Vol.4, Issue IX, Pages 54, September 2012

Vol.
4, Issue IX, Pages 54, September 2012

From the Managing Directors Desk
Anup Bagchi
MD & CEO
ICICI Securities Ltd.
Our retirement could be very
different than what our parents
experienced. As more and
more corporates and even
government moves towards
dehned contribution system, a
guaranteed pension and medical
benehts from employers may not
exist. This means for 25-30 years
of retired life, we would need to
save enough today.
A good way to start is to take a
stock of the current pool of assets
that you have, which have been
earmarked for retirement. These
could be your EFF, FFF, gratuity
or pension schemes offered
by insurance hrms. lt is also
important to understand the type
of assets that you hold under these investments.
The second step is to estimate the expenses that you will incur
after you retire. This could be a bit tricky, because what you
spend then could be signihcantly different than what you spend
today. With ination, the expenses go up every year and your
investments will need to grow to meet up with those expenses.
ln real terms, your expenses are likely to reduce by 60-70.
However the pattern may change. There are likely to be more
medical expenses but lesser expenses relating to children,
travel etc. lt is a good idea to have a separate corpus for medical
expenses based on current htness, family history, coverage, if
any, through the current employer, etc.
The third step is to hnd how much you should invest today to
have enough corpus at the time of retirement. This could be a
ICICIdirect Money Manager z 1
September 2012
complex decision with a large number of investment options
available today. Basically, you need to get your objectives right.
A long-term retirement plan needs to strike a balance between
capital growth, risk management, protection and tax planning.
Additionally, this mix has to be reviewed regularly so that it is
aligned to your retirement goals.
At times we may realize that funds are less and goals are high. It
therefore becomes tougher to estimate what one would require
at the time of retirement and how much is good enough to save
today. A proper planning can help answer how much you need
to save. Its a good practice to analyze the household budget
for income and expenses. Reviewing credit card bill statements,
electricity bills, cheques issued, etc, of the last one year will
give us an insight on where our money is disappearing. On the
income side, one has to observe the hnancial as well as physical
assets, and ensure that all are made to work to improve returns
on lazy money lying around.
Flanning for retirement ought to be the top hnancial goal.
The reason is simple. The responsibility to ensure we have a
regular income is no one elses but ours. The services of a good
personal hnance advisor can hand-hold you through the process
of retirement planning. With our vast experience in hnancial
markets and a commitment to pioneer innovative solutions for
customers, we are always there to partner you towards a secure
and peaceful retirement. Do talk to your ICICIdirect relationship
manager to help you with your plan.
Our message remains the same - Keep investing and stay
invested for your life goals. Through this magazine and our
website www.icicidirect.com we want to make an earnest
attempt to partner with you in setting and achieving your
hnancial goals. Give us an opportunity to serve you, walk into
any of your Neighbourhood Financial Superstore and talk to us.
2 zICICIdirect Money Manager
September 2012
EDITORIAL
Editor & Publisher : Abhishake Mathur, CFP
CM
Coordinating Editor : Yogita Khatri
Editorial Board : Sameer Chavan, Pankaj Pandey
Editorial Team : Amit Gupta, Azeem Ahmad, Darshan Dodhia, Dharmesh Shah,
Nithyakumar VP, Nitin Kunte, Pankaj Agarwal, Purnendu Jha, Sachin Jain,
Shaboo Razdan, Sheetal Ashar
Most of us understand the importance of retirement planning,
yet very few of us actually take steps towards it. We ran a poll
on ICICIdirect asking our customers if they had planned for their
retirement. The result - about 51 percent of the respondents
said they have not planned for their retirement yet. Part of the
problem is the awareness and knowledge on options available.
Regular income in our old years is something that we all seek
for. It could be achieved with the help of pension products,
which provide old-age income security. One such product is
New Pension Scheme (NPS). NPS is a low cost portable pension
product with multiple fund managers and investment options. It
has a provision for mandatory 40% annuitization which ensures
regular pension in old years.
NPS allows you to invest 50% of your money in equities; the rest
goes in debt instruments. Its a good retirement planning option,
especially for moderate and conservative types of investors. In
this issue of ICICIdirect Money Manager, we cover all that one
needs to know about NPS.
The edition also offers the information and analysis on balanced
funds that seek the best of both world equity and debt.
These funds are ideal for investors looking for a combination
of income and moderate growth. We also cover thirteen fund
managers opinions on equity and debt markets along with their
recommended investment strategy for retail investors. So read
on, stay updated and involved.
Do write in with your feedback at moneymanager@icicisecurities.com.
September 2012
CONTENTS
Important: All the contents of ICICIdirect Money Manager are the exclusive
property of ICICI Securities Ltd. No article, either in whole or in part, may
be published circulated or distributed through any medium without the
express consent of ICICI Securities Ltd.
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From the Managing Directors Desk .................................................... 1
Editorial .................................................................................................. 2
Contents ................................................................................................. 3
News ....................................................................................................... 4
Markets Round-up ................................................................................. 5
Technical Outlook .................................................................................. 6
Derivatives View .................................................................................... 8
Top Picks: PNB and Havells India ....................................................... 12
Flavour of the Month: New Pension Scheme (NPS) ......................... 15
Here we discuss how NPS helps you save regularly to ensure income
security during retirement
Fund Managers Survey ...................................................................... 20
Query Corner ........................................................................................ 24
Financial Planning Case Study ........................................................... 27
Mutual Fund Analysis: Category Balanced Funds ......................... 31
Investing Tip: P/B Ratio SimpIied ................................................... 40
Knowledge Base Article: Bank FDs vs. RDs ...................................... 42
Equity Model Portfolio ........................................................................ 44
Quiz Time ............................................................................................. 47
Premium Education Programmes Schedule ...................................... 48
September 2012
NEWS
European Central Bank plans unlimited bond-buying
The European Central Bank (ECB) has agreed to launch a new and potentially
unlimited bond-buying programme to lower struggling Euro zone countries
borrowing costs and draw a line under the debt crisis. Seeking to back up his
July pledge to do whatever it takes to preserve the euro; ECB President Mario
Draghi said the new plan, aimed at the secondary market, would address bond
market distortions and unfounded fears of investors about the survival of
the euro.
Courtesy: The Times of India
Mid-year change in capital gains tax likely
The Parthasarathi Shome panels recommendation of abolishing short-term
capital gains tax has thrown up various possibilities before the hnance ministry
including making amendment in the Finance Act, 2012, to implement it even
before the next Budget. Though a hnal decision on this will be taken by Finance
Minister P Chidambaram after the committee appointed by Prime Minister
Manmohan Singh to look at the General Anti-Avoidance Rules (GAAR) draft
guidelines gives its hnal report by the end of this month, ofhcials in the know
of the developments indicated the possibility of bringing the change mid-way
might also be explored. Short-term capital gains are taxable at 15 per cent.
Courtesy: Business Standard
GDP grows marginally at 5.5% in Q1
The Indian economy grew marginally stronger-than-expected in the April-June
quarter on the back of robust farm sector growth but economists said the
Reserve Bank of India is unlikely to ease monetary policy soon as its attention
is focused on taming price pressures. Data released by the Central Statistics
Ofhce on Friday showed the economy grew 5.5 % in O1 of 2012-13, compared
to 5.3% in the January-March quarter. It rose 8% in the April-June quarter of
2011-12. The farm sector posted a robust performance, rising 2.9% in April-
June quarter compared to 3.7% expansion in the previous-year ago period.
The manufacturing sector continued to pose a concern as it remained at at
0.2% compared to 7.3% in the year earlier period.
Courtesy: The Times of India
India mulls exemption of PAN for foreign investors directly investing in
capital markets
India may exempt individual foreign investors and trusts that invest directly
in the capital markets from the need to acquire a Permanent Account Number
(PAN), a mandatory requirement for all tax payers. In January this year the
government allowed individual foreign investors, such as family ofhces that
manage the investments of wealthy families, to invest directly in Indian debt
and equity through the qualihed investor route (OFI).The proposal, mooted by
hnance ministrys department of economic affairs (DEA), has been triggered
by feedback from potential investors at road shows held outside India.
Courtesy: The Economic Times
September 2012
MARKETS ROUND-UP
Markets across the globe started
on a positive note in August.
The month witnessed lacklustre
US economic data, lower export
growth in China and contraction
in Chinas manufacturing activity.
The central banks the Fed, ECB
and the BoE kept their interest
rates unchanged. Back home,
a lacklustre earnings season, a
marginal decline in WPI and retail
ination, improving monsoon and
higher-than-expected GDP data
(5.5% vs. 5.3% expectation) were
some of the key highlights.
The Sensex and the Nifty gained
marginally by 1.1% and 0.6%,
respectively.
Crude (Nymex) increased by
9.65% in August.
Global markets
In August, the Dow Jones, Nasdaq
and the S&P 500 gained 0.6%,
4.2% and 2%, respectively. UK
FTSE, German DAX and French
CAC gained by 1.4%, 2.9% and
3.7%, respectively. In Asia, the
Japan Nikkei gained by 1.7% while
the Hang Seng and Shanghai
SSEC declined by 1.6% and 2.7%,
respectively.
Domestic markets
In August 2012, FIIs were net
buyers to the tune of ` 10803
crore while MFs were net sellers
to the tune of ` 1631 crore.
In August 2012, the Sensex and
the Nifty gained by 1.1% and
0.6%, respectively. The BSE
Midcap and BSE Small Cap
declined marginally by 1.1% and
0.6%, respectively. BSE IT, BSE
ECB roadmap, Greece austerity report likely to
weigh on sentiments
FMCG and BSE Healthcare were
the biggest out performers in
August gaining 8.3%, 6.1% and
4.9%, respectively. BSE Metals,
