Volume 5, Issue 01

05Jan2013

The monthly newsletter from FundsIndia

A good year ahead

Srikanth Meenakshi

Inside this issue:

Greetings from FundsIndia!

A good year
ahead

The month ahead

- Equity recommendations B.Krishna Kumar

Make your portfolios work better

Vidya Bala

Financial Planning Education

Series

A Complicated
Year
Dhirendra
Kumar

Hope you folks had a wonderful new year! Heres wishing you a happy, prosperous 2013!
At FundsIndia, we have a busy year planned for us. I would like to use this opportunity to
talk about a few things that we are working on currently, and let you know what you can
expect from us in the year ahead.
Mobile platform: As some of you have noted and emailed/tweeted, FundsIndias mobile platform is now available for use. It can be accessed from any mobile device using a browser. Presently an investor can view portfolios,
redeem and setup SIPs using a mobile. In the upcoming weeks/months, we will accept payment transactions for
making investments as well.
Portfolios, reviews, reports: As I had promised last month, the new Ready-to-go portfolios are out, and they are
better than ever. Now, you can choose a portfolio based on different criteria risk, time frame of investment,
age, and more. Please check it out if you havent already.
Presently, we are working on an automated portfolio review feature that promises to be very interesting and very
useful. Please look out for it. Also, we will be working on an automated re-balancing service that will make maintaining your portfolio in FundsIndia even more rewarding.
On a related note, please do try out our new capital gains report that now reports gains (long-term/short-term) at
a transaction level (in addition to the summary report). This can be used for either getting more details or for
period-based IT filings.

More platform enhancements: There are a few other interesting services that we have lined up for the year ahead as well investments using SMS requests, and enabling STPs across AMCs. These are still at design stages and well share details as we go along.
All in all, 2013 promises to be an action-packed year. As always, you can count on FundsIndia to innovate and make your investing experience more
interesting and enriching.
Happy investing!

NEW at FundsIndia!
Premium Financial Planning Services to secure your financial
future. Get started with a FREE 30 minute counseling session
with our experts!
*Please note: Comprehensive financial planning is a fee bases service

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

Volume 5, Issue 01

Page 2

The month ahead - Equity recommendations

B.Krishna Kumar

The stock market action was rather subdued in December. The Nifty was confined to a trading range of 5,830-5,945 for the best of the
month. The dawn of 2013 helped the index move out of this range. The index has also managed to poke the psychological barrier of 6,000
a few days ago.
The domestic 10-year bond yield have slipped sharply in the past few days and has dropped below the prior support at 8.05%. This probably is a pointer that the bond market is factoring-in a rate cut sooner than later.
The US Dollar too has been receding to lower levels. This is a positive sign for the domestic equity markets. The outlook for the US Dollar
remains bearish from a short-term perspective until the greenback moves above the crucial resistance at Rs.56.50.
Our last monthss view of a rally past 6,000 in the Nifty has already played out. We maintain our bullish stance and expect the Nifty to test
the immediate resistance at 6,150. We remain positive on stocks such as Larsen & Toubro, State Bank of India, Bank of India, Corporation
Bank and Martui-Suzuki from the large cap space.
We however feel that the mid-cap and small cap stocks could deliver better returns and our buying list includes MRF, Apollo Tyres, Brigade Enterprises, Adhunik Metalliks, Castrol India, Jyothy Labs, HDIL and Balkrishna Industries.
As observed last month, from a technical perspective, the sequence of higher highs and higher lows is still intact, validating the bullish
view. The recent swing low at 5,820 now becomes the reference point or stop-loss if you will, for long positions.
Investors may use the SIP-route to buy into Nifty BEES, to participate in the medium-term uptrend.
We expect the public sector banking space to deliver superior returns in 2013. SBI, Corporation Bank, Allahabad Bank and Union Bank of
India are a few names that we are positive on.
This month, we cover the outlook for a couple of
stocks from the automotive tyre space. The natural rubber price has eased off from the peak. This
is likely to have a positive rub-off on the profitability of tyre companies. We recommend a buy
on Apollo Tyres and the market leader MRF.
Both stocks are in an uptrend and could deliver
10-15% returns from a short-term perspective.
MRF has been a star performer in the past few
weeks. The stock has already appreciated by over
17% in December. The company needs little introduction to the investor fraternity, courtesy the
strong brand image and high quality products
that they produce.

