Avoid tax credit mismatch in income-tax return request: Experts
The income-tax (I-T) department has asked taxpayers whose income-tax returns (ITRs) have not been processed yet to resolve the underlying issues quickly, so that processing can happen. Let us understand the reasons due to which processing gets stuck and what you can do about them.
Let not the variety confuse you, keep your passive fund investments simple
With just three or four passive products, you can build a solid, long-term portfolio
As markets evolve, active fund managers find it harder to beat the indices. When this happens, investors gravitate towards passive funds, which mimic an index. To prepare for that scenario, fund houses are launching a slew of passive products. Currently, the Securities and Exchange Board of India’s (Sebi) website shows that fund houses have applied for approval to launch eight passive products.
Mid- and small-caps may gain from broader recovery but won't come cheap
With the Sensex touching the 50,000 mark recently, there is fear among market participants that equities may have become overpriced. Nonetheless, one category that is being pitched actively to investors is mid- and small-cap funds. The rationale being advanced is that earnings of mid- and small caps tend to rise sharply during a broad-based economic recovery. Investors need to understand the opportunities and risks in these segments fully before entering them.
Investors should rebalance exposure to US-focused funds; don't exit
US-focused funds have rewarded investors well with an average return of 31.2 per cent over the past year and 15 per cent (compound annualised) over seven years. Such a stellar performance has given rise to many questions in the minds of new and existing investors.
Safe bet: investors should look for less volatile medium-term gilt funds
Motilal Oswal Asset Management Company has launched the 5-year G-Sec Exchange Traded Fund (ETF). At a time when gilt funds with 10-year constant duration are showing a one-year category average return of 12.4 per cent, this new fund offer is sure to garner investor interest.
Passive assets more than triple in three years on steady PF inflows
The assets of passive products that include exchange-traded funds (ETFs) and index funds have more than tripled in the past three years, on the back of steady inflow from the Employees Provident Fund Organisation (EPFO) and provident funds.
Fortify your equity portfolio by diversifying into value-oriented funds
With the markets scaling new highs over the past few days, valuations have also moved up. The Nifty trailing 12-month price to earnings (P/E) ratio is now at 34.18, about 34 per cent higher than its five-year average of 25.45. If you are worried that a correction in the near future could dent the value of your portfolio, book some profits and bring your equity allocation back in line with your long-term asset allocation. Another step you could take to make your portfolio more resilient is to bring some style diversity into it by including value-oriented funds.
If you are a conservative investor, go for target maturity debt ETFs
Debt exchange-traded funds (ETFs) that terminate on a specified date are gaining popularity. Earlier, there was only Edelweiss Mutual Fund’s Bharat Bond ETF/fund of fund. Now, Nippon India Mutual Fund is set to launch its Nippon India ETF Nifty CPSE Bond Plus SDL-2024 Maturity.
Investors must look at credit quality while choosing corporate FDs
Conservative retail investors and senior citizens find themselves in a predicament in today’s low interest-rate environment. For instance, at 6.25 per cent, the interest rate on HDFC’s 66- month fixed deposit (FD) is at a 43-year low, according to media reports.
Time to invest in cyclicals as economic recovery gathers steam: Analysts
After a 52 per cent rally in the benchmark indices – the S&P BSE Sensex and the Nifty 50 – form their respective March 2020 lows led by pharmaceutical, automobiles, information technology (IT) sectors and index heavyweight Reliance Industries (RIL), analysts now suggest investors should now rotate money to cyclical plays like banks and cement as the economic activity picks up pace. "As the market repositions itself for the normalisation of the economy, analysts at CLSA believe that core domestic sectors should start outperforming the global defensives like IT and pharma," wrote Vikash Kumar Jain, an investment analyst at CLSA in an October 16 note.
Don't let past year's return guide you while deciding on asset allocation
Government bond and corporate bond schemes of the National Pension System (NPS) have outperformed equity schemes over the past year. Experts say the new entrants should take a longer-term view, and not be unduly influenced by one-year returns, while deciding their asset allocation in NPS. Younger investors entering NPS could possibly stay invested for 25-30 years. “Over the long term, equities tend to outperform other asset classes like government and corporate bonds,” says Arvind Rao, chartered accountant and founder, Arvind Rao & Associates. Hence, a young investor can boost his longer-term return by taking a higher allocation to equities, provided his risk appetite permits. Longer-term returns of government and corporate bond schemes are unlikely to be in double digits.
