Capital Letter January 2014-Fundsindia.com

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Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

Greetings from FundsIndia! Trust you all had a wonderful new year!

Scarcely does a year arrive as laden with expectations as the year 2014 has. Rarely has an electionseemed as important as the one that is on tap in a few months from now.

People are counting on a new government to deliver the country out of the economic morass that itfinds itself in. Be it taming inflation, stabilizing the value of rupee, increasing GDP growth rate, or eas-ing the business climate for a robust growth in industry - people are hoping for strong performancefrom whoever it is that would form the next government – whether it is UPA III or NDA II or AAP I.

Needless to say, at FundsIndia, we share these hopes. A poor, inflationary economy is especially bad foran investment services business such as FundsIndia. We get hit on both sides – our customers’ portfo-lios do not do well, and inflation eats away at people’s savings. That means people have less to investeven while whatever they had invested in the past is not doing well which further diminishes interest in

investing. While no new government will be able to wave a magic wand to make all problems disappear,it might help improve the economic outlook and investor sentiment in the country. We’d be happy totake that.

Coming to our platform and services, the first few months of year might prove to be eventful for us.Recently, we launched a handful of new deposit products in our platform (Gruh Finance, PNB Housing,

Apollo Hospitals, Exim bank, and more). We plan to be launching an exciting new way of doing systematic investing in physical gold as well shortly. There are more new products and services on the anvil, and we’ll keep you updated as and when we bring them online.

I’m also happy to announce that we opened our first physical outlet on a pilot basis near Chennai. It is at Mahindra World City – a plannedtownship that houses many corporates including Infosys and BMW. It is located at The Canopy, a central shopping complex in the cam-pus. If you or your friends live or work in the township, please drop in to say hello.

Tax saving season is here. Hope you have completed your ELSS investments for the year. If you need any recommendation on where to

invest, you know you just have to ask for it.

In this newsletter, we carry '5 New Year's Resolutions for mutual fund investors' by Vidya Bala and a look ahead by Dhirendra Kumar. I high

recommend both.

Happy Investing!

T h e m o n t h l y n e w s l e t t e r f r o m F u n d s I n d i a

07—Jan—2013

Volume 7, Is sue 01

Inside this issue:

Hope i s a beaut i fu lth ing —Sr ikanthMeenakshi

1

2014 – 5 New Year ’s res ol ut ionsfor mutua l fund

investors- V idya Bala

2

Equity Recommen-dations- B. Krishna Kumar

4

An yea r t o fo rget ,and one to look

forward to? — D h i r e n d r a K u m a r

5

Hope is a beautiful thing

Srikanth Meenakshi

https://www.fundsindia.com/content/jsp/ELSSFunds.do?utm_source=FIemailcapital




Tell me; of the many new-year resolutions that most of us have in mind, shed-

ding those extra kilos would surely be one of them? At least for a good number

of us? I know, that’s easier said than done.

But if you can shed some baggage without any physical effort by simply rein-

forcing some beliefs, doesn’t that sound cool to you? But I am not talking of

those extra pounds; I am talking of the excess baggage that most investors

tend to carry with regard to their investments.

Try shedding some of this baggage, without much effort, and you will have a

super-fit investment portfolio!

So here are 5 resolutions that I can think of, for any mutual fund investor:

1. Spend less time timing the market and more time staying in the market

Simply put, stay invested over your intended time frame. This is true of equity and debt funds.

Most of you may be investing in mutual funds because of the convenience of investing in equity and debt markets without having to track

your investments or time the markets right or pick the right stocks; and yet manage inflation-beating returns.

If that be the objective, then there could be little need to try and time the market by waiting for a dip (or a bigger dip) to invest, or worse

still, continuously starting and stopping SIPs based on market movements. You may do more harm to your portfolio than good, often

times.

For instance, assume you had an SIP running from January 2013 and the market volatility panicked you into stopping your SIPs by June

and you just held the money invested thus far.

In a mid-cap fund like HDFC Mid-Cap Opportunities you would have got an IRR of 17% but had you continued the SIPs till the end of the

year, your SIP returns would have been a good 30%. Even in a large-cap fund such as ICICI Pru Focused Bluechip your returns would have

been 19% if you ran your SIPs than the 14% IRR had you stopped it mid-year and held on.

