the future continuity sov 2017.pdf · k g manjunath job neroth t t samuel deepak shamdasani nsa...

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THE FUTURE THE FUTURE44CC

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7

1st December 2017

8KARNATAKA ASSOCIATION OF KARNATAKA ASSOCIATION OF MUTUAL FUND ADVISORS MUTUAL FUND ADVISORS

KARNATAKA ASSOCIATION OF MUTUAL FUND ADVISORS

Karnataka Association of Mutual Fund Advisors

Annual Convention - 2017

Karnataka Association of Mutual Fund Advisors No. 7, 2nd Floor, Walton Road, Bangalore - 560 001.

www.kamfa.in

[email protected]

facebook.com/kamfa.bangalore twitter.com/kamfabangalore

th7

6


7

BOARD OF MANAGEMENT 2017-18

Neelesh ShahPresident

Job Neroth T T SamuelK G ManjunathJt. Secretary TreasurerSecretary

R ArunachalamBoard Member Board Member

NSA John

Amruthnath KGaneshBoard Member Board Member

Deepak ShamdasaniBoard Member

8

BOARD OF MANAGEMENT 2017-18

Vijay S BhagwatBelagavi Chapter - President

Kannan HariharanMysuru Chapter - President

Pius Pradeep MorasMangaluru Chapter - President

Yerranna Gouda SatyanarayanaJt. Secretary - Ballari

NK Kulkarni Secretary - BallariBallari Chapter

Nijagunaprabhu S KongiHubballi Chapter - President

Mahadev DegaviShivamogga - Region

( Cont. )

Pius Pradeep MorasMangaluru Chapter - President

9

THE PRESIDENT'S MESSAGE

Welcome to the 7th Edition of the KAMFA Annual Convention. It is a great pleasure and satisfaction to see that we have been able to add value to over 800 IFA's businesses and lives in many ways.

While it looks simple, it has been nothing short of a roller coaster ride. With various ever changing regulatory moves, the churn in the industry, the focus on margins by all those involved and nally the challenging steps by the government in the form of GST, ling of multiple documentation, markets volatility, political scenario changes, formation of a national body of associations and many more.

The hard work continues towards creating a more healthy, sustained environment conducive to conduct business in a stable and fair manner. All of us would like more success in all that we do. Likewise at KAMFA, we would like for our voice to be taken note of, consulted, considered, understood and implemented. All that one can expect in an ideal environment. We continue to take up these matters, point wise, at various forums and with different authorities.

The markets have been supportive over the last few quarters. This is the best time to garner the most number of new investors and business. All of us play a huge role in growing the Mutual Fund Industry and take it to much bigger levels than it is currently at. Each one's role is critical to that.

The 90 days before every KAMFA convention tests our patience and mettle. Very exhaustive planning and execution goes in to the making of every convention. The KAMFA Team has been continuously aiming at higher achievements with each passing year. We sometimes succeed and end up being unsuccessful many times. The learning and takeaways are immense. These stressful days have made us more stronger and better people along with helping us to overcome many a mountain in our personal lives and businesses.

Team KAMFA is keen to keep on adding value to all the stake holders of the mutual fund industry. Please feel free to reach out to members of Team KAMFA with your constructive suggestions, ideas, and improvements. Our Success lies in your success. This is an ongoing process for all of us.

The KAMFA Team would like to place its heartfelt thanks to all the sponsors, members and all other individuals and organizations that have helped KAMFA reach the heights that it has. We would look at the continued support in the times to come. For any of those who have missed out, there are many options for us to work together and strengthen this industry.

Neelesh Shah

10

KAMFA COMMITTEE2017-18

Neelesh Shah

K G Manjunath

Job Neroth

T T Samuel

Deepak Shamdasani

NSA John

R Arunachalam

Amruthnath

Ganesh Shanbagh

Nijagunaprabhu S Kongi

Vijay Bhagawat

P Pradeep Moras

Hariharan Kannan

Ramesh Hegde

Yerranna Gouda

Mahadev Degavi

President

Secretary

Jt. Secretary

Treasurer

Member

Member

Member

Member

Member

President - Hubballi Chapter

President - Belagavi Chapter

President - Mangaluru Chapter

President - Mysuru Chapter

President - Davanagere Chapter

President - Ballari Chapter

President - Shivamogga Region

11

CHAPTER MANAGEMENT COMMITTEE

BELAGAVI CHAPTER

HUBBALLI - DHARAWADA CHAPTER

MANGALURU CHAPTER

Vijay S Bhagwat Datta P Kanbargi Shivkumar B JigajinniPresident Seretary Treasurer

Nigagunaprabhu S Kongi Sangamanath F Patil Nanda V UmaraniPresident Vice President Secretary

Pius Pradeep Moras B V Mayya Shreesha Rao TPresident Secretary Treasurer

12

MANAGEMENT COMMITTEE(Cont.)

MYSURU CHAPTER

DAVANAGERE CHAPTER

REGION

Kannan Hariharan Subramanya Swamy T M B V VijayaPresident Secretary Treasurer

Ramesh Hegde H R PrabhuNagaraj President Joint Secretary Secretary

Mahadev DegaviShivamogga - Region

13

MANAGEMENT COMMITTEE(Cont.)

REGION

Yerranna Gouda Mr. H. SatyanarayanaMr. N K KulkarniPresident Jt. SecretarySecretary

1. Here's to the crazy ones. The mists. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently. They're not fond of rules. And they have no respect for the status quo. You can quote them, disagree with them, glorify or vilify them. About the only thing you can't do is ignore them. Because they change things. They push the human race forward. And while some may see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do. --Steve Jobs

2. The habit of saving is itself an education; it fosters every virtue, teaches self-denial, cultivates the sense of order, trains to forethought, and so broadens the mind. --T.T. Munger3. Don't tell me what you value, show me your budget, and I'll tell you what you value.” --Joe Biden

4. If you live for having it all, what you have is never enough. --Vicki Robin

5. Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. --William A. Ward

6. We make a living by what we get, but we make a life by what we give. --Winston Churchill

7. Wealth after all is a relative thing since he that has little and wants less is richer than he that has much and wants more. --Charles Caleb Colton

8. Not everything that can be counted counts, and not everything that counts can be counted. --Albert Einstein

9. It is time for us to stand and cheer for the doer, the achiever, the one who recognizes the challenge and does something about it. --Vince Lombardi

10. It's not the situation, but whether we react (negative) or respond (positive) to the situation that's important. --Zig Ziglar

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KAMFA CONVENTION 2016

15


16


17


1.Here's to the crazy ones. The mists. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently. They're not fond of rules. And they have no respect for the status quo. You can quote them, disagree with them, glorify or vilify them. About the only thing you can't do is ignore them. Because they change things. They push the human race forward. And while some may see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do. --Steve Jobs

2.The habit of saving is itself an education; it fosters every virtue, teaches self-denial, cultivates the sense of order, trains to forethought, and so broadens the mind. --T.T. Munger

3. Don't tell me what you value, show me your budget, and I'll tell you what you value.” --Joe Biden

4. If you live for having it all, what you have is never enough. --Vicki Robin

5. Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. --William A. Ward




18

From the Desk of EDITORIAL TEAM

The best was to predict the future is to create it. As long as we do not plan for our future, someone else will set the agenda. Instead of fullling some one else's plan and struggling to live up to their expectation. Let us set our own benchmark and full our aspirations.

This perhaps is the inection point for mutual fund as a product. The product need not be sold now it is either bought due to their being no other alternative or due to investor awareness.

As the product undergoes this transition, we also need to transition from being a distributor to an advisor. Probably the regulations will help us in that direction, we can also be proactive and equip ourselves now to manage this transition.

The manufacturer of the product is also transitioning from being only Mumbai based to a pan India player. What happened to private banks is likely to happen now only in mutual funds. They would increasingly take the onus for the product, providing end to end solution at the lowest possible cost using technology.

We need to broad base products, roles, customers to remain relevant. Customer also would not be happy with only transaction execution or mere information dissemination. The relationships have to be redened. Thus simultaneously both our relationship with producer and consumer is going to change signicantly.

Financialisation is a given, it is a game of market share now. More so as almost all AMC's, insurance companies will be listed within the next one year or so. It then becomes a quarter on quarter game, with pressure on costs and focus on volume. The winners would be players having large equity AUM with good SIP book. This certainly improves visibility for the AMC's. How can distributors and advisors participate in the future growth?

One way is to be a small stake holder in each of the AMC's as they go public. As denitely the fruit of IFA's hard work would go 'Directly' to the share holders. Only time will tell whether the insurance industry with 30 lakh agents and counting will have a faster growth rate or the mutual fund industry with about 1 lakh IFA's and shrinking will outpace insurance with heavy leaning only on direct technology. Or will this confusion lead to the emergence of a new product which will disrupt the existing products ?

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Information in this souvenir is meant for

general purpose reading and not meant

to serve as a professional guide for the

readers. The words like believe / belief

are independent perceptions of the

authors and do not construe as opinion

or advice. The information should not

be construed as investment & investors

are requested to consult their investment

advisor and arrive at informed

investment decision before making any

investment. The trustees of MUTUAL

FUNDS, AMCs, their Directors, Ofcers

ot their employers and KAMFA and its

management committee shall not be

liable in any way for direct, indirect,

special or exemplary damages arising

out of the information contained in this

souvenir which is strictly meant for

restricted circulation amongst IFAS only.

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After starting off as a fledgling organization, 800+ members is an achievement that many can't fathom. That is what KAMFA is all about. Plenty of bodies around the country have tried to replicate the success of KAMFA.

The simple goal of KAMFA to start off with is to strengthen the hands of the IFA to grow his business. While IFA's struggle with lack of knowledge about products and methods of business, expecting them to completely decipher the regulatory doings and work accordingly is a huge mountain of expectation.

IFA's are simple people who help investors to make sense of their investments and control their emotions during market turmoil. KAMFA understood this factor and started to train and upgrade the knowledge of its members. This has helped them to overcome a lot of problems and move ahead with confidence.

On the national front, KAMFA has been a silent but key player. Meeting with Industry and finance ministry officials apart from the Regulators, there has been tremendous effort put in to ensure that proper decisions and rules are made. KAMFA has been mentioning the crying need for IFA representation at all levels in the decision making process. While many bodies thought of agitations, and fights, KAMFA, as a distributor body, has been CALMLY asking for a seat on board of AMFI and SEBI.

KAMFA firmly believes that collaboration with healthy discussions is the way forward. This facet of KAMFA has been appreciated widely. The founding members of KAMFA have laid this foundation so strong, that it has withstood the test of time.

KAMFA's engagement, on the road to better rule making by the decision makers, continues. It demands tremendous amount of inputs by way of time, focus, money and initiative. We continue on that road. With the thought, that the day is not far when all concerned will see our view point and agree that we were right. From the very beginning.....

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TABLE OF CONTENTS

SI.No.

1

2

3

5

4

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

It is not tech V/S Humans

The Pedagogy & Andragogy

The Best Time To Plant A Tree

india's post independence growth

Financial Lessons On Intermediation

Power Of Compounding

favourable Demographics

Remember

Youth Empowerment programme

Behavioral Changes-

we avoid tactical trades

Advisors catch the writing bug

Understanding client anxiety

IDFC Neo Equity Portfolio

how to help client's old habits

Mutual Fund Industry Scenario

What Type of Investor Are You

Change management

Dynamic asset allocation funds

Title Author AMC/Company Pages

The President's Message

B 15 Sales Experience

Neelesh Shah

Sanjay Sapre

Swaroop Mohanty

Vikas Agarwal

Sundaram

Morning Star

R Arunachalam

Chandresh Nigam

Pradeep Kumar

-

AMFI

Srikanth V Kulkarni

Reliance

IDFC

Neelesh Surana

IFA Bengaluru

HDFC

Franklin Templeton

Union

IFA Bengaluru

-

Tips To Build A Retail Practice

retirement planning

IFA MysorePrabhudevaElectronic Business

axis

IDFC

Dh Pramerica

Motilal Oswal

Mirae Asset

10

28

24

29

From The Desk of Editorial Team - 19

32

34

36

38

39

41

42

43

50

46

54

55

58

61

63

65

70

71

73

74

-

IFA Bengaluru

Sanjay Sapre Franklin Templeton

Mirae Asset

IFA Bengaluru

Morning Star

Morning Star Morning Star

Reliance




R Arunachalam

Raghav ICICI

Morgan Stanley BNP Paribas

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23

It is not Tech versus Humans, it will be Tech with Humans

Sanjay Sapre President,Franklin Templeton Investments India

When was the last time you visited your bank branch (excluding the demonetization period)? Or the last time you hailed a cab without an app or boarded a ight without a web check-in? When was the last time you took a print of a photograph or booked an ofine movie ticket at the multiplex window? Technology has truly come a long way and become part and parcel of our daily lives. Here are some amazing stats to illustrate this point – it took the telephone 75 years to reach 100 million users since its invention. To achieve the same user base, the internet took 7 years, Facebook took 4 years 6 months, WhatsApp took 3 years and 4 months and more recently Instagram took just 2 years. But, here's the clincher - the popular game Pokémon Go took only a month to cross 100 million downloads!