Weigh your options before going passive on mid- and small-cap equity funds
The new fund offer (NFO) of Nippon India Nifty Smallcap 250 Index Fund is underway at present. With the launch of this fund, six passive products (index funds and exchange traded funds or ETFs) are now available in the mid- and small-cap segments. After years of underperformance by the majority of large-cap active funds against their benchmarks, many financial advisors now suggest that investors should have either 100 per cent, or at least 50 per cent, exposure to passive funds in this segment. But such a consensus does not prevail when it comes to passive funds in the mid- and small-cap segments, one reason being that not enough passive products were available here until recently. Let us examine the arguments for and against opting for passive funds in the mid- and the small-cap categories.
Make most of rupee-cost-averaging in NPS as well, with introduction of SIP
The Pension Fund Regulatory and Development Authority (PFRDA) has made two important announcements related to the National Pension System (NPS). One, investors will soon be able to take the systematic investment plan (SIP) route while investing in NPS. Second, those who have made a premature exit from NPS, but have only withdrawn the lump-sum portion, will be allowed to continue with the same NPS account, provided they re-deposit the withdrawn amount. Experts view the introduction of SIP mode as a positive development. “Even in NPS, you can invest up to 75 per cent in equities. The SIP mode will allow investors to average out their cost of purchase of units,” says Sumit Shukla, chief executive officer, HDFC Pension Fund Management.
For low-cost and diversified exposure to an asset class, invest in an ETF
The National Stock Exchange (NSE) announced recently that the asset under management (AUM) of Nifty 50 based exchange-traded funds (ETFs) has touched Rs 1 trillion. The AUM of all ETFs (equity and debt) has crossed Rs 2 trillion. Fund managers say they have witnessed rapid increase in the number of investors in ETFs this year, which indicates high interest from retail and high net worth individuals (HNIs) in these products. Fewer choices to make: By taking exposure to an ETF, investors can circumvent the risk of investing in the wrong sectors and stocks. When the market fell towards the end of March, many of them would have struggled to gauge the impact. “In an uncertain environment where it is difficult to judge which sectors or stocks are going to get impacted or emerge, it makes sense to invest in a low-cost basket of blue-chip companies that make up a product like the Nifty ETF,” says Vishal Jain, head-exchange traded funds, Nippon Life India Asset Management.
If your multi-cap fund becomes much riskier after new Sebi rules, exit it
The Securities and Exchange Board of India’s (Sebi) September 11 circular asking multi-cap funds to have a minimum allocation of 25 per cent each to large-cap, mid-cap, and small-cap stocks will change the risk and return profile of these funds significantly. Through a subsequent circular, Sebi has said that fund houses may comply either by switching their unitholders to another category, merging their multi-cap fund with a category such as large-cap, or converting their multi-cap scheme into another, such as large- and mid-cap. For the present, wait for your fund house to decide which of these courses it will take. Only then decide whether you should continue with the fund or exit it. Sebi wants all funds to be true-to-label. A multi-cap fund, in its view, should have an allocation to all the three market-cap categories. That way, when even an uneducated investor buys these funds, he gets what the name “multi-cap” suggests.
Lipstick effect or pent-up demand? Consumption-driven stocks fly high
Despite the picture of an economic contraction painted by most forecasters, the India consumption story seems to be still going strong. The Nifty Consumption index, a gauge of consumption-driven stocks on the National Stock Exchange (NSE) has rallied 42 per cent since March 23 when the market hit their recent low as compared to 51 per cent rise in the Nifty 50. Though the margin of underperformance compared to the benchmark index may not be much, what is important to note is that all stocks that comprise the Nifty Consumption index have given a positive return since then.
Mid, small-caps likely to outperform large-caps in 2020, say analysts
After a subdued performance since the last two years, mid-and-small caps seem to be getting their mojo back with both these indices outperforming their large-cap peer. From their March 2020 low, the S&P BSE Mid-cap and S&P BSE Small-cap indices have surged 57 per cent and 49 per cent, respectively as compared to 47 per cent rise in the S&P BSE Sensex.