A look at the monthly chart featured above indicates that the stock has resumed its uptrend after a few months of consolidation. The stock
moved up sharply in December and a short-term correction may ensue.
Investors may use any price weakness to buy the stock for a target of Rs.17,450. The stop loss, for the long position in MRF, may be placed
at Rs.12,000.
Apollo Tyres is another prominent name in the automotive tyre industry. From the daily chart featured below, its evident that the stock
has resumed its uptrend recently after having completed a nice correction.

Continued on page 3 . . .

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

Volume 5, Issue 01

Page 3

Investors may buy the stock at the current levels as well as on declines, for a target of Rs.115. The positive view would be under threat if the
stock falls below the support at Rs.82. Hence, the stop loss for long positions may be placed at Rs.82.

Mr.B.Krishna Kumar also hosts a weekly webinar that discusses the market
outlook for the following week.
You can register for the webinar by clicking here:
https://www4.gotomeeting.com/register/927617871

Make your portfolios work better

Vidya BalaHead - Mutual Fund Research at FundsIndia

If you are determined to follow your money resolution for the year, keep up the tempo! But we would like you to add a few more resolutions if they
are already not there - to make your mutual fund portfolio work better. Heres a list, a very elementary one but something we tend to disregard.
Lets call it the Building Blocks of MF wealth.
#1 Assess your risk
The answer to this is, most often, you cannot. Dont be surprised. Yes, there is the thumb rule of hundred minus your age to invest in equities. But then,
if a 30-year old wants no more than 40 per cent in equities, he hasnt broken a rule!
Then there are these many questionnaires that try to categorise you as an aggressive, balanced or conservative investor. In reality, you may have an
adventurous life but have no clue about your capacity to take risk in investments.
Your capacity to take loss is also one other factor cited as a risk assessing tool. But you need to test waters to know how much loss you can take.
Then how else do you determine your risk appetite? If you do not subscribe to fancied theories, then simply go by your time frame. If you have a 10year goal, asset class returns tend to normalize over this period that is they tend to go through ups and downs and smoothen your returns overall.
That means you have leeway to invest in equities or other risky asset classes. Even then, there are no guarantees. To reduce the risks and uncertainty,
you may at best move to safer investment avenues as you near your goal and not wait for the fag end of the term. In other words, with regular investing
and rebalancing you can hope to reach your goal. There will be downfalls over this period. Even if you are not a brave heart you will have to grit and
bear. Thats the reality.

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

Volume 5, Issue 01

Page 4

But if you have a say 2-3 year time frame, then you have lesser time to sit and hope the markets would have gone through full cycles. In this case, your
appetite for riskier assets should be more tempered.
A near-term goal of say less than a year means you simply need to keep your capital intact. Safe avenues that generate some returns and safeguard your
capital should then be your route. That means you simply cannot take risks.
The choice and proportion of the asset class and the choice of your funds would be made based on this time frame-risk appetite equation.
#2 Be systematic
Once you are sure about your risk and time frame, the only way to ensure you dont jump the gun is to
auto pilot your investments. Choose the SIPs over lump sum investments for medium to long-term
goals. An SIP works wonders in volatile phases.

Have a long load with a sign board

that says

Take the last five-year returns. Top funds such as ICICI Pru Discovery or Reliance Equity Opportunities delivered compounded annual returns of 8.2 per cent and 7 per cent respectively over the last five
years. But their SIP returns at 14 per cent and 16.6 per cent IRR speaks volumes about SIP technique.
Remember, markets have not touched the levels of five years ago but these funds delivered doubledigit returns when bought systematically over this period.

