07 Aug

Our Philosophy for Equity Investments

Equity investments potentially give very large returns over the long term but entail high volatility in the shorter term. Our philosophy on equity investments would be guided by the following thoughts:

1. Clients having allocation less than Rs. 25 lakhs for equity investments would be better off investing in equity mutual funds. These are recommended for their tax efficiency, professional management, ease of execution and flexibility.
2. Equity Portfolio Management Scheme (PMS) would be recommended to clients where the allocation to equity portfolio is greater than Rs. 1 crore. This is because the minimum investment size for equity PMS is Rs. 25 lakhs. However do note, PMS have much larger cost structure compared to direct equity, ETF’s and Equity mutual funds.
3. The entire equity portfolio comprising of Equity PMS, Direct equity, Equity mutual fund including the existing allocation of the client will follow diversification so as to not get exposed to single sector, company or geography.
4. The driving theme while constructing the equity portfolio would be such that a larger allocation would be given to Multicap Portfolio and Value/ Contra Strategy. A smaller portion would be allocated to Global equities and Midcap/Smallcap Portfolio.
5. Investments in equity mutual funds and direct equity need to follow the principles of time diversification. This means the portfolio needs to be built gradually over a period of time, to reduce the risk of market timing.
6. We believe that for investors who are focused on equity mutual funds, allocation to five equity mutual funds with different investment styles would be sufficient to capture growth of equities. This would not only give focus to the portfolio but also give adequate diversification.
7. Passive funds like Exchange traded funds (ETF’s) or Index funds would be considered where the returns of active fund managers are much lower than such passive funds.
8. We would avoid thematic and sectoral funds as much as possible.
9. Allocation to direct equity should be done between 10-15 stocks. The allocations to individual stocks would be equal and the portfolio built gradually.
10. Lot of emphasis would be given to reduce the cost of equity portfolio thereby helping the client earn better returns. Towards this, we will focus on low cost ETF’s , Direct plans of equity mutual funds, low brokerage while executing direct equities and avoiding or reducing capital gains tax/ exit loads by holding the portfolio for longer term with minimum churn.
11. We believe Midcap and Smallcap equity mutual funds/ PMS can earn higher returns than we hunting for such portfolio. Hence, allocation to direct equity and ETF would be predominantly in Largecap stocks (Top 100 companies by market capitalization).
12. We would not recommend to take exposure in equities through Unit Linked Insurance Plans (ULIP’s) as there is a longer lock-in and higher cost.
13. We would not shy to increase equity allocation when the underlying news flow is bad and valuations are very attractive. Vice-versa is also true.
14. Our exit decisions on equity investments would be based on rebalancing strategies if, the equity allocation increases above the risk taking ability of the clients or financial goals approaching in the next 3-5 years. We might also exit if there are better avenues than the current portfolio. No exit would be dictated by short term underperformance.
15. Clients who can digest severe volatility in the shorter term, who have made adequate arrangements for their short term requirements, can wait for a minimum investment horizon of 5 years and above and following our equity investments principles would be best suited to benefit from the power of equity investing. We would not be giving trading and speculative calls.

Finally, Long term returns in equity are more of a result of patience, discipline and holding-power rather than the actual product itself.

Disclaimer:

1. Equity linked instruments are subject to market risks. There is no guarantee of returns.
2. Equity linked instruments are not suitable to investors with less than 5 years investment term.
3. Equity linked instruments undergo severe short term market volatility.
4. Past performance of equity linked instruments whether good or bad might not sustain in future. Please understand the scheme features carefully before investing.

Disclosure:

1. Naveen Julian Rego has a majority stake in Naveen Rego Wealth Managers Private Limited which is an execution only company distributing all Indian Mutual Fund schemes under the broker code ARN -23315. In lieu of the distributor agreement with the MF companies, the said company receives brokerage in the range of 0.05 to 1% (upfront or p.a.) depending on the scheme and the assets transacted.
We however, insist our clients to execute the transaction directly with the respective financial institutions, so as to reduce the implication of brokerages/ higher cost and non-transparency.

