MF POINTER For Private Circulation only Put your “IDLE” money to work and earn extra returns!! Issue - 97 January, 2014 January, 2014 Smart investing starts here 1 Ventura Research Desk: This month's issue focuses on the importance of parking your surplus funds in liquid funds once you have determined the threshold amount which is to be kept in a savings bank account. You should use liquid funds as a “supplement” to your savings bank. The article highlights the key features and benefits of investing in a liquid fund. Turn to page 2 for details on the performance of various mutual fund categories in the industry. Top performing equity and debt mutual fund schemes are highlighted on Page 6 & 7. Happy Investing!! Juzer Gabajiwala Markets: • Indian equity markets ended the month of January on a negative note. Key benchmark indices – the Sensex and Nifty – plunged by 3.10% and 3.40%, respectively. Indian equity markets remained volatile after the US Federal Reserve announced a second $10 billion reduction in its monthly bond purchases. Sentiments were further dampened after the Reserve Bank of India (RBI) unexpectedly raised the key repo rate by 25 basis points to 8% in a bid to curb retail inflation. • On the macro economic front, India's industrial output dropped by 2.1% in November due to a sharp contraction in manufacturing production. Manufacturing production dropped by 3.5%, while mining grew at merely 1% and electricity output increased by 6.3% in November. Meanwhile, retail inflation eased to a three-month low of 9.87% in December compared to 11.16% in November. The moderation came on the back of a fall in vegetable prices. • In the bond markets, the benchmark 10-year bond yield closed at 8.78% for the month of January 2014, after the RBI unexpectedly increased the repo rate by 25 basis points and after the Fed decided to trim its bond purchases by another $10 billion. However, yields found some support due to some recovery in the rupee. • According to data released by the Securities and Exchange Board of India (SEBI), Foreign Institutional Investors (FIIs) continued to remain net buyers in the equity segment for the month of January 2014. They bought equities to the tune of Rs 714.30 crore. This was comparatively less than Rs. 16,085.8 crore recorded in the previous month. Domestic mutual funds remained net sellers in Indian equity markets to the tune of Rs. 2,718.40 crore (upto 30th Jan, 2014).
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MF POINTERFor Private Circulation only
Put your “IDLE” money to work and earn extra returns!!
Issue - 97 January, 2014
January, 2014 Smart investing starts here 1
Ventura Research Desk:
This month's issue focuses on the importance of parking your surplus funds in liquid funds once you have determined the threshold amount which is to be kept in a savings bank account. You should use liquid funds as a “supplement” to your savings bank. The article highlights the key features and benefits of investing in a liquid fund. Turn to page 2 for details on the performance of various mutual fund categories in the industry. Top performing equity and debt mutual fund schemes are highlighted on Page 6 & 7.
Happy Investing!!
Juzer Gabajiwala
Markets:
• Indian equity markets ended the month of January on a negative note. Key benchmark indices – the Sensex and Nifty – plunged by 3.10% and 3.40%, respectively. Indian equity markets remained volatile after the US Federal Reserve announced a second $10 billion reduction in its monthly bond purchases. Sentiments were further dampened after the Reserve Bank of India (RBI) unexpectedly raised the key repo rate by 25 basis points to 8% in a bid to curb retail inflation.
• On the macro economic front, India's industrial output dropped by 2.1% in November due to a sharp contraction in manufacturing production. Manufacturing production dropped by 3.5%, while mining grew at merely 1% and electricity output increased by 6.3% in November. Meanwhile, retail inflation eased to a three-month low of 9.87% in December compared to 11.16% in November. The moderation came on the back of a fall in vegetable prices.
• In the bond markets, the benchmark 10-year bond yield closed at 8.78% for the month of January 2014, after the RBI unexpectedly increased the repo rate by 25 basis points and after the Fed decided to trim its bond purchases by another $10 billion. However, yields found some support due to some recovery in the rupee.
• According to data released by the Securities and Exchange Board of India (SEBI), Foreign Institutional Investors (FIIs) continued to remain net buyers in the equity segment for the month of January 2014. They bought equities to the tune of Rs 714.30 crore. This was comparatively less than Rs. 16,085.8 crore recorded in the previous month. Domestic mutual funds remained net sellers in Indian equity markets to the tune of Rs. 2,718.40 crore (upto 30th Jan, 2014).
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Category returns: For the month of January 2014, most of the categories posted negative returns. Meanwhile, the top five category gainers were FOF - Gold, Gilt Funds, Money Market funds, Floating rate funds and Income funds. These categories generated absolute returns in the range of 0.60-1.47%. However, the bottom categories were Equity - Banking, Equity – Infrastructure and Equity - Contra. These three categories fell by 9.38%, 7.50% and 4.62%, respectively, during the month.
