, June 5, 2017

NPAs with sponsor banks - are my MF investments safe?


Read my article on this subject in Mid-day Gujarati, Mumbai edition today.

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The English translation is as under:


Right now when the PSU banks are burdened with so much NPAs, are the mutual funds sponsored by these banks safe?
For the last few months, the media is abuzz with the reports on Non-Performing Assets of the banks. Some reports talk about large numbers and some scare the readers without the mention of any numbers.
A mutual fund is a trust that holds various different schemes. Each mutual fund scheme is a separate portfolio of investments. The scheme invests in various securities in line with its stated investment objective. The money invested in a mutual fund scheme is not invested with the sponsor.
Let us understand how mutual funds are structured. This will help us with the above question.
A sponsor company sponsors (promotes) the mutual fund and the asset management company. The mutual fund is set up as a trust for the benefit of unit holders, who invest in various schemes launched by the fund. The asset management company’s primary function is to manage the investments of various investors that invest in the mutual fund schemes.
Now, even at the cost of repetition, it is important to highlight that the investors invest in the schemes launched by the mutual fund, whereas the asset management company only manages the funds.
The unit holders are the owners of the scheme, whereas the asset management company is the manager. How do the investors know whether the schemes are managed in their best interests?
This is where a third entity enters – the trustees, either in form of a trustee company or a board of trustees. Since the mutual fund is set up as a trust, these trustees oversee the functioning of the asset management company, to ensure that the funds are managed in the best interests of the unit holders.
The asset management company can only invest the funds in the manner specified by the offer document within the SEBI regulations.
If something happens to the asset management company, the schemes would not be impacted since the money is not invested with the company but in various securities. The trustees have the right to change the manager. Similarly, if something happens to the sponsors, the unit holders’ money invested in the mutual fund schemes is safe.
It is this three-layered structure that ensures safety of the investors’ funds in the mutual fund schemes.
Having said that, there is another point that we need to discuss here. What if the scheme has invested in companies that have turned bad? The way the loans have turned into NPAs, what if the investments made by the mutual funds turn out to be bad? That risk is directly on the investors. However, once again there is a built-in safety for the investors. First of all, the mutual fund scheme is allowed to invest only upto a certain limit in any single company or any single industrial group. This means, the risk of business failure is spread across many investments, thus reducing the impact. Secondly, mutual fund portfolios are very transparent and hence, one can see the investments made by the fund schemes on a regular basis. Almost all funds in India declare their portfolios on a monthly basis. Third, the schemes are managed by professional fund managers, whose full time job is to manage investors’ money. A professional manager is likely to be better at selection of securities than most individual part-time investors.
So go ahead and invest your money in mutual funds. Even if the sponsor bank has very high NPA levels, your investments in the mutual fund schemes are not affected by those NPAs.
- Amit Trivedi




Tuesday, May 23, 2017

Riding The Roller Coaster recommended by Brijesh Dalmia

A leading financial planner, a mutual fund trainer, a leadership trainer, and a leader himself Brijesh Dalmia recommends “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget”. The book features in the list of suggested reading for IFAs.

Thank you Brijesh!

You can read the article here.

#RidingTheRollerCoaster

Transcript of chat 21-May-2017


Click on the link below to read the transcript of my chat on www.moneycontrol.com on 21st May 2017



Equity investments simplified

Monday, May 22, 2017

Do mutual fund schemes have lock-in?

Read my article on the above subject in Mid Day, Gujarati edition today.

Here is the link to the article.

The English translation of the article is as under:

