11.6.2018
“And when
all the wars are over, a butterfly will still be beautiful.” – Ruskin Bond
Lot
has been said and discussed about state of affairs of Indian Economy and its
future. And there is large consensus among domestic as well as global financial
fraternity that our economy is going to grow @ 7%+ for many years to come.
India’s own consumption theory is very strong and it will take long - long time
when we will have trade surplus and we will need to worry where we sell our
output.
In
the long run stock markets reflects the growth of the economy and of corporate
profitability. The long term growth story of Indian economy will keep the stock
markets rolling higher over medium to long term. In short period or near future
the prices of stock markets are governed more by sentimental factors then the
factual data. In the short run market valuations are governed by socio-politico
factors and demand and supply pressures. We may continue seeing a pressure for
next one year.
Noted
investment guru, Dr Marc Faber, in an interview with the Economic Times in
March 2018, expressed that, “India from a longer term point of view is
still a good proposition but India is not exactly a problem-free country. There
is leverage in the system and there has been fraud and there are still some
unsettled political events that may happen.” And there is another
fact that 7 out of last 10 governments were coalition governments. And since
1996, India is being ruled only by coalition governments coming from different
ideologies. Despite being ruled by different coalition governments Indian GDP
has grown @6.3% over last 35 years, which is very healthy growth rate. So this
should dispel fears floating in your minds as to what will happen if Mr. Modi
doesn’t come to power in next election.
What should you do now?
We
expect markets to behave irrationally and be on a roller-coaster ride over next
one year till next parliamentary elections. We advise investors to invest in
equity saving or balance advantage category funds from 2-3 years perspective.
To invest for longer term say 5 years or more, invest into equity but using STPs
and SIPs, during this period. SIP off course is one of the best methods to
create wealth over long term for any investor. A recent study shows that if an
investor was investing Rs. 10,000/- in a portfolio of five, just average
performing schemes over last 20 years, s/he would have amassed over Rs.2.55 crores by today. Such is the
power of SIP.
For debt portfolio
– rising inflation, debt and crude oil prices have put pressure on currency and
interest rates both. Yields on 10 year government security have almost touched
8%. All this have forced RBI to increase its repo rates for the first time in
last four years. With many developed economies especially US increasing its interest
rates, rising crude oil prices and political uncertainties in India, is likely
to keep interest rates under pressure for some time. Investors should choose
from short term floating rate funds, accrual funds or invest directly into
bonds depending on their requirements.
Scheme Categorization and Your
Portfolio
Till
now all mutual fund houses were using their own definitions with respect to
stock’s categorization and managing their schemes accordingly. In the absence
of uniform definition it is difficult to identify and compare the schemes for
identical investment philosophy and category. Now SEBI has defined the
largecap, midcap and smallcap stocks. It has also prescribed specific
categories for mutual funds and has asked all mutual funds to align their
existing as well as new schemes to mandate of such categories. Following this
it would be easier to find apples to compare with apples and oranges to compare
with oranges.
SEBI’s
directive has necessitated change of name and mandates for many of the existing
mutual fund schemes. Accordingly many mutual fund schemes have undergone
material changes in terms of investment mandate and their portfolio. With
changes in the fundamental attributes of a scheme, it’s place and allocation in
overall portfolio needs a relook. Please consult your financial advisor or
contact your InvestmentMitra to check if the fundamental attributes of your
schemes remains the same or have changed. In case the attributes have changed
then it is high time to have a relook at your portfolio and evaluate if it needs
a change.
Are you still receiving dividends?
Many
investors, especially those who need regular income, have invested in various
mutual fund schemes with dividend option, as dividends in the hands of investor
are tax free. But recent imposition of 10% dividend distribution tax on
dividends declared have made this option unviable as the investor loose this
10% for no benefit at all. We in our earlier communications have advised all
investors to reconsider their option and change it to growth. We hope that you
have also done the same and are saving this 10% return. If you haven’t, then do
it now. But before you change option, don’t forget to factor in exit charges
and capital gains implications before executing the change. For your regular
income requirements, opt for alternate strategies.
While
holidaying, don’t forget to review your investments in the light of above.
Should you need any help to review your portfolio, we will be more than happy
to help you doing the same. You may reach us by replying to this message or
contact us on ajay@investmentmitra.com.
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