BSE Realty and BSE Bankex under
performed the broader indices
declining 7.4%, 7.3%and 3.3%,
respectively.
Outlook
Global markets in August
remained upbeat with hopes
of OE3 being rolled out at the
Jackson Hole meet in the US. Fed
Chairman Bernanke once again
dodged the issue and the onus
has now shifted to the next Fed
meet. It is safe to assume that
nothing concrete is expected to
come before the US Presidential
elections outcome in November.
This month, the ECB is expected
to provide signihcant impetus
regarding further quantitative
easing to arrest bond yield spike in
the periphery. Greece will be going
through another litmus test when
representatives of the Troika (ECB,
European Commission and the
IMF) meet in Athens to review the
austerity progress to determine
further funding. This coupled with
dismal global macro data may
push global investors towards
gold rather than equity. Back
home, pessimism is expected
to continue on account of weak
macros and another washed-out
parliament session. The interim
RBI policy is also likely to maintain
status quo. One positive aspect
can be possible fuel price hike.
In this backdrop, markets will
continue to follow global cues.
September 2012
TECHNICAL OUTLOOK
Sensex: 17429 / Nifty: 5258
Flashback:
The BSE Sensex traded
positive during August 2012,
on expected lines, after initial
sluggishness. The Index
embarked upon a steady march
since August 3, 2012 (17026)
to hit a new hve-month high
of 17972. The psychological
barrier of 18,000 triggered
a round of proht booking in
the last week of the month
ahead of the expiry of August
derivative contracts. Weak
market breadth during the
last leg of the rally, however,
indicated sluggishness ahead.
Technical Outlook:
The upward ramble of the
Sensex came to a halt at 17972
during August 2012, which is
a major hurdle based on the
conuence of the resistance
from multiple technical
parameters
Headwinds at 18000 but uptrend intact
The 80% retracement
of February-June 2012
decline (18523-15748)
Monthly high of March
2012 (18040)
Falling resistance line
connecting highs of April
2011 and February 2012
We expect the current decline
from 17972 to meet signihcant
support near the 17200-16900
region and rally towards 18000
in September 2012.
The conuence of key
supports around the 17200-
16900 region is based on the
following observations:
The 61.8% and 80%
Fibonacci retracement of
the July 2012 low of 16598
to August 2012 high of
17972 is placed at 17123
and 16873 levels
The 61.8% ratio of the
July 2012 decline (17631-
September 2012
TECHNICAL OUTLOOK
16598) calculated from
the August high (17972)
projects support at 17333
The 200 day moving
average of the Sensex is
placed at 16914
Bullish rising gap area
of August 6 is placed at
17197-17313
The value of the rising
trend line joining weekly
lows of June 2012 and
July 2012 is placed around
17200-17300 for the next
couple of weeks
On the higher side, the index is
expected to face a signihcant
hurdle near 18000 where
volatility is expected to rise
further. A strong break above
18000 would pave the way
towards the February 2012
high of 18500 while a sustained
breach of 17200-16900 may
put the current up trend in
jeopardy
Therefore, further price
corrections towards the
17200-16900 region should be
utilised to create longs for the
targets in the vicinity of 18000
levels during September 2012
BSE Sensex daily candlestick chart:
Courtesy: Reliable Software, ICICIdirect Research
September 2012
DERIVATIVES VIEW
September series starts with highest Put base at 5200 strike. It
would remain immediate support for the month
z Among Put strikes, major open interest has accumulated
at the 5200 strike. None of the deep OTM strikes have any
noticeable open interest.
z Among Call strikes, the highest Call base is at 5600 strike.
However, open interest is almost evenly distributed from
5400 to 5600 strikes.
z Thus, positive momentum can be expected only if the Nifty
is able to sustain above 5400. In such a scenario, it may try
to test its highest Call base of 5600 strike.
z The level of 5050-5080 should act as a major support if
the Nifty breaches 5200 on the downside. Major volume
participation was seen at these levels when the Nifty bounced
in the hrst half of the August series.
It's advisable to remain in defensives
Advisable to remain in defensives till the Nifty does
not close above 5400. Call writing at 5400 makes it an
important resistance. Any noticeable short covering in
high beta stocks can be seen only above this level
FMCG, pharma and technology are likely to perform if the
Nifty remains below 5400
On the downside, supports can be seen at 5200/5080
Option open interest for Sep Series
-10000
10000
30000
50000
70000
90000
110000
130000
150000
5000 5100 5200 5300 5400 5500 5600 5700 5800
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September 2012
DERIVATIVES VIEW
Options premium: Pricing has declined in Nifty options
vis--vis last series
z While comparing options premium from the August series
to the September series, a sharp decline in option premium
is visible. In the last week of the July series, ATM straddle
for the coming August month was close to ` 220. However,
in the last week of the August series, the coming September
ATM straddle was priced lower at ` 190.
z The decline of more than 10% in straddle premiums despite
lined up events in September suggests the index will remain
in a range in the early part of the series.
z We can expect a sudden spurt in these premiums if the Nifty
breaches 5200 levels on downsides. On the higher side, the
straddle premium indicates 5400 will remain crucial in the
September series.
Straddle pricing during the settlement week
160
170
180
190
200
210
220
230
T-3 T-2 T-1 T
Aug 5200 Straddle Sept 5400 Straddle
FIIs arbitrage positions created since last month, suggests
range bound move may continue
z FIIs have been active in the forward arbitrage segment.
Since the second week of August, when the Niftys upward
momentum continued, they started to create arbitrage
positions by buying in the cash segment (bought ` 3825
crore) and creating shorts in the stock futures segment (sold
` 4900 crore).
September 2012
DERIVATIVES VIEW
z These positions suggest the market may remain range
bound. In such a case, stock specihc moves will continue to
remain at the forefront.
FII activity in cash & Stock futures segment
Date Stock
futures
Cash
9-Aug -330.99 317.4
10-Aug -624.94 121.2
13-Aug -441.59 361.5
14-Aug -427.63 280.4
16-Aug -341.15 134.9
17-Aug -166.11 323.2
21-Aug 18.94 212.1
22-Aug -214.22 123.9
23-Aug -77.41 396.6
24-Aug -571.75 339.1
27-Aug -550.59 632.2
28-Aug -581.87 168.5
41150 -579.35 414.7
Bank Nifty: Highest Put base at 10000 with gross premium of
` 200 makes 9800 a crucial support
z The highest options base for the Bank Nifty is placed at the
10000 Put and 10500 Call strike. Prevailing premium of ` 180-
200 in the Put 10000 strike suggests 9800 level will act as a
crucial support for the Bank Nifty.
September 2012
DERIVATIVES VIEW
Bank Nifty open interest for Sep Series
0
1000
2000
3000
4000
5000
6000
9800 9900 10000 10100 10200 10300 10400 10500 10600 10700 10800
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Content Source: ICICIdirect.com Research
z The 200 DMA for the Bank Nifty is also placed at 9800 levels
suggesting short covering may be seen near these levels.
z On the higher side, like August series, 10500 strike continued
its highest Call base even for September series. Thus, higher
levels close to 10600 may be critical for the Bank Nifty.
z Rollover among banking stocks was on the lower side
suggesting positions were not carried into the September
series. More importantly, heavily beaten down PSU midcap
banks observed least rolls into the September series.
September 2012
TOP PICKS
Punjab National Bank (PNB)
Company Background
Punjab National Bank (PNB)
is the second largest public
sector bank after SBI with a
wide network of 5697 branches
spread across India and loan
book size of ` 294468 crore.
In O1FY13 PNB disappointed
in terms of asset quality with
GNPA rising sequentially by
` 1268.6 crore to ` 9988.2
crore. The pace of slippages
was higher compared to our
expectations. Hence, we
had revised our estimates to
incorporate higher NPA and
provisioning. PAT estimate is
reduced by 12.2% for FY14E
to grow at a CAGR of 13.2%
to ` 6261.3 crore, over FY12-
14E. Credit growth (21.2%
YoY) and NII came in line with
estimates with NIM of 3.6%.
Considering the declining
CASA ratio (dipped from
38.1% (O1FY12) to 36.2%
(O4FY12) and seasonal dip to
35.6% now) and high CoF, the
NIM is estimated to dip by 10
bps in FY13E. The stock has
corrected sharply, trading at
historic low valuations (0.8x
FY14 ABV) factoring most of
the negatives. Maintain BUY.
Investment Rationale
Overseas credit growth
healthy, high slippages remain
an overhang
Incremental global credit
disbursement of ` 693.1
crore was done in O1FY13.
Overseas book (` 25987 crore)
was the major contributor with
disbursal of ` 4232 crore. The
proportion of overseas credit
has risen from 5.9% in O1FY12
to 8.8% in O1FY13. However,
the credit to large industry
shrunk by ` 3213 crore to
` 92558 crore (31.4% of total
credit) in O1FY13.
The pace of slippages has
increased sharply from
~` 1100 crore in earlier
quarters to ` 2700 crore now.
Although recoveries and
upgradations were recorded
at highest ever level of ` 1500
crore in O1FY13, they were not
enough to offset incremental
slippages. Outstanding
restructured assets (RA) were
at OoO at ` 25519 crore.
Core business to remain
steady, exposure to stressed
sectors is a concern
We expect PNB to continue to
deliver 19-20% credit growth
while maintaining healthy NIM
of 3.5%. The earnings potential
being high as depicted in RoA,
inspite of concerns remaining
on asset quality, overall
prohtability may be sustained.
It has high exposure to stressed
sectors like agri (16.7%),
September 2012
TOP PICKS
metals (5.1%), infra (15.6%),
including power exposure of
8%. If stress in these segments
continues, pace of slippages
and restructuring will remain
high impacting the stock.
Valuations
The stock is trading at very
low valuations & seems to be
factoring in high slippages &
restructuring. RoA and RoE
remain healthy at 1.1% &
16.9%, respectively, in FY14E.
We value the bank at 1x P/ABV
with BUY rating & TP of ` 866.
Higher than expected NPA
remain downside risk to our
call.
FY11 FY12 FY13E FY14E
Net Proht (` crore) 4433.5 4884.2 5457.2 6261.3
EPS (`) 140.6 154.0 150.9 173.2
Growth (%) 13.5 9.5 -2.0 14.7
P/E (x) 5.4 5.4 4.5 3.9
Price / Book (x) 1.1 0.9 0.7 0.6
ABV (`) 568.1 646.1 742.9 865.9
Price / Adj Book (x) 1.2 1.0 0.9 0.8
GNPA (%) 1.8 3.0 3.3 3.3
NNPA (%) 0.8 1.5 1.7 1.6
RoNA (%) 1.3 1.2 1.1 1.1
RoE (%) 22.6 19.8 17.5 16.9
Source: Company, ICICIdirect.com Research
Havells India
Company Background
Havells India (HIL) is one
of the leading and oldest
(established in 1983) players
in the fast moving electrical
goods industry (FMEG). HIL
also manufactures power
distribution equipment and
has a strong global footprint.
The company has a presence
across a wide spectrum of
products, including industrial
& domestic switchgear, cables
& wires, electrical consumer
durable and lighting &
luminaries. In April 2007, HIL
paid an enterprise value of
euro 227 million to acquire
Frankfurt based Sylvania, a
leading player in lighting &
hxtures with a presence in
Europe and Latin America
(LatAm), thus registering
itself among the top 4 lighting
companies in the world.
Investment Rationale
Leveraging on established
domestic and industrial
brands
HIL is a leading fast moving
electrical goods company
catering to retail and industrial
consumers both in India and
September 2012
TOP PICKS
abroad. With a substantial
market share across segments,