If you are a very long-term investor (10 year or more) then no harm in investing a lump sum and hoping you can build your wealth. But if

you wish to time the market every time, you need to have deep pockets and acumen to spot market movements. For those with limited

sums, SIPs remain the best bet.

2. Don’t chase returns, chase consistency instead

I know the toppers’ chart for the year can really tempt you into switching your existing holdings to the chart toppers of the year. But re-

member, the toppers seldom find a place in the next year’s chart busters. Do read our article on choosing funds based on 1-year perform-

ance: Should you invest based on 1-year performance?

By unnecessarily switching funds, you may not only make your portfolio volatile and incur loads/taxes but lose out on the SIP and com-

pounding benefits in the existing steady funds that you may hold.

3. Don’t obsess over marginal rating changes

If you have been following one of the few mutual fund ratings available for domestic funds, you might at

least every quarter be faced with a dilemma on whether you should be exiting some of your funds that

moved from a say 5-rating to 4 or from a 4-rating to 3.

Yes, ratings are a good tool for you to keep track of the performance of funds but remember no fund can

have relentless top notch performance. Only several quarters of sustained under performance should give

you the warning signal.

Page 2 Volume 7, Issue 01

2014 – 5 New Year’s resolutions for mutual fund investors

Vidya Bala




There will be slip ups that may result in some of the rating agencies lowering the ratings. While you may have to keep watch of the perform-

ance of such funds, do not let all the noise, especially a media update on top quarterly performers, tempt you into disturbing your portfolio.

You can though, check with your advisor on whether you need to be worried about the performance of any specific fund as a result of the

rating change.

Also different rating firms have different criteria to provide/change ratings. Follow one of them and not be confused by the differenceacross the rating houses.

4. Invest with a goal/ time frame

Most often, your investment decisions seem wrong at a later date because you did not have a goal/time frame for your investment. How

does this affect your portfolio?

If you did not have any time frame and started investing in say an equity fund and see the fund returns fall in 1 year, you believe you were

given a wrong fund or believe that mutual funds result in losing capital.

But if your investment purpose was for 5 years and you have been advised to keep the investment going for that period to generate wealth,

then the 1-year dip should not bother you as long-term performance tends to even out any short-term falls.

Lack of a clear idea on when you need your money back forces you into changing your investment decisions every time you see a marketmovement.

This is true of debt funds as well. If you bought an income fund this year and saw the performance dip after July, the first question in your

mind would be whether to exit it. But income funds are meant to be held for at least a 3-year period and it was only the interest rate hike

that caused funds across this category to fall. Your time frame cannot change just because the market goes through a few kinks.

If you do invest without a goal or time frame, know what is the minimum time frame over which a particular fund/category is required to

be held for it to deliver optimal returns and hold on to that time frame. Chances are that you will end with decent returns (sector funds are

certainly exceptions to this rule).

5. Review schemes and asset allocation

While we keep talking of not disturbing your portfolio, there would certainly be times when you need to review or rebalance your portfolio.

And what better time than a year end to examine your portfolio health?

Short-term blips both in equity and debt market are not reasons for you to be worried. But if a fund has steadily under performed its

benchmark by a t least 5 percentage points over 4-8 quarters, then the first thing would be for you to check with your advisor whether you

need to stop your SIP on the fund.

Review of your asset allocation is also an important project. In sharp bull markets your equity portfolio may have become inflated; con-

versely in a down market, your equity allocation may be much lower than your original equity allocation, as a result of any sharp fall.

Rebalancing will not just help you bring back your asset allocation; it directly helps you to buy more of an asset class that has fallen and is

therefore cheap; and also book profits in asset classes that have become expensive.

If the above is too much time for you to follow, take a look at our Smart Solutions, an automated advisory service that will remind and help

you to do both at the click of a button!

Just try following these rules with some discipline and you will see your portfolio bloom.

If you actually read through this long article patiently, thanks. I hope I can spare you of such long articles in future; for my resolution for

2014 is to convey as much, in as little words as possible. Have a fabulous year ahead!

Vidya Bala is the Head of Mutual Fund Research at FundsIndia. She writes for our monthly newsletter on topics including mutual fund,

personal finance and equity markets. Vidya Bala can be reached at [email protected]





The month of December was quite an eventful one for the stock market. The Sensex and the Nifty hit new life-time highs in December; post

the announcement of the state elections. However, the year 2014 has begun on a relatively cautious note with a sharp cut on January 2.