Technology is disrupting and at an accelerating pace. While the internet was the cause of technology disruption in the previous century, 'Smart Phones' are the disruptions of this century. Smart Phones have moved from being a mere mode of communication, to an all-encompassing device that performs a range of tasks - from banking, to entertaining to shopping to locating to teaching, besides a host of others. Social media engines like WhatsApp, Facebook, LinkedIn, Twitter, Instagram, have been the biggest beneciaries of smart phone penetration making communication truly geography, time-zone and genre agnostic. I expect the smart phone to continue to take big leaps over the next 1-2 years as technologies like Articial Intelligence (AI), Virtual and Articial Reality (VR / AR) and Internet of Things (IoT) help us work with remotely connected devices in our house or ofce, help us reach our destinations in driver less cars and most importantly bring greater efciencies.

Financial Services is a sector that has been revolutionized by technology. Starting with internet banking, technology has covered most of the commoditized aspects of the business like on boarding, transaction processing, communication, audit and payment systems - be it UPI / IMPS / NEFT / RTGS / NACH, payment banks, payment wallets, etc. Today, Smart Phones are the new 'Bank branches' and your mobile number is the new customer identity. A second leg was added when the government decided to cascade technology to the grass roots using Aadhaar cards (more than a billion issued so far) and a third leg when the government decided to open bank accounts for the unbanked, called 'Jan-Dhan' accounts. This impetus has resulted in 60% Indians now having a bank account. The country has thus created a robust nancial trinity of - Jandhan (Bank Account) – Aadhaar (Biometric Identity) – Mobile (Communication Device) – JAM for short, which can be used by players across the nancial services space to improve their product penetration across the masses.

The mutual fund industry too has taken technology in its strides by easing on boarding via e-KYC using Aadhaar, providing a seamless transaction experience, improving transparency, expanding beyond metros and reducing the turnaround time (TAT) for pre and post-sale activities. Thus mutual fund investing can be executed in just a few clicks. Not only this, goal mapping, portfolio tracking, asset allocation assistance and fund selection assistance are also technology enabled through 'Fintech'.

While technology has its advantages, it can also come with challenges. A key question being asked by the distribution fraternity is whether technology will replace the role of the nancial advisor with the

24

advent of Robo-Advisory services being offered by online 'Do-it-Yourself' (DIY) platforms. My answer is 'NO'. Let me explain why. As a rst step, one should understand areas which are technology relevant and those which are not. I have already highlighted some of the former such as on boarding, transaction processing, goal mapping, portfolio tracking, asset allocation assistance and fund selection assistance. However, other areas, which I would argue are even more important for a trust based business like nancial services and cannot be managed by technology alone include - behavioral aspects like building a relationship, understanding a customer's context beyond the few risk based questions and most importantly, hand holding customers during times of volatility.

A recent report from Karvy pointed out that 80% of direct equity fund investments were redeemed within the rst year of holding during turbulent times. This is mainly due to lack of hand holding in times of market volatility. Hence, a pure online model may not be fully effective in India where we still have relatively low levels of nancial literacy and penetration. Investor stickiness, and with that long term wealth creation, can only come if investors follow the appropriate buy low, sell high model and stay invested even during periods of turbulence. While Robo-Advisors will emerge to address a segment of the population, the most successful models will be those that combine technology with human touch - this is also the emerging experience globally.

The role of technology in building momentum for the mutual fund industry cannot be denied. Some numbers to illustrate the growth of the industry - an AUM of over Rs. 21 lakh crore as of October 2017 growing by over 23% annualized in the last 5 years and 14% in 10 years; over 1.6 crore SIP accounts with a monthly throughput of over Rs5500 crore. Further, the industry has more than doubled the SIP accounts in the last 2 years. To continue this momentum, it is important to leverage technology as an enabler to improve distribution reach across the length and breadth of the country using the JAM trinity, reducing the cost and improving the ease of investing in mutual funds.

I rmly believe that the future is not Technology vs Humans but Technology with Humans. In closing, I leave you with this thought - “Technology should improve your life…Not become your life”.

***********1. Too many people spend money they earned..to buy things they don't want..to

impress people that they don't like. --Will Rogers

2. A wise person should have money in their head, but not in their heart. --Jonathan

Swift

3. Wealth consists not in having great possessions, but in having few wants. --

Epictetus

4. Money often costs too much. --Ralph Waldo Emerson

5. Everyday is a bank account, and time is our currency. No one is rich, no one is

poor, we've got 24 hours each. --Christopher Rice

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B15 Sales Experience

Source: AMFI - HDFC

India, with the 7th largest GDP in the world, has typically had one of the lowest market penetration of Mutual funds. One of the reasons for this has been lack of awareness about nancial products in non-urban areas.

To address this issue of low market penetration, SEBI in 2012 allowed fund houses to charge additional 30bps in total expense ratio if new inows from B15 locations (i.e. other than Top 15 cities) are at least 30 percent of gross new inows in the scheme or 15 percent of the average assets under management, whichever is higher. This move was aimed to incentivize distribution of mutual funds in non-urban locations. After SEBI's push all fund houses revised their commission structure for distributors in B15 to incentivize them to solicit more funds in Mfs.

B15 push by fund houses has shown gradual improvement in response from B15 locations. Assets under Management. B15 Location's AUM increased by ~ 40% from Rs 2.82 lakh crores in Sep'16 to Rs 3.93 lakh crores in Sep'17, two-thirds of which was in retail segment. Number of retail folios from these locations increased from 2.45 crore in Sep'16 to 2.95 crore in Sep'17.The average ticket size of retail segment in B15 locations increased from Rs 75,000 to Rs 91,000 during the same period.

As of Sep'17, B15 AUM accounted for ~20% of the industry AUM, whereas number of B15 folios accounted for roughly 50% of the total folios. As of Sep'17, ~ 87,000 out of ~2,10,000 registered distributors (41%) are from B15 locations, underlining the growing emphasis on distribution of MF's in B15 locations. Fund houses have grown their presence in B15 locations by establishing branches at such locations. As of 31st Oct' 2017, HDFC MF has 127 branches in B15 vis -a- vis 56 branches in T15 locations. Further, investor education initiatives undertaken by fund houses have also created better awareness about mutual funds in B15 locations.

Only 30% of Indian population lives in urban areas, making nancial inclusion an important focus area for the government. Initiatives like Pradhan Mantri Jan Dhan Yojana (PMJDY) which ensures easy access to banking and insurance services could have a positive ripple effect on mutual fund industry. Increasing emphasis on B15 through distribution incentives, and nancial literacy could play a pivotal role in mobilization of savings for economic development. Prudent investing augurs well not only for investors, but also for the economy which benets from shift of physical assets to nancial assets.

The views expressed in the article are of the author and may not necessarily reect the views of HDFC AMC / the Fund. Neither HDFC AMC and the Fund nor any person connected with them, accepts any liability arising from the use of this information. Readers before acting on any information herein should their own investigation and seek appropriate professional advice and shall alone be fully responsible / liable for any decision taken on the basis of information contained herein.

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY

28

THE PEDAGOGY AND ANDRAGOGY: Demystified

SRIKANTH V KULKARNI

Pedagogy converted to Andragogy during the process of my learning during facilitation profession.

PEDAGOGY ANDRAGOGY

1. I am the head master attitude: Part of pedagogy where the trainer feels I am the master of the subject and everybody should listen tome as I teach. Which is unhealthy as it is only applied for students of below primary levels.

1. As a trainer we need to go the level of the participants and make them feel that we are part of the team,. I normally say that I am part of your family and not from mars. Aligning to the level of participants is very important in the ego and knowledge levels to bring the comfort zone to the participants. The participant should have the feeling of Knowledge being shared and not dumped.

2. Being aggressive driver: Trainer creating an atmosphere that the program is driven by him and every body should just follow him,. In such environment lot of participants delink themselves.

2. Trainer is only a facilitator and not the driver. Facilitator should formulate an environment that every participant is important contributor of the program and he is only HAND HOLDING them. Facilitator is only assigned the job of knowledge sharing and lling the gap wherever needed. This environment makes the participant responsible and he is with the facilitator throughout the program.

3. Getting into an arguments: with participants, which is most commonly seen as arguments poisons the situation.

3. Politeness and using softer words would ease the roughness of the situations, as I agree with you, but it is like this hence this explanation, please etc.

4. Condemning a participant in front of others or comparing, creates a very bad situation where he would withdraw from the program mentally.

4. Just give the industry data and leave it. It is good to be generic basis than getting into personal attacks. Be very cautious of being diverted to react to the political, religion and sex related remarks, which is complete no.

5. Usage of text and boring content: using of long text content on ppt, reading the ppt are the very unhealthy. Continues theory and monotonous kind of sessions are ineffective.

5. Usage of less text with more pictures, videos or activities which would interest and make the participant remember what he as seen than heard. Break the monotony with different levels of VOICE MODULATIONS as it gives learning an enjoyable experience as there is a TAKEAWAY from the session.

6. Make the time move faster; A serious ow of training without any smiles would be stressful and time won't move, then people start opening their mobiles or start drawing on the pad etc. sm

6. Session ow should be lively with maximum attention. Engagement along with good decent humour in between to charge. Examples with stories, good body language and condence keeps these engagements live.

29

The best time to plant a tree was 20 years ago, the second best time is now

The oldest man on earth, Yisrael Kristal, died recently at the age of 113 in Israel. Being in the mutual fund business, the rst thing that came to my mind when I read this news was how would I manage my nances if I lived for 100 years or more. It would certainly be a challenge! Human lifespan has improved over the years due to advancements in medical science and technology. World Bank data indicates that life expectancy has increased from 52 years in 1960 to 72 years in 2015. However, despite these statistics on improving life expectancy, there is not enough effort around creating adequate wea l th and cash ows to a l low us to en joy this longer life span.

To solve the wealth challenge, it is very important for us to change the way we save. Firstly, nancial savings in India are mostly invested in traditional, assured returns products. The drawback here is that, these investments may not help create wealth in the required proportion on account of falling interest rates. Secondly, savings in India are not bucketed according to goals but follow a single funnel approach where goals are met by drawing down from a single pool of investments as and when needed. Hence retirement, being the last goal, is often left with the residual investment corpus as we draw down from the central pool for earlier goals.

It is therefore imperative for savers to move from a central pool to a goal based investment portfolio as well as have a judicious mix of market linked products like mutual funds in their portfolio. One can start a mutual fund investment with as little as Rs.500 per month through a 'recurring deposit' like approach called a systematic investment plan or SIPs, what we like to call a #Good EMI as it is an investment and not an instalment.

Let me illustrate this with the example of equity mutual fund investments as most Indians are missing out on this potentially remunerative asset class. While one can start an SIP with as little as Rs. 500 per month, but for a moment, let's start with an SIP of Rs. 10,000 per month in equity mutual funds. Assuming a compounding return of 12% per annum, this monthly investment would result in a corpus of Rs. 1 crore after 20 years and Rs. 3.5 crore after 30 years, that too tax free as per current tax laws in India.

While these are standard SIPs, an even more interesting feature available in the market is called the Step-Up/ Top-Up SIP. Using this feature, instead of investing the same amount monthly across these periods, you can increase your SIP amount by a certain percentage or amount every year in line with the increase in your earnings. Let us assume you increase your above SIP amount of Rs.10,000 per month by 10% every year. The revised corpus using step-up SIP at the same assumed compounding return of 12% per annum would be Rs. 1.58 crore after 20 years and Rs.6 crore after 30 years. The step-up SIP corpus after 30 years (Rs. 6 crore) is almost double that of the SIP without step-up (Rs. 3.5 crore). Thus by investing a little more every year, your corpus can grow signicantly. Again remember, all of this is tax free.

You may wonder how a small increase of 10% per year, can double your outcome. This is mainly due to the power of compounding, rightly called the '8th wonder of the world' by Albert Einstein. There are two things which help compounding work better – a higher rate of return and a longer period of investment. That's why power of compounding works exponentially when you invest for periods like 20, 30 or more years.


