Wednesday, August 26, 2015

This time is no different - EM shocks spares none

This time is no different - EM shocks spares none

The contrast in economic fundamentals with the May 2013 US Fed taper-tantrum days and today's China contagion could not have been more stark. At that time India was one of the most vulnerable, even among the 'Fragile Five'. Now the country has become so much of a positive outlier that it does not even figure in assessments of emerging market (EM) risks.

The two graphics from FT conveys the relative strength of the Indian economy. The first conveys how insulated the country is from the two biggest risks - exposure to Chinese market and foreign currency bond borrowings.
The country is among the only two EM economies not overly exposed to the trifecta of unwinding Chinese leverage, US QE, and domestic debt. 

Clearly, India is as insulated as markets can be from any triggering exogenous shock, with its accompanying portfolio re-balancing by foreign institutional investors. Further, its macroeconomic balance, both domestic and external, as well as inflation, are stable. But the events of Monday shows that very little of this is material, atleast in the immediate aftermath of the triggering exogenous shock. The battering of the equity markets and the rupee this week, especially given the relative strength of the Indian economy and the depth of weakness among almost all of its emerging market peers (a position that it has never been in), is the strongest possible reminder that such global shocks are largely divorced from fundamentals and spares none. As the RBI Governor found out, no central banker (or anyone) has a magic wand to ward-off or talk up the markets. 

The trajectory of the current bout of market volatility in India will be contingent on the trends across other emerging markets. If the markets adjust to the potential adverse consequences of a Chinese slowdown or the Chinese government is able to postpone the denouement to its bubble valuations, the Indian market too would be calmed. However, if the EM weakness persists, the volatility will continue to haunt the Indian markets. In that case, stability will return only when the broader EM sentiments stabilize (and not with country-specific events), as happened in August 2013. 

This should also serve to put in perspective the despair that followed similar trends in the aftermath of the May 2013 taper-tantrum and the subsequent uptick that was popularly attributed to the entry of the new central bank governor.


Tuesday, August 25, 2015

I want to invest while markets are low but I'm worried they'll fall further. Which funds should I pick?

Heavy stock market falls can be terrifying for investors, although history shows that they are often followed by dramatic recoveries.

Black Monday': as China fears spark global markets crash...........

But when the stock market suffers a huge decline in a short space of time (it has fallen by 8pc), investors need nerves of steel to buy.
Yesterday alone the bse index has fallen by about 8pc to trade at just over 25,741.56. This is well below its peak of 30024.74, achieved on 04/03/2015. Concerns over slowing growth in China are blamed.
The question no one knows the answer to is how long the market will keep falling and whether this is the start of a much bigger correction.
If you don't want to risk big losses in the event of further falls, but equally want to take advantage of a potential buying opportunity while it lasts, there are ways to shockproof your investments. A small number of funds are run in an extremely cautious manner that aims to preserve capital when stock markets fall.
Some Mutual funds are designed to protect capital when stock markets fall......

For example : 

ICICI Prudential Balanced Advantage Fund

Key Benefits

  • It invests in a judicious mix of cash equities, equity derivatives and debt & money market securities
  • It is structured to control volatility and has an equity related tax status
  • It uses multiple strategies to allow flexibility
  • Allows you to participate in equity markets at a controlled risk
(Lot More similar Funds are available for details please call us)

If you are comfortable for long term of 5+ Years Just buy Following funds which I like.

(For Scheme details please call us)

Birla Sun Life Top 100 Fund

Franklin India Opportunities Fund

SBI Blue Chip Fund

Baroda Pioneer Growth Fund

JPMorgan India Equity Fund

UTI Top 100 Fund

Reliance Focused Large Cap Fund

DSP BlackRock Top 100 Equity Fund

BNP Paribas Equity Fund

Kotak Opportunities Funds

For Pick up online transaction please get in touch with us.

-- 

Regards,
Ritesh.Sheth CWM®
CHARTERED WEALTH MANAGER

              Helping you invest better...  

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This emailer is addressed to and intended for the investors of Ritesh Sheth & Tejas Consultancy only and is not spam. You are advised to contact Ritesh Sheth & Tejas Consultancy to clarify any issue that you may have with regards to any information contained in this emailer.The views are personal. Ritesh Sheth & Family or Tejas Consultancy does not guarantee the accuracy, adequacy or completeness of any information in this emailer and is not responsible for any errors or omissions or for results obtained from the use of such information. Ritesh Sheth & Family or Tejas Consultancy does not have any liability to any person on account of the use of information provided herein and the said information is provided on a best effort basis. In case of investments in any of our schemes, please read the offer documents carefully before investing. 