*Returns as on 31-Jan-2014
Top 5/Bottom 5
Equity Schemes
Top Performers Under Performers
Absolute Absolute Scheme Name Ret. % (1M) Scheme Name Ret. % (1M)
PineBridge World Gold Fund 16.07 Kotak PSU Bank ETF (14.12)
DSPBR World Gold Fund 8.63 GS PSU Bank BeES (14.10)
DSPBR Technology.com Fund 4.43 HSBC Brazil Fund (10.95)
SBI IT Fund 4.30 ICICI Pru Banking & Fin Serv Fund (10.72)
Franklin Infotech Fund 3.91 Baroda Pioneer Banking & Fin Serv (10.47)
Debt Schemes
Top Performers Under Performers
Annualised AnnualisedScheme Name Ret. % (1M) Scheme Name Ret. % (1M)
Religare Invesco Gilt-Long Duration 21.54 ICICI Pru Moderate (15.72)
ING Gilt-PF-Dynamic 20.91 FT India Life Stage FOFs-40 (12.86)
IDBI Gilt Fund 17.54 ICICI Pru Gilt-Treasury-PF (9.51)
JM Income 16.17 IDFC Asset Alloc-Mod (8.03)
IDFC Dynamic Bond Fund 15.01 ING Income Gth Multi FoF-30%-A (7.68)
*Returns as on 31-Jan-2014
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Almost all of us have surplus money parked in savings bank accounts, waiting to be used for some unforeseen circumstances or for unplanned expenses or just as a comfort factor. It is also considered one of the safest places to park our money and we are more than happy to do so as our principal is safe and instantly available. Even though savings accounts offer returns of around 4% p.a., we are not daunted by the same.
Moreover, we have been hearing of so many cases of fraud in connection with savings accounts, such as hacking of passwords, misuse of ATM pins, etc. Savings accounts are now very easily susceptible to all these types of frauds, which may cause us to lose our hard earned money.
Yet most of us believe that there is no alternative to savings bank accounts for parking our money. But is there a better alternative? …one that offers higher interest rates than savings banks and is reasonably safe too?
The simple answer is YES - Liquid Funds offers us SAFETY, LIQUIDITY and RETURNS. Let us examine these three issues.
SAFETY: Liquid funds do not invest in equity shares and invest only in fixed income instruments with high credit ratings (A1+) such as commercial papers (CPs), certificates of deposit (CDs), Government treasury bills, etc. A lot of corporates park their money in liquid funds as these carry very low risk. Further, from the total amount invested in liquid funds at Rs. 18,796.69 crore (AAUM as on 31 Dec, 2013) it is apparent that they are quite popular. Such funds have also enjoyed a healthy flow of funds during the past 9 months with inflows of Rs. 67,03,240 crore and outflow of Rs. 66,29,652 crore during Apr'13-Dec'13.
LIQUIDITY: These funds are available for redemption on a T+1 day basis. So, for instance, if a redemption request is given on Monday before 3pm; funds are available in your bank account on Tuesday, latest by 5pm.
RETURNS: These funds cannot guarantee returns, as no mutual fund scheme is allowed to do so. This has been one of the biggest hurdles. But if you look at their past track record, the maximum return for a holding of 3 months has been 9.31% p.a. and the lowest has been 5.43% p.a. Moreover, the dividend received from mutual funds is tax free. Thus, going by their past performance, compared to investing in a savings bank account and earning a return of 4%, you could invest in liquid funds and earn almost 50 to 125% more. If you take into account the tax benefit, your effective return is even higher.
Letting our surplus money remain idle in a savings bank account is usually a passive decision, i.e. it happens because we take no decision. The same money can be invested in liquid funds to gain greater returns and at the same time we do not have to compromise on liquidity.
Ideally, one should keep aside 3-6 months of monthly expenses in a savings account and park the rest of it in liquid funds. In short, liquid funds can be used as a “supplement” to your savings bank account.
Though liquid funds do not guarantee that there will be no erosion of capital, the chances of capital loss are extremely negligible as it generates income primarily on interest accrual. They are the least risky and least volatile category of mutual funds. If you had invested in a liquid fund and held the investment for 1 month, anytime during the past 5 years, you would have made a minimum return of 5.38% p.a. and a maximum of 9.18% p.a.
Put your “IDLE” money to work and earn extra returns!!
Put your “IDLE” money to work and earn extra returns!!
Despite the de-regulation of interest rates on savings bank accounts announced by the RBI, only a few of them offer 6-7% p.a.; most of them still offer just 4% p.a. Switching your capital to another bank is a bother and also, there is no guarantee that the bank will keep offering such a rate. A clever move would be to invest in a good liquid fund.
In the current high interest rate scenario, liquid mutual funds, as a category, delivered returns of 9.27% p.a. and 8.98% p.a. for calendar years 2012 and 2013, respectively. In fact, the minimum return given by any liquid fund during these calendar years was 7.31% p.a. for 2012 and 7.12% p.a. for 2013, which is still much higher than the 4% p.a. interest rate offered on your savings account.