2. Naveen Julian Rego and his family members might be holding the recommended stocks and mutual funds in their personal portfolio.

Feel free to get in touch with us for more clarification at 9741157582/0824-4280101 or assistant@naveenrego.com

Have a wonderful day!!

Naveen Julian Rego-CFP
SEBI Registered Investment Advisor
Reg. No. INA200004250

Date: 14th August, 2018.

07 Aug

Investment Options for the Retired

Fixed Income products like Fixed Deposit’s and Postal Savings Schemes (Senior Citizen Bonds, Postal MIS etc) are the bedrock of many Retirees as they give stability and regular income. However, they suffer from lower returns (just around inflation) and taxation issues.
So what exactly should the investment mix of a RETIREE be? While there is no clear cut answer, as it should be investor specific, I have listed some guidelines which should be kept in mind for the above set of investors. I have omitted some complexities and hence made it simple.
1. Fixed Income instruments will give regular income but fail miserably in beating inflation. Hence, it would be very important to have inflation beating instruments in some proportions in one’s portfolio. Also, many of the fixed income instruments have the implication of taxation which reduces the post tax income.

2. The allocation (of inflation beating products) should be minimum 25% for retired investors. This could be increased based on the cash flow situation and the size of the portfolio. Equity Mutual funds, while being volatile in the shorter time frame, would be a good choice for these products. This would also reduce the taxable income. Build this part of portfolio gradually through a staggered approach so as reduce the market timing risk.

3. The allocation of fixed income products for a Retired person should be done such that one has enough regular income but the income is such that it falls below the taxable income. Assuming 8% p.a. annual interest, one can invest maximum Rs. 62.5 lakhs in taxable fixed income options like FD’s, Postal Schemes etc (non taxable income is Rs. 5.00 lakhs i.e. Rs. 3 lakhs basic exemption plus Rs 1.50 lakhs after investing under Sec 80C plus Rs 50,000 interest exempt). If one has other or rental income (fully taxable) of say Rs. 2 lakhs per year, then the maximum investments in FD like instruments would be Rs. 37.75 lakhs (approx). Also, note Rs. 40,000 p.a. pension income is also tax exempt.

4. The remaining allocation to fixed income options should be done through Debt Mutual Funds. There is common myth that debt mutual funds are very risky as they invest in shares. Kindly note that debt mutual funds invest (or loan) the money to government, banks, PSU’s or good corporate for a fixed period at a rate of interest. This is returned back to the investors after the expenses, subject to the associated risks which are considerably lower than equity instruments.

5. Debt Mutual Funds also have a better taxation structure than your other fixed income instruments. Firstly, they are not taxed till withdrawn. That means you can postpone taxation till the money is required. Secondly, exits after 3 years are taxed at 20% net of inflation unlike FD’s which are taxed fully.

6. Avoid taking dividend income from equity/debt and hybrid mutual funds as they are not tax efficient. Instead, one can opt for regular monthly withdrawal which is very tax efficient as exits are taxed at a lower rate than dividends. There would not be any TDS too.

7. One could avoid investing in real estate as the rental yields of apartments are quite low (not more than 3% p.a.) and fully taxed. These could be exited and re-invested in financial instruments as mentioned above.

8. NRI’s who are planning retirement in India should also bear in mind the above points so that, lower returns with large taxation do not hit them.
While the environment looks challenging for retired investors, a prudent approach would help in securing one’s regular income. It would be prudent to discuss your personal situation with a fee based Financial Planner and not have a piecemeal approach.

Note:
1. The above are personal opinion and should not be construed as financial/taxation advice.
2. As each individual circumstance is different, please contact your tax consultant/advisor for more clarity.
3. The cases and assumptions above are only for illustration and made for understanding purpose only.
4. Mutual Fund investments are subject to market risks. Kindly be aware of the risk factors before investing.
Feel free to get in touch with me at naveen@naveenrego.com / 98455 57582 for further clarifications.

Happy Retirement Planning!!

