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

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.

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