32

In order to help investors explore the potential of this exponential growth, the mutual fund industry has introduced the concept of a 'perpetual' SIP which helps one to be disciplined savers for very long periods. Most wealth creation opportunities are missed because we do not allow our investment to compound for adequately long periods for reasons as trivial as failing to renew SIPs on their due date. Perpetual SIPs helps inculcate discipline and long term saving as it removes the hassle of remembering to renew your SIP every so often, which helps keep the wealth meter ticking.

You may wonder, what if you start a Perpetual SIP but then need to change the amount, temporarily stop your SIP instalment due to some cash ow needs, or simply decide to change your investment allocation. Many mutual funds today offer exible options to help keep you investing for the long term. If you are not able to meet your SIP commitments for a month or two owing to personal exigencies, some funds will allow you to “Pause” your SIP. You can restart your SIP instalments once your cash ows normalise. There is exibility to also increase or decrease your SIP amounts for a brief period like when you receive additional cash ows like a bonus or ex-gratia or when you are able to contribute only Rs. 5000 in a month instead of Rs. 10,000. If you change jobs and the date you receive your salary changes from 1st to 25th of the month, there is no need to open a new SIP account but simply opt for change in your SIP date and continue your SIP. Make sure you ask your advisor or fund about these features before starting a Perpetual SIP. The sole aim of these options is to enable you to save for decades instead of years without needing to discontinue your SIP due to changes in personal circumstances, thus allowing you to enjoy compounding benets. Perpetual SIPs with these features offer you the freedom to pay the way you want to, while sticking to your wealth path.

Starting early and investing for the long term are the essence of wealth creation. For those who start late, the 'asking rate' (like in cricket) becomes very high. For example, Rs. 10,000 per month gave Rs. 3.53 crore in 30-years @ 12% p.a. in the above example. If the same amount were to be targeted in 10 years, the monthly contribution would rise 15 times from Rs. 10,000 to Rs. 1.5 lakh per month (assuming the same return on investment). Thus the proverb, “The best time to plant a tree was 20 years ago, the second best time is now” aptly applies to investing. If you have missed planting the tree so far, do not worry. Plant your tree today, and the power of compounding will help the plant grow into a tree. All you need, is discipline and patience.

Let me conclude with the story of 'Padma Shri' Jadav Payeng from Assam who started planting trees in the barren sand bars of Assam in 1979, and did this relentlessly for nearly 30 years. The result – a beautiful tropical forest which today houses over 100 elephants, besides tigers, rhinos and deer. Thanks to Jadav Payeng, over 1300 acres of sandbars have been transformed into the Molai Forest located in Jorhat, Assam. A small act like planting trees in barren sand bars consistently can create results like the Molai Forest. A perpetual SIP can do similar wonders for your wealth. Happy Investing!

*************

1. It's how you deal with failure that determines how you achieve success. --David Feherty

2. Frugality includes all the other virtues. --Cicero

3. I love money. I love everything about it. I bought some pretty good stuff. Got me a

$300 pair of socks. Got a fur sink. An electric dog polisher. A gasoline powered turtleneck

sweater. And, of course, I bought some dumb stuff, too. --Steve Martin

33

India's 70 years since Independence

On August 15, 2017 India celebrated its 70 years since gaining independence from the United Kingdom. In this article we take a look back at what India has achieved and what the way forward may be.

Till the early 80s, India was growing at an average of about 3.5%, termed the Hindu rate of growth. India has come a long way from the subdued growth rate. The Indian economy now features among top ten countries in the world by nominal GDP and by purchasing power parity (PPP) respectively. For the nancial year ending in March 2018 (FY2018) the International Monetary Fund estimates India's nominal GDP to be USD 2.44 trillion (or USD 9.44 trillion according to PPP). Along with buoyant GDP growth, at the second highest speed in the world, per capita GDP is increasing as well. From around USD 300 per capita in 1991, GDP has improved to around USD 1900 now. However, on a global scale, India remains way behind. We think India has come a long way from the Hindu rate of growth to become one of the fastest growing countries in the world.

Post the global nancial crisis of 2008, then government decided to provide monetary and scal stimulus to boost growth. Although growth recovered in the short run on account of the stimulus provided, it engendered high ination. The high ination along with high gold imports and commodity prices widened current account decit (CAD). CAD steadily rose to 4.8% of GDP in FY2013 from 2.3% of GDP in FY2009.

In late 2013, post the episodes of taper tantrum led by the US Federal Reserve, there have been signicant progress on managing the 'twin decits' – scal and current account cause due to loose monetary and scal policies. To look at the numbers on scal decit, the central government ran up a decit of 6.5% of GDP FY2010, which has now been contained at 3.5% of GDP in FY2017 and is targeted at 3.2% in FY2018. Apart from the Centre, the States also run a decit. The combined scal decit has improved from 9.4% of GDP in FY2010 to 6.5% in FY2017. The combined decit is expected to improve further to 5.8% of GDP in FY2018, the States' decit being now mandated to be within 3% of State GDP. With crude oil prices projected to be in a range, which is a big boon for India's ination and contribution to taming the scal decit, the target seems to be on track. The current account decit (CAD) has also improved signicantly from 4.8% of GDP in FY2013 to 0.7% in FY2017. India's improved Basic Balance is also heartening, the robust net FDI ows having outpaced CAD over last three scal years.

On one hand, there are concerns on GDP growth rate having decelerated to 5.7% in the latest reported quarter of April-June 2017, due to various reasons including lagged effect of demonetization and de-stocking ahead of the goods and services tax (GST) that came into effect from 1 July 2017. On the other hand, the consensus is that growth rate has bottomed out. Growth forecasts for the nancial year by various agencies like IMF and RBI are verging towards 6.7%. There were concerns about the Centre slipping on decit target of 3.2% for the current nancial year to give impetus to growth. That is now settled, the Government having decided to stick to the target, at least for the time being.

From the “Hindu rate of growth” to major global economy

Fixing macroeconomic stability

Where do we go from here?

There was euphoria all around in May 2014 when there was a sea change in the political landscape when the Modi-led National Democratic Alliance (NDA) came to power at the Center. Now, after hiccups like demonetization and GST, there are certain mixed feelings, but Modi's approval ratings are still on the higher side. The IMF, while marginally marking down


India's Post Independence Growth

34

Improved governance, but some reforms may take time to play out

Be it the balance of payment crisis in 1991 due to geo political issues then, the 1997 Asian crisis and its impact on currency, 2013 taper tantrum, and all these events shook markets and the economy at large, hampering growth. What is different from the earlier episodes is the institutional approach towards problem solving. The reformist mind-set government and the ination targeting central banker have done commendable job in terms of managing the monetary policy. As we have seen from past episodes like one which took place in 1991 or post 2008, loose monetary policy along with scal prolicacy can spur the growth momentarily but it adds to the domestic debt burden and drives CAD, leading to reliance on externally borrowed capital to fund CAD. The current central government has followed the scal consolidation path along with structural reforms which could stay for longer time and benet the economy, with initiatives such as cutting red tape in coal blocks, bringing transparency in telecom spectrum auction, 'Make in India' campaign, welcoming foreign investors through the FDI route, competitive federalism (between states), integrating AADHAAR (national ID) for subsidy payments and other transactions, promoting digital initiatives, new bankruptcy legislation, implementation of RERA (Real Estate Regulatory Authority) and GST. Some of these reforms have started to bring in structural changes, while for some others we believe it may require a full economic cycle to play out. Currently the GST and demonetisation have impacted growth but we believe this is transient in nature and should be back on track as the teething issues related to GST implementation iron out.

Job creation remains India's Achilles heel as it needs to create around 10 million jobs every year to reap its rich demographic dividend. Also, India remains dependent on external capital ows to fund its current account decit, and despite the encouraging trend of growing investments from domestic investors, the foreign portfolio investors' still own around 27.5% of the Indian equity market. We think India has come a long way from the Hindu rate of growth to become one of the fastest growing countries in the world, but it has still to achieve more.

The material contained herein has been obtained from publicly available information, internally developed data and other sources believed to be reliable, but BNP Paribas Asset Management India Private Limited (BNPPAMIPL) makes no representation that it is accurate or complete. BNPPAMIPL has no obligation to tell the recipient when opinions or information given herein change. It has been prepared without regard to the individual nancial circumstances and objectives of persons who receive it. This information is meant for general reading purpose only and is not meant to serve as a professional guide for the readers. Except for the historical information contained herein, statements in this publication, which contain words or phrases such as 'will', 'would', etc., and similar expressions or variations of such expressions may constitute 'forward-looking statements'. These forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. BNPPAMIPL undertakes no obligation to update forward-looking statements to reect events or circumstances after the date thereof. The words like believe/belief are independent perception of the Fund Manager and do not construe as opinion or advise. This information is not intended to be an offer to sell or a solicitation for the purchase or sale of any nancial product or instrument. The information should not be construed as an investment advice and investors are requested to consult their investment advisor and arrive at an informed investment decision before making any investments. The Trustee, Asset Management Company, Mutual Fund, their directors, ofcers or their employees shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages arising out of the information contained in this document.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

India's GDP growth forecast for 2017 from 7.2% earlier to 6.7% and that for 2018 from 7.7% to 7.4%, has observed that structural reforms like GST will accelerate growth going forward, to above 8% in the medium term. The same political dispensation being in power at the center and 17 States augurs well from policy decision making perspective.

35

Is this Time is Different? Financial Lessons on Intermediation.

Mr. Swarup Mohanty, CEO, Mirae Asset Global Investments (India) Pvt Ltd.

We are at a dening moment in the history of nancial advisory in India. I say dening, as it is that time when the Indian investors are ready (once again) for shifting their investments from the physical form (real estate, gold, etc.) to the nancial form. This is not the rst time that I have witnessed this environment in my career. This is in fact the fourth time in the last two and half decades that this is happening. Let me elaborate:

1. 1994: This was the year of the Morgan Stanley Fund. It was a time when investors ocked to invest in funds.2. 2000: The advent of the Tech Funds. We saw a plethora of Tech Funds launched in India and the investors did lap up all the MF IPOs (they were called IPOs then) with huge retail participation from across the country.3. 2007: The Global boom which saw a big surge in Indian retail investors in all IPOs and Mutual Fund NFOs, which was soon followed by the bust in 2008.4. 2016-2017: Now, when Financial Assets are again back in favor.

When we analyse the rst three instances, some very important lessons on nancial investing and advising come out:

1. 1994: Clearly the Fund took in more money that it could manage and hence the subsequent deployment issues -Lesson 1 – Fund Houses should accept only that much money which they can manage!2. 2000 & 2007 – There was no lack of conviction in the sales process of not only the Tech Funds but also the subsequent sector funds (read Infra Funds) that followed in 2007. Investors came in clueless of the risks involved and the extent of allocation that they should make. -Lesson 2- Rightful assessment of the risks of the underlying investment instrument is most important for prudent advising -2008-2009 – The industry saw over 60% of SIPs getting closed in the downturn. This showed lack of conviction in what we always preached “rupee cost averaging”. Just think of the customer experience if those SIPs would have been live today! -Lesson 3- It is a business of conviction and if one does not have it then it could lead to not only loss to our investors, but would also be a big setback to their overall investment experience.

So how should the above three experiences hold us good when we are standing at the threshold of another such event. We often hear the phrase “this time it is different”. I am compelled to think, whether it is different? My answer is very simple. We can make it different. The reasons are based on the fact that the environment that we are in now is indeed different. Let me list out some points

1. The regulator has been active and robust2. Fund management of the industry has built a robust risk management process and created a proven track record3. Advisors too have gone through the market cycles and are extremely experienced4. This has led to a dramatic change in advisory – Shift to “product” credentials over “brand” credentials5. The investor has started understanding the volatility in Equity and has started committing to the long term6. It is also the beginning of new age Financial Advisory in India.

36

When we put all the above in the right perspective, then the path ahead for all of us is clear. We now have enough experience in the market. This should lead to us having the conviction on the asset classes as well as on our ability to allocate wisely in them. The proof of this pudding will now be tested in the coming years. If we have the ability to back our conviction and demonstrate the ability to stay invested in volatile times, we would end up delivering superior investment experience to our investors.

It is denitely the time which all of us have waited for all these years. The investor is very keen on choosing MF as a product for achieving his nancial goals, and we have to be up for this duciary responsibility. If we can keep it simple and not compromise on our duciary responsibility, we would be able to give our investors a great investment experience. I sincerely hope that this time around we have to make it different for all our investors.

Disclaimer

The information contained in this document is individual view and is included for general information only. Any reliance on the accuracy or use of such information shall be done only after consultation to the nancial consultant to understand the specic legal, tax or nancial implications

Mutual fund investments are subject to market risks, read all scheme related documents carefully.