Naveen Julian Rego CFP
SEBI Registered Investment Adviser
Reg. No. INA200004250

28th June, 2018

07 Aug

Managing Retirement Surplus

Many elder people, who move away from active work either on attaining superannuation or optionally have to face many challenges in managing their retirement surplus. The foremost would be to have a monthly income to take care of regular expenses. I have compiled a list which I believe would be very handy for those who would be looking at creating a retirement income portfolio.

• The first step in managing the retirement surplus is to pay off any outstanding loans either on a car or a house. This would reduce the mental stress when you are retired.
• The next step is to appropriate amounts for any uncompleted major financial responsibilities like children’s higher education or children’s marriage. The financial products for this would be fixed deposits or debt mutual funds. Shares, real estate and equity mutual funds could be avoided. In case, gold needs to be accumulated for marriage purpose of children then it is advisable to go through the mutual fund route by investing monthly (SIP) either through an gold ETF or an open ended gold fund. The monthly purchases would reduce the risk of market timing for gold purchase.
• Next, would be to keep appropriate balances in a savings a/c or liquid fund to manage short term emergencies. Ideally 6 months of mandatory regular expenses (groceries, medical expenses, bills, travel, fuel etc) should be parked here.
• The continuation of an appropriate medical cover is very important at this stage. Choose a medical insurance company which would cover most of the medical expenses till maximum age. Do proper health declaration while filling the proposal form as non disclosure would render the contract void. However, have a proper diet and take good care of your health.
• After managing the above steps, take a re look at your entire financial net worth less your primary residence & gold ornaments with the above adjustments (mentioned in the above steps). This portfolio (after some restructuring) if properly deployed would give you the desired monthly income along with any other monthly pensions/income. This portfolio has to be invested judiciously taking the following
factors into consideration:
• Life Expectancy: Plan your finances well because of medical advancement one generally lives for between 75-85 years. This means your finances should last for another 15-25 years.
• Inflation: Regular monthly income what you receive now would not be sufficient at age 70 yrs because of inflation. Utilize inflation beating products like equity mutual funds in your financial portfolio.
• Taxation: Paying taxes is good, but avoid taxes through judicious deployment of one’s financial portfolio. Use debt mutual funds in addition to fixed deposits.
• Real estate and direct equity investments including IPO’s could be avoided as they would require more skill sets and large resources.
• Invest upto 50-75% financial portfolio in safe investments like Bank FDs, Postal MIS & Senior Citizen Bonds. The remaining could be invested between equity and debt mutual funds. Debt Mutual Funds are preferred over FD’s for their tax efficiencies. However, do not over diversify.
• Review your financial portfolio once every 6 months. Restructure, if required.
• Do not invest in high return earning speculative schemes. Get rich quickly schemes generally makes one poor quickly.
• Do not invest in Life Insurance (traditional or ULIPs) as they are costly and do not serve any purpose for your financial goals.
• In case the regular income is not sufficient from the capital deployed, then do not hesitate to draw into the capital. Do not live poor and die rich.
• Have your nomination across all your investments and have a proper registered will in place. Make a list of all your finances and share this with at least one close member in the family.
• Enjoy your money and let not money management give you more stress.
People who find the above steps confusing and complicated can associate with a good fee based financial planner/adviser who would guide you in each step as per one’s financial goals.

Happy Retirement!!

Naveen Julian Rego-CFPCM
SEBI Registered Investment Adviser
INA200004250

05th April, 2018

07 Aug

Our Take on the Union Budget- 2018

I. Direct Equity and Equity Mutual Funds
a. Introduction of Long Term Capital Gains (LTCG) Tax of 10% on cumulative gains of more than Rs. 1 lakh in a financial year (for Direct Equity and Equity Mutual Funds).
b. Dividend Distribution Tax of 10% on equity oriented mutual funds.

Our Take:
• Growth option would be a better avenue than dividend options, as one can plan the exits and benefit from tax efficiency.
• Capital gains up to 31 January, 2018 would be protected. Hence, investors need not exit their equity portfolios in a hurry.
• Clients looking at consolidating their equity portfolio or re-balancing should use this opportunity to exit their equity holdings, before 31st March, 2018.
• Long Term Capital Loses made in equity transactions could be set-off with long term gains, which was not allowed earlier.
• There would be TDS of 10% applicable on LTCG for NRI’s, which could be claimed back in case they do not have taxable income in India. One has to file IT Returns for the same.
• There would be strong case of Dynamic Asset Allocation funds due to tax efficiency and inherent balancing, in comparison to pure equity funds.
• Equity mutual funds would become more tax efficient than Direct Equity and Equity PMS.
• A well managed equity portfolio would continue to give good inflation beating returns, even after considering the impact of above taxation.

