In future return from Equity Mutual Fund in long term may not be as high as of Past

In future return from Equity Mutual Fund in long term may not be as high as of Past

Generally investors , distributors and analyst compare fund return for the period say 5,7, 10,15,20, 25…. Years on year to year basis and draw the trend  . Our expectation of return is based on that and we believe will get the same . As we move ahead my understanding is it will reduce going forward . For example lets say if I got 18% CAGR for last 15 year holding I will end up less than 18% in next 15 year .

My assessment is based on some facts and logics

·         The nos of stocks available has been increasing in the stock market. We have 3 market caps – large , mid and small . Though the number of universe in large cap remains the same i.e 100 the valuation of companies are higher than what they were 15 years back . In other words overall market cap of top 100 companies has increased . Now as the valuation go higher and higher the percentage return can not be the same . e.g if stock X was priced say 400 , growth of 25%  means prices becoming 500 . But if the price becomes say 1200 expecting price to become 1600 ( i.e 25% might not be so easy ) . In India most equity investors refrain to go for long term for the stock whose valuation has gone up. The general psychology of investor is they do see upside in a good company but not willing to stay invested for long term as they have entered at a very high price . So upside in large cap companies are there but will not maintain same growth percentage .  Also many of these today large cap were mid cap some years back or even small cap many years back . The rate of growth will not remain same as the base of growth ( price or earnings) grows . Today periodically some stocks are moving in or out from large cap basket . Now those entering in have already risen up on valuation and those going out have saw reduction in valuation . Those moved in again higher valuation becomes a limiting factor to some extent as explained earlier but those moved out creates not so positive image and investor again are a bit cautious for long term perspective . May be watch and gain by trading on short term . In Mid cap earlier the universe was 500 now reduced to 150 . This reduction of universe itself can create lesser trading opportunity based on short term price volatility . In Small cap the universe is very large but large universe has no relevance in fund management but how many stocks they are researching is important . Now again since research findings are almost on similar variables , similar methodology findings will not be having much of differentiating factors . Higher return will again be a function of tactical calls by fund manager . Also with reduction in total expense ratio some expense flexibility has been restricted by SEBI .

·         There was a time when many AMCs were striving to reach break even level  . Once reached and generating good profit top AMCs have moved toward now increasing their AUM at a lower cost . They are putting more emphasis on platforms and direct option . Now since decision making is left more or less to investors who will be averse to volatility , the Fund Managers will be more inclined to protect short term downside risk than taking advantage of short term profiteering opportunity . It simply means allocation will have more long term strategic intent and less of tactical biases than earlier times. No AMC  wants volatility is return should create volatile AUM as that not only leaves large number of dissatisfied investors but also puts contact redemption pressure . So fund will prefer to go for constant good return than chase for higher return .

·         We are in information age . With quick and smooth flow of information even trading activities also brings some sanity i.e we may not see higher volatility in stocks than past and that will also bring lesser volatility in equity fund performance .

·         Now Indian stock market have integrated with other economies . Many stocks are traded at different stock exchanges in other part of globe. Information are analysed on real time basis with the use of better technical tools and technology . This will nullify any price differences existing in different markets . Some markets will factor in information in much better manner and those inputs will be of big use in Indian market and so arbitrage opportunity or return on price mismatch reduced further.

·         Also as the return from Bank FD , G- Sec ( debt ) reducing the risk premium ( return of equity MF less risk free security ) will also either remain same or might reduce also . This means return from equity might reduce in comparison vis a vis past data .

Investors also needs to moderate their return expectation in percentage terms for long term holding . Indian equities will still deliver premium over debt on return side as our economy and industries are still in growth path and it has a long way still to go .

EXCHANGE TRADED FUND (ETF) vs OPEN ENDED EQUITY MUTUAL FUND

EXCHANGE TRADED FUND (ETF) vs OPEN ENDED EQUITY MUTUAL FUND

Today lots of investment experts and Fund Managers advocating of more Exchange Traded Funds (ETFs ) in Mutual Fund Industry . USA and other developed economies MF industry have a big dominance of various ETFs and many feel India should also be having more and more ETFs . It has got both pros and cons if looked from the perspective of a real ground realities and scenarios .