Why smart-beta funds should be a part of your satellite portfolio
The new fund offer (NFO) of ICICI Prudential’s Alpha Low Volatility 30 Exchange Traded Fund (ETF) is on at present. This ETF belongs to an emerging category that is referred to as factor-based or smart-beta investing. Several such ETFs and index funds exist already, based on themes like quality, low volatility, value, equal weight, and so on.
Retail investors should worry about quality of funds, rather than size
In the Financial Stability Report published on July 24, the Reserve Bank of India (RBI) flagged the issue of concentration risk in debt mutual funds (MFs). Corporates and high networth individuals (HNIs) comprise more than 90 per cent of their assets under management (AUM), in contrast to equity funds, where their share stands at a more balanced 48 per cent. The predominance of corporate investors in debt funds creates certain risks.
Digitisation trend makes IT a sound long-term bet, but stay cautious After the recent rally, direct investors need to be cautious about valuations
Information technology (IT) sector funds have witnessed a category average return of 17.6 per cent over the past month and 31.2 per cent over the past three months. The S&P BSE IT Index, too, is up 23.45 per cent and 36.46 per cent over these periods. Several factors have contributed to this rally. IT companies had begun to turn optimistic in their commentary from April. They expected the impact on first-quarter (Q1) earnings to be harsh, but were confident that things would stabilise thereafter.
No harm in booking some profit so long as market rally continues
For investment advisor Arun Kejriwal, the reason is clear for booking profit: “This rally can last a day or seven days or more, but we will see a sharp correction sooner than later. The initial earnings numbers comprise a clutch of companies which were more or less not impacted by the Covid-19 pandemic very badly. The numbers of brick-and- mortar companies will hurt. So, this euphoria in the markets can last only for some more time.” According to Kejriwal, if there is money to be made during such times, investors should do so now. The Sensex is already up over 48 per cent since its March 23 intra-day low, and it is just short of its all-time high. That is, the index is just 10.6 per cent short of the closing all-time high of 41,952 points on January 14, 2020, and 11.5 per cent short of the intra-day all-time high of 42,273 points on January 20, 2020.
Why value funds are a must in a balanced portfolio
The Sensex has bounced back 20.78 per cent over the past three months. The value fund category, which has been underperforming for a long time, has also risen 16.3 per cent on average, sparking hopes it may be poised for a rebound. Investors are asking whether the rally in these funds will sustain and if this is a good time to take exposure to the category. Value funds have narrowed down the performance gap vis-à-vis their growth peers in recent times. “The gap between value and growth funds narrowed, both during the fall and the bounce-back over the past few months. These funds have begun to outperform globally,” says Nilesh D Shetty, associate fund manager-equity, Quantum Mutual Fund, who co-manages Quantum Long-Term Equity Value Fund.
Buying a random selection, you will pick up some multi-baggers.
Some of the news during the last week was good. There are several potential vaccines in the pipeline, including at least one from India. The number of daily Covid-19 cases may be close to peaking. The economy is gradually reopening. The stock market gained, with the Nifty up by 2.5 per cent week-on-week. That takes current price-to-earnings (PE) for the index up to the 28x levels. Optimism is all very well. But these valuations are irrational. To justify a 28 PE, you need earnings growth at around the same level (28 per cent) and that’s unlikely with corporate advisories uniformly negative, or cautious. Markets eventually revert to rationality, which means we could be in for a second steep correction sometime.
Investment in sovereign-backed bonds: Be prepared for rate changes
Having withdrawn the 7.75 per cent Savings (Taxable) Bonds, the government has now announced the launch of Floating Rate Savings Bonds, 2020 (Taxable), which will become available from July 1. However, while the earlier bonds offered a rate of return that remained fixed for the entire tenor of seven years, the interest rate on these bonds (of similar tenor) will reset every six months. The current rate is 7.15 per cent. These bonds are benchmarked to the National Savings Certificate (NSC) and will pay 35 basis points more than the latter.