the company is likely to
capture the largest chunk of
opportunities created by rapid
urbanisation and growing
middle class households.
HILs strategy of focusing on a
consumer pull model coupled
with a swelling dealer network
would not only help in strong
volume growth but also
enable it to launch Sylvanias
premium product in India.
SyIvania: Strategic t to
overseas expansion
Contributing ~45% to the
overall topline, we foresee
Sylvania as a good long term
strategic ht for Havells as
it has provided synergistic
opportunities in terms of
geographic diversihcation
and offers cross-selling
opportunities. Further, we
believe the companys
plan to shift focus from
Europe to emerging markets
would cushion Sylvanias
operating performance from
the slowdown in European
countries.
Domestic business to attract
premium valuations
At the CMP of ` 535, the
stock is currently trading at
a P/E multiple of 15.5x and
11.9x its FY13E and FY14E,
respectively (i.e. 9.2x and 7.7x
FY13E and FY14E EV/EBITDA,
respectively). We believe the
domestic business of Havells
will attract premium valuations
considering its historical
growth and return ratios while
Sylvania is expected to report
a steady performance on the
back of muted growth from the
European region. Our SOTP
valuation suggests a price
target of ` 619 (16% upside to
CMP) that is 13.8x FY14EEPS
(i.e. 8.9x FY14E EV/EBITDA).
We are initiating coverage on
Havells India with a BUY rating.
FY10 FY11 FY12 FY13E FY14E
Net Sales (` crore) 5183.2 5612.6 6518.2 7353.7 8013.0
EBITDA (` crore) 332.0 573.9 657.3 761.1 871.0
Net Proht (` crore) 69.6 303.6 369.9 431.2 559.7
EPS (` ) 5.6 24.3 29.6 34.6 44.9
P/E (x) 96.0 22.0 18.0 15.5 11.9
P/BV (x) 16.7 10.2 7.0 5.1 3.7
EV/EBITDA (x) 22.9 13.0 11.1 9.2 7.7
RoCE (%) 16.9 30.4 30.6 32.4 32.3
RoNW (%) 17.4 46.4 38.7 32.8 31.1
Source: Company, ICICIdirect.com Research
September 2012
FLAVOUR OF THE MONTH
Building pension kitty through NPS
In the past, larger job opportunities with the government
(therefore assured pension) and dependence on joint family
ensured that planning for retirement was not the top priority.
Today, the changing socio-economic landscape, including the
rising rate of ination and Ionger Iife expectancy caII for prudent
retirement planning.
Retirement planning is the key challenge for all of us. It is the
key challenge even for developed nations. The population is
aging around the world. Employers are encouraging people to
work longer - by increasing the retirement age and curtailing
the benets, such as pensions. In the United States (US), for
example, retirement age is gradually increasing to 67 from
historic 65. Further, only 15 per cent of the private sector jobs
today provide pensions, in 1979 that gure was 38 per cent.
This raises alarm bells for all of us. We need to save enough
and start to plan right now for our retirement. A small amount
that you save and invest today while you are young will help
you accumulate a sizeable corpus by the time you reach the
winter of your life.
There are several avenues available to plan for retirement, but
one of the often overlooked is New Pension Scheme (NPS). NPS
is a well designed government-backed pension plan, which helps
you save regularly to ensure old-age income security. Read on
to understand how
NPS is a dehned-contribution
product, where your
contributions grow and
accumulate over the years,
depending on the returns
earned on the investment
made. When you retire, you
will be able to use these
savings to take care of the
expenses post-retirement.
Any citizen of India, whether
resident or nonresident, who
is in the age bracket of 18-60
years, can subscribe to this
product.
September 2012
NPS begins with a mandatory
Tier I account (non-
withdrawable), which helps
you save regularly to build
your pension corpus. A Tier
II account is like a voluntary
savings facility (with a
withdrawal option).
The minimum annual
contribution for Tier I account
is ` 6000 (` 500 a month). For
Tier II account, the minimum
contribution is ` 250, and one
needs to have the minimum
balance of ` 2000 at the end
of hnancial year. There is no
upper cap on the contributions
for both the accounts.
In case, one misses to
contribute the required
minimum amount (except
for the year in which account
was opened), the account gets
marked as dormant. The same
can be re-activated by bringing
in the un-contributed amount
and a penalty of ` 100 per year.
NPS is a long-term product.
Your savings get accumulated
till the age of 60. After you
turn 60, you get up to 60% in
your hands and the remaining
goes into buying an annuity
to ensure regular payment.
Before the age of 60, you can
withdraw only 20% and the rest
needs to be annuitized. NPS
discourages early withdrawals,
which is crucial for building the
pension corpus.
Under NPS, you funds get
invested across three asset
classes:
E: Equity,
C: Corporate bonds or hxed-
income securities other than
government securities, and G:
Government securities
You are free to decide as to
how your pension wealth is
to be invested among these
classes.
You can invest in two ways:
Active choice: Under this
option, you can specify the
asset allocation pattern of your
own choice among the three
asset classes E, C and G. But
keep in mind, NPS allows you
to invest only 50% of your
money in equity (E) class.
Auto choice: Here, the
discretion of asset allocation
pattern rests with the pension
fund manager based on your
age. Up to 35 years, 50% is
September 2012
allocated towards equity, 30%
in corporate bonds, and 20%
in government securities.
As your age increases, the
allocation-mix gradually
increases towards hxed
income and government
securities and decreases
towards equity. This ensures
stability to your portfolio as
you near the retirement age.
You can either opt for an active
or an auto option. You can also
change the investment option
from active to auto and vice a
versa, once in a hnancial year.
What makes NPS an attractive
pension product is this
exibiIity.
Further, as you can open two
accounts for NPS, you can
maintain Tier I account with
minimum yearly contribution
and invest more in Tier II
account (having an option
of withdrawals). At the age
of 60, you can take a call of
either transfer full/part of the
funds from Tier II to Tier I, or
you may continue to hold the
funds in Tier II account and
withdraw the same before or
on attending the age of 70.
This gives NPS an edge over
other retirement products.
Charges and fees involved
NPS is perhaps the worlds
lowest cost pension scheme.
The point of presence (POP)
charges for initial registration
are ` 100 with contribution
charges (at the time of initial/
subsequent) of 0.25 % of the
amount subscribed, subject
to minimum of ` 20 and
maximum of ` 25,000 plus
service tax. POP also provides
non-hnancial services (viz.
change/registration of
nominee, change of pension
fund manager, etc.), for which
they are allowed to charge
` 20 plus applicable service
charges.
The Central Record-Keeping
Agency (CRA) charges include:
` 50 for permanent retirement
account (PRA) opening, ` 250
for annual PRA maintenance
charges, ` 5 per transaction.
The custodian charge includes
0.0075-0.05 per cent of the
fund value per annum and
fund management charge of
0.0009 per cent of the fund
value per annum. However,
w.e.f. November 1, 2012, the
upper ceiling of the investment
management fees has been
September 2012
hxed at 0.25% p.a. of the AUM.
These are still lowest in the
industry. The other products
like mutual funds and unit
linked insurance companies
charge anywhere in the range
of 1.5 per cent to 2.5 per cent
per annum.
To add to its benehts, you can
operate your NPS account from
anywhere in the country with
the help of your Permanent
Retirement Account Number
(PRAN) and this number
remains the same even if
you change jobs or location.
Further, you can invest in and
maintain records online. All
transactions can be tracked
online through CRA system.
You can check the fund and
contribution status through
CRA website. Last, but not the
least, its a safe product as it is
strongly regulated by PFRDA
under its strict guidelines.
However, NPS loses some
shine when it comes to
taxability. At present, the
contributions get tax beneht
under Section 80C. However,
the withdrawals at maturity
are taxable as per income tax
slab. However, under DTC,
NPS is proposed to have EEE
(exempt, exempt, exempt)
tax regime, in sync with EPF
and PPF, which could make it
the best product for pension
planning.
So, should you invest?
Lets compare it with the
other retirement investment
options:
NPS vs EPF: In Employees
Provident Fund (EPF), your
money grows at around
8-8.5% per annum (The current
interest rate for EPF is at 8.6%).
Whereas, NPS has the potential
to earn higher returns due to
its equity exposure, which is
crucial for building retirement
corpus. NPS has delivered
average returns of 9.33% in
the past one year.
Further, EPF is linked to your
employer, whereas NPS is
linked to you. Any change
in your job wont affect your
investments. Also, NPS is
completely portable.
NPS vs PPF: Undoubtedly,
Public Provident Fund (PPF)
is a good tool for retirement
planning, and is a government-
backed product like NPS.
September 2012
PPF gives guaranteed tax-
free returns of around 8-8.5%
(The current interest rate for
PPF is at 8.8%). However, with
NPS, you have the potential
to get higher returns as it lets
you invest up to 50 per cent
in equities, which outperform
hxed-income securities over
the long term.
Further, you can contribute
maximum up to ` 1,00,000 a
year in PPF. However, there is
so upper cap for investments
in NPS.
NPS vs. Mutual Funds: NPS
beats MFs on costs. The
fund management charges
(FMC) applicable in NPS are
the lowest. Other handling
and administrative charges
are also very low. However,
mutual funds are good for
young investors to kick start
their retirement portfolio by
investing systematically.
NPS vs Pension Plans By
Insurance Companies: The
structure of pension plans
by insurers is quite identical
to NPS structure. They also
mandate purchase of annuity
and have withdrawal penalties.
But NPS scores over pension
plans on costs. Pension plans
of insurance companies
charge around 0.75-1.75%,
whereas NPS has the lowest
charges.
Summing Up
Ideally, a good retirement plan
should have a mix of various
assets. Different options suit
at various life stages based on
our risk appetite and hnancial
situations. Young individuals
may invest more in equities.
As one grows older, he should
temper down the equity
exposure and move towards
relatively safer options.
Basically, NPS should form
a small portion of ones
retirement portfolio given
its low-cost and exibility
benehts. One may invest
around 25%-30% of retirement
portfolio in this product.
You can now get help to start
saving for your retirement
through NPS by logging on
to www.icicidirect.com and
clicking on New Pension
System under the Products &
Services section.
Please send your feedback to
moneymanager@icicisecurities.com
September 2012
SURVEY
Fund managers expect markets to move in 16,800-18,500 range
A recent survey conducted by ICICIdirect.com reveals that most
fund managers expect markets to trade in the range of 16,800-
18,500. Majority of fund managers believe that markets are fairly
valued and advise investors to maintain their asset allocation.
Here we share the views of thirteen fund managers on equity
and debt markets, along with their recommended investment
strategy for retail investors.
Views on Equity Markets:
Where do you expect BSE
Sensex at the end of December
2012?
Out of the thirteen fund
managers surveyed, total 46%
of them expect the market
to be in a range of +/-5%.
Only 15% of the respondents
expect the market to be below
5% from current levels by the
end of 2012.