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Wednesday, August 19, 2015

Lump sum vs. SIP is a meaningless comparison

lump sum vs. SIP
‘Which is better?Another school of thought believes in creating a lump sum and waiting for market dips instead of a SIP. The trouble with this approach is that, one may have to wait for months and months for an investment opportunity to show up. The bigger problem is how the opportunity is defined.

 A lump sum investment or a SIP investment?’, is a question I am asked  often (comments, meetings, emails, questions during investors workshops etc.).

Here is why I think such a comparison is meaningless because it originates in a lack of understanding of how a SIP works.

This argument can and should be dismissed in seconds:
  • If I have a lump sum now, which I can afford to invest for 10+ years, then the prudent thing to do is to get rid of it as soon as possible (if not instantly, over a duration much lesser than 10Y – a few weeks, or a couple of months at best)
  • If I don’t have a lump sum now, why am I even asking this question!
To understand why it makes sense to invest the lump sum as quickly as possible, we will need to understand how a SIP works.
Suppose we start a monthly SIP of Rs. 10000 for 10 years. That is 120 installments.

A SIP as we all know averages the point of investment. Sometimes we invest when the NAV is high and sometimes low.  ‘Experts’ will tell you that this is better than timing the market.
What those experts fail to point out (for obvious reasons) is that a SIP does not minimize the risk of your entire investment. It only minimizes the risk associated with the next installment.
After one year,  the total amount invested is 12 times the next installment in a monthly SIP. The market value associated with 12 x 10000 = 120,000 is exposed to the full volatility of the stock market. There is no averaging here.
Therefore, after one year,
your investment will constitute of a lump sum investment of 120000 + the next sip installment of 10000
After  5 years,
your investment will constitute of a lump sum investment of 600,000 + the next sip installment of 10000
Get the idea?
Suppose you have 600,000 to invest now, after 5 years, it will have the same level of risk as a Rs. 10000 monthly SIP started at the same time.
There is no benefit in splitting the 600,000 into say, six 100,000 monthly investments via STP. A couple of years later, the entire lump sum will be subject to market risks.

What is a STP? A STP or a systematic transfer plan is an instrument by which the distributor and the AMC locks your lump sum in their funds.  Like the SIP, it is a tool designed for their benefit and not yours!

If your duration is long enough, there is no point in a STP. If your duration is short, why are you thinking of investing lump sums in equity funds?
If you wish to invest in debt funds, there is no need for a STP again, you can invest in one-shot.

A STP is a taxation nightmare and is best avoided.  Gimmicks like a STP from weekly div. reinvestment arbitrage fund etc. are pointless.
If you are scared of investing in one-shot, let the money lie in your bank SB account for a weeks. No big deal. Invest once each week, and get rid of it within a few weeks. Beyond that, it is a waste of time.
Not convinced? Here is a study that I did nearly two years ago with Sensex data. We are at present concerned only with the top-right and bottom left panels. For details concerning other graphs you can refer to the post mentioned below. The horizontal axis refers to various investment durations.
Graph3
Note: Return of investment assumed for SIP and  GSIP-II target calculation is 10%. GSIP is a growth SIP – investments increase every year.
Findings for Lump sum vs. STP
  • Both lump sum and STP modes have similar probability of loss irrespective of duration
  • The chance of STP doing better than lump sum mode is only 25-35% for all durations.
STP is more a psychological tool.

Another school of thought believes in creating a lump sum and waiting for market dips instead of a SIP. The trouble with this approach is that, one may have to wait for months and months for an investment opportunity to show up. The bigger problem is how the opportunity is defined.

Disclaimer:
This emailer/blog is addressed to and intended for the investors of Ritesh Sheth & Tejas Consultancy only and is not spam. You are advised to contact Ritesh Sheth & Tejas Consultancy to clarify any issue that you may have with regards to any information contained in this emailer/blog.The views are personal. Ritesh Sheth & Family or Tejas Consultancy does not guarantee the accuracy, adequacy or completeness of any information in this emailer/blog and is not responsible for any errors or omissions or for results obtained from the use of such information. Ritesh Sheth & Family or Tejas Consultancy does not have any liability to any person on account of the use of informationas it is use for eeducational purposes. provided herein and the said information is provided on a best effort basis. In case of investments in any of our schemes, please read the offer documents carefully before investing. 
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