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Save more on taxesThe best tax-savinginvestment optionjust got better thisyear as the limitunder Section 80C

of the Income Tax Act wasraised from `1 lakh to `1.5 lakh.That means an investor who wassaving around `30,000 in taxeslast year can save `45,000 thisyear onwards!

Tax- saving mutual funds (ELSS)offer the lowest lock-in period (3years) and provide the highestgrowth potential. At FundsIndia,we are launching severalinitiatives to make it super-easyfor you to make your tax-savinginvestment:

• We are launching a tax-savingcorner in our website whereyou can have access tocalculations, recommendations,and more.

• Both the website and themobile app will have a ‘QuickTax Saver’ link that will let youmake your tax savinginvestment in three simplesteps – choose scheme (from avery short list), choose amount,and invest!

• Pro-active advisory services tohelp you plan your tax savings.

Happy investing!

Srikanth MeenakshiCo-founder andCOO, FundsIndia.com

Yes to Focus, No to FloatingAs several hundred funds and more than 40 fund houses compete for theirattention, investors can make life easy for themselves by adopting a few simplefilters.

A large proportion of your equity portfolio must be diversified funds. Thiswould take out the thematic, sector-specific and international funds out ofyour radar.

At the next stage, a large part of your equity allocation must be in large-capfunds, as these stocks account for between 70-80 per cent of marketcapitalisation depending on what thresholds you use.

Here again, go only for funds that are consistently investing about 90% oftheir corpus in large-cap stocks. The operative word is ‘consistently.’

Here is why. A diversified fund whose allocation to large-cap, mid-cap andsmall-cap spaces keeps shifting based on the economy, market trends and fundmanager’s preferences will certainly lose the plot every once in two-three yearsand that is enough to wreck havoc.

The fund manager here is likely to spend more time understanding thedynamics of mid- and small-cap stocks at the expense of paying qualityattention to properly managing the large-cap component.

Also, a fund that is consistently invested deep in large-cap stocks and has adecent track record is likely to have a fund manager who understands macro-economics well and that is a key driver in the large-cap space.

If one looks back at the funds that took deep cash calls and contained thedamage in the 2008 meltdown, this facet would become clear. Such macrounderstanding is also important for taking sector calls and allocation to eachsector.

A fund manager solely focused on the large-cap space is likely to do a betterjob.

If you wish to have exposures to the mid-cap space, go for dedicated mid-capfunds, and that too, ones with a lengthy track record. Also, check if there havebeen changes in fund managers over the years.

As for the small-cap space, it is better to steer clear unless you have a massiverisk appetite. This category and constantly cap-curve shifting funds deserve ashort shrift, as returns rarely justify underlying risks.

S Vaidya NathanEditorial Consultant, Think FundsIndia

October 2014 � Volume 07 � 10

FundsIndiaWinner CNBC TV18 UTI Award 2013-14National Online Advisory Services

Long is the name of the equity game

Conversely, money flowed in to equity funds rapidly inpeak markets such as FY- 2008, when price earnings ratiowas upward of 20 times.

Now the question is: how would you know that it was apeak market? Fair enough, unless you followmarkets/valuations, it may be tough.

But then, why did investors stop investing when theyknew the markets declined sharply? This happens simplybecause people either invested in lump sums duringmarket euphoria and did not bother to revisit in downmarkets, or stopped their SIPs in panic, when the marketsdeclined.

The bounce back

Let us suppose your risk appetite would not let you throwgood money after bad when you see the markets toppling.But had you held on to what you had invested, chances arethat you would still have made money.

The majority ill time it

Here are some interesting statistics on how investors put more money in equity funds at the peak and then stop theflow altogether later. The table below clearly illustrates the poor response to equity funds in declining markets, suchas the ones in FY- 2003 or FY- 2013, when valuations were very attractive.

Market Levels, Valuation and Equity Fund Inflows

FY-03 FY-04 FY-05 FY-06 FY-07 FY-08 FY-09 FY-10 FY-11 FY-12 FY-13 FY-14

Equity fundnet sales ( `in crore) 118 7205 7398 36155 29916 52701 4084 1456 11795 504 -15245 -8365

S&P BSESensex (March end) 3049 5591 6493 11280 13072 15644 9709 17528 19445 17404 18535 22386

Average forwardP/E (times) 10.3 11.4 11.6 13.1 14.8 20.6 15.7 17.2 17.7 14.8 14.4 16.2

Given below is the Sensex data on major down marketsand returns two years after such down market.