Planning to invest? Don't rely only on gold-silver ratio, say analysts
The yellow metal touched a new all-time closing high of Rs 48,380 per 10 grams on Wednesday. The gold-silver ratio, an indicator of which of the two metals is more expensive, is also trading on the higher side at 99. After gold’s stellar performance in recent years (see table), many investors are worried about whether the bull run in the yellow metal has run its course. They are also asking if it is time to shift to silver, which has seen limited upside so far.
Low valuations, weak market appetite, liquidity woes hurt new InvITs
New offers of infrastructure investment trusts (InvITs) this year may take a hit because of low valuations, weak market appetite, and liquidity issues, according to industry executives and experts. The model has been a preferred route for road and transmission assets, but lack of relevant traffic data for road InvITs may prove to be another dampener.
With attractive deals, real estate becomes buyers' market amid Covid-19
Just before the lockdown began, Ritesh Chandra managed to sell his ancestral house in Uttar Pradesh. To avoid paying capital gains tax, this Delhi-based financial professional plans to reinvest the proceeds in another property in the National Capital Region (NCR), Lucknow or Jaipur. He has searched online and prepared a list of prospective sellers. “I am waiting for the lockdown to end and will then do on-the-ground due diligence,” says Chandra.
AT1 bonds are risky but back on investor radar after YES Bank episode
Wealthy investors and corporates are turning to additional tier-I (AT-1) bonds of large banks in search of higher yields in a declining interest rate environment. Investors are now allocating as much as 10-20 per cent of their debt portfolio in such bonds, said experts, with bonds of State Bank of India and HDFC Bank traded frequently and preferred the most. ICICI Bank, Bank of Baroda, and Axis Bank are some of the other preferred banks.
HNIs turn to low-return products; tax-free bonds, FDs preferred choices
Risk-averse wealthy investors, who have pulled out money from credit-risk funds, are looking at a number of alternatives in the debt segment, notwithstanding the lower post-tax returns. The options range from tax-free bonds, bank fixed deposits, and RBI 7.75 per cent savings bonds for the ultra-conservative to gilt funds, corporate bond funds, banking and PSU funds, and sovereign bond funds for others.
Relief for home buyers as subsidy for middle-income group gets extension
For those who missed the chance of buying a house under the Credit Linked Subsidy Scheme (CLSS), there is good news. As part of the Atmanirbhar Bharat package, designed to tackle the Covid-19 crisis, the scheme has been extended till March 2021. Introduced in May 2017, the scheme had ended on March 31, 2020. According to Naveen Kukreja, chief executive officer and co-founder, Paisabazaar.com, “Extension of this scheme is aimed at incentivising first-time homebuyers to avail of home loans.”
Stopped SIP? Use systematic transfer route as and when you have a surplus
Inflows into equity funds via the systematic investment plan (SIP) route fell from Rs 8,641 crore in March to Rs 8,376 crore in April 2020. This is a 3 per cent fall, so the tendency to stop SIPs has not assumed worrisome proportions yet. But many people have lost their incomes or seen considerable erosion, and many more are worried about the sustainability of future cash flows. So, it is inevitable that such investors will, in the near future, ponder whether to continue their SIPs.
Debt investors feel the pinch after Franklin fiasco highlights risks
The closure of six debt funds by Franklin Templeton Asset Management (India) has shown that fund managers may be taking more risks with investors’ money than the latter had bargained for. Portfolios of shorter-duration funds have been found to hold lower-rated papers. And investors have discovered that the promise of liquidity in an open-end fund could be broken when the going gets tough.
How foreign assets in your portfolio can protect it from volatility
Even during the ongoing global market rout, the importance of being internationally diversified has been validated. An Indian investor with exposure to the US market would have enjoyed downside protection over the shorter term and outperformance over the longer term (see table).
Quick approval, grace period: Medical insurance process eased amid Covid-19 Use instalments to increase cover; benefit from quick approvals
The COVID-19 pandemic has brought home the significance of health and life insurance like nothing else earlier. Even those who were blasé about these covers in the past are now looking to buy a new policy or want to enhance the sum insured on their existing ones. Meanwhile, the Insurance Regulatory and Development Authority of India (IRDAI) has been issuing a slew of guidelines to health/general and life insurance companies aimed at easing matters for customers.