ETFs are MF product ( portfolio based on any defined basket of securities ) which is listed and traded at the stock exchange like a share . It can be bought and sold on a real time price like share and unlike other MF products which have only one NAV for the day . So it captures features of both MF ( Portfolio ) and share ( tradability on real time price) .

Lets evaluate what risk it poses for investors .

As an investor rather than trading on a particular stock I can trade on basket of similar industry stocks (banking ,IT , Pharma etc ) or similar risk category ( market cap ) or indices ( nifty etc ) . Portfolio is more or less known to me but is portfolio risk i.e short term volatility due to buying and selling of stocks at the stock exchange on real time basis is known to me ? Just like stock the quality does not matter for a day trader but the entry and exit price and timing it at right time matters . Do a normal MF investor has knowledge, information , skills to time entry/exit at right price ?

The downside risk in Equity MF is mitigated by being a long term investor ( > 5 years ) whereas this is more of a short term investment product . If it is to be invested as long term and I wish to bet on market and not on fund management ( active ) then why not go for Index Fund rather than ETF .

Many experts talking of lower cost vis a vis normal MF product . But cost is an irrelevant aspects considering the downside risk from return in short term . Moreover have we factored the taxation side . In Equity MF if any profit booked in the fund it is not taxed . Taxation comes into force only when investor gains by selling the units whereas in ETFs if the investor will be gaining due to impact of same share his taxation will be like normal share . In Equity MF , fund is an intermediary executing trade on behalf of investor so not taxed whereas in ETF there is no intermediary but direct execution by investor so any gain is taxed .

Some talk of easy and quick liquidity vis a vis MF products . But again liquidity at what cost ? Buying and selling behaviour of a day trader can create short term volatility in pricing of the stock and if that stock is in ETF product it will have similar impact . Will it not create more confusion on entry/exit pricing and action as he can not track on real time basis the movements if he is a normal Equity MF investors . Indian stock market and stock prices are mispriced most of times in short term as compared with developed countries and so if a laymen enters in big way in ETF he is infact helping a day trader to gain at his cost . Who knows many promoters can through cartel of stock broker gain through trade inducing a normal investor to fall into their trap .

Its true that today in information age we have access to information on real time basis but again how many of investors have skills to analyse them correctly and most importantly what about the authenticity of the information itself .

I feel ETF is no doubt a very good product and may be future of MF Industry in India but looking at the market mispricing stocks in short term , behaviours of different participants in stock market its not a product which can be positioned as alternative to equity MF but yes can be positioned as an alternative to direct stock trading.

The MF industry should put more emphasis on educating the investors on risk side . The ignorance and lack of knowledge of most investors have to be removed first . Skill sets have to be developed if we want investors to act and behave like a professional fund manager or equity day trader . Pushing a product aggressively to a normal MF investor before that will do more harm than gain for the MF industry .

Zee Business Mutual Fund Helpline 09 Oct 2019 Mr Prakash Ranjan Sinhain...

Was Finance Minister right in reducing Corporate tax rate ?

Was Finance Minister right in reducing Corporate tax rate ?

Recently FM has reduced corporate tax rate and made it at par with many global economies . The step has been taken to counter economic slowdown . Many feel its incorrect and rather than this individual tax rate should have been reduced or tax on product reduced or interest rate reduced to augment consumption . Well these people can have their own logic but I support what FM has done .

Lets analyse both Corporate vs Individual cases .

I feel the one who takes risk , whose earnings are more transparent , who pays taxes should be rewarded first which is corporates here . The one whose survival is in growth and non growth is a concern should be rewarded first than the one whose major concern is survival and not growth and most importantly his( individual ) survival is dependent on growth of first ( corporate ).

A promoter takes risk on his capital, spends time and energy to build and develop a business and a employees enjoys the fruit of this growth . Yes employees do contribute for business growth but are paid salary , perks etc. They go on official tour , stay in good hotel , move by flight etc . Are they worried about the expenses which they are incurring ? No . Its being born by their employer company . So a employees lives and enjoys a good life at company’s cost and has no risk of company business failure . The only time he is worried when his salary gets reduced or retrenched from job . Who has got the first hit from the risk of business failure – corporate or its employee ? So who needs to be protected first ? If a company fails employees loses his job , if the company grows employees also grow in terms of salary etc . Also whose fortune is dependent on whom ?