1. An investment in knowledge pays the best interest. --Benjamin Franklin

2. I will tell you the secret to getting rich on Wall Street. You try to be greedy when

others are fearful. And you try to be fearful when others are greedy. --Warren Buffett

3. Annual income twenty pounds, annual expenditure nineteen six, result happiness.

Annual income twenty pounds, annual expenditure twenty pound ought and six, result

misery. --Charles Dickens

4. Opportunity is missed by most people because it is dressed in overalls and looks

like work. --Thomas Edison

5. What we really want to do is what we are really meant to do. When we do what

we are meant to do, money comes to us, doors open for us, we feel useful, and the work

we do feels like play to us. --Julia Cameron

6. I never attempt to make money on the stock market. I buy on the assumption that

they could close the market the next day and not reopen it for ten years. --Warren Buffett

7. A nickel ain't worth a dime anymore. --Yogi Berra

8. Money never made a man happy yet, nor will it. The more a man has, the more

he wants. Instead of lling a vacuum, it makes one. --Benjamin Franklin

9. Many people take no care of their money till they come nearly to the end of it, and

others do just the same with their time. --Johann Wolfgang von Goethe

10. Formal education will make you a living; self-education will make you a fortune. --Jim Rohn

11. Money is only a tool. It will take you wherever you wish, but it will not replace you

as the driver. --Ayn Rand

12. Financial peace isn't the acquisition of stuff. It's learning to live on less than you

make, so you can give money back and have money to invest. You can't win until you do

this. --Dave Ramsey

13. It is not the man who has too little, but the man who craves more, that is poor. -- Seneca

*************

37

Power of Compounding!By Vikas Agrawal - Motilal Oswal AMC

The great Albert Einstein once said “Compound interest is the eighth wonder of the world.He who understands it, earns it … he who doesn't … pays it.” ... When you get into high interest debt, you are now ghting against the inevitable force of compounding

Basis my interaction of some of the small investors, some common question which I keep getting, they are as follows:-

Question: How do I create wealth when I don't have enough money to invest in Stock markets?

My answer: this is one of the most tired and overused excuses that people give that they don't have enough money to make good money in the stock market. The truth is you don't need that much, if you understand the power of compounding.

Basically, compounding requires two things: The reinvestment of earnings and time. If we don't reinvest what we generate is just a simple interest and if we don't give it enough time then the ability of compounding is nullied.

Let's look at the table below:-

1 rupee invested at various interest rates compounded for over 40 years clearly shows us the variability in earnings over a long run. For instance, At 5%, your investment would become 7x in 40 years whereas your investment can become 7523x if it grows at 25% returns yearly. To understand in detail, Pls refer the table given below

@rat

e

3

years

5

years

10

years

15

years

20

years

25

years

30

years

35

years

40

years

5%

1.2

1.3

1.6

2.1

2.7

3.4

4.3

5.5 7.0

10%

1.3

1.6

2.6

4.2

6.7

10.8

17.4

28.1 45.3

15%

1.5

2.0

4.0

8.1

16.4

32.9

66.2

133.2 267.9

20%

1.7

2.5

6.2

15.4

38.3

95.4

237.4

590.7 1469.8

25

% 2.0 3.1 9.3 28.4 86.7 264.7 807.8

2465.

2

7523.

2

That is why compounding is a greater teacher of patience, Well for one, youdon't see results overnight. Actually compounding interest is pretty boring, it can be like watching paint dry.

Q2 : What do the wealthiest and wisest investors have in common?

My Answer: Well, wealthiest people are always smiling, because they are making money every second of the day. Let me tell you that rich people don't have any bigger advantage in the market than poor people do. The only difference is they understand the power of compounding.

Nothing can stop it from growing. As long as an investment is growing at particular rate, you can keep smiling at night, because you know that time is your ally. The longer time goes, the richer you get!

One of the best pieces of advice my mentor gave me when I rst started investing in 2005 during my stint at SBIMF was simply this: “Invest the same amount every month.” Start your systematic investment plan. The early you do it the better it is.

Q: What is Rule of 72 :

The 'Rule of 72' is a simplied way to determine how long an investment will take to double, given a xed annual rate of interest. By dividing 72 by the annual rate of return, investors can get a rough estimate of how many years it will take for the initial investment to duplicate itself

For example, using the rule of 72, an investor who invests Rs. 100 at an interest rate of 8% per year, w i l l double the i r money in approximately 9 years.

Formula: 72 / (periodic interest rate) = number of years to double principal

In the above example: 72/8 = 9 years. Let's look at the table given below :-

Interest Rate Rule of 72No of Years to

Double

5% 72/5 14.4

6% 72/6 12.0

7% 72/7 10.3

8% 72/8 9.0

9% 72/9 8.0

10% 72/10 7.2

15% 72/15

4.8

20% 72/20

3.6

25% 72/25

2.9

38

Favourable Demographics and Reforms are long-term positives for equities

by Mr. Neelesh Surana, CIO – Equities, Mirae Asset Global Investments (India) Pvt Ltd.

The sub 6% GDP growth witnessed over the last two quarters has led to debate on India's medium term growth prospects. We believe that the low growth print at 5.7% in Q1), is transient which is negatively impacted by lot of near-term factors related to demonetization, GST, RERA, IBC, etc. Let's revisit the core pillars which would form the base for decent growth –these are primarily related to favorable demographics, potential in infrastructure, and reforms.

While India's macro-economic data points have improved over the last three years, the same are yet to be fully reected in buoyancy of the economy and thus earnings growth. However, India is forming a base for a stable and secular growth. Looking ahead, our base view is that Indian GDP would grow in excess of 7% on a more sustainable basis led by powerful demographics, rising GDP per capita, and a robust services industry.

Favorable Demographics of India: India's demographic is the country's crown jewel – its powerful – about half of the country 1.3 billion people are under the age of 25, and about two-third under the age of 35. The median age of India is 27 years, which is about 10 years younger than China and USA. As a result, India will add about 190 mn people in workforce over the next two decades - that about 20% of addition to the world's labour workforce! Various studies pen the above demographics to support GDP growth by about 1.5-2% pa. It is the most compelling macro features which offer several attractive investment opportunities particularly in under penetrated consumer discretionary space. India's middle class could reach close to 600 million by 2025 (from about 250 million), versus a total US population of 350million at that time. India will likely be third largest consumer market in world by 2030 as measured in the purchasing-power parity basis.

Of special importance is the GST which was implemented from July. The long-term positives of GST in the will be to help improve the ease of doing business, and Efciency Gains related to logistics, and supply chain management. Technology is another powerful factor in India's roadmap to reform with powerful linkage of biometric identication system (Aadhaar) with the mobile phones. Technology has allowed the government to bypass intermediaries which will improve transparency.

The government has implemented transparent method of e-auctioning of national resources, reduced distortion through de-regulation of petrol and diesel prices, improve subsidy delivery through direct benets transfer, bring transparency in the lending process by implementing Bankruptcy Code, taken measures to convert parallel economy to mainstream. Reforms could help accelerate investment in infrastructure – which otherwise also has large potential to grow given the growing need for the same.

Outlook for Investors

Reforms momentum has picked up: The government has brought in a series of important policies with far-reachingimpact. These include GST, new IBC (Insolvency and Bankruptcy Code), RERA, etc. All of these measures will improve efciency and ease compliance burdens for businesses over the long-term. There is also medium term commitment to keep ination low, maintain positive real interest rate in the economy, scal consolidation, and focus on maintaining rupee stability.

From equity investors' viewpoint, we believe that earnings have lagged nominal GDP growth for several years now. With fall in interest rates, and signs of improving corporate protability the overall outlook for recovery in earnings and thus equity markets is positive. We believe that the mean revision to earnings would take place over the next two years, with the sectors which dragged earnings growth turning around.

We would advise investors is to in a disciplined way in equities within the earmarked asset allocation. Many a times the action required is “nothing” i.e. simply following a well-disciplined asset allocation with planned diversication. We expect meaningful returns to investors with patience.

Disclaimer

The information contained in this document is individual view and is included for general information only. Any reliance on the accuracy or use of such information shall be done only after consultation to the nancial consultant to understand the specic legal, tax or nancial implications.

Mutual fund investments are subject to market risks, read all scheme related documents carefully.

39

Electronic Business or e-business PRABHUDEVA R.S.

Mutual Fund Distributor, MYSURU

Electronic Business or e-business is a term which can be used for any kind of business or commercial transaction including Mutual Funds across the internet. It is widely acknowledged today that new technologies, in particular access to the Internet. E Business enables the external activities and relationships of the business with individuals, groups and other businesses, The term "e-business" was coined by IBM's marketing and Internet team in 1996.

The time that is necessary to bring a product on the market, an idea was put forward. Worldwide, new technologies provide an incredible source of inspiration to formalize ideas while making market even more critical because of the rapid ow of information and speedy competition. It is widely acknowledged today that new technologies, in particular access to the Internet, tend to modify communication relationships between the enterprise and its clients. The use of an electronic support for the commercial relationship between a Mutual Fund Distributor and his individual clients i.e. positioning on new markets, increasing the quality of products or services, prospecting new clients, Increasing customer loyalty. Enterprises are generally characterized by the type of commercial relat ionships they maintain such as B2B (Business To Business), B2C (Business To Clients) B2A (Business To Administration).

The main advantages of E Commerce are; A rm engaging in e-business can have a nationwide or a worldwide presence. Using the web to market products guarantees worldwide reach at a nominal price. Better Customer Service. It may help in encouraging the customer to know more about the product or service. The mode of online payment is predetermined, promising security to the customer.

Finally E-business does have its set of pros and cons. However, eventually, every business has to change accordingly and adopt e-business practices in order to ensure survival and success.

1. It's not the employer who pays the wages. Employers only handle the money. It's the

customer who pays the wages. --Henry Ford

2. He who loses money, loses much; He who loses a friend, loses much more; He who

loses faith, loses all. --Eleanor Roosevelt

3. Happiness is not in the mere possession of money; it lies in the joy of achievement, in

the thrill of creative effort. --Franklin D. Roosevelt

4. Empty pockets never held anyone back. Only empty heads and empty hearts can do

that. --Norman Vincent Peale

5. It's good to have money and the things that money can buy, but it's good, too, to check

up once in a while and make sure that you haven't lost the things that money can't buy. --

George Lorimer

6. You can only become truly accomplished at something you love. Don't make money

your goal. Instead, pursue the things you love doing, and then do them so well that people

can't take their eyes off you. --Maya Angelou

*************

41

RememberEA Sundaram, CIO-Equities,

DHFL Pramerica Asset Managers

If I'm buying something' because everybody else is buying' itAnd telling me that the money ow will keep the market hyperIt's time to remind myself of the story of the ratsThat followed a strange guy they called the Pied Piper

If we think small caps, NBFCs and Housing FinanceAre the sure things to keep going' up, thanks to liquidityFolks used to think the same way in 2007, and before that in 1999About stocks in construction, and in IT

When you hear that it's a new world and the old rules don't matter'tis time to remember the words of this gentA giant, he was, they called him John Templeton,And he said “the four most expensive words are – This time it's different”

When we buy groceries, and when we buy fruitWe are considered smart when we nd a bargainWhy the hell then, when we choose to buy sharesWe only think of jumping on to the gravy train?

When a stock goes sharply up, we sure feel goodWe feel like ying, and grin with glee,The ground under us tells us to have a good look at itAnd think of fundamentals, and of PE

Before I sound too much like a prophet of doomI want to make sure to clear that nagging doubtThe idea is not to zig when everybody zagsJust urging you to spread your risk out

Almost everyone will rise some day, and so will they fallWhen that happens, we don't want to get beatThink of it as buying an umbrella in summerWhen the rains suddenly come, we'll have steadier feet

42

Youth Empowerment programmeR Arunachalam

Board Member, Kamfa

India is in a unique situation in the world due to favourable demographics. We will have maximum number of youth in the world. Infact the world's largest pool of well educated, technically equipped youngsters who are ready to be employed. But are they really employable ?

Our educational system has turned out gloried clerks to a large extent. This was useful as ong as there was global growth and cost arbitrage. But in the current scheme of things due to protectionism and slow global recovery we have a situation wherein our demographics could become a nightmare. This has huge social implications.

It is highly imperative for the governments and for each of the citizens to guide the youth in the event of jobless growth. When crores of youth come out from colleges and do not get a job what should be done. Is there some way in which IFA's can also lend a helping hand in educating and guiding the youth.

Just like we do investor awareness programmes, we can conduct skill development programmes for youth with specic focus on nancial services. Therein again both domain expertise, technological impact and probably project assignments or internships with both AMC's and IFA's.