8
23
46
15
0
10
20
30
40
50
>
1
9
5
0
0
1
8
5
0
0
-
1
9
5
0
0
1
6
8
0
0
-
1
8
5
0
0
1
5
9
0
0
-
1
6
8
0
0
(
%
)
Where will you broadly
position the Indian equity
market on a valuation scale?
After the recent rally of around
8.5% from the levels of 16200
on the Sensex in May 2012
when the last survey was
done, majority of the fund
managers believe the markets
are fairly valued. As compared
to the last survey, when 65%
of them believed the markets
were undervalued, today only
15% think it is undervalued.

15
77
8
65
24
12
0
20
40
60
80
100
U
n
d
e
r
v
a
l
u
e
d
F
a
i
r
l
y
V
a
l
u
e
d

O
v
e
r
v
a
l
u
e
d
(
%
)
Aug-12 May-12
What is your broad outlook on
the markets in the next three
months?
More than 90% of the fund
managers remain neutral in
the near term. Currently, no
fund manager we surveyed
is bearish on the markets as
compared to the previous
survey when 18% of them
were bearish. The bullish
sentiment has also tempered
from 18% to 10% as compared
to the previous survey.
September 2012

15
69
15
59
29
12
0
10
20
30
40
50
60
70
M
o
r
e
B
u
l
l
i
s
h

S
a
m
e

a
s
b
e
f
o
r
e
M
o
r
e
C
a
u
t
i
o
u
s
(
%
)
Aug-12 May-12

69
38
8 8
29
53
41
6
0
20
40
60
80
H
i
g
h
e
r

C
r
u
d
e
E
u
r
o
p
e
a
n
S
o
v
e
r
e
i
g
n
c
r
i
s
i
s
I
n
d
i
a
n

R
u
p
e
e
d
e
p
r
e
c
i
a
t
i
o
n
S
l
o
w

U
S
e
c
o
n
i
o
m
i
c
r
e
c
o
v
e
r
y
(
%
)
Aug-12 May-12
SURVEY

8
92
0
18
59
18
0
20
40
60
80
100
B
u
l
l
i
s
h

N
e
u
t
r
a
l
B
e
a
r
i
s
h
(
%
)
Aug-12 May-12
Compared to the previous
three months, are you more
condent about investment in
the equity market?
Because of the recent rally
of around 8.5% since our
previous survey in May 2012,
the bullish sentiment has
reduced from 59% to 15%.
What could be the major
global risk for Indian markets?
The European sovereign crises
remain a major worry for the
markets. The recent sharp
rally in global crude oil prices
has also increased concerns
signihcantly in the last three
months.
What is your corporate
earnings growth expectation
for FY11-12 and FY12-13?
Expectations on earnings
growth for the current year
(FY13) as well as for the next
hnancial year remain more
or less the same. The fund
managers are more hopeful of
better earnings growth for the
next year (FY14) as compared
to FY13. Total 53% of
respondents expect earnings
growth to be in the range of
10-15%.
FY 2012-13

62
31
59
41
0
20
40
60
80
5
-
1
0
%
1
0
-
1
5
%
(
%
)
Aug-12 May-12
FY 2013-14
24
53
24 23
54
23
0
20
40
60
L
e
s
s

t
h
a
n
1
0
%
1
0
-
1
5
%
1
5
-
2
0
%
(
%
)
May-12 Aug-12
Which segment of the market
would you prefer with an
investment horizon of one
year?
There is almost no change in
preference as compared to
the previous survey. Opinion
remains hrmly divided on
September 2012
SURVEY
preference towards large caps
or midcaps.
62
31
59
41
0
20
40
60
80
5
-
1
0
%
1
0
-
1
5
%
(
%
)
Aug-12 May-12
Rank the sector according to
your preference
Pharma, IT and banking remain
among the preferred sectors.
However, among them, the
preference for pharma and IT
has increased while preference
for the banking sector
continues to witness reduced
preference sequentially. The
preference for auto, FMCG
and metals sector has reduced
as compared to the previous
survey. The cement and media
sectors saw a mention in our
survey.

B
F
S
I
P
h
a
r
m
a
I
T

A
u
t
o
F
M
C
G
I
n
f
r
a
/
C
a
p
G
o
o
d
s
O
i
l

a
n
d

G
a
s
M
e
t
a
l
s
C
e
m
e
n
t
M
e
d
i
a
Aug-12 Feb-12
Views on Debt Market:
Where do you see benchmark
10 year G-Sec yield in three
months?
Most fund managers expect
the 10 year benchmark G-sec
yield to be in the range of 8.00-
8.25% over the next three
months.

15
77
8
0
20
40
60
80
8
.
2
5
-
8
.
5
0
%
8
.
0
0
-
8
.
2
5
%
B
e
l
o
w
8
.
0
0
%
(
%
)
With a six month horizon,
which segment of the debt
market do you expect to
deliver better returns?
Short-term funds remain
the most preferred segment
among fund managers.
However, sequentially, it has
decreased marginally because
of the recent rally in short-term
rates. Preference for income
funds and G-Sec funds has
increased marginally. However,
it still remains less advisable
as compared to short-term
funds because of the expected
volatility in the near term.
62
15
8
15
71
12
6
18
0
20
40
60
80
S
h
o
r
t
t
e
r
m
F
u
n
d
s

I
n
c
o
m
e
F
u
n
d
s
G
-
S
e
c
F
u
n
d
U
l
t
r
a
s
h
o
r
t
t
e
r
m
f
u
n
d
s
(
%
)
Aug-12 May-12
Recommended Investment
Strategy:
Which asset class do you
think will outperform in the
rest of the year 2012?
September 2012
46
38
8
0
53
24
12
6
0
10
20
30
40
50
60
I
n
d
i
a
n
e
q
u
i
t
y
I
n
d
i
a
n

D
e
b
t
G
l
o
b
a
l
e
q
u
i
t
y
G
o
l
d
(
%
)
Aug-12 May-12
23
77
65
29
0
20
40
60
80
100
I
n
c
r
e
a
s
e
e
x
p
o
s
u
r
e
t
o

E
q
u
i
t
y
m
a
r
k
e
t
s
M
a
i
n
t
a
i
n
c
u
r
r
e
n
t
a
s
s
e
t
a
l
l
o
c
a
t
i
o
n
(
%
)
May-12 May-12
With a recent rally of around
8.5% from the date of
our previous survey, the
preference for equity markets
has marginally reduced as the
most preferred asset class,
which the fund managers
expect to outperform in the rest
of the year 2012. Preference
for the Indian debt markets
increased but still remains the
second most preferred asset
class for the rest of the year
2012. All respondents expect
gold to under perform in the
rest of 2012.
SURVEY
What equity market strategy
would you suggest now?
Advice for increasing equity
allocation has decreased from
65% to 23% after the recent
rally of around 8.5% from the
levels of 16200 on the BSE
Sensex in May 2012 when the
last survey was done. Majority
of the fund managers believe
the markets are fairly valued
and advise maintaining their
asset allocation.
September 2012
QUERY CORNER
Do not stop SIPs during market downturn
Q: I am investing ` 10,000
via monthly SIPs in various
equity mutual funds. As
markets are not doing well,
my investments are running
into red. I am thinking to stop
all my four SIPs and invest that
money in bank xed deposits.
Is the approach right? Please
give your thoughts.
- R. K. Nair
A: You have not mentioned
how long you have been
continuing your SIPs and
how long the same would
continue in the future. It is
not advisable to go by only
the returns provided by your
funds in the past, to decide
whether to continue or stop
the SIP. It is prudent to hrst
check how your funds have
fared as compared with their
respective benchmarks. For
instance, while Nifty has given
a negative return of 2.36% p.a.
for the last 2 years, BSE 100
has given a negative return
of 4.18% p.a. and BSE 500
has given a negative return of
5.87% p.a. Though your funds
have given a negative return,
it could have fared better than
the respective benchmark.
If you have accumulated these
funds for any specihc goal and
if the same is nearing, then its
advisable to shift the funds
into hxed deposits. If you are
investing these funds for long
term goals, then its advisable
to stay invested and keep the
SIPs continuing till the goals
are nearer.
Q: I am new to investing. I
have read at many places
that youngsters should start
investing via SIPs in mutual
funds. As there are so many
categories for mutual funds,
am unable to decide which
category I should choose
keeping in mind the current
market scenario. I want to
invest for short-term as well
as long-term. Please help.
- Santosh Kumar
A: You are very right in
what you have said. The
earlier you start investing, its
September 2012
QUERY CORNER
always better, as the power of
compounding will help you in
achieving your long-term goals
even through lesser amount of
investments.
There are 3 major categories of
mutual funds debt, equity and
hybrid funds. These categories
are further divided into various
funds. For very short-term
requirements, its suggested
to keep your money into liquid
mutual funds, which can be
withdrawable at any time. For
short-term requirements (less
than 3 years), its suggested
to invest into debt mutual
funds, so that they do not
uctuate as much as equity
/ equity-related investments.
For long-term requirements,
its suggested to invest into
equity mutual funds, under
which there are different sub-
categories such as large-cap,
mid-cap, small-cap, diversihed
and thematic funds. As you
are new to investing, for now,
you can start off with large-cap
and diversihed funds initially,
before getting your hand into
other sub-categories.
Q: I have a 3-years old
daughter and I would like
to start investing ` 5000 a
month to build a corpus for
her education. Can you please
suggest where should I park
my funds?
- Jayesh Patel
A: The schooling expenses
of your daughter also could
be of a signihcant amount
these days. Hence, in addition
to planning for her higher
education, its important
to plan for the schooling
expenses. The schooling fees
normally have to be paid twice
or thrice ever year. If such
outows dont have an impact
on your other expenses at that
particular time, you need not
plan for the same. Else, its
advisable to start investing
smaller amounts into recurring
deposits to accumulate the
required amounts for every
outow.
For your daughters higher
education, which is 15 years
away, there are a lot of
instruments through which you
can accumulate the required
September 2012
funds, ranging from recurring
deposit, public provident
fund, mutual funds, equity and
insurance policies. You can
choose any two instruments
from these, based on your risk
appetite. Based on the term of
the goal, you can park around
70% of your amount into
equity oriented instruments
and the balance 30% into
debt oriented instruments.
When the goal is nearing,
say after 12 to 13 years from
now, you can shift the entire
accumulation till then into debt
oriented instruments, so that
any uctuation in the equity
markets in the last 2 to 3 years
does not affect the corpus you
have accumulated till then.
Q: What is the difference
between a gold fund and gold
ETF? Which is better?
- Shyam Kurien
A: Gold ETFs are for investors
who want returns similar to
physical gold prices. These can
be bought and sold through
stock exchanges, similar
to shares. Hence, a demat
account and a trading account
are required for investing into
Gold ETFs.
If you want to avoid these
hassles, invest in gold savings
funds. These are fund of
funds (FoF) that invest in gold
ETFs. However, this adds
another layer of charges for
you and eats into your overall
returns. Being a mutual fund,
you can invest in the form of
SIP in gold savings funds.
However, nowadays, some
of the brokerage hrms also
offer investing into Gold ETFs
through SIPs. You may opt
for gold savings funds, only if
you do not want to maintain a
demat & a trading account.
There are also some Gold
equity funds offered by
some mutual funds, which
are normal equity schemes
which invest into the shares
of gold mining companies
with negligible reference to
physical gold prices. While
the objective of investments is
different between ETFs & Gold
equity funds, you may choose
any of them, depending on
your requirement.
QUERY CORNER
Do you also have similar queries to ask our experts, you may write to us at:
moneymanager@icicisecurities.com
September 2012
FINANCIAL PLANNING
Allocate right to achieve goals
Mumbai-based working couple Suresh Panda (47) and Vijaya
(40) approached ICICIdirect.com through ICICIdirect Money
Manager Magazine to ne tune their nanciaIs. The coupIe
has two sons - Rishi (13) and Rudra (11), both are studying.
Here we chart out a nanciaI pIan for Suresh and famiIy to
help achieve their goals.
Sureshs Financial Details
Annual Income
(family income)
3,225,000
Annual Expenses 1,155,000
Expenses break-up (Annual):
Household 600,000
Home Loan EMI 90,000
Vehicle Loan EMI 190,000
Entertainment 25,000
Medical 36,000
Education 120,000
Travel 24,000
Holidays 60,000
Vehicle
Maintenance 10,000
Total Expenses 1,155,000
Investment details (Annual):
Suresh is investing about
` 60,000 into various insurance
policies.
Assets:
Suresh and his familys total
assets are about `2.28 Cr.,
which includes a house
(self occupied) of `80 lakh,
vehicle of ` 3 lakh, real estate
investment of ` 80 lakh, equity
investments of ` 25 alkh and
various insurance plans of
` 10 lakh. He has a savings
balance of ` 30 lakh.
Liabilities:
Suresh has an outstanding
home loan of ` 2 lakh and a
vehicle loan of ` 2 lakh.
Net-worth: ` 2.24 Cr.
Suresh Pandas Goals:
General Goals
Goal
Type
Current
Value
Years to
Goal
New
House
14,000,000 1
Children Goals
Goal
Type
Current
Value
Years to
Goal
Rishis
Education
2,500,000 5
Rudras
Education
2,500,000 7
September 2012
FINANCIAL PLANNING
Lets start with a quick check
of Sureshs current hnancial
health.
Savings:
Suresh is saving approx. ` 20.7
lakh annually from his family
income which is about 64 per
cent. It is advisable to save 20
per cent of the income in order
to be hnancially healthy.
Suresh has an annual
outow of ` 60,000 in various
investments making the
investible surplus to be ` 20.1
lakh, annually.
Strengths:
1. Good savings ratio - Suresh
has a decent investible surplus
of about ` 20.1 lakh.
2. Working Spouse Sureshs
wife is working, resulting in a
double-source of income.
3. Diversied Investments
- Suresh has a diversihed
portfolio having investments
spread across equity, debt and
real estate.
Risk ProIe:
Suresh is a moderate investor,
reveals our risk analyzer
based on his responses to our
questionnaire.