On the economic front, the Reserve Bank of India offered some respite by deciding against hiking interest rates in its meeting in December.

The headline inflation refuses to budge and the index of industrial production does not enthuse confidence either.

The corporate earnings season gets underway officially with the dawn of January. The performance of the corporate sector would be a key

factor influencing market sentiment in January and February. From a technical perspective, we maintain the positive view for the stock

market.

We maintain our view that the Nifty could rally to the immediate target of 6,650-6,700 from a medium-term perspective. The medium

term positive view would be under threat only if the Nifty falls below the support at 5,970.

We suggest investors follow a SIP-like approach to

investment in fundamentally sound large cap

stocks. Investors may use any weakness to accumu-late high quality stocks from the banking, infra-

structure and IT sectors.

This month, we discuss the outlook for a couple of

stocks from the small/mid cap sector. We are posi-

tive on Kesoram Industries and GATI. We believe

that both these stocks could deliver 15-20% returns

from a short-term perspective. Investors may accu-

mulate these shares on weakness and as always,

respect the stop loss.

After a prolonged period of downtrend, Kesoram Industries seems to be getting ready for a short-term rally. A look at the weekly chart of

the stock featured below indicates that the stock has formed a consolidation and has since broken out above Rs.70 resistance.

We expect the stock to rally to Rs.105-110. Investors may have a stop

loss in Kesoram Industries at Rs.69. A fall below Rs.69 would indi-

cate that the stock is headed to a deeper downward correction. In-

vestors may therefore exit reduce their holdings if Kesoram falls

below Rs.69.

As far as GATI is concerned, the stock has been one of the top per-

formers in the past few weeks. We expect the stock to move to the

immediate resistance at Rs.79. A look at the weekly chart featured

below suggests that the stock has managed to gain momentum in the

past few weeks.

Continued on page 5 . . .


The Month Ahead - Equity Recommendations

B. Krishna Kumar




A breakout past the 50% retracement level at Rs.51

would confirm the short-term trend positive view and

strengthen the case for a rally to Rs.79. The positive view would be under threat if the stock falls below

the support at Rs.41.

Mr. B. Krishna Kumar also hosts a weekly webinar that discusses the market outlook for the follow-

ing week. You can follow him on Livestream to receive reminders for his webinars:http://

new.livestream.com/accounts/4749821


An year to forget, and one to look forward to?

By Dhirendra Kumar | Dec 31st, 2013

For investors, 2013 was a nothing year, interrupted with a few nasty shocks. What does 2014 portend?

After showing some promise at one stage, 2013 has finally turned out to be a disappointing year for savers and investors. It had some serious scares,

some rather half-hearted landmarks but eventually, it left us waiting, a little nervously, for what 2014 holds. There are times when one is just waiting

for something to happen. Weeks and months pass by and we're just marking time, often not knowing how long will something take.

In some ways, 2013 should have made equity investors happy. After all, the Sensex and the Nifty hit new highs after five years. In the decade past, we've

been conditioned to greet new highs of the benchmarks with great joy. However, there was none of that this time. The new high point came too long

after the previous one, and proved to have no sustaining power.

Universal Gloom

What mattered to savers and investors was the universal gloom. Whether you were invested in equity or f ixed income, or even gold or real estate, noth-

ing gave any real returns. At a time when even the official rate of consumer inflation is running well above 10 per cent (and the real rate much higher),

nothing made money. Looking at things broadly, the average return of all equity funds is 4.75 per cent and the return of an index like the BSE 500 is 3.2

per cent.

Looking at different categories of funds, good returns are few and far between. The handful of technology funds have done extremely well, more than

compensating for a couple of bad years they've had. The category's average returns for the year are 52 per cent, with even the rearmost fund giving

returns of 40 per cent. The turnaround in investors' perception of technology companies' fortunes has obviously worked wonders. Somewhat similar is

the case of the pharma sector, where the handful of funds generated 20-plus percent returns. The only other type of category of fund in Value Re-

search's database that has double digit returns are international funds, but more on that later.