Once we teach how to sh many individuals can survive on their own, similarly art of investing could be taught to youth. It can help them to plan for their lives given the huge challenges which they could face in the event of automation eating away most of the intermediary jobs.

We can also guide the youth in terms of identifying sectoral trends for career choices. Mentor youngsters who are interested in making a career in nancial services.

It is important for policy makers, entrepreneurs and all concerned to guide the youth. Because youth is the future. We should encourage more youngsters to be a part of capital markets. More college talks should be organised highlighting the career opportunities.

The impact of automation, robotics, etc should not end up destroying the youth, it should not become a story of the 'The lost decade'.

*************1. Buy when everyone else is selling and hold until everyone else is buying. That's not just

a catchy slogan. It's the very essence of successful investing. --J. Paul Getty

2. If money is your hope for independence you will never have it. The only real security that

a man will have in this world is a reserve of knowledge, experience, and ability. --Henry Ford

3. If all the economists were laid end to end, they'd never reach a conclusion. --George

Bernard Shaw

43

Behavioral strategies for long-term success

By Morningstar

Managing your clients’ nancial goals and keeping them on track with those goals is a key aspect of the adviser/client relationship.

Goal-setting is lled with challenges both for advisers, who have a vested interest in keeping their clients on target, and their clients, who might not be able to tell the difference between goals they want, goals they need, and goals they can actually achieve.

Morningstar behavioral economist Sarah Newcomb, Ph.D., author of Loaded: Money, Psychology, and How to Get Ahead Without Leaving Your Values Behind, has researched the psychology of goal-setting, and she said advisers use it to craft realistic, meaningful, and achievable goals that benet advisers and clients alike. “I do a lot of research into how the way that we think about time affects our nancial decisions, and what I’m nding over and over again is that the further that someone thinks ahead, and the clearer their picture of the future is, the better decisions they make nancially,” Newcomb said. “They have more saved for retirement, and they have more non-retirement savings. This long-term mindset alters the course of our nancial lives in a large way.”

Destiny versus self-determination

Mentally picturing the future isn’t easy, and it can be particularly difcult to envision long-term goals when your clients don’t feel like they have any control of their nancial future. Newcomb’s interviews with investors underlined the need for your clients to feel like they are really in charge of their money. “I asked people which statement they agreed with more: ‘I create my nancial destiny,’ or ‘I have very little power in my nancial life,’ “Newcomb said. “They had to choose one or the other. Then I looked at what they said they had in retirement savings. The people who believed they create their own nancial destiny had about 2.7 times more money in retirement savings than those who didn’t believe that.”

Dispelling delusions

While empowering your clients is an essential part of goal-setting, it hinges on having goals that both you and your clients believe are achievable.

“If your clients really think a goal is in their power to do it, that’s a good goal,” Newcomb said. “If you don’t think that you can do it, then you won’t, and it actually becomes dis-empowering to think about it.” “The rst thing advisers want to do is say, ‘Is this goal possible? Do these clients have the means, if they changed some of their behavior, to actually reach the goals they want?’ Then advisers can focus on helping clients through these little mental tricks to reach a mindset that’s more conducive to reaching their goals,” Newcomb said. “I hear stories from advisers about people who are wealthy now but eventually won’t be, because of their spending habits. Not only will they be unable to retire, they’ll probably not have enough assets to need a nancial planner in 10 years, if they don’t cool it.

“They’re out of touch. They’re apathetic, avoiding the truth, or they just enjoy spending too much.” In this case, advisers need to talk about quality of life.

“They can tell these clients, ‘If you continue on this trend, let’s talk about your quality of life in 10 years, or 20 years. Let’s look at what you can afford and what that life is going to look like,’ “Newcomb said. “By getting the clients to see some details, they may say, ‘Oh, I don’t want to live like that. What do I have to do now so that I can live better then?’”

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From spreadsheets to stories

Taking your clients’ information and turning it into real-life scenarios is crucial, because showing them spreadsheets or a screen full of data won’t cut it in most cases.

“Clients will say, ‘Oh, I’ve got $5 million. I’m ne.’ Actually, when they retire in 25 years, that $5 million is going to be half as valuable. There’s a disconnect between a lump sum of money and what that lump sum translates into in terms of long-term income,” Newcomb said. “So, you have to do the math for them. What nancial advisers need to understand is that for most people, numbers are far too abstract. You need to translate the numbers into a narrative, a story, about what the clients’ lives will look like. If that life is, ‘Right now you’re going to have about enough money to sit in front of a cable box for 10 years,’ then that’s the story you need to tell them, in a gentle way.”

“Take that lump sum and show your clients what that means in terms of monthly income, so they understand why their lump sum is actually not as big as it needs to be. People don’t do mental math very well, so turning that lump sum into actual monthly income amounts frames the discussion in a way your clients can see more easily,” Newcomb said. “Then, they can start translating that into what their lives would look like if that was their only income. Then, the connection between the short term and the long term starts forming.”

Tools for success: mental contrasting can be crucial

“When I tell people they likely need millions of dollars to be nancially stable and not outlive their money in retirement, they say, ‘Oh, I can’t. It’s impossible. I can’t do that,’ and they just want to give up. Advisers have to be careful of that, because when people don’t feel powerful, they give up and they shut down,” Newcomb said. “You have to help clients understand that they can reach these seemingly unreachable amounts. They must start now and they have to plan well, but there are ways to do it. This is where really cool research on what’s called mental contrasting comes into play.

“First of all, get clients to think about the future that they want; think about how wonderful it will be to retire and spend all their time gardening and reading books,” she said. “Most people do that and stop. But it turns out that it’s powerful and effective for people to think about one obstacle that’s in their way, between here and that ideal future. Just one thing that they believe they can overcome. Maybe it’s a Friday night spending binge at the mall. Or maybe it’s a pricey dinner every week. Whatever it is, it has to make them say, ‘That’s the thing. I’m overspending in this area, and that’s one obstacle keeping me from really saving enough for retirement.’

“If it’s an obstacle that they don’t honestly believe they can change, it will backre. But if it’s an obstacle that they believe is in their power to overcome, then their brains attach success to overcoming that obstacle,” Newcomb said. “The people who use mental contrasting tend to save more for retirement and be more successful at reaching their goals than people that just use positive fantasy as a motivator.”

A blueprint for realistic goal-setting

Newcomb outlined a way for advisers to put all of these steps into practice, running through a scenario that she’s heard from multiple advisers.

“Let’s say you have clients that are pretty afuent, but they’re not thinking far enough ahead, so they’re not saving enough to reach all their goals. They might be able to reach two out of their three high-priority goals, but the long-term picture doesn’t look good,” Newcomb said. “The rst thing to do is try to move them toward nancial health, get them to think a little further ahead. If they’re thinking ve years ahead, get them to make a 10-year plan. Get them to picture their life 10 years from now, to really think about the life that they’re working toward, a life they can really dream about.

“If your clients are struggling in any way or feel powerless in their nancial lives, you can draw their attention to the ways in which they do have autonomy and power. You can show these clients how their choices are powerful. By doing that, you might be able to move them to boost their savings rate and reach all of their goals in time.”

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KAMFA ACTIVITIES

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KAMFA ACTIVITIES

49

Tips To Build A Retail PracticeBy Morningstar

Always wanted to establish a retail business? Here are the ways to lay the foundation for building a robust retail practice.

Building a retail practice can be rewarding. In a country like India which has a high household savings rate and favorable demographics, the opportunities are immense. In this article, we will delve on the benets of having a retail focus and how IFAs can build a robust retail business.

Benets of retail

One of the main advantages of a retail model is that these assets are sticky. Of the Rs. 2.15 lakh crore which stayed invested for over two years as on December 2016 in equity funds, 65% comprise retail assets. This is because advisers have done a commendable job of popularizing SIPs among retail investors. The rising inows and investor accounts corroborates this trend. In December 2016, the total SIP accounts or folios have crossed the 1 crore mark while monthly average inows through SIPs in equity funds have more than doubled from Rs. 1,400 crore in 2014 to reach almost Rs. 4,000 crore. Interestingly, this is now beginning to help our markets absorb the shocks of FII outows.

Traditionally, advisers have been recommending equity funds to retail investors. This is evident by the predominant share of retail assets in equity funds. AMFI data shows that retail investors hold 52% or Rs. 2.42 lakh crore of the total Rs. 4.69 lakh crore industry’s equity assets. Not surprisingly, 96% or 3.76 crore of total 3.90 crore equity folios are held by retail investors.

Besides, retail ows are consistent. “Corporates and HNIs tend to take tactical calls. IFAs catering to corporates can see huge uctuation in assets under advisory (AUA) and revenues. This is not the case with retail investors who tend to invest systematically to achieve long term goals.

Further, advisers don’t need to fear the thought of retail clients shifting to direct plans. Unlike corporates and HNIs, many retail investors have continued their relationship with advisers. Only about 8% of retail investors chose to invest directly. On the other hand, HNIs showed a higher appetite for direct - 16% of HNI assets are in direct plans. The shift is more widespread among corporates. 65 % of liquid/money market scheme assets where institutional investors dominate, were direct. (Source: AMFI)

Self-condence

Advisers need to have condence in themselves. The rst 1000 days are the most difcult during which an IFA needs to stay aoat. Retail assets pay off in the long run and advisers need to realize that they need to have a long term focus.

Patience

Establishing a retail business can take decades. Advisers who have tasted success have built their retail business brick by brick. Despite the regulatory headwinds, they have stayed focused on building their retail book.

Reaching out

Since retail model entails meeting many prospects, it is best to meet them in groups through investor awareness programs (IAP). Many advisers are conducing IAPs to reach out to retail investors and are seeing a reasonable client conversion rate

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Speaking their language

Serving retail clients can be an expensive affair. From prospecting to after sales services, they require handholding at all stages. Thus, advisers need to invest in hiring and training staff. Then comes infrastructure, which would entail renting an ofce (depending on the number of clients and business model). Unlike HNIs, retail investors may show up at adviser’s ofce to resolve their smallest query without appointment. Advisers need to be equipped to handle them.

Technology

To cut costs, advisers are adopting technology. From client CRM to transaction execution, they are investing in technology to build scale. For instance, a growing number of advisers are using stock exchange platforms to facilitate seamless transactions on the go. IFAs focused on retail can explore this option. Platforms can be ideal for startup IFAs. Platforms which provide transaction facilitation, research and back ofce support can cut down aspiring IFAs costs signicantly. Armed with a laptop, they can focus on growing their business, leaving the back-ofce support to platforms. IFAs have to share a percentage of their commissions (usually 20-30%) for the services received from platforms

1. How many millionaires do you know who have become wealthy by investing in savings

accounts? I rest my case. --Robert G. Allen

2. I made my money the old-fashioned way. I was very nice to a wealthy relative right

before he died. --Malcolm Forbes

3. Innovation distinguishes between a leader and a follower. --Steve Jobs

4. The real measure of your wealth is how much you'd be worth if you lost all your

money. --Anonymous

5. Money is a terrible master but an excellent servant. --P.T. Barnum

6. Try to save something while your salary is small; it's impossible to save after you begin

to earn more. --Jack Benny

7. Wealth is the ability to fully experience life. --Henry David Thoreau

8. The individual investor should act consistently as an investor and not as a speculator. -

-Ben Graham

9. I'm a great believer in luck, and I nd the harder I work the more I have of it. --Thomas Jefferson

10. You must gain control over your money or the lack of it will forever control you. --Dave Ramsey

11. Investing should be more like watching paint dry or watching grass grow. If you want

excitement, take $800 and go to Las Vegas. --Paul Samuelson

12. Every time you borrow money, you're robbing your future self. --Nathan W. Morris

13. Rich people have small TVs and big libraries, and poor people have small libraries and

big TVs. --Zig Ziglar

14. Never spend your money before you have it. --Thomas Jefferson

15. The stock market is lled with individuals who know the price of everything, but the

value of nothing. --Phillip Fisher

16. Wealth is not his that has it, but his that enjoys it. --Benjamin Franklin

17. It's not how much money you make, but how much money you keep, how hard it

works for you, and how many generations you keep it for. --Robert Kiyosaki

18. I have not failed. I've just found 10,000 ways that won't work. --Thomas A. Edison

19. If you don't value your time, neither will others. Stop giving away your time and talents.

Value what you know & start charging for it. --Kim Garst

*************

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Chandresh Nigam, MD & C.E.O Axis AMC

The last two years have been sort of break-out years for our industry. After hovering in the periphery of investor consciousness for a couple of decades, we have nally become main-stream. This is obviously an extremely healthy structural development. Of course market performance will remain key in driving sentiment and ows, but the use of regular investing and asset allocation — to name just two big trends — tell me that we should be more resilient to market volatility going forward. At Axis, we have used the last few years to create what we believe is a fantastic asset management platform, with strong products and performance and a clearly differentiated investment strategy

‘We avoid tactical trades’

Managing return expectations

We constantly emphasise the long term nature of investing in all our communication. Investors should not be looking for instant gratication while putting money into equity or bond markets. Of course, we also need to work with our distributors who often have a better ability to have these conversations with their investors. Lastly, we have tried to ensure that our product design focuses on sustainable themes and not tactical short-term ideas.