His current asset
allocation: 45 per cent
equity / 0 per cent debt
/ 55 per cent cash.

Recommended asset
allocation: 45 per cent
Equity / 45 per cent debt / 10
per cent cash (moderate).
Now lets take a look at more
detaiIed nanciaI pIan for
Suresh and family:
General Goals:
Goal
Type
Current
Value
Years
to Goal
Future
Value
New
house
14,000,000 1 14,980,000
Recommendation:
Suresh plans to allocate the
existing real estate investment
towards this goal.
Assuming the cost of increase
to be 7 per cent p.a., the value
of the existing real estate
investments after 1 year will
be `85.60 lakh. He can make
a down payment with this
amount and take a home loan
for the remaining amount
(` 64.20 lakh).
September 2012
FINANCIAL PLANNING
Children Goals:
Goal
Type
Current
Value
Years
to Goal
Future
Value
Rishis
Education
2,500,000 5 4,026,275
Rudras
Education
2,500,000 7 4,871,793
(Assuming increase in cost of
Education: 10 per cent p.a.)
Recommendation:
Suresh has invested into
equities and have maintained
a good savings balance too.
For Rishis education, he
needs to save and invest
` 2,400,000, which can
be allocated from his
investments into equity.
Considering the tenure of
the goal is long-term, he
can consider investing into
equities for this goal.
For Rudras education,
again as the tenure of
the goal is long-term, he
should consider investing
into equities. For this
goal, he should allocate
` 2,300,000 from his cash
deposits towards this goal.
Retirement Planning:
It is very important to start
planning for retirement. Suresh
estimates that his salary will
continue to increase by 5 per
cent annually, and this will also
impact his PF contributions.
He has already accumulated a
corpus of ` 45 lakhs in his PF
account.
He has gone through the
exercise of listing down all
expenses that he foresees
will continue to incur in his
post-retirement life. He must
seriously start planning and
make the right investments
towards retirement.
As a hrst step, he has outlined
what expenses will increase
and what will decrease post-
retirement. His estimate
for annual expenses post-
retirement in todays cost:
`8.91 lakh per annum.
He expects ination to be 6
per cent, considering this, his
annual expenses at the time of
retirement (58 years): `16.91
lakh.
He is also expecting some
post-retirement income for
self.
September 2012
Retirement corpus required:
` 3.56 Crore.
Assumptions:
Existing PF corpus `45
lakh for self with an annual
contribution at `1.2 lakh.
Ination assumed at 6 per
cent p.a., and annual salary
i ncr ease/ cont r i but i on
growth assumed at 5 per
cent.
Life expectancy 20 years.
At least `20,000 monthly
income in todays cost will
continue post-retirement.
There should not be any
shortfall in his retirement
corpus, with the expenses he
has quoted.
Insurance and Protection:
Suresh has taken insurance
cover of about ` 25 lakh.
In case of any unfortunate
event, the family should be
sufhciently insured to manage
the day-to-day expenses and
to achieve the future goals. In
addition, the surviving family
members will have to pay the
outstanding liabilities.
Considering his familys
expenses, goals and various
investments, Suresh currently
has no shortfall in his life
insurance cover. But he should
consider reviewing the same
in case of any change in
expenses or goals.
Medical Insurance:
Medical Insurance is an
important thing which Suresh
should consider. His family
has already taken a medical
insurance policy; it is advisable
to renew the same every year.
Additionally, he should take
a separate policy for critical
illness and personal accident
insurance.
He should also ensure that his
home is insured against any
loss.
To sum up, Suresh and family
has taken wise moves by
saving and investing into
various asset classes. Now,
its time to rightly allocate
investments towards their
goals.
FINANCIAL PLANNING
September 2012
MUTUAL FUND ANALYSIS
Investment Objective & Fund
Strategy
It aims to provide periodic
returns and capital appreciation
over a long period of time,
from a judicious mix of equity
and debt investments, with the
aim of preventing/minimising
any capital erosion.
Key Information
NAV as on August
31, 2012
208.2
Inception Date February 1, 1994
Fund Manager Prashant Jain
(Jan 1994);
Rakesh Vyas (May
2012)
Minimum
Investment
- Lumpsum 5000.0
- SIP 0.0
Expense Ratio (%) 1.8
Exit Load (%) 0.0
AAUM (Crores) as
on June 30, 2012
6040.0
Benchmark Crisil Balanced
Fund Index
Performance Review
HDFC Prudence is one of the
best performing funds in the
balanced funds category. The
fund has been among top
ranking funds for the past
couple of years. The rise in
assets under management
from ~` 2000 crore at the end
of 2008 to ` 6000 crore as on
June 30, 2012 stands testimony
to the strong performance
exhibited by the fund. The fund
has usually maintained equity
allocation over the 70-75%
range, which is why with equity
markets underperforming, on
a one year basis, the fund has
failed to beat its benchmark
Crisil balanced fund index.
However, the same strategy
of higher allocation to equities
has helped the fund deliver
higher returns in up swings of
CY09 and CY10 signihcantly
outperforming the benchmark
in both calendar years. It has
most of the time outperformed
the category average both in
the downfall as well as upturns
on a longer horizon.
Calendar
Year-wise
Performance
2011 2010 2009 2008 2007
NAV as on Dec
31(`)
185.3 220.1 174.3 94.3 162.9
Return(%) -15.8 26.3 84.8 -42.1 43.2
Benchmark(%) -14.4 13.6 48.7 -34.4 36.8
Net Assets (`Cr) 6100.4 5964.6 3418.3 1929.9 3511.8
HDFC Prudence
-
3
.
4
1
.
7
1
1
.
5
1
0
.
2
0
.
9
7
.
8
5
.
4
6
-5
0
5
10
15
6 Month 1 Year 3 Year 5 Year
R
e
t
u
r
n
%
Fund Benchmark
Returns as on August 31, 2012 Source: Ace MF
For periodic performance and fund manager performance please refer annexure
September 2012
FUND CARD MUTUAL FUND ANALYSIS
Portfolio Analysis
AMC classihes the fund as
equity growth fund and the
portfolio strategy aptly reects
the same. Equity allocation is
always maintained in the 80-
75% range with a multicap
portfolio. Fund houses believe
in a bottom up approach.
Hence, as an outcome, the
portfolio tends to be multicap
most of the time. The fund
manager follows a buy and
hold strategy with very less
churning. Well diversihed
portfolio with top 10 holdings
generally accounting for only
1/3 of the portfolio.
In the debt portion, G-sec
exposure to the extent of 10-
11% has been maintained since
August 2010. Post yield, this
shoots up to above 8% levels.
Corporate debt and G-sec
exposure continues to be at
10-11% levels, respectively,
with higher allocation between
the two determined by the
prevailing market conditions.
Higher allocation to equities
and exposure to G-sec
increases the overall portfolio
risk.
Top 10 Holdings %
ICICI Bank Ltd. 5.9
State Bank Of India 5.8
Page Industries Ltd. 3.0
Infosys Ltd. 2.8
Tata Motors - DVR Ordinary 2.3
Tata Steel Ltd. 2.2
Bank Of Baroda 2.2
Ipca Laboratories Ltd. 2.0
08.97% GOI 2030 2.0
State Bank Of India -
Corporate Debt 1.9
Top 10 Sectors %
Bank - Public 10.8
Bank - Private 6.9
Pharmaceuticals & Drugs 5.0
Textile 3.9
IT - Software 3.8
Rehneries 2.9
Engineering - Construction 2.6
Oil Exploration 2.6
Automobiles-Trucks/Lcv 2.3
Steel/Sponge Iron/Pig Iron 2.2
Source: Ace MF
September 2012
Strategy
To provide income distribution
and/or medium to long term
capital gains while at all times
emphasising the importance
of capital appreciation.
Key Information
NAV as on August
31, 2012
88.7
Inception Date October 8, 1995
Fund Manager Murutyhy
Nagrajan (July'10);
Atul Bhole (Jan'12)
Minimum
Investment
- Lumpsum 5000.0
- SIP 1000.0
Exit Load (%) 1.0
AAUM (Crores) as
on June 30, 2012
362.6
Fund Index
Performance Review:
Tata Balanced Fund is an all
weather fund. It may not be
the top most fund in terms
of performance but manages
to be in the top 5 funds. The
portfolio is actively churned
between debt, cash and equity,
which have helped the fund to
deliver the outperformance.
Since the peak of 2007 to
the current volatile markets,
the performance has been
exceptional. In the last six
months, the fund has been
a chart topper delivering 5%
absolute return even while
maintaining 70% allocation to
equities at time when most
other balanced funds have
delivered negative returns. In
its 16 year history, the fund has
delivered 16% compounded
annualised return, which is
remarkable. The fund usually
outshines in equity market
bull runs and fairly manages
to maintain its above average
performance in downturns.
Calendar
Year-wise
Performance
2011 2010 2009 2008 2007
NAV as on Dec
31(`)