Unless you like flat tyres stay

on path

#3 Diversify
Yes, mutual funds diversify across stocks/instruments. But what if those stocks are focused on a particular theme or style? Diversifying across asset
classes and across fund investment styles helps reduce risk. Equity, debt and gold complement each other well. So also a bunch of mid-cap, large-cap or
balanced funds.
A 60:30:10 allocation in equity:debt:gold could have reduced your portfolio fall in 2008 to 23 per cent as against the Sensex (representing equities) fall
of about 50 per cent. Similarly, you would have lost 5-10 percentage points lower by holding a combination of say equal money in large-cap, mid-cap
and balanced funds than simply holding mid-cap funds. Diversify across asset classes in line with your risk profile. But remember, too much diversification across funds can dilute performance.
#4 Rebalance
Is it enough that you allocate money to equity, debt and gold and they stay put? The ratio will change as your money grows. And since some asset
classes will outperform the others, your portfolio can go out of kilter. To rein it in, you may have to do an end-of-year review. Heres an example with
just two asset classes:
Portfolios A and B were started with a 60:40 allocation in equity: debt. Portfolio A was left without rebalancing the allocation. Portfolio B was reviewed every year and rebalanced in end 2007 and end 2009 whenever the asset allocation had moved from the initial proportion by over 10 percentage points. Portfolio B delivered superior returns.
It does pay to rebalance your assets. While the above illustrates higher returns, it may also simply result in lowering risks or negative returns.

Date

Portfolio A
(Rs)

Jan-06
Jan-12
Gain

Portfolio B
(Rs)

100000

100000

153621

165011

53.6%

65%

#5 Review but with care

Reviewing your fund does not mean chasing returns. If your mid-cap fund underperformed your large-cap fund, it could have been a bad year for midcap stocks. Hence, compare with the funds own benchmark and similar category funds. Also, do not expect your fund to be in the top of performance
chart every year.
If they slip a bit in certain years and do not lag their benchmark by say 5 percentage points or more, you may not have to worry much. Do not exit in
haste. When in doubt, stop your SIPs and watch after a quarter or two. Selling in a hurry may hurt in terms of returns as well as taxes and spoil the
chances of building your goal. And avoid the anxiety to exit in a market like 2008 or 2011. You will miss the bus bound north the very next year. Stay
rooted, if you know your funds performance is not below that of the market/peers.
Happy wealth building folks!
Vidya Bala is the Head of Mutual Fund Research at FundsIndia. A chartered Accountant by training, she was earlier with the Hindu Business Lines research bureau, tracking mutual funds, stock markets and sectors for eight years. She will write for our monthly newsletter on topics including mutual fund, personal finance
and equity markets. Vidya Bala can be reached at vidyabala@fundsindia.com

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

Volume 5, Issue 01

Page 5

Financial Planning Education Series

S.Shridharan Head - Financial Planning

In the last article we discussed about how to assess your debt burden in relation to your income, your savings ratio and the need to have a contingency fund. This week we will talk about how you arrive at the total net income available in your hands and also ensure you have budgeted
for all your monthly expenses. This will help know how much you have in hand to invest. In other words, this is your own cash flow statement.
Understand your Net Monthly Income
The net monthly income is nothing but the income that you receive in your hands post all the deductions. The various deductions could be
EPF, Professional tax and Income Tax to name a few. You may also have other sources of income such as interest on investments, dividend or
rent received and so on. Remember to add this to your incoming cash flow.
Monthly budget
Have your monthly expense diary. The monthly expenses in general can be classified in the following category.

Housing expenses (Includes rent, electricity, maintenance, telephone etc.)

Living expenses (includes groceries, vegetables & fruits, milk etc.)

Personal Expenses( includes petrol, mobile, internet club bills etc.)