Risk controls

Risk management cannot be switched on or off based on the level of the market. It has to be an inherent part of the investment process. Axis has always taken pride in the strength of our internal risk management and we have made risk consciousness an integral part of investing. The entire focus is on sustainability of performance and we typically eschew tactical trades that may have potential to make money in the short term but which are not backed by strong fundamentals.

Growing clout of domestic Funds vis-a-vis Flls

Mutual funds have always been more relevant in the case of small and mid-cap stocks as compared to FIIs. However, we have to appreciate that the biggest impact is always that of the marginal investor. In that context, some of the FII ows come from hedge funds and such hot money has the ability to sharply increase/reverse allocation in response to global events. And I think in the large-cap/benchmark sense, we will remain at risk of such events and such investors in the short term. In the long term, it is the fundamentals and not ows of funds that will rule.

Outlook for equity and debt

We remain convinced about the long term opportunity that exists. We are very excited by the pipe line of high-quality IPOs that are allowing new stocks, new themes and new sectors to get listed on the equity market. As far as the bond market is concerned, we are seeing a structural shift essentially leading to disinter mediation of banks. More and more corporate issuers are choosing to raise money through bonds in addition to bank lines. Once again, this is adding strength and resilience to our nancial markets and improving the efciency and growth potential of our economy.

Remain convinced; remain committed. Long Term in your approach. Shun all short- term and tactical advise.

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Retirement Planning – Important but neglected goal

You think about retirement, you think about old age. And, that is in the distant future, isn't it? So, why worry about it now? We can cross the bridge when we come to it, can't we? That is typically what most investors feel about retirement, and perhaps end up not carefully planning for retirement.

Retirement Planning happens to be one of the most important life-stage goals yet investors seem to be not planning prudently enough to ensure a happy and hassle-free post-retirement life.

Retirement Planning is increasingly becoming more pertinent now due to some of the following reasons:

Ination the 'silent killer': Implication – Individuals have to save smartly to beat inationIncreased Life Expectancy: Implication – Individuals have to ensure that the retirement corpus is fairly large to support the long post-retirement lifePoor Social Security System: Implication – Individuals cannot hope for external support for their retirementMove towards a Nuclear Family System: Implication – Individuals have to ensure that they fend for themselvesIncreased expense on Health care: Implication – Individuals have to keep a good cushion for health care post retirement

India actually fares poorly when it comes to retirement planning. According to a Study done by Towers Watson, a leading marketing research agency, 78% Indians lack sufcient funds for comfortable retirement. India's per capita retirement and pension assets as a percentage of GDP are amongst the lowest in the world. It has ~5% of retirement assets (as a percentage of GDP) as compared to ~123% in Switzerland, 121% in USA and 126% in Australia. Though we are a young country with the median age of our population under 30 years, we are ageing as well. We have around 100 million people today above the age of 60 years, which is expected to triple to 300 million by 2050. This will pose a huge economic challenge for the country, if we do not plan for providing right retirement options today.

Signicant Opportunity

Retirement/Pension Funds are the largest category in the global asset management arena and these assets have grown to $36.4 Trillion in 2016. Conscious efforts are being made by both the developed and developing countries to bring more savers under the retirement umbrella which will trigger further growth of retirement assets.

Over the recent past we have witnessed households shifting preference to nancial asset over physical assets and Mutual funds with its benets like long term wealth creation potential, tax efciency, convenience, transparency etc. can grow signicantly in the years to come.

Even by conservative estimates the country's GDP is expected to quadruple over the next 10-15 years, which represents a BIG opportunity for the nancial industry in general and the MF industry in particular. In our view, within the overall growth potential, Retirement as a space offers tremendous opportunities. It's just a question of how well we are prepared to take advantage.

Source: Willis Towers Watson

Disclaimer

The information contained herein is only for the reading/understanding of the registered Advisors/Distributor, and is not meant to serve as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, afliates or representatives ('entities & their afliates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their afliates including persons involved in the preparation or issuance of this material, shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost prots arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

Source : Reliance Mutual Fund

55

Advisers catch the writing bugBy Morningstar

More than a dozen advisers have published their books on a wide range of topics which is helping them build credibility among prospects and inspiring people to start saving.

Advisers are coming up with novel ways to educate people. Besides meeting clients, they are busy hopping across book stores and events to promote their books.

Mumbai based adviser Vinayak Sapre published his maiden book Dohanomics by inaugurating it at a book store in Bengaluru. His book draws analogies from the timeless solutions offered by Sant Kabir and Rahim to the complexities of life for investors. It is a collection of forty gems from Sant Kabir and Rahim, interpreted by Vinayak who has studied their ancient wisdom and applied it to behavioural aspects of investing. “Generally, whilst taking any investment decision, people tend to follow the herd. Kabir explains that if by shaving one’s head one could attain moksha, then the sheep would be the most liberated living creatures; but it doesn’t happen. Similarly, before taking decisions on investments, one must consider one’s own need, risk appetite, goals, liquidity, etc. Following the herd is not a good idea,” writes Vinayak in his book.

The trend is not new. A cost accountant and company secretary, Pune based adviser Arvind Paranjape used to handle public and right issues of shares before becoming an adviser. He used to share his wisdom on how IPOs are structured in Saakal newspaper, a popular Marathi daily, which gave him instant popularity. When he started his practice in 2003, he started writing about mutual funds in newspapers which captured the imagination of many investors who recommended him to compile his articles into a book. “The articles were based on the past market situation and thus could not be compiled into a book. When I started my practice in 2003 the awareness about mutual funds was low. I thought of popularizing mutual funds through a book. Since simply explaining the benets of mutual funds would be very text bookish, I was thinking of how I could make it easy for a layperson to understand,” recalls Arvind.

Arvind says that the popularity of the book depends on how the author articulate his/her ideas. He avoided taking the text bookish approach and instead started thinking of presenting mutual funds to people more creatively. It took him almost two years to crystalize on the book’s format and style.

Arvind developed three ctional characters Yash & Isha (prospects) and an adviser Shekhar. The book starts with Yash & Isha attending an investor awareness seminar organized by Shekhar. He is talking about ‘How to Grow Rich’ through nancial planning. Inspired by Shekhar’s ideas, Yash and Isha decide to enroll for nancial planning. What follows is a long interaction with Shekhar where Yash and Isha clarify all their doubts about investments.

The Marathi edition launched in 2008 has met with reasonable success. In its fth edition, the book has sold 8,000 copies so far. To reach out to a wider audience, Arvind started translating it in English, which he completed in three months. However, nding an English publisher was not easy. After a long search, Tejal Prakashan came on board. Though his English edition has been appreciated by people, it has not been a commercial hit, having sold only 800 copies so far.

Unlike the current crop of authors who are promoting their books on social media, e-commerce websites and events, Arvind did not have such options a decade back. He adopted a more traditional approach. “My family members are into acting and have done a lot of dramas. I took their help to enact the SIP story written in my book live at an event. This helped me sell 150 copies,” recalls Arvind. He has started selling his books on e-commerce sites only recently.

Nevertheless, he is happy that his book has been appreciated by investors as well as advisers. Sharing once such anecdote, he says, “Some of my peers told me that their family members didn’t know what they do professionally. They gave my book to their family members which helped them understand about the wonders of mutual funds. They said that now their family appreciates the noble work they do.”

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Arvind is not alone. Mumbai based nancial planner Gaurav Mashruwala also published his rst book ‘Essential Guide To Carefree Retirement’ more than a decade back. The book explains how retirement planning can be done at different ages and stages of life.

The writing trend which started almost a decade back is now gathering momentum. Gaurav published his second book Yogic Wealth last year, which is a compilation of his articles written for newspapers. In this book, Gaurav unlocks the secrets of wealth creation and its preservation from the teachings of scriptures, bringing out their value and applicability in today's world.

While he doesn’t keep a track of book sales, he estimates that his book would have sold close to 10,000 copies based on the royalty received by him so far. The book has also been translated in Gujarati and Hindi.

Why has the writing bug caught advisers? Besides helping build credibility and recognition, acquiring a new identity as author is helping advisers acquire clients. Gaurav has been inundated with speaking requests after his book Yogic Wealth came out. While Gaurav’s intention of writing his book was not to acquire clients, he believes that he would have converted many prospects who would have heard him speak at events.

Other advisers who have authored books in the recent past include Kanak Jain, Manish Chauhan, Nandish Desai and Brijesh Dalmia.

Translating thoughts into ideas and presenting it to an audience which may have never heard of ‘nancial planning’ needs dedicated hours free of distraction. When Deepali Sen quit her job to set up her practice, her friend recommended her to articulate her ideas on how she can help people in a book which she could share with prospects. By putting in eight hours a day, she nished writing her e-book 'Why greed is great' in 30 days. She put her e-book on digital library scribd. “I shared my e-book with Gaurav Mashruwala and he suggested that I should approach a publisher,” recalls Deepali. The 1000 downloads she got on Scribed also encouraged her to get the book published, which has sold 15,000 hard copies so far.

Her book talks about our psychology behind money making, our unique relationship with money and the equilibrium all of us seek to achieve. It emphasizes upon the need for nancial planning through 12 life stories shedding light on the thumb-rules to follow.

Mumbai based adviser Amar Pandit is perhaps among the only advisers in India to author four books - Financial Planning for Doctors, Art & Science of teaching children about money, Bill and Penny’s Money Adventures and The Only Financial Planning Book that you will ever need, all of them published by Network 18 Publications.

The book’s success also depends on the popularity of the author. The more popular the author, the higher the chances of the book becoming a best seller, observes Amit. “It’s one thing to write, it’s another to make it popular. If your publisher is renowned, they will take care of promoting your book. If not, you have to put in a lot of effort to get visibility,” says Amit.

You can also expect to earn a steady income through royalty which ranges between 7% and 10% of invoice, depending on your negotiation with the publisher. It is generally the publisher who decides the book’s price. The publisher then markets the books through distributors at a margin, which can be as high as 30%. Assuming the book’s cover price is Rs 500, the actual invoice raised for the publisher is Rs 350, after deducting 30% margin. So the author gets a 10% royalty on the invoice price Rs 350. Assuming your book is purchased by 5,000 people, you would earn a royalty of Rs 1.75 lakh (excluding taxes).

With hundreds of books vying to get the attention of readers online, the book’s success depends on pricing, the publisher’s pedigree and the books’ title which must be catchy enough to get added to the cart. Take for instance P V Subramanyam’s book ‘Retire Invest: Rs. 40 a Day’. The book’s catchy title coupled with the author’s simple writing has helped the book sell over 1.50 lakh copies across Hindi and English editions, including kindle.

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Understanding client anxiety during market swingsBy Morningstar

Steve Wendel, Head of behavioral sciences at Morningstar U.S. on how advisers can help clients overcome their biases while investing.

The scenario is one that every adviser has faced: The market takes a tumble and clients are on the phone, wondering what’s happened to their money, what the adviser is doing about it, and generally looking for assurance that all isn’t lost.

“This can be driven by the fear of future loss,” said Steve Wendel, Morningstar’s head of behavioral sciences. “When someone has that fear, it’s perfectly reasonable to call their adviser. And advisers have a key role as behavioral coaches to help their clients through moments like this.”

Helping clients through periods of market volatility can cement long-term relationships and keep investors on track to reach their goals. And successfully navigating these moments can be a lot easier if advisers understand the causes of investor anxiety and how to turn them into positive behavior. We shouldn’t ask if the client is doing the right thing in that moment, but why that is moment happening.

The Mechanisms of Anxiety

Long-term investing discipline is so difcult for many people because the instincts that serve humans well in day-to-day life work against us when the stock market enters the equation. “We’re hard-wired to see recent events as more predictive of the future than the distant past. If you think about our biases and the way we make decisions, they make perfect sense except when it comes to investing,” Wendel said. “Investing is such a non-obvious, turned around scenario that we can get into trouble.”

The rst of these troublesome traits is recency bias: We believe that recent, especially vivid, events are likely to continue in the future.

“Recency bias is interesting. If you see the car in front of you crash, you should swerve. But if you see the stock in front of you crash, you should jump right in and buy the stock,” Wendel said. “It’s the exact opposite.”