II. Senior Citizens
a. Rs. 50,000 interest income from Bank and Postal Deposits would be exempt under Sec 80TTA.
b. No TDS for senior citizens for up to Rs. 50,000 of interest income.
c. Investment limit in Pradhan Manthri Vaya Vandhana Yojana would be doubled from the current Rs. 7.50 lakhs to Rs. 15 lakhs.
d. Medical Insurance deduction under Sec 80D is increased from Rs. 30,000 to Rs. 50,000 and also exemption on treatment of certain specified diseases has been increased from Rs. 60,000 to Rs. 1 lakh.
e. Rs. 40,000 deduction for pensioners as a standard deduction would be allowed.

Our Take:
• Senior Citizen’s could take more exposure in assured returns schemes, especially Postal Monthly Income Scheme (Max. limit of Rs. 9 lakhs jointly, 6 years maturity, 7.6% p.a. payable monthly), Senior Citizen Savings Schemes (Max. limit Rs. 15 lakhs, 5 years extendable by another 3 years maturity, 8.3% p.a. payable quarterly ) and Pradhan Manthri Vaya Vandhana Yojana (Max. limit Rs. 15 lakhs, 10 years maturity, 8.0% p.a.).
• Senior Citizens could invest in better medical insurance plans to cover their medical expenses and to protect their other savings.

III. Other Points
a. Education cess has been increased from 3% to 4% (Health and Education cess). This would increase the tax liability of all tax payers.
b. Rs. 40,000 deduction for salaried in lieu of the existing leave travel allowance and medical allowance.
c. More avenues for investors in debt mutual funds with the deepening of bond market and introduction of Debt ETF.
d. The time horizon for investing proceeds of real estate gains in Capital Gains Bonds (under sec 54EC) is increased from the current 3 years to 5 years.
e. Sec 80C deduction of Rs. 1.50 lakhs and 80CCD (1b) limit of Rs. 50,000 in NPS, apart from the 10% contribution by the employer under Sec 80CCD (2d) have all been retained.
f. Tax brackets remain the same as earlier.

Note:
1. The above budget proposals were presented by our Finance Minister on 1st February, 2018. The same would be applicable from 1st April, 2018 post passing of the Finance Bill in the Parliament.
2. The above are our views and are based on the information available as on date.
3. Investors should consult their tax practitioners for a clear view on the above.
4. Past performance of any asset class is not an indicator of future performance.
5. It is very important to consult a professional planner while implementing any of the above ideas.
6. The above are mere suggestions and not Investment Advice as individual cases might differ.

In case, you would like professional financial guidance, than feel free to connect to me at 9845557582 or naveen@naveenrego.com.

Naveen Julian Rego-CFP
SEBI Registered Investment Adviser
INA200004250

06th February, 2018

07 Aug

Investment Ideas- January, 2018

Equity markets in India and globally have done extremely well in the past few years. The returns in the last year (calendar 2017) of a portfolio of large cap stocks (SENSEX or NIFTY) would have been more than 25%. Returns of portfolios of mid and small companies would have been much higher. The large returns are also responsible for the higher inflows into equity mutual funds, IPO’s and higher secondary market transactions.
We would however, like to be cautious and advise the following:
1. Investors whose exposure in equity is greater than 50% of their overall portfolio should trim it down to below 50%.
2. Investors whose financial goals are less than 5 years away should not have allocation of more than 25% in equity assets.
3. Investors should also reduce their expectations of future returns of equity, as equity markets are no longer cheap.
4. It would also be a good time to consolidate equity investments by exiting non-core portfolios like under performing stocks, mutual funds and ULIP’s.
5. However, Investors whose equity allocations are much lower than their target allocation should continue their investments. Regular investments would be a good way to build equity portfolio for such clients.
6. Equity investments give good long term returns, however they can be very volatile in the shorter term. Investors having a stomach for volatility will continue to enjoy the fruits of long term investing in equities.
7. However, one-time investments could be initiated in Dynamic Asset Allocation funds. These funds move the allocation between equity and debt based on relative market valuations.