185.3 220.1 174.3 94.3 162.9
Return(%) -15.8 26.3 84.8 -42.1 43.2
Benchmark(%) -14.4 13.6 48.7 -34.4 36.8
Net Assets (`Cr) 6100.4 5964.6 3418.3 1929.9 3511.8
Tata Balanced Fund
5
1
1
.
4
1
1
9
0
.
7
7
.
6
5
.
7
5
.
8
0
2
4
6
8
10
12
R
e
t
u
r
n
%
Fund Benchmark
Returns as on August 31, 2012 above
one year are compounded annualised;
Source: Ace MF Source: Ace MF
September 2012
FUND CARD MUTUAL FUND ANALYSIS
Portfolio Analysis
The fund manager actively
manages the allocation
between equity, debt and cash.
Maintains fairly diversihed
equity portfolio with bottom
up strategy. Equity allocation
had gone down lowest to 65%
in early 2009. However, since
then it has been maintained in
the 69-75% range. Tata Motors
DVR has been in the portfolio
for quite sometime. There has
not been much churn in the
portfolio since April 2012. Debt
allocation is towards certihcate
of deposit and corporate debt
while allocation to G Sec is
minimal.
The fund currently has a
multicap equity portfolio with
71.3% allocation to equities.
The debt portion is more on
the defensive side. In case, the
market moves up, the portfolio
is poised to deliver above
average returns. However, in
case of downturns, investor
may have to be patient and
wait for the cycle to turn.
Top 10 Holdings %
ICICI Bank Ltd. 5.3
Oil & Natural Gas Corpn. Ltd. 3.9
State Bank of Patiala 3.9
HDFC Bank Ltd. 3.9
Housing Development
Finance Corporation Ltd 3.8
Cash & Cash Equivalent 3.6
Tata Motors - DVR Ordinary 3.6
Grasim Industries Ltd. 3.2
Andhra Bank 3.1
ITC 2.9
Top 10 Sectors %
Bank - Private 11.6
Pharmaceuticals & Drugs 11.2
Finance - Housing 4.7
IT - Software 4.3
Engineering - Construction 4.2
Oil Exploration 3.9
Automobiles-Trucks/Lcv 3.6
Diversihed 3.2
Cigarettes/Tobacco 3.0
Rehneries 3.0
Source: Ace MF
September 2012
Strategy
The primary investment
objective of the scheme is to
seek to generate long term
capital appreciation and current
income from a portfolio that is
invested in equity and equity
related securities as well as in
hxed income securities.
It takes care of this asset
allocation by constantly
investigating the market
outlook and performance and
accordingly by increasing/
decreasing equity exposure
based on the market outlook
and using a core debt portfolio
to do the rebalancing.
Key Information
NAV as on August
31, 2012
49.18
Inception Date November 3, 1999
Fund Manager Yogesh Bhatt (Feb
2012) ; Anish Jain
(Jan 2011)
Minimum
Investment
- Lumpsum 5000.0
- SIP 1000.0
Exit Load (%) 1.0
AAUM (Crores) as
on June 30, 2012
334.1
Fund Index
Performance Review:
ICICI Prudential Balanced Fund
0
.
8
7
.
4
1
1
.
4
5
.
9
0
6
.
8
5
.
4
5
.
6
0
2
4
6
8
10
12
R
e
t
u
r
n
%
Fund Benchmark
Returns as on August 31, 2012 above
one year are compounded annualised;
Source: Ace MF
ICICI Prudential Balanced fund
is an average performer with
no exceptional gains history.
The fund has always been in
the middle of the performance
chart with returns delivered to
satisfy a typical conservative
balance fund investor. The fund
manages to marginally beat
the benchmark across all time
periods. However, the fund has
been able to outperform peers
only in the downward cycle.
That is in CY08 and recently in
CY11. In sharp upward rallies,
the fund has failed to beat its
peers. Performance, however,
is satisfactory for all time
periods.
Calendar
Year-wise
Performance
2011 2010 2009 2008 2007
NAV as on Dec
31(`)
43.1 47.5 40.1 26.6 47.3
Return(%) -9.3 18.6 50.7 -43.8 36.6
Benchmark(%) -14.4 13.6 48.7 -34.4 36.6
Net Assets (`Cr) 299.8 274.2 262.8 224.1 469.4
Source: Ace MF
September 2012
Portfolio Analysis
This fund seeks to optimise
the risk-adjusted return by
distributing assets between
both equity and debt markets.
In bullish markets, equity
allocation can go up to 80%.
In bearish markets, equity
allocation can go down to
65%. This dynamic allocation
along with core debt portfolio
reduces the volatility of
returns. In the second half of
June 2008, equity allocation
went down to 44% and was
then in the 40-60% range up
to the hrst half of CY09. Hence,
the fund failed to capture the
2009 rally.
In the equity portfolio, the fund
adopts a multicap strategy.
The current portfolio has most
of the companies, which have
strong balance sheets and a
higher market share in their
respective helds.
The debt portfolio comprises
solely corporate debt papers.
After Avnish Jain took over as
the fund manager, for the debt
portion, a tactical G-Sec call
has not been taken.
A good healthy portfolio both
on the debt and the equity
side with lower tactical calls
makes the fund a conservative
balanced fund.
Top 10 Holdings %
Amara Raja Batteries Ltd. 5.6
Infosys Ltd. 5.3
Housing Development
Finance Corporation Ltd 5.0
Cholamandalam Investment
& Finance Co. Ltd 4.4
Reliance Capital Ltd. 4.4
Wipro Ltd. 3.5
CBLO 3.3
Bajaj Finance Ltd. 3.2
Balkrishna Industries Ltd. 3.1
Shriram Transport Finance
Company Ltd. 3.0
Top 10 Sectors %
Bank - Private
10.9
IT - Software
10.4
Auto Ancillary
8.0
Pharmaceuticals & Drugs
6.5
Cigarettes/Tobacco
4.2
Oil Exploration
4.2
Power Generation/
Distribution
3.8
Telecommunication - Service
Provider
3.7
Tyres & Allied
3.1
Bank - Public
2.7
Source: Ace MF
September 2012
Annexure
Funds periodic performance
Date Range Fund Manager 30-Jun-
2009 - 30-
Jun-2010 -
Actualized
30-Jun-
2010 - 30-
Jun-2011 -
Actualized
30-Jun-
2011 - 29-
Jun-2012 -
Actualized
Return
Since
Inception
Growth
of ` 10000
(Invested on
30th June
2009 to 30th
June 2012)
ICICI Prudential
Balanced Fund -
Growth
Yogesh Bhatt &
Avnish Jain
27.22 11.9 2.21 14.29 14550
Tata Balanced
Fund - Growth
Murutyhy
Nagrajan & Atul
Bhole
30.98 9.28 2.36 13.37 14651
HDFC Prudence
Fund - Growth
Prashant Jain &
Rakesh Vyas
44.76 10.76 -1.55 18.55 15785
Crisil BalanceEx 17.34 6.04 -0.99 NA 12319
Fund manager performance data :
Fund Name Fund Manager Benchmark
Index
30-Jun-
2009 - 30-
Jun-2010 -
Actualized
30-Jun-
2010 - 30-
Jun-2011 -
Actualized
30-Jun-
2011 - 29-
Jun-2012 -
Actualized
Tata Growth Fund - Growth Atul Bhole
& Amish
Munshi
BSE Sensex 40.16 -1.22 -2.31
BSE Sensex 22.13 6.47 -7.51
Tata Equity Management Fund
- Growth
Atul Bhole
& Amish
Munshi
S&P CNX
NIFTY
29.82 0.01 -2.19
S&P CNX NIFTY 23.8 6.3 -6.53
ICICI Prudential Gilt -
Investment - PF Option -
Growth
Avnish Jain I-SEC Li-Bex 1.98 4.9 7.52
ICICI Prudential Gilt - Treasury -
PF Option - AAPP - Half Yearly
Avnish Jain I-SEC Si-Bex 3.17 5.04 6.25
PF Option - AAPP - Yearly
PF Option - AAPP - Monthly
PF Option - AAPP - Ouarterly
PF Option - AAPP - Growth
September 2012
I-SEC Li-Bex 3.96 5.4 9.72
ICICI Prudential Income
Opportunities Fund - Growth
Avnish Jain CRISIL
CompBex
3.99 4.98 8.39
CRISIL CompBex 4.69 4.58 8.69
ICICI Prudential Gilt -
Investment - Growth
Avnish Jain I-Sec I Bex 1.16 5.19 9.64
I-Sec I Bex 4.35 4.93 9.96
ICICI Prudential Gilt - Treasury
- Growth
I-SEC Si-Bex 5.49 4.25 9.3
ICICI Prudential Income Plan
- Growth
Avnish Jain CRISIL
CompBex
3.33 3.3 9.26
Tata Income Plus Fund -
Option A- Growth
Murthy
Nagarajan
CRISIL
CompBex
3.27 6.14 8.1
Tata Income Plus Fund -
Option B- Growth
Murthy
Nagarajan
CRISIL
CompBex
3.25 6.13 8.1
Tata Dynamic Bond Fund -
Option A - Growth
Murthy
Nagarajan
I-SEC
Composite
Gilt Index
2.67 6.3 6.95
Tata Dynamic Bond Fund -
Option B - Growth
Murthy
Nagarajan
I-SEC
Composite
Gilt Index
2.66 6.31 7.12
I-SEC Composite Gilt Index 4.49 4.87 9.79
Tata Money Market Fund -
Institutional - Growth
Murthy
Nagarajan
Crisil
LiquiFex
3.9 7.47 9.84
Tata Liquidity Management
Fund - Growth
Murthy
Nagarajan
Crisil
LiquiFex
3.01 6.4 9.78
Tata Money Market Fund -
Growth
Murthy
Nagarajan
Crisil
LiquiFex
3.69 7.29 9.04
Crisil LiquiFex 3.29 7.18 8.68
Tata Treasury Manager Fund -
RIP - Growth
Murthy
Nagarajan
CRISIL
STBEX
4.74 7.6 9.21
HIP - Growth
Murthy
Nagarajan
CRISIL
STBEX
4.84 7.69 9.56
CRISIL STBEX 4.85 5.59 8.81
Tata Gilt Mid Term Fund -
Growth
Murthy
Nagarajan
I-SEC
Composite
Gilt Index
N.A 3.39 10.06
I-SEC Composite Gilt Index 4.49 4.87 9.79
SHIP - Growth
Murthy
Nagarajan
CRISIL
STBEX
4.99 7.85 9.85
CRISIL STBEX 4.85 5.59 8.81
September 2012
HDFC Equity Fund - Growth Prashant Jain
& Rakesh
Vyas
S&P CNX
500 EOUITY
INDEX
46.52 11.02 -8.34
S&P CNX 500 EOUITY INDEX 27.41 2.31 -7.79
HDFC Top 200 Fund - Growth Prashant Jain
& Rakesh
Vyas
BSE 200 35.37 9.03 -5.95
BSE 200 27.22 2.96 -7.63
ICICI Prudential Target Returns
Fund - Retail - Growth
Yogesh Bhatt
& Atul Patel
BSE 100 28.71 7.15 -4.38
BSE 100 24.71 3.83 -7.16
ICICI Prudential Infrastructure
Fund - Growth
Yogesh Bhatt
& Atul Patel
CNX INFRAS-
TRUCTURE
19.83 -0.76 -13.86
CNX INFRASTRUCTURE -3.87 -8.23 -22.5
ICICI Prudential Services