This bias is compounded by our brain’s natural inclination toward herding behavior—looking at what other people are doing to get cues for what our response should be.

“If people are running out of the theater you should, too, regardless of whether you smell smoke. Get the heck out,” Wendel said. “But with investing, if you see the herd going one way, that means there are opportunities in the opposite direction.”

“When you see something like Brexit, you see investors say, ‘Wow, all these other people are reacting this way, so I should too,’ “Wendel said. “It’s actually physically painful to resist the herd. We’re social creatures. It’s very hard for us to go against the social norm.”

Recency bias and herding behavior are egged on further by the headlines and social-media doomsaying that accompany market volatility, making it far more “real” and immediate than a carefully considered long-term plan that a client agreed with years ago.

“You can have a calm, rational discussion with an anxious client about how market instability is probably going to be overblown, but if the client’s neighbor is screaming about how we’re all going to lose everything, that overrides everything else,” Wendel said. “Vividness matters, and people often get excited about market volatility in part because of that vividness. The more vivid it is, the more real it feels.

“None of these biases is irrational or bad,” Wendel said. “It’s just a question of what you can do to help your client when anxiety strikes.”

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Turn Those Biases Around

When anxious clients call their adviser for reassurance after the markets fall, the vividness of the m o m e n t r e i g n s . Ye t , a d v i s e r s c a n u s e t h i s t o e v e r y o n e ’ s a d v a n t a g e .

“What do you do? You can ght vivid with vivid. Give the most vivid example of other investors who gave in to herding behavior in the last major scare and then lost their house. Lost their retirement. Lost it all.

“Then give a vivid, real, personal example about the people who stuck to their long-term plans through a scare and did really well,” Wendel said. “The abstract is useless. It’s about how well you can visualize that person who actually did it right.”

The next step advisers can take is called anxiety reappraisal, which uses our natural response to stress to create positive behavior.

“It’s very difcult for people to ignore their emotions when you tell them to just be calm,” Wendel said. “Instead, you can tell them, ‘Yes! Get excited!’ You can re-label that emotional trigger as excitement. It sounds crazy, but it works.

“At its core, anxiety reappraisal is just saying, ‘I’m excited about this. The reason I’m feeling this is because I’m excited,’ when you’re anxious,” Wendel said. “You aren’t going to tell your client to repeat ‘I’m excited’ over and over again, but you can say ‘Yeah! I know there’s a lot going on. Great! What can we do with this?’ This strategy directs the energy from their anxiety into excitement.

“Contrarians do this really well. For example, Daniel Needham of Morningstar’s Investment Management group says, ‘Absolutely people are running away. This is the moment we’ve been waiting for.’ It changes the narrative from panic to opportunity,” Wendel said. Then, you can schedule regular check-ins with clients to help them stay focused on their long-term goals, instead of short-term panic.

“You can’t tell people not to watch the news at all, but you can set up a replacement,” Wendel said. “Say, ‘We’re going to have quarterly check-ins. That’s when we’ll talk about your portfolio and its progress toward your goals. We will explicitly not talk about what’s happening to other people. We’re going to talk about you and your goals and your progress, not about a particular company in the portfolio that might be doing poorly, but the overall portfolio.’”

“So, when the client calls and asks what’s happening, you can say, ‘We set this up to move you toward your goals, and you’re doing ne.’

Rethinking the ‘Invisible Client’

What about the clients who never call? While that might seem like a perfect scenario, Wendel said that it can cause just as many long-term problems as a client who’s constantly asking for short-term xes. And you can engage these “invisible” clients by simply reminding them about the existence of their nancial life.

“Think about somebody who has a very robust work life, home life, and church life. When they’re at work, they’re generally not thinking about their home life and their church life. When they’re at church, they’re not thinking about their work life,” Wendel said. “The same thing happens for investing. It’s not because investing isn’t important to them, it’s because so many other things are crowding it out.

“One way to x this is to simply re-engage. Try another moment, and check in. A client’s lack of engagement means you’re missing an opportunity to strengthen your relationship, which can mean much more to your practice than the bit of peace and quiet you get because they don’t call when the market dips.

“Their marital status may have changed, their family status may have changed, or their work status may have changed. They may now be really excited about sustainable investing, but they haven’t connected with you about it. They may be interested in retiring early, and you should say, ‘Wonderful, I can help you do that.’ That means more assets under management earlier, but it wouldn’t have happened without that re-engagement.”

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IDFC NEO Equity Portfolio - PMS using Articial Intelligence for the entire investment process

IDFC Asset Management has launched a unique and pioneering offering known as NEO Equity Portfolio in the Indian investment space for sophisticated investors in India and abroad. IDFC NEO - which is offered as a discretionary PMS makes extensive use of ARTIFICIAL INTELLIGENCE (AI) and BIG DATA ANALYSIS in the investment process.

Articial Intelligence has already become ubiquitous in every facet of daily life via social media, online retailing, online streaming, navigation maps and chat engines – all of which make extensive use of machine learning algorithms to run their applications.

The availability of data is the critical fuel for AI based applications and India is on the verge of a 'DATA REVOLUTION' thanks to the convergence of multiple factors such as smart phone penetration, demonetization, GST, AADHAAR and India-Stack - which make the conditions ripe for widespread USE OF ARTIFICIAL INTELLIGENCE to analyse these vast quantities of data and making meaningful predictive analysis

Extending the logic further to investment management – which is the business of analysing data across industries and companies to predict their future performance – is ideally suited for an application of Articial intelligence.

A lot of portfolio managers refer to gut feel and instincts about the markets. AI is a way to test the validity of those instincts with actual data. This becomes even more important as we transition from the Industrial Age to the Digital Age wherein companies do not follow linear growth paths anymore as the importance of a physical presence cedes ground to a digital presence.

The IDFC NEO Equity Portfolio is the rst offering by a mainstream India AMC which leverages these advanced technologies for the entire investment process including the research and stock selection, portfolio optimization and risk management processes.” It combines aspects of fundamental, technical and behavioural analysis and applies the rigours of a systematic process. What differentiates AI based technologies from older quantitative and stochastic models is the ability to adapt much more quickly to changing environments – similar to how the human mind functions.

Investment management using AI based technologies is not about some machine running a secretive black box. It is about achieving the optimal combination of man and machine to signicantly enhance their combined capabilities via a transparent and adaptive process unconstrained by prexed rules and biases.

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How to help clients break old habits

By Morningstar

Sarah Newcomb, Behavioral Economist at Morningstar U.S. on how advisers can help clients get a fresh nancial start.

Everyone’s heard the horror stories: lottery winners who go broke a couple of years after the big jackpot, celebrities in bankruptcy court, or pro athletes who’ve squandered their millions and live on the street. These extreme cases are examples of a much wider behavioral phenomenon, one that covers not only people with sudden millions, but also recent college graduates who are ush with cash after getting their rst real job or small business owners whose hard work nally pays off after years of squeaking by.

People who come into money need good advice to turn their money into wealth.

“They’ve never been in that situation before, and it can be quite shocking,” said Morningstar behavioral economist Sarah Newcomb, Ph.D., author of the forthcoming book Loaded: Money, Psychology, and How to Get Ahead without Leaving Your Values Behind.

To help advisers navigate new-money situations and talk about them with clients and prospects, we asked Newcomb about the psychology behind new-money behavior, and how advisers can help.

Everything is amplied

“Money turns up the volume on everything,” Newcomb said. “Let’s look at someone just coming out of college. Suddenly you nd yourself with a paycheck that’s bigger than you’ve ever had before, and you don’t quite know what to do. One of the biggest things to recognize is that you’re now going to have a lot more ways to either do great things or get yourself in trouble.

“If all your extra money and all your extra time during college was spent in certain ways, then just having a new job isn’t necessarily going to change the way that you’re spending money. It’s just going to give you more opportunity to spend more in the same old ways.”

For advisers, breaking down bad habits and demonstrating the need for early career long-term planning can cement client relationships and build the trust that’s crucial to every advisory relationship.

It’s not need versus want

“I really don’t like the idea that people need to know the difference between a ‘want’ and a ‘need.’ We need to know the difference between a need and a strategy for meeting that need,” Newcomb said. “We always hear about how if we didn’t go to the coffee shop every day we could save like $1,600 a year. Everybody hears that and says, ‘Oh that’s awesome. That would pay for my whole health insurance premium.’”

In practice, making that happen isn’t so easy, and advisers should beware of quick xes that don’t address a client’s real needs.

“Making coffee in the ofce might work for a day or two, but the reason you go to the coffee shop probably has nothing to do with caffeine,” she said. “You’re probably meeting a different need than a need for caffeine. You nd yourself back at the coffee shop.

“People don’t go out to eat dinner because they need food. They do it because they want to connect with friends or experience something novel. They’re meeting needs for social connections, for convenience. If you cut something out of your expenses without tracing it back to the need that you’re meeting, the expense goes away but the need doesn’t—it stays there and gets louder and louder until you nally meet it.”

Good budgeting, then, will restructure nancial priorities to meet a person’s needs in a way their current nances can handle without also sacricing future security, giving your clients more money to invest toward long-term goals.

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The status trap

New money can also mean new pressures as people try to “keep up with the Joneses” and feel like they have to spend money to demonstrate their new status. Newcomb said that the trade-offs between spending for today and focusing on the future can be made more easily when your clients understand that most everyone else struggles with the same decisions—and they aren’t necessarily making good choices. Advisers can help solve this dilemma by pointing out some key facts.

“We have to recognize that the people around us who seem like they have it all probably don’t,” Newcomb said. “For example, the American Psychological Association does a stress survey, and every year since it started doing the survey, regardless of the economic climate, regardless of whether it was recession or boom, money is the top source of stress for people.”

In the APA’s 2014 survey, 72% of people reported being moderately or extremely worried about money, and a separate study showed that 62% of people were literally losing sleep over their nances.

“You can see people going out and spending and driving great cars and living in great houses and always having the new gadgets, but remember that six to seven out of every 10 of them are also losing sleep over their money. I think that can help when you’re considering your own trade-off and say, ‘Who do I want to be? Do I want to be the guy that looks like I have it all, but it could fall apart any second? Or do I want to be the one who’s got his head on straight and has real security?’ Be the guy whose friends ask him for nancial advice. That’s real status.”

The time value of money works both ways

Persuading clients with new money to invest for the long term can be difcult, but Newcomb pointed out that the time value of money works in two directions—and that can be quite a reality check.

“People—young people especially, need to also take stock of their long-term needs, like the need for nancial security. They’re 22 and they get out of undergrad, or they’re 25 and get out of grad school, and they get a job and say, ‘I’m 25 years old, I do not need to start saving for retirement now,’” Newcomb said. “But at 3% ination, the historical average annual ination, prices on everything double every 24 years. If you get out of college at 22 and the lifestyle that you’re comfortable with costs you $50,000, by the time you’re 46, that exact same lifestyle will cost $100,000 a year. At 70, the lifestyle that cost you $50,000 when you were 22 will cost you $200,000 a year.

“The time value of money works against ination, so we have to counter that. People think about how much their lifestyle’s going to cost them on day one of retirement, but they forget about year 25. They end up in their 90s on a xed income, which essentially means their buying power is going down every single year.

“That’s why you have to start with, ‘What lifestyle do I want to live? What will be comfortable for me? What will that cost me in the future?’ When you really start looking through numbers then you say, ‘Oh crap! I have got to start saving.’”

The key, then, is for advisers to re-frame this reality by helping clients identify what’s important to them and what lifestyle they want for the future. Then, advisers can work backward from that to nd a present-day plan that takes those goals into account.

Build the skill of saving

Even after recognizing the needs that drive them, it can still be tough for advisers to help people break bad habits if they aren’t used to saving money. But learning to save, especially in new-money situations, is essential.

“We tend to think, ‘I’m either a spender or a saver.’ Saving is a skill,” Newcomb said. “You don’t say, ‘I’m going to become a runner,’ and start by signing up for a marathon. You start by running around the block, because it takes a lot for your body to build endurance. You have to do it slowly over time, and it’s the same with saving.”

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Advisers and nancial planners can play a crucial role here as a coach or personal trainer, strengthening these essential saving habits and getting clients ready for the long race ahead of them.

“If you’re naturally a spender, you’ll tend to associate money with things like freedom and opportunity and fun, and you’re thinking about all the things you can do with the money. It’s those experiences that you’re looking for, rather than the feeling of saving. Saving feels painful, because if you are a spender, saving means that you’re not getting the stuff that you want. You feel like you’re depriving yourself.

“If you are a saver, on the other hand, you probably associate money with the feeling of security and safety, and you feel more free when you have money in the bank than when you’re spending your money. Savers are lucky people who naturally just love holding on to money--they don’t need to build the skill of saving. They understand that. Those of us who are spenders, we have to slowly build it up.