Note:
1. Market linked investments like Mutual Funds and Equity share investments are subject to market risks. Kindly read the scheme information documents carefully before investing.
2. All other investments too have different levels of risk like credit risk, regulatory risk etc. Appreciate this before initiating any investments.
3. Past performance of any asset class is not an indicator of future performance.
4. It is very important to consult a professional planner while implementing any of the above ideas.
5. The above are mere suggestions and not Investment Advice as individual cases might differ.

In case, you would like professional financial guidance, than feel free to connect to me at 9845557582 or naveen@naveenrego.com.

Naveen Julian Rego-CFPCM
SEBI Registered Investment Adviser
INA200004250

11th January 2018

07 Aug

Investment Ideas- November 2017

1. NRI’s who have been invested in Public Provident Fund (PPF) and Nation Savings Schemes (NSC) would have an automatic closure of their accounts as per the recent notification. NRI’s need to act on this at the earliest.

2. Banks have been reducing their interest rates and the latest reduction was by State Bank of India which has reduced its rates to 6.25% p.a. This would affect a lot of investors who depend on Fixed Deposits for their regular income. However, they need to be careful in building their portfolios in other investments which might have market risks involved.

3. Fixed income Mutual Funds would be a good avenue for a lot of investors who are in the tax bracket and also looking at a tax efficient regular income.

4. Investors having one time surplus, looking at equity linked returns with lower volatility could explore dynamic equity funds which move allocation between equity and fixed income products based on relative market valuation. Invest in these for an investment horizon of at least 3 to 5 years.

5. Do not be lured by the IPO’s that come into the markets as the long term performance of IPO’s has not been very good. Do not get swayed by 1 or 2 very large return giving stocks.

6. Equity markets have been scaling new heights which would attract lot of investors, due to their very good short term past performance. However, a disciplined approach with a lot of emphasis on asset allocation is the need of the hour to avoid mistakes.

7. Avoid investing in insurance linked investment structures, either traditional or market linked as part of your investment portfolios. There are alternative products doing this job at lower costs and giving better returns.

8. Plan your taxes well by investing in well performing tax saving products well before the end of the year (before 31st March, 2018). We suggest tax saving mutual funds (ELSS) and PPF.

Note:
1. Market linked investments like Mutual Funds and Equity share investments are subject to market risks. Kindly read the scheme information documents carefully before investing.
2. All other investments too have different levels of risk like credit risk, regulatory risk etc. Appreciate this before initiating any investments.
3. Past performance of any asset class is not an indicator of future performance.
4. It is very important to consult a professional planner while implementing any of the above ideas.
5. The above are mere suggestions and not Investment Advice as individual cases might differ.

In case, some of the above ideas appeal to you and you would like professional guidance, than feel free to connect to me at 9845557582 or naveen@naveenrego.com.

Naveen Julian Rego-CFP
SEBI Registered Investment Adviser
INA200004250

07 Aug

NRI’s and Debt Mutual Funds

It is been observed that NRI’s have large allocation of Fixed Deposits especially Rupee deposits (NRE).This is because of the assured return and zero taxation as per the Indian Income Tax Act for Non-Residents. However, this situation can change when the said NRI moves back to India either because of retirement or because of a job loss. In that case, the NRE FD’s would become fully taxable post losing the NRI status (one of the conditions is being in India for 182 days or more in a financial year). While retirement is a planned event, sudden job loss or change in one’s employment position cannot be forecasted. Hence, it would be very important to make the portfolio tax efficient so as to take care of these changed scenarios.

We hence recommend such NRI’s to have an allocation to Debt Mutual Funds which could be conservative and also tax efficient. Debt Mutual Funds do not invest in shares/equities but invest in FD like instruments i.e. government or corporate bonds. Hence, they are less volatile in comparison to other market linked instruments.