Be flexible with your financial plan, don't make big commitment
Starting the financial year 2020-21 amid a lockdown and threat of salary/job loss wasn’t part of the plan for most professionals. Worse still, within a span of a couple of months, your investments in equities would have eroded by at least 25-30 per cent, or even more, if you dabbled in high-risk mid-and small-cap stocks. Interest rates in the debt market are under severe pressure. So, fixed deposits or debt mutual funds are unlikely to give spectacular returns. And not just that, there is credit risk because of possible defaults by companies.
Health insurance premiums set to rise as firms to follow Irdai mandates
Health insurance premiums are set to rise as non-life insurance companies and standalone health insurance firms scurry to revamp their products to include the modifications mandated by insurance regulator Insurance Regulatory and Development Authority (IRDAI).
Small savings schemes continue to score despite the steep rate cut
The deep cut in small savings rates by the government wasn't an unexpected move. After the Reserve Bank of India's steep cut in the repo rate and cash reserve ratio, the government was expected to announce rate cuts for better transmission of interest rates. The result: Cuts of 70-140 basis points (bps) in small savings rates for the April-June quarter, on Tuesday.
In times of coronavirus: Everything you need to know about your investments
Imagine the chaos: Global stock markets have gone into a tailspin, industries are shutting down, and countries are announcing lockdowns due to COVID-19. In less than a month, Indians find themselves in the middle of a global storm that has disrupted the lives of every citizen. Some sectors, such as aviation, are already cutting salaries and we will know about the magnitude of job losses only at a later date. During such times, money management and supplies become the core focus of all families. But what works for one person may not work for another.
Brokerages slash India Inc's FY21 earnings estimates amid coronavirus scare
Even as coronavirus (Covid-19) pandemic is yet to peak and its impact fully known on the fortunes of Corporate India and the economy, most brokerages have started to trim earnings estimates for India Inc for the next financial year 2020-21 (FY21).
Steep fall in Indian equities dashes the hopes of mid-, small-cap recovery
The steep fall in Indian equities has dashed the hopes of broad-based recovery in the market. The Nifty MidCap Index and the SmallCap Index have now come off nearly 20 per cent from their 2020 highs. Many brokerages and fund houses were expecting a more broad-based rally this year, after acute polarisation in the markets over the past two years. Experts believed that valuations of mid- and small-caps had slid to reasonable levels, limiting further downside, and raising hopes of gains in quality names.
Don't shy away from money matters: Here's expert guide for women
When building their mutual fund portfolios, women also need to stick to the basic tenets of diversification and asset allocation. While women are known to be diligent savers, they often do not take the lead when it comes to investing for life’s key financial goals. This task is often delegated to their husband or father. However, many issues unique to women’s lives make it imperative that they become active on this count, and achieve financial independence at the earliest.
Long-term investors should snap up quality stocks during uncertainty
India’s GDP growth rate, according to estimates, could be less than 5 per cent this year. Many agencies, including the International Monetary Fund (IMF), have lowered their growth estimates. Auto sales are down. Job growth is sluggish. The long-awaited turnaround in corporate profit growth hasn’t materialised yet. Micro, small and medium enterprises (MSMEs) are in deep trouble. Indian banks have not overcome their non-performing asset-related issues, and now non-banking financial companies are also in trouble. Despite all these problems, the Nifty 50 index is trading close to its all-time high valuation. How does one make sense of such an environment and invest confidently?
NRIs to gain more than resident Indians from govt's move to remove DDT
One of the major changes proposed by finance minister Nirmala Sitharaman in her second Union Budget relates to the taxation of dividends. The Budget has proposed to abolish the Dividend Distribution Tax (DDT), and moving to the classical system of taxing dividend in the hands of individuals.
Sebi likely to widen mid-cap investable universe for MFs by 150 companies
The Securities and Exchange Board of India (Sebi) is likely to expand the mid-cap investable universe for mutual funds (MFs) by 150 companies, according to people in the know. This decision, likely to be made in the upcoming board meeting on February 17, will effectively double the number of stocks available for mid-cap selection to 300.
10% TDS only on dividend payment by mutual funds, clarifies CBDT
Mutual fund (MF) players that were expecting investor outflows over uncertainty on tax deducted at source (TDS) on capital gains were relieved after the Central Board of Direct Taxes (CBDT) on Tuesday clarified that the proposal would only be limited to dividend payouts.