Now coming to individual ( consumer ) . We all are individual so will always look for our benefit first . We want ourselves to be protected and rewarded because we feel all are paying tax .  But that’s not the reality . How many of individuals disclose their earnings correctly particularly those who are doing business, self employed , professional or even in private sector ? How many pay taxes correctly ? If a businessmen showing less earning , paying less tax why he should be rewarded for his purchase of big car by lower interest rate or lower tax . Has he contributed to the revenue of the country for which he should be given the benefit ?

It’s a reality that is I have to pay 10000 as EMI I will think twice for going for loan but if the same EMI becomes 4000 due to reduced interest rate then most Indians will try to take advantage of it . This will lead to more consumption , revival of growth and increase in inflation . That will force RBI to increase the interest rate and the EMI will get increased . So are we not going to end up a situation where people might have borrowed more than their paying capacity ( main reason for present slowdown ) , cases of default might creeps in and again entering into economic slowdown phase . Is it a long term solution ?

Reduced corporate tax makes India attractive investment market for foreign companies , competition will lead to better quality products  , competition will also lower the cost and lowering the cost means consumer will get at a lower price.

Yes I do agree that honest tax payer should be rewarded but that when I look at dishonest tax payers . Government already doing a lot to increase the tax base and there has been increase in tax revenue last few years. I am sure that individuals tax rate will also get reduced in coming years as felt by many but it’s a step by step process .

AM I PRODUCTIVE ?

AM I PRODUCTIVE ?

What has tempted me to think on above topic ? If I see anywhere I find people just glued to their mobile phone . After that to TV or internet or Netflex movie . The pattern of our life has changed and becoming from bad to worse . I don’t know what life means to different person . So I tried to ask myself what my life means to me ?

Answer was “happiness every second of my life “ . Going by this logic for most may be mobile , social media ,entertainment if gives happiness then they have right interpretation of life . So again thinking I got the answer “ happiness every second of my life but through what is productive for life “ .

I have been hearing the word productive since beginning of my career . In my early part of my career when anyone used to say about productivity or productive employee it was more related with how that person was helping in growth of organisation , business , adding more revenue . So productivity was more with success , money and career growth . Yes this gives happiness to many but is it a perfect scenario ?

With passage of time , experience and interaction with hard realities of life my interpretation of productivity has now got changed . My understanding of productivity is now in holistic sense , more to do with life .

 We live 60 or 70 or 80 years of life . If I take a person who lived say 75 years of his life it means he has lived 236.53 crore seconds of his life . But how many of his second has been productive ?

When I am saying Productive I mean am I using every second of my life correctly ? We all know time is the most precious thing in our life , it has a limit and we live a fixed life . But in that life also we do not live a single life but multiple life ( childhood, youth , mid , old ) . Time once lost is not recovered . I can not again become 40 year old or 17 year old .

Productivity for a kid is enjoying freely , productivity for a student means studying well but at the same time enjoying his youth times as well . For the ones who are in job productivity does not only mean earning more revenue for the company and salary in return but spending quality time with family and others who matter in his life .

In life there are many aspects – work , relationship, health, entertainment , relaxing , enjoyment etc etc . We spend our 24 hours every day involved in any one of these . The allocation of time to different aspects varies for different age group but there is limit of everything . Overindulgence in any activity is never good . Doing exercise , meditation , doing puja are all good things but these aspects also have a limit . one should not end up spending time more than required or for some things even less than required . Balancing of time w.r.t every aspect of your life which adds productivity is very important .

What is important from Productivity point of view if whatever we do should make us happy but at the same time not at the cost of harming anyone .  So now I will redefine Productivity as  “ happiness every second of my life but through activities which is productive for life and that does not harm anyone “,

Generally we have seen people working 12-14 hours a day regularly , called workaholic , praised by all but is he really productive  ? yes he might not be harming anyone else but harming himself . Is he spending some time to meditate , relax his mind , spending quality time with family . We have only 24 hours and you require a minimum 6-7 hours of sleep also . yes this person might be productive for his employer but not for himself in true sense . Yes he might be finding happiness but at what cost . if ignoring child when young will he get same response from his later years adult child when he has retired ?.  There can be many different types of examples . 