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Below is a comparison of Savings accounts and Liquid funds:
Savings Account Liquid Fund
Annualised return 4% 7.12% - 8.98%**
Minimum Lock-in No No
Liquidity Instant Withdrawal 1 day
Capital Risk Nil Very Low
Principal guarantee Guarantee of up to Rs. 1 lac No guarantee
Tax Exemption upto Rs. 10,000. Dividend is Tax free in the
Tax as per investors slab hand of the investor^
**Minimum and Maximum 1-year return for the calendar year 2013.
^Dividend Distribution Tax is 28.325%; capital gains tax on units held for more than 1 year is 10% or 20%
(with indexation), whichever is less. For less than 1 year it is as per the investor's tax slab.
When to use:
• To temporarily park any lump sum you may have received, until you work out how to invest it
• To save for short-term obligations
• To create an emergency / contingency fund, which can be withdrawn any time
How to select a good Liquid Fund:
1. Choose a fund house which has been in existence for more than 5 years.
2. Make sure it falls amongst the Top 20 fund houses in terms of AUM.
3. It should have a Liquid Fund corpus of more than Rs. 500 crores.
4. The expense ratio should be low.
Conclusion:
Features such as better returns, high liquidity and high safety make liquid schemes attractive to investors, especially for a short-term horizon and for those who are in the highest tax bracket. They are a good supplementary investment avenue to savings bank accounts, irrespective of whether you want to merely park funds temporarily or create an emergency fund.
Debt and Hybrid Funds Corpus NAV (`) Annualised(%)
( Crs)# Gr Div 3 mths 6 mths 1 yr
Income Funds
ICICI Pru Long Term Plan 41.81 13.82 11.00
Taurus ST Income 149.65 2,200.46 1,531.06
Religare Invesco Credit Opportunities Fund 957.21 1,434.80 1,018.00
Ultra Short Term Plan
Templeton India Ultra Short Bond Fund 3,783.22 16.58 10.09
Baroda Pioneer Treasury Adv Fund 412.69 1,434.59 1,001.89
JPMorgan India Treasury Fund 3,268.58 16.52 11.17
Gilt Funds
Sundaram Gilt Fund 24.87 20.77 11.89
Birla SL Gilt Plus-Liquid 27.62 28.07 10.03
Liquid Funds
Escorts Liquid Plan 195.33 19.56 15.03
Principal Retail Money Mgr 17.15 1,422.28 1,060.62
Taurus Liquid Fund 1,261.91 1,365.87 1,000.24
Hybrid - Monthly Income Plans(MIPs)
HDFC Multiple Yield Fund 2005 198.73 20.27 11.46
Sundaram MIP 21.24 11.77 10.21
Crisil Liquid Fund Index
Crisil Composite Bond Fund Index
`
10.08 10.51 9.69
9.60 10.46 10.07
9.27 10.43 9.62
9.48 10.97 10.05
9.22 10.87 9.28
9.10 10.80 8.91
12.36 14.11 18.98
8.24 11.27 9.38
9.33 10.02 9.66
9.28 10.44 9.79
9.20 10.18 9.45
11.53 14.57 5.73
7.27 7.41
8.58 10.44 9.08
4.91 6.50 3.50
-0.59
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Performing Mutual Fund Plans
*Returns are annualized as on 31st January 2014# Monthly Corpus as on December 2013.
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Performing Mutual Fund Plans
Equity and Hybrid Funds Corpus NAV (`) CAGR (%)
( Crs)# Gr Div 1 yr 3 yr 5 yr
Equity - Large Cap
Religare Invesco AGILE Fund 36.08 8.03 8.04
Axis Equity Fund 632.25 13.16 11.87
ICICI Pru Focused BlueChip Eq Fund 4,848.63 19.60 16.26
Equity - Multi cap
Birla SL India Opportunities Fund 42.82 65.79 18.34
Tata Ethical Fund 121.90 84.90 50.95
Equity - Mid & Small cap
Reliance Small Cap Fund 340.68 11.75 11.75
SBI Magnum MidCap Fund 205.04 30.85 17.09
UTI Mid Cap Fund 265.53 38.29 26.10
Equity - Sectoral
ICICI Pru Technology Fund 178.10 32.06 29.06
Franklin Infotech Fund 151.06 97.68 24.02
Tax Saving Scheme(ELSS)
Axis LT Equity Fund 839.82 16.79 13.38
ICICI Pru R.I.G.H.T Fund 59.66 17.03 15.35
BOI AXA Tax Adv Fund 29.71 24.83 13.54
Balanced Fund
HDFC Children's Gift Fund-Invest 439.36 56.63 56.63
HDFC Balanced Fund 1,207.52 68.65 20.03
Sensex 20,513.85
Nifty 6,089.50
`
8.37 6.01 13.66
6.82 7.37 -
4.42 7.24 22.35
25.24 6.24 24.21
13.83 10.61 25.66
14.02 7.43 -
13.04 11.58 25.72
9.62 8.77 25.22
52.59 19.12 39.08
44.66 13.07 32.83
14.17 12.23 -
9.10 13.74 -
7.91 4.75 -
12.12 12.10 24.93
7.06 9.19 21.99
3.11 3.82 16.81
0.91 3.41 16.18
*Returns are compounded annualized as on 31st January 2014# Monthly Corpus as on December 2013.
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