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Lock-in period in a mutual fund
“For how long does my money remain locked in a mutual fund scheme?” or “What is the lock-in period in mutual funds?” Someone asked the other day.
Well, there are many misconceptions floating around in the market regarding mutual funds. The above questions seem to be arising out of these. One of the most ignored misconceptions, yet among the most common one, is that all mutual funds are same. Many people think that all mutual funds have the same features and that they all behave in the same exact manner. Hence, an investor should expect the same experience with all mutual funds. The reality is quite different.
We have time and again highlighted in our previous columns that there are many varieties among mutual fund schemes and that investors have a huge amount of choice from the type of mutual fund schemes to various features among similar schemes.
Today, we would attempt to address the questions asked in the opening paragraph. A lock-in period is an operational feature of many investment options and schemes. Lock-in means the investor cannot access the money, or cannot sell the investment and convert into cash.
Now, certain mutual fund schemes do have a lock-in period, whereas some do not. There are also schemes without lock-in where redemption from the scheme is discouraged by putting some charges.
First of all, there are schemes like ELSS or some of the retirement funds or even children’s funds, which have a lock-in period. In case of ELSS or retirement funds, where the investor can avail of tax deduction by investing in such schemes, there is a statutory lock-in period. After the statutory lock-in period is over, the investor is free to take the money out on any business day or stay invested for as long as one wishes to. You are also allowed to add more money in the same account even during the lock-in period of the earlier investments. However, the new (or fresh) investments would attract lock-in from the day of investments. For example, in ELSS schemes, the mandatory lock-in is for three years from the date of investment. So, your investment made in March 2017 would be locked in till March 2020, but additional investment in the same account in May 2017 would be locked in till May 2020.
The next category we must understand is the close-ended funds. These funds have a defined maturity period. At the end of this period, the funds are automatically returned to the investors. Before maturity period, the investor cannot get the money back from the fund. However, as per SEBI regulations, the units of close-ended funds have to be compulsorily listed on a recognized stock exchange, which may allow liquidity to the investors.
Then come the open-ended funds. In these funds, there is no lock-in period. An investor can buy the units or redeem the funds on any working day. However, in case of some of the open-ended funds, there could be an exit load if the investor exits before a certain period from the date of investment. There are no fixed rules about such periods, and the exit load as well as the period may change for the same scheme from time to time. However, as an investor, you must know that what exit load was applicable at the time of your investment would apply to that particular investment. Any subsequent change in exit load would not be applicable to your old investments.
So, there is no general answer to the questions asked in the opening paragraph. Understand the type of fund and check the fund details at the time of investing.

Monday, May 8, 2017

Why do people remember investing in ELSS only in the last quarter of the year?

Historically, we have observed a very peculiar behaviour from investors. In fact, tax-savers could be a better term than investors, going by the behaviour.Click on the link below to read my article on the subject:

Why do people remember investing in ELSS only in the last quarter of the year?

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The English translation is as under:


Recently, someone asked me whether one should consider investing in an ELSS – Equity Linked Savings Scheme – a mutual fund scheme that allows one to save tax under Section 80C of the Income Tax Act. I felt like checking the calendar to see which month it is. Historically, investors have inquired about these funds only in the last quarter of the year, or at best between December and March.
Let us look at some data:
Year
Gross inflow in ELSS in last quarter (Rs cr)
Annual gross inflow (Rs cr)
Last quarter's contribution in the year
2004-05
90
154
58.44%
2005-06
2257
3934
57.37%
2006-07
2855
4402
64.86%
2007-08
3873
6448
60.07%
2008-09
1248
3324
37.55%
2009-10
2001
3601
55.57%
2010-11
1696
3450
49.16%
2011-12
1132
2698
41.96%
2012-13
1311
2626
49.92%
2013-14
1382
2661
51.94%
2014-15
3932
8343
47.13%
2015-16
4407
9980
44.16%
2016-17
6677
14624
45.66%
The table above contains data regarding how much money was invested across the ELSS schemes by investors from across the country.
It is interesting to note here that the amount of money that was invested in the last quarter of the year, i.e. January-February-March was between 37% in 2008-09 to almost 65% in 2006-07. The last 25% of the year accounts for roughly 50% of annual business.
Look at the contribution of the month of March in the whole year.
Year
Contribution of March in annual business
2004-05
25.32%
2005-06
29.66%
2006-07
37.39%
2007-08
32.35%
2008-09
18.38%
2009-10
28.10%
2010-11
23.33%
2011-12
22.76%
2012-13
22.70%
2013-14
29.05%
2014-15
23.56%
2015-16
22.58%
2016-17
25.49%
Only one month, March accounts for more than 20% of annual sales.
What is happening here? Investors are delaying their tax planning decision to the end of the year.
This happens when we treat the money used for tax saving as an expense – it makes sense to defer expenses to the last moment. However, investing in ELSS is not an expense. It is primarily an investment, and then a tax saving avenue.
Also, since ELSS is a mutual fund scheme, we can use the facility of systematic investing (popularly known as SIP). This allows us to spread our investments over the year, which helps in two ways:
1.     There is no sudden large outflow in the last few months of the year, and
2.     We get the benefit of Rupee Cost Averaging, about which we have talked in our earlier articles on explaining SIP.
So, although we have lost the first month of the year, i.e. April, it is still time. Start your SIP in an ELSS scheme, if you are looking for an equity investment for long term growth coupled with tax saving.
- Amit Trivedi