Industries Fund - Growth
Yogesh Bhatt
& Atul Patel
CNX
Services
Sector Index
33.33 4.71 -6.4
CNX Services Sector Index NA NA NA
ICICI Prudential FMCG Fund -
Growth
Yogesh Bhatt
& Atul Patel
CNX FMCG
INDEX
62.16 21.75 25.9
CNX FMCG INDEX 43.94 23.38 22.76
ICICI Prudential Top 200 Fund
- Growth
Yogesh Bhatt
& Atul Patel
BSE 200 33.68 5.88 -6.84
BSE 200 27.22 2.96 -7.63
Disclaimer:ICICI Securities Ltd.( I-Sec). Registered ofhce of I-Sec is at ICICI Securities
Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, AMFI Regn.
No.: ARN-0845
Mutual Funds and securities investments are subject to market risks and there is no
assurance or guarantee that the objective of the Scheme will be achieved. Please
note NAV of the schemes may go up or down depending upon the factors and forces
affecting the securities markets. Past performance of the Sponsor/AMC/Fund or that
of any scheme of the Fund does not indicate the future performance of the Schemes
of the Fund. Please read the Scheme Information Document (SID) and Statement of
Additional Information (SAI) carefully before investing. SID and SAI are available on SBI
Mutual Fund website. The contents herein above shall not be considered as an invitation
or persuasion to trade or invest. Nothing in this report constitutes investment, legal,
accounting and tax advice or a representation that any investment or strategy is suitable
or appropriate to the investors specihc circumstances. Investors must make their own
investment decisions, based on their own investment objectives, hnancial positions and
needs of specihc investor.
I-Sec and afhliates accept no liabilities for any loss or damage of any kind arising out of
any actions taken in reliance thereon. The information provided herein is not directed at
any person and not intended for to be acted upon by any jurisdiction where this would
(by reason of that persons nationality, residence or otherwise) be contrary to law or
other legal requirements.
September 2012
INVESTING TIPS
The price to book (P/B) ratio is
a common valuation measure,
which compares a stocks
market value with its book
value. P/B ratio is calculated
by dividing companys stock
price with its book value.
P/B Ratio = Stock Price / Book
Value.
Let us hrst understand what a
book value is. Book value of a
company reects its net worth.
Book value is calculated by
summing up companys total
assets minus intangible assets
& liabilities. (Intangible assets
include brand name, goodwill,
other intellectual properties,
etc).
Book value = Total assets
Intangible assets and liabilities.
Price to book (P/B) ratio simpIied
These hgures can be found on
a companys balance sheet.
Ultimately, a companys book
value is what the company
would be worth if it was totally
liquidated.
Interpreting P/B ratio
If the P/B ratio is one that
means the market is fully
valuing the company.
If the P/B ratio is less than one,
it indicates that the stock is
undervalued and may provide
you with a good buying
opportunity but it may also
indicate that something is
fundamentally wrong with the
company.
A stock with high P/B indicates
that either the stock is
overvalued or investors are
Certain ratios and numbers give investors a more detailed
picture of the company's nanciaI heaIth. Understanding
various ratios helps us take more informed investment
decisions. Continuing our series on understanding market
ratios, in this edition, we look at simplifying another
signicant ratio, price to book (P/B) ratio. In our Iast edition,
we explained price to earnings (P/E) ratio.
September 2012
INVESTING TIPS
quite optimistic about the
future growth potential of that
stock. A higher P/B ratio also
implies that investors expect
management to create more
value from a given set of
assets.
How is it useful to you as an
investor?
P/B ratio is a good measure
to value stocks of companies
with large tangible assets
in their balance sheets. It is
particularly useful for value
investors, who are always on
the hunt for low price stocks
that the market has neglected.
It gives you an idea if you are
paying too much for what
would be left if the company
declared bankruptcy.
Limitations
P/B ratio is useful only for
capital intensive business
which have huge amount of
assets. As this ratio does not
consider intangible assets like
brand, goodwill and other
intellectual properties, it may
not depict a true picture for
service sector companies like
IT.
Further, this ratio does not,
however, directly provide any
information on the ability of
the hrm to generate prohts or
cash for shareholders.
To sum up
P/B ratio is an easy tool to
measure value of the stock
and for identifying under
or overvalued companies.
However, do not opt for the
stocks with only low P/B
ratio. Look for the key growth
indicator as well, called return
on equity (ROE). ROE is
equal to net income divided
by shareholders equity. If a
companys price to book ratio
is growing its ROE should be
doing the same.
September 2012
KNOWLEDGE BASE
Bank deposits have always been the most favored investment
option in India. Given their variety of schemes, they offer something
for almost every kind of investor. The two common types of bank
deposits are Fixed Deposits (FDs) and Recurring Deposits (RDs).
When it comes to investing, individuals often get confused as to
which option to choose - FD or RD. In this article, we attempt to
answer this question.
A quick snapshot: Bank FDs vs. RDs
FDs RDs
Meaning An amount invested
for a hxed term (Days /
months/ years).
A hxed amount invested
after a dehned period (
Month / quarter / half year)
Tenure Available for very short
term to long term (7
days to 10 years)
Available for short term to
long term (6 months to 10
years)
Average interest
rate offered
4.5% (short-term) to
8.5% (long-term)
7.5% (short-term) to
8.75%(long-term)
Availability Banks/ Post Ofhces Banks / Post Ofhces
Default risk Low Low
Tax on interest Yes : Income from other
sources
Yes: Income from other
sources
TDS Yes : If interest >
` 10,000
No
Type of investment
contribution
required
Lump sum Periodic
Premature
withdrawal
Available Available
Bank FDs vs. RDs
A bank hxed deposit (FD) is an
ideal investment option when a
lump-sum amount is available as
the whole amount gets locked at
the prevailing interest rate for the
select period and you continue to
earn the same interest irrespective
of the change in interest rates
after the deposit is made.
A recurring deposit (RD) will also
get the same beneht of predehned
interest rate however if interest
rate increases then the investor
has an option to start a new RD
account (either with a same bank
or other bank). This may enable
him to get the higher interest rate
on different investments. During
uncertain interest rate conditions,
September 2012
KNOWLEDGE BASE
Goals Amount Period Return
(%)*
If invested with
RD FD
Higher
education - self ` 10 lakhs 5 years 8.5% ` 13,433 p.m. ` 6.65 lakhs
Car ` 10 lakhs 3 years 8.75% ` 24,392 p.m. ` 7.77 lakhs
Vacation
abroad ` 2 lakhs 1 year 7.5% ` 16,101 p.m. ` 1.86 lakhs
Investment required ` 53,927 p.m ` 16.28 lakhs
Investment possibility Possible with
modihcations
Looks little
difhcult
Goals Achievement Possible Looks little
difhcult
For illustration purpose only
*Assumed both RD & FD offer same return for a given period of time.
Fixed deposits, on the other hand, are suitable for investors who want
to invest lump usm amount. If a lump sum amount is available, it
should be invested based on your needs. The table below shows how
FD scores over RD when invested lump sum amount.
Tenure Rate of
interest
Investment Accumulation
amount
Fixed deposit 1 year 8.5% p.a ` 1,20,000 p.a ` 1,30,200
Recurring deposit 1 year 8.5% p.a ` 10,000 p.m ` 1,24,787
Summing up
One should select the type of deposit based on his needs and
requirements. If one wants to invest lump sum amount, FD can be
chosen. If one wants to contribute smaller amounts, RD may score
over FD.
-By Pankaj Agarwal, ICICIdirect Centre for Financial Learning
Views presented/ expressed in the article are the personal views of the author and doesnt necessarily
represent the views of the organization.
one may prefer investing in RDs
over FDs.
A recurring deposit (RD is an
effective tool to inculcate the
habit of regular savings. It is akin
to mutual fund SIPs. One can start
with a minimum contribution of `
10 / ` 100 (Post Ofhce / Bank) and
gradually increases to the higher
amount. One may also open
different RDs to meet the various
goals.
Lets consider a case of Mohan,
who has started working recently.
He has dehned a few goals and