Momentum stocks to take a breather as Coronavirus fear spreads globally
Momentum-driven stocks such as Gujarat Gas, Relaxo Footwears, Bharti Airtel, and SRF are likely to take a pause as global markets brace for a possible escalation of coronavirus, according to a report from Jefferies. Given that global markets have witnessed a good run over the past six months, the “Wuhan virus” epidemic/coronavirus outbreak may put brakes on their rally, with momentum stocks (stocks that have seen a good run over the past few months) most at risk, while cash/bond-proxies could return in favour over the short-term.
Don't put your money in last year's winners while investing in debt funds
Investing in the past year’s winner is a loser’s strategy in any category of mutual funds, but it can be especially harmful in debt funds. Long-duration funds were the best-performing category on the debt side over the past year with an average return of 12.13 per cent. However, if you are thinking of investing in this category to partake of those returns, perish the thought. As market conditions change, you could well end up with losses in these funds.
Gold rally to continue for some time, book some profit now: Experts
Investors in gold had a remarkable 2019. With returns of 23.8 per cent, the yellow metal was way ahead of any other asset class. And with global headwinds like heightened tension between the US and Iran grabbing headlines every day, gold has been the preferred haven for many.
Use volatility in markets to book profit in global funds, say advisors
International funds — which have been the top performing ones over the last one year with gains of over 20 per cent — are being recommended by advisors for booking partial profits, with escalating tensions between the US and Iran threatening to spill over to and also impact global indices. “Investors can use this volatility in global markets to take some profits off the table, especially those investors that are close to their investment horizon,” said Amol Joshi, founder of Plan Rupee Investment Services. In the last one-year period, international funds have delivered returns of 25.49 per cent, outperforming large-cap funds by a wide margin. The latter has delivered returns of 10.63 per cent, thanks to polarisation in markets that favoured large-cap stocks.
Risk aversion, small-cap slump hit SME IPOs as collections drop 73%
Collections from public share sales of small and medium enterprises (SMEs) in 2019 have dropped 73 per cent over the previous year to Rs 617 crore, given that risk aversion among investors and the fall in mid- and small-cap stocks have hit investor sentiment.
These five money tips for entry-level employees make their life easy
Joining your first job means jubilation for many reasons, but one of the main would be financial independence. And whether it is a new wardrobe or the latest gadget, the freedom to spend can often lead to impulse spending, and sometimes overspending. For parents, it is always a good time to start giving money advice as soon as the child has received the employment letter.
Narrow rally, high expense ratio hurting actively managed funds
The country's best fund managers share their views on what is weighing on active funds and explain why investors shouldn't panic. India has been one of the few markets in which actively-managed equity schemes did overwhelming better than their benchmarks. However, this trend has been challenged in the past two years, with over three out of four active schemes failing to generate the so-called alpha. Prashant Jain, executive director and chief investment officer, HDFC Mutual Fund has underscored some key factors that explain why active funds have been struggling.
Small savings schemes
Investors in small savings schemes breathed a sigh of relief when the government announced on October 1 that interest rates on these instruments would not be revised for the fourth quarter of the calendar year. With the economy witnessing a slowdown, and the stock markets also turning volatile, many investors are looking for alternative avenues to park their savings. Small savings schemes, with their sovereign guarantee, have emerged as a viable alternative.
Capital gains on gold
When you give old ornaments to a jeweller to buy new ones, you might need to pay capital gains tax depending on how the transaction is structured. Such a transaction can happen in two ways. One, the jeweller uses the existing gold from the customer to make new jewellery and bills the individual only for the making charges. Second, the jeweller will value the jewellery. The customer can then purchase a new set of the same value or pay the difference between new and old jewellery.
Invest and emigrate
The great Indian dream of settling abroad is achievable if one has a few crores to invest. Rich nations offer a variety of investment options in a quid pro quo arrangement: immigrants get a better quality of life and revenue from them helps these countries’ finances. Wealthy Indians, troubled by polluted cities and the red tape holding up entrepreneurship, may want a quick ticket out of the country. Sanjay Kumar Singh lists a range of options: from a Canadian province’s investor programme to America’s US EB-5 plan.