Childrens expenses (includes children education, extracurricular activities and so on)

Liabilities
Keep track of your liabilities which includes your home loan, car loan, education loan, personal loan etc.
The above rules are to be applied to make sure that the expenses are under control. The expenses need to be less than the net monthly income,
to ensure that there is some investable surplus left.
Investable surplus
Your investable surplus equals: Net monthly Income - Net monthly expenses.
While you should have a reasonable sum to invest, using the above surplus method, we would prefer that you allocate a certain sum for investments first. Try to ensure your expenses are contained with the amount left after investing. In other words, the first expense in your cash flow
statement must be your investment. But do ensure that you do not end up defaulting on fixed commitments like loans.

Mr.S.Sridharan is the Head of Financial Planning with FundsIndia. You can reach Mr.Sridharan at sridharan@fundsindia.com

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

Volume 5, Issue 01

Page 6

A Complicated Year
By Dhirendra Kumar | Jan 2, 2012

For anyone with any kind of market-linked investments, the end of 2011 was a particular low point. The stock markets had
fallen a lot over the previous few months and there seemed to be little basis for any optimism at all looking forward to 2012.
But 2012 turned out to be a positive surprise, particularly in comparison to what was expected. Now, a year later, the situation is exactly the reverse. Almost against all odds, 2012 turned out to be different.
So is the pattern going to repeat itself in reverse? Come January 1, are we going to start a year that will mean poor or negative returns for most investors? Perhaps, but in any case, to believe that you would have to have deep faith either in superstition or a rigourous reversal
to the mean. You can take your pick.
Anyhow, the year past has been a happy one for mutual fund investors of all stripes (with the possible exception of some over-enthusiastic debt fund
investors but thats a separate story). In a year in which the Sensex and the Nifty rose by 22-23 per cent and the mid-cap indices by a hefty 36 per cent,
most types of equity mutual funds did well. In the categories tracked by Value Research, mid and small cap funds were up by an average of 39 per cent,
large and mid-cap funds by average of 28 per cent and large cap funds by 23 per cent.
There are two ways of looking at these numbers. One could say that great, investors made lots of money. Or, one could compare the average performance of different types of funds to their corresponding indices and say that actually, the fund managers didnt add muchthe average fund did as well
as the index. The truth is a little more complex. In all these categories, the distribution of returns is skewed. 2/3 to 3/4 of the funds did better than the
indices and the average was dragged down by a handful of stragglers who did very badly. This is not just of academic interestit reinforces something I
have observed for a while. As an Indian investor, all you have to do is to avoid a handful of the really bad (easily identifiable) funds. That alone puts you
well ahead of the game.
Even if you dont pay attention to the minutiae of funds returns, 2012 was interesting in other ways as well. A year ago, everyone was waiting for the
Reserve Bank to start bringing down interest rates in response to the slowing growth rates. A year later, thats exactly where we are.
However, notwithstanding the performance of the equity markets, or the mutual funds that invest in them, it hasnt been a great year. For the first part
of the year, at least till the time that finance ministry hasnt changed hands, it seemed that the Government of India had abandoned even the idea of
paying lip service to the idea of economic reforms or of considering engagement with the outside world to have any importance. For a few surreal
months, it seemed that we were regressing rapidly to the 1970s mind-set. Even though that phase is now past, substantive change is a little thin on the
ground.
Notwithstanding the larger economic crisis and inactivity, the year saw some significant changes to the way mutual funds work. SEBI introduced significant changes to the way the mutual fund business functions. These changes were widely perceived to be in response to the erosion of vitality that the
fund industry had suffered over the last three years, ever since the abolishment of entry loads strained the business models of funds. In August, SEBI
enhanced the amount that funds could charge from investors, based on how well they performed in expanding their reach beyond the bigger cities. Its
an interesting bargain, and if funds keep their end of it, then mutual fund investingand the kind of easy returns that I talked about above could be
within reach of a much larger population than it has been limited to till now.
It may have been a complex year, with no clear theme that defined it, but going forward, investors have more reason for being hopeful of 2013 than not.

Syndicated from Value Research OnlineArticle can be viewed online herehttp://www.valueresearchonline.com/story/h2_storyView.asp?

str=21780

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