Zee Business Mutual Fund Helpline 03 Dec 2019 Mr Prakash Ranjan Sinha ...

Generation Need Shift – Survival to Growth to Enjoyment

Generation Need Shift – Survival to Growth to Enjoyment

I was just thinking about life , demographic changes and its impact on present day society and lifestyle . Have human being changed ? Is todays younger generation a different human being than my fathers generation .

Do we remember Maslow’s hierarchy of Needs ( see below )

·         Physiological Needs. The physiological needs includes the basic needs that man needs for the survival of his body which food, clothing, air, shelter

·         Safety and security Needs

·         Love/Belongingness Needs , family , friends

·         Self-Esteem , prestige , feeling of accomplishment Need

·         Self-Actualization ,creative activities , realising full potential need.

This Maslow’s hierarchy need when made was a step by step progression in the life of a human being . But when I evaluate this I find its not in a single human life but has spaced itself in 3 different generations – father , son and grandson in Indian context.

Our father generation – Most of them took job as it served the basic mean for survival ( Roti , Kapda and Makan ). The permanent nature of job also added security and safety . Belongingness and love was an integral part of society . They hardly looked beyond this . Whatever success they got they were happy so very few really strove for higher accomplishment and for most sense of contentment existed . Individual value system, behaviour was main factors for esteem and respect from others which was a high priority . they derived self actualisation more by laughing freely , celebrating festivals , meeting in family functions i.e stress free life  

Our generation – We saw a shift  from safe and secured government job and started moving toward private job . Basic need and safety and security was a requirement but not necessarily a priority . The belongingness and love which was to come from family friend slowly started shaping into business and professional interest and gains . Family time got replaced with long working office hours . Esteem slowly started getting replaced by greed of money so everything acceptable for some . Last 2 decades now money is main relative and friend for many . Accomplishment means more flats , properties and assets . Self actualisation for many is now holidaying abroad , watching movies , dining , partying etc or spending time on TV , internet , social media.

Next Generation ( Todays Youth ) – Do they really need to worry about psychological need ? . Parents have already purchased few flats for them , have built assets to enjoy life . Formal study has been replaced by hobby centric study . For many study abroad is the motto . safety and security is nothing to worry as “ Paisa hai to koi chinta nahi “ . Their life and its essence starts from 3^rd level. Social media plays a big role in its execution . How many really care for esteem ? They live in pragmatic world where not much of emotions are seen in any relationship . They adopt to new realities of life and move on n . They don’t hold the baggage of past for long and venture new things which excites them  . They find self actualisation in creative things ( Tik Tok , stand up comedy , netflex ) .

Well these are the shift generation wise from survival to growth to enjoyment . But what shift one might see in generation to come i.e after todays generation ?

If they start from self actualisation level as all the earlier needs have been generated by their earlier generation then what will be their definition of self actualisation ?

If it’s a reality that older generations are being ignored or some unfortunate ones thrown out of homes or left to feed themselves or the younger lots happy settling abroad leaving their parents here only what next left now to happen in family?

Today one has to pay even for the very very basic needs ( food , water and now fresh air to breath ) . News is fresh oxygen parlours setting up their shops and with level of pollution increasing what one can expect further ? So are we going to see new form of needs in Maslow’s hierarchy ?

Watch the younger lots on road – engrossed in their mobile while walking on road that not even noticing a beggar or old man or a sick person on road . Their only encounter with such emotions if any on reel scenes ( movies ) and not in real scenes .

Why this analysis ?

If each one of us love our children and seeing the changing lifestyle if we feel that our same beloved children might be facing an unimaginative distress when they become old then who is responsible for all this ? Its our generation only . We initiated all the changes , we accepted all the changes , we introduced to them all the changes and so only we have to undo some of the wrong changes .

Make them to understand how to earn basic need ( don’t build too much wealth for them ) , let them fight for their own safety and security . teach them cultural, social , human values and not only IT led values . Let intelligence be real and not make world dependent on artificial intelligence only. let them understand the real love , happiness . relationship emanating from humanity . Teach them to explore their inner self through meditation  .  Lead them to path of real and natural Godly self actualisation and not worldly self-actualisation .

If we fail to undo our own mistakes then our children when they pass their prime and face distress in latter part of their life they will only blame us .

Its sometime to ponder and act…………………………….

Zee Business Mutual Fund Helpline 18 Nov 2019 Mr Prakash Ranjan Sinha ...

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 .