Fixed Income Comes Unhinged

While equity investors can s till take a long term view and think that eventual ly they'll make much more, fixed income investments do not have that

excuse. Fixed income investments must always give a decent return. Moreover, this return must be 'real', that is, it must be more than the rate of infla-

tion. However, 2013 saw an all round failure from fixed-income investments. Firstly, all instruments delivered less than the inflation rate. Secondly, in

July, when the US Fed first announced its tapering, fixed income funds had a crisis. Bond prices fell dramatically and very briefly, all funds--even liquid




funds--registered a drop in the NAV. This was an unexpected shock for investors who've always thought these funds to be proof against even a single

day of losses.

Gold Decline

Gold ended with its worst year since 1981. The international price of gold is down 28.28 per cent since 2013 began. This is it's worst year since 1981. Is

the gold mania over? It certainly looks like it, although in India the plunging rupee and the government's increased duties meant that the loss was notall that severe. The domestic price of gold was down 7.8 per cent in the same period.

However, with the rupee stabilising and the government determined not to reduce duties, Indian gold prices are now tracking international ones. In

fact, if curbs are lifted and duties reduced, Indian prices could fall more than international ones. Since its peak in September 2011, gold is down 35 per

cent internationally. Value Research has long maintained that gold had a one-time boom during the last decade. Fundamentally, gold is a poor invest-

ment and will remain so.

Global Delights

Given India's external sector weakness, along with our high inflation and interest rates relative to the US Dollar, it is likely that the rupee will continue

to get weaker. This might sometimes happen in fits and starts and sometimes steadily, but the basic trend will remain true. What this means is that all

sensible investors must have some exposure to international funds. In this regard, investors would do well to look beyond the category average of 13 per

cent returns that the Value Research International funds category has.

Much of this category is made up of exotic thematic funds which are not suitable for anyone. Investors should focus on mainstream diversified equityfunds that focus on the US and other developed economies. Such international funds have returns of well above 30 per cent over the last year. Exam-

ples include FT India Franklin US Opportunities, Motilal Oswal MOSt NASDAQ-100 ETF, ICICI Pru US Bluechip Equity, DSPBR US Flexible Equit y,

and Birla Sun Life International Equity.

Looking Ahead to 2014

Most investors expect the 2014 general elections to be a big agent of change and since investors are by nature an optimistic lot, we expect the change to

be positive. At this point of time, this expectation generally takes the shape of an NDA government led by Narendra Modi. Of all the possible politica l

configurations in India, a Modi-led NDA government would be most growth-oriented. However, it's by no means certain that such a government would

actually be formed.

India's polity has always been a fertile ground for socialist-leftist ideas that prioritise big expensive promises and spending over growth that could fi-

nance that spending. The ease with which the AAP has gained ground is fresh proof of this. It's entirely possible that May 2014 could see a dysfunc-

tional coalition coming to power that could make the UPA look like a model of action and good governance.

However, that's not to say that mutual fund investors should follow some special strategy based on what they think will happen on the markets. Mar-

kets are uncertain even at the best of times and we always recommend an approach that can be followed without regard to the events that could hap-

pen.

Here's our investing strategy for 2014, which is the same as it has always been: Take a look at your own life and try and make a liberal estimate of how

much of your savings you would need to tap into over the next five to seven years. This would include some sort of an emergency amount, plus predict-

able big-ticket expenses like weddings, education, the down payment on a house and such things. This is the amount you should hold in debt invest-

ments which could be anything from PPF to short-term debt mutual funds. The rest should be in diversified equity mutual funds with a good long-term

track record. Any fresh investments into equity funds should be done gradually and continuously regardless of the state of the markets. Don't invest in

too many funds--four or five is enough diversification.

Much could possibly change during 2014. On the other hand it's possible that nothing could change. It could change for the better, or for worse. How-

ever, there's would be no need to change this investment strategy. And that's the way it should be.

Syndicated from Value Research Online. Read the article online here: http://www.valueresearchonline.com/story/h2_storyview.asp?

str=24280


Wealth India Financial Services Pvt. Ltd.,H.M. Centre, Second Floor,

29, Nungambakkam High Road,Nungambakkam,Chennai - 600 034

Phone: (0) 7667 166 166Email: [email protected]

http://www.valueresearchonline.com/story/h2_storyview.asp?str=24280





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Capital Letter January 2014-Fundsindia.com