“You don’t go from being a spender to having a down payment on a house right away. You do it little by little, by training yourself to save. It’s like exercise rather than dieting: You build your strength over time.”

Turn income into assets

While a new income might be nice, it can be eeting if your clients don’t harness it to build wealth and meet future needs. Once your clients are sold on the idea of making nancially healthy changes, then advisers can start the process of explaining the difference between income and assets.

“There are three sources of income: land, labor, and capital,” Newcomb said. “If you ever want to get to a point where you can stop working, you have to have other assets to generate income and replace your labor. That’s as simple as money management gets.

“If you think in terms of income, you’re always thinking about the stream, but if you think in terms of assets, you’re thinking about the source of the stream. Assets generate income. When you rst graduate, those assets are your mind and your degree, and you’ve got to use those because that’s your source of income. You can have a high income but if you’re not growing your store of assets, then you will always have to work in order to have that income. If you’re growing your store of assets, then you’re making it so that someday you don’t have to work.”

Kick-start change with the fresh start effect

As a clear nancial plan comes into focus, advisers can use what behavioral scientists call the “fresh start effect” to make a client’s new nancial outlook stick in their minds. “When we think of something as being a fresh start, we are naturally motivated to put our best efforts into reaching our goals,” Newcomb said. “That fresh start can be the start of a week, New Year’s, a birthday, the start of a season,” or another landmark in time.

Research clearly supports this: In a study done by Wharton University scientists, people were asked to describe a goal that they would like to accomplish, then they were asked when they would like to get an email message reminding them of that goal. Some of the participants were given the option to choose the rst day of Spring as a date for the reminder; others were given the option of choosing the third Thursday in March. Those both occurred on the same day, but participants overwhelmingly chose the rst day of Spring.

“It’s worthwhile to take advantage of the fresh start effect and not ask, ‘Fresh start with a fat new pay check, what do I want to do?’ but instead, ’Fresh start with a lot more opportunities. Who do I want to be?’”

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Mutual Fund Industry Current Scenario

Mr. G Pradeepkumar, CEO of Union A M C

Indian Mutual Fund industry is presently going through its most exciting period ever. Demonetization has been very positive for the Mutual Fund Industry. The industry witnessed a robust growth of around 29% with rise in average Assets Under Management (AUM) by `4.93 lakh crore to reach at `21.79 lakh crore in October 2017 as compared to October 2016. In addition to demonetization, the strong domestic ow can be attributed to the fact that interest rates on deposits are relatively low and Real Estate and Gold as alternate investment avenues have been lackluster, prompting investors to turn to Equity Markets. At the end of October 2017, Mutual Fund AUM stood at around 19% of total deposits with Scheduled Commercial Banks (SCBs) compared to about 11% in 2011. In USA, this ratio is about 116%. The growth has been well supported by the rising retail participation, which in my opinion is the right way to achieve sustained growth. In terms of folio count, the industry saw a growth of 23.2% over a one-year period ending 31st October 2017. Importantly, Industry's rising Systematic Investment Plan (SIP) book which is about 1.73 crore SIPs with an average SIP size of about ₹3,250 is now

contributing about ₹5,600 crore per month. The regular ow of money into mutual funds is

leading to a situation where domestic institutions have emerged as an effective balancing force against foreign players. This has played a signicant role in reducing the volatility and creating a more stable market.

Though demonetization created the required liquidity in the market, the most important role was played by the distributor community who channelized the money in Mutual Funds. The quality of the sale process has improved many fold and has shown a remarkable level of responsibility and maturity. The Industry and the distribution community should work hand in hand to strengthen the network across the length and breadth of the country. We also need to ensure that the distribution reach and the product offerings keep pace with the increasing requirements of the investors.

We at Union Mutual Fund, have been diligently working towards improving our product basket by launching retail focused products and by emphasizing more on disciplined investing. This approach during last one year helped us to increase our equity assets by about 80% vis-à-vis the industry growth of 56.7%. Our live SIP count rose by around 27% at the end of October 2017 when compared to the SIP count at the end of October 2016. Similarly, the live folio count also jumped by about 38% with around 70% being rst time investors in Mutual Funds. I strongly believe that there is ample room for every mutual fund to grow by expanding the distribution and the investor base.

The views expressed or statements made in this article are purely the views of the author and do not necessarily represent the views of the Company or its afliates.

The views expressed or statements made in this document are as of 14 November 2017, and can change without any notice.

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.

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What Kind of An Investor Are You?

Mr. Pattu

Investments are not about the asset you invest in. They are about you. So, nd out what your investor traits are:

THE PERFECT BLEND

TRAITS: You balance risk and returns by investing in Debt and Equity assets.

YOU ARE A: Balanced investor. You accept some Equity exposure with low risk.

WHAT YOU STAND TO LOSE: Despite having a well-diversied portfolio, you could lose out on

returns in the long run.

THE FIGHTER

TRAITS: You assume substantial risk to grow your wealth. You invest majorly in equities.

YOU ARE A: Aggressive growth investor. You seek attractive returns.

WHAT YOU STAND TO LOSE: Too much shortterm Equity exposure can put your capital at risk.

PLAYING IT SAFE

TRAITS: You stay away from risk and rebalance your portfolio regularly. You invest mainly in

Debt Securities.

YOU ARE A: Conservative investor. You try to avoid risk.

WHAT YOU STAND TO LOSE: Low-risk investments like Fixed Deposits (FDs) may not help

you grow wealth

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THE UNBOTHERED

TRAITS: You assume a little risk and are satis ed with nominal returns. You invest mainly in

Fixed- Income Securities like FDs, Bonds, and Debt Funds.

YOU ARE A: Defensive investor. All you want is peace of mind.

WHAT YOU STAND TO LOSE: Your investments give moderate returns but are not enough to

grow your wealth.

THE FOLLOWER

You follow the 'Wherever you go, we follow' mantra. You base your portfolio decisions on what

others say or do. RISK AND RETURN: This can be risky as independent reasoning is crucial.

You might not invest in a way that suits your unique goals or risk appetite.

MR. KNOW-IT-ALL

You base your investment decisions on careful study and analysis. You research religiously

before investing.

RISK AND RETURN: You may bene t from market uctuations. Consider of oading your

tasks to an expert Mutual Fund (MF) manager too.

THE ADVENTUROUS SOUL

You look for new and diff erent investment options. Your investment portfolio holds many

diff erent tools.

RISK AND RETURN: Before investing, weigh the risk and returns of each option. Ensure

that it ts your needs.

THE PROTECTED ON

Investment-linked and other insurance policies dominate your portfolio. You believe

insurance is an investment.

RISK AND RETURN: Investment-linked insurance often generates lower returns than

other investment options. A pure-protection term insurance is cheap and supports you

during a nancial crisis.

THE WANDERER

You invest as and when you fancy. Or, you invest whatever little you have left at

month-end. You do not follow an investment plan. RISK AND RETURN: If you are

lucky, you might get good returns. But not having a well-de ned investment plan can

cost you in the long run. What next?

ALL THE WORLD'S A STAG

You look beyond geographical boundaries while investing. You invest in assets

around the world.

RISK AND RETURN: You diversify your risk across countries and continents. But too

much exposure can be risky.

THE GOLD-LOVER

Your investment portfolio comprises mainly Gold and Real Estate. You avoid paper-

based investments like Stocks and MFs. RISK AND RETURN: Gold and property

prices have not grown in the past few years. So, your returns are safe but could be

limited. Build a wellbalanced portfolio through MFs.72

Change ManagementR Arunachalam

Over the past twenty ve years actively managed funds have consistently managed to beat the benchmark consistently in India. This has happened both in the midcap and large cap space. But as the assets under management is increasing and as more number of institutional players are entering the fray. The assets under management is increasing steadily we have observed that the extant of Alpha generation is coming down.

Increasingly it is going to be difcult to beat the benchmark in the large cap space. This is the scenario in most of the developed markets. Hence increasingly it does appear that the days of high alpha generation is over in the large cap space and as the return comes down, worldwide there is pressure on cost side. The move to bring down expense ratios, with investors increasingly questioning the cost incurred. This is where in developed markets there has been a big move away from actively managed funds to passively managed funds like ETF's and Index funds.

This is the threat in the large cap space where increasingly investors will take exposure to this space through passive funds. Also large cap stock universe has become well researched, and scope for mispricing is less. Whereas in the mid and small cap space there are more number of scrips available for investment, also they are under researched. Hence we are nding more outperformance in the mid, small and multi cap space. This is the space where the customer nds value addition due to superior returns especially during the past few years.

Those fund managers and advisors who have advocated this space have out performed and investors due to past experience have poured huge sums of money in this space. Even in large cap space many fund houses are trying to have either 70 or 80 % large cap and rest in mid cap space to beat the benchmark.

Technology is increasingly changing the way in which we manage funds, sell funds and buy funds. Today investors awareness as increased on all counts both on product side as well as cost side. They do not need people to recommend funds to them based on returns or to provide market information. We are living in a world with information overload. As the end consumer is changing, we cannot continue to run business in the way in which we have done in the past. Both the manufacturer and distributor has to change as the consumer has already changed. We need to reinvent ourselves to remain relevant. Change is given, the world around us has changed but have we changed ?




4. It is time for us to stand and cheer for the doer, the achiever, the one who recognizes the challenge and does something about it. --Vince Lombardi

5. It's not the situation, but whether we react (negative) or respond (positive) to the situation that's important. --Zig Ziglar

***********

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Dynamic asset allocation funds cut risk in a volatile market

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Investing in equity/debt market can be challenging for both new and seasoned investors. And the questions on market appraisals and the direction, in which markets are advancing, etc., have no quick xes or clear solutions as the economy and marketplace are dynamic in nature. The rst step of gauging whether the stock markets are overheated or still worth investing in, or if the debt markets are currently attractive or not, is difcult. The second step of actually shifting from debt to equity and vice versa is yet another challenge in terms of what to sell, what to buy, tax implications, and so on.

In the light of these questions, what most retail investors try and do is to seek solutions to these questions that can address the act of being invested both in debt and equity in an appropriate ratio.

Asset-allocation is the key

Most retail investors tend to adhere to the herd mentality and make the mistake of selling when everyone is selling and buying when everyone is buying. This very strategy results in losses. The asset allocation technique, however, can be useful for maintaining self-discipline and keeping emotions at bay when it comes to making investing choices. Adhering to asset allocation tries to make sure that the investor not only avoids following the crowd but also invests in a disciplined and proportionate manner. For investors who are not very well versed with market landscape, the simplest way to use the asset allocation technique is through dynamic asset allocation funds.

Easy way to rebalance portfolio

Dynamic asset allocation funds adhere to a 'buy low and sell high' methedology. Here are several models which a fund manager can access to decide on the valuation metrics. However, fund houses such as ICICI Prudential AMC uses an in-house model on valuations, which allows the fund manager to invest in equities when the markets are inexpensive and book prots when markets have rallied and move to debt if required. This switch between equity to debt or vice versa may be carried out on a daily, monthly or even on a quarterly basis, based on the mandate of the fund.

The rebalancing of investments is done according to a proven measuring yardstick. There are various parameters based on valutions to arrive at the asset allocation break up. A commonly used parameter is the price-to-book value. It decides whether to enter or quit equities, by analyzing the stocks based on their implicit value. The price-to-book value of stocks is available on a regular basis and can be tracked to nd out whether the companies are overvalued or undervalued.

On a particular day, if the book value drops to a pre-specied level, the fund manager purchases more stocks the next day. All this is done within the pre-dened limit for allowance of equities in the fund. And it is this rebalancing function which gives investors the opportunity to have optimal asset allocation. In effect it aids the investor to have exposure to both debt and equity in a balanced manner without being overtly invested in one particular asset class.

Advantages galore

Regardless of whether you choose equity or xed income, based upon on your investor prole, mutual funds as an investment choice gives you the advantages of diversication, low cost and professional management.

It could therefore be a sensible strategy to add the taste of dynamic asset allocation funds to your investment portfolio as these funds strive to deliver reasonable returns, while limits the effects of market volatility on your portfolio by following the principle of asset allocation. These products are appropriate for rst time investors with little or no knowledge of the market places. The fund enjoys lower volatility and tax advantages. As per prevailing tax laws these funds enjoy equity fund taxation (due to their 65 percent exposure to equity). This means if an investor's holding period is longer than a year, the tax on gains incurred is nil; otherwise, they are subject to short-term capital-gains tax.

Best of all, such funds usually do well over different market periods when one keeps them for the long run.

Raghav - ICICI AMC

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