As per the current tax laws, long term gains of Debt Mutual Funds (after 3 years) are taxed post indexation (which considers growth post inflation) at a concessional rate of 20%. Assuming the debt funds/FD gave a return of 8% p.a. and the annual inflation was 6% p.a., then the tax would be only on the net 2% p.a.(at flat 20%) in case of Debt Mutual Funds. It would be noted that for FD’s, the entire growth of 8% would be fully taxed (as much as 30% in some cases). Unlike FD’s, the taxation for Debt Funds is only on withdrawals and not on growth. So, one can postpone taxation till the time of withdrawal. It also helps to plan a regular income portfolio (for retiring NRI’s) with debt mutual funds as the taxation would be very low unlike FD’s.

NRI’s could invest in Debt Mutual Funds when they are NRI’s and then change the status to Resident Indians post becoming a Resident Indian. There is no tax implication on the same. Also, NRI’s could invest their NRO funds in Debt Mutual Funds instead of NRO deposits as there is no TDS implication on the growth of Debt Mutual Funds.

The past performance returns of these funds for the last 3and 5 years would have been in the range of 9% p.a. to 10% p.a. (not assured).

Note:
1. Market linked investments like Mutual Funds and Equity share investments are subject to market risks. Kindly read the scheme information documents carefully before investing.
2. All other investments too have different levels of risk like credit risk, regulatory risk etc. Appreciate this before initiating any investments.
3. Past performance of any asset class is not an indicator of future performance.
4. It is very important to consult a professional planner while implementing any of the above ideas.
5. The above are mere suggestions and not Investment Advice as individual cases might differ.
In case, you would like professional financial guidance, then feel free to connect to me at 9845557582 or naveen@naveenrego.com

Naveen Julian Rego-CFP
SEBI Registered Investment Adviser
Reg no.: INA200004250

30th August 2017

07 Aug

Investment Ideas- August 2019

1. Equity markets are going through severe market volatility and within that, especially mid and small sized companies had a very large fall. This would have affected all the investors who would have invested in the last 1-2 years and also older investors in their incremental portfolios.
2. Clients whose equity allocations have still not reached their target allocations based on their risk profile or those who are funding their long term goals should continue to invest in equity instruments in spite of the short term volatility. Regular investing (in a portfolio of equity stocks or equity mutual funds) would be a good way to benefit from such opportunities. It would be injurious to one’s financial wealth if one does something contrary to this.
3. It would be important for investors to focus on things which are controllable than those which are not in their control. Hence, a focus on Asset Allocation, diversification, regular investing, tax efficient investments, discipline and patience would be very important.
4. Investors could also look at low cost products like ETFs, Index funds, Direct funds and Direct Equity, to reduce the overall cost of the portfolio.
5. Have a fixed income allocation to give stability, liquidity and stable returns to your overall portfolio. This would come very handy during volatile times like these. Debt mutual funds would be an ideal option considering their tax efficiency not withstanding their volatility in the last 1 year.
6. Interest rates would move down gradually and it would be good for investors (including NRIs) to lock-in long term interest rates in their Fixed Deposits.
7. Be tax compliant and file your returns on time. This would help one to carry forward any losses.
8. Investors could also have diversification in International stocks through International Equity Mutual funds.
9. Investors with short term horizon could invest in liquid funds (up to 3 months), Ultra Short Term Funds (up to 3-6 months) and in Arbitrage funds (between 6 months to 1 year) to get better returns compared to the banking products.
10. Avoid complicated products especially tradition insurance plans, Unit linked insurance plans and structured products. This would be more costly and non transparent.
11. Over long periods of time, financial product selection and market timing would not be the critical factor in your overall portfolio return. On the contrary, a strategy focused on process, discipline, financial goals, time horizon, patience, asset allocation and diversification could be the key factors to earn better risk adjusted returns. Do not confuse luck with skill.
12. Always have an emergency and protection portfolio. This would comprise of emergency fund (to take care of mandatory expenses of 6 to 12 months), medical insurance, disability insurance and term insurance. Kindly note emergencies do not come with any prior intimation but will have a large affect on your entire personal finances.
13. Talk to your Financial Planner (who is experienced, qualified and registered), in case of any doubt. Financial Planners will not assure you any returns but, give you clarity on your Long Term financial journey.
Note:
1. Market linked investments like Mutual Funds and Equity share investments are subject to market risks. Kindly read the scheme information documents carefully before investing.
2. All other investments too have different levels of risk like credit risk, regulatory risk etc. Appreciate this before initiating any investments.
3. Past performance of any asset class is not an indicator of future performance.
4. It is very important to consult a Professional Planner/Investment Adviser while implementing any of the above ideas.
5. The above are mere suggestions and not Investment Advice as individual cases might differ.
In case, you would like professional financial guidance, than feel free to connect to me at 9845557582 or naveen@naveenrego.com.