How to know the deviations , overindulgence or underindulgence and not balancing between each important aspects of life .

List down each aspect fully understanding its relevance for life as a whole . Of 24 hours earmark minimum time you should be giving to each aspect . Try to maintain that . We are all human being and bound to err so every day before sleeping spend at least 5-10 minutes with yourself -sit quietly , ask yourself, introspect what you did the whole day and your inner self will give you answer what you should not be doing , what you missed and improvement will come slowly but surely .

The basic purpose of this article is to awaken everyone before its too late and we repent after 20-30 years . Looking at todays generation over indulgence only in tech related things I don’t know what the life will be then.

Zee Business Mutual Fund Helpline 10 Sept 2019 Mr Prakash Ranjan Sinha ...

Economic slowdown. cause and remedy

Economic slowdown. cause and  remedy

( PL READ - YOU DONT NEED TO BE AN ECONOMIST TO UNDERSTAND THIS ISSUE )

Everyone is blaming government for slowdown . This article is make people understand what economic slowdown means , how it happens and how can be corrected . 

The creation and correction lies totally in the hand of consumer . So any citizen if he blames government should read this article .

Consumer or citizens create demand by buying any product . Industries and companies are supplier who cater to the demand I.e manufacture and sell to the consumer . 

Now since everyone wants a better life , have aspiration for better lifestyle products demand grows and so grows the purchase . To meet the growing demand supply also grows through more products manufacturing . Up till now no issues .

Now enters the lending institutions ( Banks and NBFCs) . Seeing the growing demand they start providing loans to individuals and  capital for investment for more manufacturing . 

It's a general principal of life " paav Uti hi pasaro Jitni lambi Chadar Ho " . Simply meaning live within your means or spend from your earnings or borrow only that much which you can pay comfortably on time . 

But since everyone is chasing growth , availability of money is easy so overspending starts . All of us took pride in 8% GDP growth but anyone ever even questioned that was it a sustainable growth ? 

What happened that very soon individuals expenses which has overgrown the income realised this and the only way they could have countered the situation is go slow in purchase I.e buying getting deferred or lowered till the income -expenses mismatch normalised . This is what led to economic slowdown . In India there are other structural changes also happening ( consumer choices and preferences changing like shared mobility through Ola ,Uber preferred in place of car purchase ) .There are many structural and demographic changes also happening leading to emergence of new style of living , emergence of new type of industries and may be some traditional industries either die or reshape themselves . 

Now the supplier I.e companies have already taken loans from bank and they have to pay interest . they have got other costs ( salary cost of increased manpower strength ) but there income from reducing sales gone down and so profit also getting reduced . Now these companies think one of the decision is to lay off some employees to counter the situation . 

I request my readers to see the audited balance sheet and profit and loss statement of any company which is laying off employees and crying of losses . I find in last 5 years all have earned huge profit every year , good reserves and surplus , paid good dividend also to their shareholders , good book value . So where is the loss which any of these companies are talking about . Yes profit might have got reduced vis a vis last year but is that a loss ?

Now the moment companies lay off employees or do salary cut more people are now added who have lesser money to purchase and again adding to more slowdown . 

Government has to step in and through certain policy measures along with RBI they try to reduce interest rate so that loans are cheaper , some tax advantage also given so that more money for spending at the end of individuals .

Economic slowdown is nothing but an after effect of chasing unrealistic aggressive growth by all in economy but it is led by individuals and only individuals can again end this slowdown by their normal purchasing activities . 

My only fear is that this economic slowdown might not get compounded because of greed of promoters of companies . They might aggravate the situation by laying off employees rather than taking the brunt for a year as they all have huge accumulated profit in their balance sheet . If these companies operate at a low profit for a year believe me this economic slowdown is just a matter of some months or max a year but if they add fuel to the fire ( laying off employees ) then will prolong. Government role is just to make policies which can ease the situation but action of individual consumers and companies will what eventually make this good or worse.