intends to save and invest to
achieve them. He is a risk-averse
and wants to invest in bank
deposits.
September 2012
MODEL PORTFOLIO
MODEL EQUITY PORTFOLIO MODEL EQUITY PORTFOLIO
Keeping varied investor interest in mind, we have selected 35
quality companies, segregated them into 20 large cap stocks
and 15 mid-cap stocks. These stocks broadly belong to the
BSE 200 universe as they provide a better representation of
steady, matured and emerging businesses. The constituents of
the BSE 200 index have been screened based on the quality of
the management and several business parameters to arrive at a
core list of 35 stocks, which fall in the I-direct coverage universe
so that continuous monitoring can be maintained.
After stock selection, we have further taken our exercise forward
to bifurcate the above stocks into the three following portfolios:
Large cap portfolio (stable, consistent, low volatility)
Midcap portfolio (high growth, relatively more volatile)
Diversihed portfolio (blend of large and midcap portfolio)
On the basis of risk tolerance, return expectation and time
horizons, one can mimic any of the above three portfolios, which
we believe will cater to investors of all kind.
Portfolio allocation: Bet on large caps for longevity and mid-
caps for alpha
A portfolio should always be allocated in an optimal form in
terms of choosing the number of stocks from the large cap and
the mid-cap space. The allocation ratio is again a function of the
risk tolerance and return expectations of individual investors. If
one is willing to take higher degree of risk given he understands
the volatility that persists during difhcult market conditions, then
an overweight stance on mid-caps does make sense. On the
other hand, beginners or inexperienced investors should go
overweight on large caps and be less dependent on mid-caps
as the former provides better safety of capital with a reasonable
rate of return.
The indicative model portfolio has been constructed using a
balanced approach wherein the major part of the portfolio is
concentrated on large cap stocks managed conservatively, and
mid-cap stocks with relatively higher risks. We advise that these
stocks be invested for periods of three to hve years. Thus, they
will be able to ride through market volatility and thus generate
relatively superior returns adjusted for the risk attached to them.
September 2012
MODEL PORTFOLIO
We have built a direct equity indicative model portfolio as a
guiding tool for investments in direct equities. The indicative
model portfolio has been constructed on the premise that the
clients understand the risks associated with investments in
equity markets and are comfortable remaining invested in sound
businesses over a long period of time.
Name of the company Model Portfolio
Largecap Midcap Diversied
Largecap Stocks
Auto 7 4.9
Maruti Suzuki 3 2.1
Tata Motors 4 2.8
Bank 24 16.8
HDFC 8 5.6
HDFC Bank 8 5.6
SBI 8 5.6
Capital Goods 8 5.6
L & T 8 5.6
Cement 3 2.1
ACC 3 2.1
FMCG 9 6.3
Asian Paints 3 2.1
ITC 6 4.2
Metals 12 8.4
Coal India 6 4.2
Hindalco 3 2.1
Tata Steel 3 2.1
Oil and Gas 13 9.1
Gail India 3 2.1
ONGC 4 2.8
Reliance 6 4.2
Pharma 4 2.8
Lupin 4 2.8
Power 3 2.1
NTPC 3 2.1
IT 14 9.8
Infosys 6 4.2
TCS 8 5.6
Telecom 3 2.1
Bharti Airtel 3 2.1
September 2012
MODEL PORTFOLIO
Name of the company Model Portfolio
Largecap Midcap Diversied
Midcap Stocks
Auto 8 2.4
Exide Ind. 8 2.4
Aviation 6 1.8
Jet Airways 6 1.8
Bank 20 6.0
Federal Bank 8 2.4
Oriental Bank of Comm 6 1.8
Yes Bank 6 1.8
Construction 6 1.8
JP Associate 6 1.8
FMCG 6 1.8
Dabur India 6 1.8
Oil and Gas 6 1.8
GSPL 6 1.8
Pharma 14 4.2
Biocon 6 1.8
Glenmark 8 2.4
Power 8 2.4
PTC 8 2.4
Realty 6 1.8
Oberoi 6 1.8
Retail 6 1.8
Shoppers Stop 6 1.8
IT 6 1.8
Mahindra Satyam 6 1.8
Media 8 2.4
Dish TV 8 2.4
Total 100 100 100
Content source: ICICIdirect.com Research
Disclaimer : ICICI Securities has been assigned an investment banking
mandate from group company's of Tata Steel Ltd. This report is prepared on
the basis of publicly available information.
September 2012
QUIZ TIME
1. There is an upper limit for contributions to be made in
New Pension Scheme (NPS). True/False
2. Indias GDP came in at 5%in O1. True/False
3. Premature withdrawals are allowed in NPS. True/False
4. To calculate the book value for P/B ratio, one needs to
take into account tangible as well as intangible assets.
True/False
5. Individuals above the age of 60 years can subscribe to
NPS. True/False
Note: All the answers are in the stories that have appeared
in this edition of ICICIdirect Money Manager. You may send
in your answers at: moneymanager@icicisecurities.com
The answers will be published in our next edition. The
names of the earliest all correct entries will be published
too. So jog your grey cells and be quick to send in your
entries.
Correct answers for the August 2012 Quiz are:
The benchmark index for arbitrage funds is ?
(CRISIL Liquid Fund Index)
Form can be used to change or cancel a nomination
for PPF.
(F)
Arbitrage funds must maintain an equity exposure of at
least % to enjoy the tax benehts of an equity fund.
(65%)
In case of death of the shareholder, the nominee gets the
right of the shares even though he is not the legal heir. True
/ False
(True)
Arbitrage funds are treated at par with any other equity
fund. True / False
(True)
September 2012
Premium Education Programmes Schedule
ICICIdirect Centre for FinanciaI Learning (ICFL) imparts quaIity education on nanciaI
markets to beginners and amateurs, student, housewives, working professionals and
seIf empIoyed. ICFL's broad objective is to make participant feeI condent to start
investing in stock market.
Here is the list of our programmes scheduled for the month of September 2012.
Schedule for Beginners programme on Futures and Options Trading
Sr.
No
City Dates For More Information & Registration call:
1 Mumbai_ Chembur Sep 1-2 Rajmohan on 9167035211
2 Pune Sep 1-2 Kusmakar on 7875442311
3 Bangalore Sep 1-2 Subrata on 9620001478
4 Navi Mumbai Sep 8-9 Vidhu on 9619716146
5 Delhi Sep 15-16 Vishal on 07838290143, Harneet on
09582158693
6 Mumbai_ Malad Sep 15-16 Vidhu on 9619716146
7 Thane Sep 15-16 Vidhu on 9619716146
8 Indore Sep 15-16 Kusmakar on 7875442311
9 Nagpur Sep 8-9 Kusmakar on 7875442311
10 Hyderabad Sep 15-16 Manivannan on 9742273109
12 Coimbatore Sep 22-23 Makhizhnan on 8939646628
15 Chandigarh Sep 22-23 Harneet on 09582158693
16 Chennai Sep 22-23 Makhizhnan on 8939646628
18 Erode (Tirupur) Sep 29-30 Makhizhnan on 8939646628
Schedule for Fast Track Beginners Programme on Futures and Options Trading
Sr.
No
1 Jamnagar Sep 9 Rajmohan on 9167035211
2 Trivandrum Sep 8 Makhizhnan on 8939646628
3 Nasik Sep 15 Kusmakar on 7875442311
4 Jamnagar Sep 16 Rajmohan on 9167035211
5 Aurangabad Sep 16 Kusmakar on 7875442311
6 Thrissur Sep 16 Makhizhnan on 8939646628
7 Vadodara Sep 23 Rajmohan on 9167035211
8 Ahmedabad Sep 23 Rajmohan on 9167035211
September 2012
9 Hubli Sep 23 Subrata on 9620001478
10 Kollam Sep 29 Makhizhnan on 8939646628
11 Vizag Sep 30 Manivannan on 9742273109
Schedule for Foundation Programme on Stock Investing
Sr.
No
3 Coimbatore Sep 8-9 Makhizhnan on 8939646628
4 Noida Sep 8-9 Vishal on 07838290143
09582158693
09582158693
8 Mumbai-Andheri Sep 15-16 Vidhu on 9619716146
11 Chennai Sep 15-16 Makhizhnan on 8939646628
12 Kolkata Sep 15-16 Sumit on 8017516187
09582158693
09582158693
16 Thane Sep 22-23 Vidhu on 9619716146
Schedule for Fast Track Foundation Programme on Stock Investing
Sr.
No
1 Surat Sep 9 Rajmohan on 9167035211
2 Dhanbad Sep 16 Sumit on 8017516187
3 Ludhiana Sep 16 Harneet on 09582158693
4 Jaipur Sep 16 Harneet on 09582158693
5 Lucknow Sep 16 Vishal on 07838290143
6 Bhubaneshwar Sep 16 Sumit on 8017516187
7 Cuttack Sep 23 Sumit on 8017516187
September 2012
9 Guwahati Sep 23 Sumit on 8017516187
10 Surat Sep 23 Rajmohan on 9167035211
Schedule for Advanced Derivative Trading Strategies
Sr.
No
09582158693
Schedule for Technical Analysis
Sr.
No
09582158693
5 Kolkata Sep 29-30 Sumit on 8017516187
Schedule for Fast Track Technical Analysis
Sr.
No
1 Calicut Sep 8 Makhizhnan on 8939646628
2 Vadodara Sep 9 Rajmohan on 9167035211
4 Cochin Sep 22 Makhizhnan on 8939646628
5 Ranchi Sep 23 Vishal on 07838290143
6 Allahabad Sep 23 Vishal on 07838290143
7 Ghaziabad Sep 30 Vishal on 07838290143
Contact us
Email:
Send us an email at learning@icicisecurities.com
Please mention the name, date and venue of the programme you have attended or wish to
attend, for faster resolution of your queries.
SMS:
SMS EDU to 5676766 for more details
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