Naveen Julian Rego-CFPCM
SEBI Registered Investment Adviser
INA200004250

01st August, 2019

14 Jun

Mistakes people can make with the current state of equity markets

Equity markets in India have given very good returns in comparison with other asset classes (in the recent past). The higher returns of equity products are driving further investments into them. Their case is also made better because post demonetization in India, assets like gold and real estate have become stagnant. Also, interest rates on Fixed Deposits and Government Savings (like postal savings) are also being dropped continuously. Lower returns in other economies and easy liquidity is also attracting global capital to Indian equity markets.

Higher returns of equity would get reflected in one’s equity portfolio through stocks, equity mutual funds, Equity PMS and ULIP (Unit Linked Insurance Plans). However, during such euphoric phase’s lot of investors make fundamental mistakes, only to regret later. I have listed some of them for the benefit of readers. The word equity below would mean Direct Equity, Equity PMS, Equity Mutual Fund, Hybrid Mutual Fund and ULIPs (Unit Linked Insurance Plans).

1. Equity oriented Portfolio for regular monthly income: Lower Interest rates have made many first time investors move to hybrid equity products like balanced mutual funds for their regular income requirements. Many are driven by the high past returns in comparison to the current FD rates. Do note, equity portfolios are best suited for building wealth over a period of time. They are however very volatile in short term and can give lot of sleepless nights. Investors can have a terrible experience if equity assets are the predominant source of regular income. Do note 12% p.a. return over the last 5 years in not equivalent to 12% p.a. every year or 1% per month.

2. Equity oriented Portfolio as an alternative to banking products: : Many bankers and agents are suggesting equity oriented portfolios ( ULIP’s , equity mutual funds and balanced funds) to their customers as an higher return alternative to Fixed Deposits. Please note that these are market linked investments and hence do not assure higher returns. ULIPs, apart from having market risk, also carry higher charges/expenses. If one is coming in these for a time horizon less than 5 years, than the experience might not be very good.

3. Increasing allocation to Equity Oriented Portfolio due to past performance: Allocation to equity should be based on one’s risk profile and investment horizon. Having larger allocation in equity oriented portfolio with an investment horizon of less than 3 years would be extremely dangerous. Do not get influenced by the past returns.

4. Lured by assured dividends of equity/balanced funds: Many balanced mutual funds have started declaring regular monthly dividends which is attracting many investors believing these are assured regular income. Do note that, dividends are not a statutory obligation but are given as part of the profits of the mutual funds. Hence, investors should have made adequate provisions in other asset classes/financial products for regular income. Dividends should only be a secondary source of income.

5. Investing large portion in Midcap and Small Cap Stocks/Funds: Portfolios allocated to these have given phenomenal returns in the recent past. However, please understand that these carry very large risks in comparison to diversified portfolios.

To conclude, equity continues to be one of the best asset classes to beat inflation and to get tax efficient returns. However, not respecting the risk factors of equity can have a very bad effect on investor’s portfolio (in the shorter term) and their future experiences.

“It is best to learn from past mistakes than losing one’s hard earned money”.

Note:
1. Market linked investments like Mutual Funds and Equity share investments are subject to market risks. Kindly read the scheme information documents carefully before investing.
2. All other investments too have different levels of risk like credit risk, regulatory risk etc. Appreciate this before initiating any investments.
3. Past performance of any asset class is not an indicator of future performance.
4. It is very important to consult a professional planner while implementing any of the above ideas.
5. The above are mere suggestions and not Investment Advice as individual cases might differ.
In case, you would like professional financial guidance, than feel free to connect to me at 9845557582 or naveen@naveenrego.com.

Naveen Julian Rego-CFP
SEBI Registered Investment Adviser

14th June 2017

25 Nov

Investment Ideas – Nov 2016

1. Interest rates on Fixed Income options like Fixed Deposits and Postal Schemes would go down considerably as banks are flush with funds. This would affect lot of investors who have a larger share in such type of investments. However, such investors should be careful before shifting allocations to other investment options and the same should be done after clearly understanding the risk factors well. Do not invest in any financial product which you can’t understand well or else take services of a professional advisor.

2. Medium Term Debt Mutual Funds would have given around 10% p.a. post tax returns in last 3 years and above. Please understand the future returns of this too would fall, in line with overall downward movement in interest rates. However, they would still be better for conservative investors for their tax efficiency.

3. Liquid and Ultra Short Term Mutual Funds would also have a dip in returns due to the reasons mentioned above. They would however continue to be a better bet than savings/current account or short term deposits. Investors could look at debit card facilities with some liquid/ultra short term mutual funds. This would be a superior alternative to debit cards with bank accounts.

4. Equity markets are volatile and have dipped considerably due to numerous factors. While existing portfolios would have a dip in value, long term investors should not be really bothered with such developments. The following set of investors should look at increasing allocations to equity instruments in the current time:
a. Investors whose overall allocations in equity are lesser than 25% of their overall wealth. Typical investors would be retired individuals and conservative investors.
b. Investors who do not want the money for the next 5 years and are bit aggressive, should look at a minimum allocations to equity at 50% of their overall wealth.

However, allocations to equity should be done on a portfolio basis (ideally diversified equity mutual funds) with investments spread equally over next 6-12 months. Regular investing would help one to benefit from any further volatility. Regular investors in equity mutual funds could temporarily increase the SIP’s/STP’s for the next 6-12 months to benefit from the current opportunities. Kindly understand investments in equity products carry very large short term volatility and hence any investments should not be done with less than 5 years time frame keeping the overall allocations in mind.

5. Many bankers and distributors would be selling products like traditional/ market linked life insurance schemes and capital protection hybrid mutual funds as savings options better than FD’s(mostly to NRI’s) and balanced funds for regular income( to Retired people). Do note many of these are not well suited for an investor’s portfolio (but makes tremendous sense for seller). Do not fall prey to aggressive selling or an emotional push so that you regret later in leisure.

6. Real Estate would continue to disappoint for some more time. However, this phase would give opportunities for people to buy real estate for actual use. Bargain hard for discounts on completed projects. Also, do not jump into buying property just because the interest rates are lower. Do not have more than 50% allocation to Real Estate (excluding self occupied house) any time. Do not base your future return expectations on the basis of past performance.

7. Be tax compliant and use the provisions of tax laws to reduce taxable income. Invest in a good and reliable tax consultant. Government would be behind tax evaders with a vengeance.

8. Give lot of importance to estate planning. Have proper nominations in place and draft a will, if possible, to avoid future family conflict.

9. Always consult a financial planner (one who is certified and registered with the regulator) for professional guidance and see to it that his/her commercial interests are in alignment with your financial plans. The quality of advice received from a professional would have a large impact on your overall portfolio. There is nothing called free advice.
Note:
1. Market linked investments like Mutual Funds and Equity share investments are subject to market risks. Kindly read the scheme information documents carefully before investing.
2. Past performance of any asset class is not an indicator of future performance.
3. It is very important to consult a professional planner while implementing any of the above ideas.
4. The above are mere suggestions and not Investment Advice as individual cases might differ.

In case, some of the above ideas appeal to you and you would like professional guidance, then feel free to connect to me at 9845557582 or naveen@naveenrego.com.

Naveen Julian Rego-CFP
SEBI Registered Investment Adviser