Equities after a major decline

Year of Calendar year Absolute returnsDecline returns (%) in subsequent

2 years (%)

1979 -4.3 91.71987 -15.7 76.2

1998 -20.9 17.71998 -16.5 30.1

2000 -20.6 -15.0

2001 -17.9 79.0

2008 -52.4 112.5

2011 -24.6 38.0

* Two years subsequent to the year of fall

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Vidya Bala

The sharp rally in equity markets over the past year has meant that equity funds have once againevinced investor interest. But then the interest, often driven by the one-year performance chart,is what mostly lures investors into taking exposure, and, that too for short periods of less thanone year in equities. Equity was and is never meant to be a short-term game. Still, somehow,most retail investors think otherwise. Result? Jumping in to the equity market euphoria whenmarkets turn expensive and then exiting when markets topple thereafter and look cheap. Whilethis is certainly a good time to invest in equities if you are doing so for the long haul, you will dowell to know the repeated mistakes that investors make in bull and bear markets.

Clearly, barring the years after the Y2K fall, markets have adequately compensated in the two years following the years’of bear market. Hence, to say that your investments never made money may not be entirely true.

The no-loss territory

Agreed again that your skepticism in equities may be justified if you compare the returns of this asset class, especiallybetween 2008 and 2012 with other asset classes, including debt and gold. But then, that’s how equity markets have beenearlier and will continue to be.

Equities are simply for the long haul. Just take a look at the data for the Sensex since 1980.

Rolling returns of Sensex

1 year 3 years 5 years 7 years 10 years 15 years

Miimum Returns (%) -52.9 -17.0 -6.2 -7.3 -2.7 5.2

Maximum Returns (%) 250.7 79.6 54.2 43.1 34.9 24.7

Average Returns (%) 21.7 17.1 17.1 16.7 16.8 14.9

Standard Deviation (%) 37.7 18.1 13.4 10.3 7.9 4.3

Probability of Negative Returns (%) 29.7 13.9 9.1 7.1 1.7 0

Returns for more than a year are on compounded annualised basis.

Rolling monthly returns from January 1980 to September 2014.

The rolling returns across various holding periods are given. Returns were rolled on a monthly basis. The data showsthat the probability of getting negative returns was as high as 30 per cent for a one-year period and 0 per cent for a15-year period. This probability keeps diminishing with time.

In other words, the longer the holding period, the better are your chances of not losing any money. And the averagereturns look good enough too.

What it all means

So does that mean you should never be holding equities if you had goals over shorter periods of say 3 years or 5years? Not so.

It’s about the proportion you hold. It’s that proportion that would gently prop up portfolio returns if markets do rally,and not actually harm your portfolio in case things turn for the worse.

This is why a proper asset allocation becomes the determining factor when you have short- to medium-term goals.

Asset allocation to suit your time frame and systematic investing could be the only way out to play the equity game.

Else? Staying invested in pure guaranteed traditional debt products could be the only option. But then, you can bereasonably sure, that they would lag behind rising prices, whether it is to do with education or retirement.

If your parents managed it, they did so at a time when post offices and deposits gave a 12-13 per cent interest andmost of them drew pensions.

So just how do you propose to manage with an average 6-8 per cent post-tax return and no pension to think of?

Vidya BalaMutual Fund Research, FundsIndia.com

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We are in the process of picking up growth, even if the journey is likely to be bumpy at times.Inflation is coming down, consistent with our forecasts. These are exciting times for banking inIndia.

Dr Raghuram Rajan, Governor, Reserve Bank of India

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Q. I am, at present, running an SIP in Franklin IndiaFeeder - US Opportunities and ICICI Pru USBluechip. These make up 10 per cent of my monthlyEquity SIP amount.

I have an additional 4 per cent monthly SIP amountallocated to Religare Invesco Pan European Fund.

As the above funds are benchmarked on Russell 3000Growth and S&P 500, I am considering addingMotilal Oswal MOSt Nasdaq100 ETF also to mymonthly SIP, since this index fund comprises of non-financial companies operating across the world.

• Over a period of 10+ years, will my monthly SIP(12-15 per cent cost allocation) in the above fundsprovide meaningful returns or diversification?

• As these index companies operate in EmergingMarkets too, don’t these funds stand a competitivechance compared to returns from Indian equityMFs?

• Will MOSt Nasdaq ETFs offer significantdiversification over Franklin US OpportunitiesFeeder Fund and ICICI Pru US Bluechip Fund?

A. We would consider international funds as 'themefunds.’ That essentially means that you need toreasonably time, track and book profits in them.

Hence, I would think having a three-year view at atime and reviewing based on opportunities, ratherthan a ten-year view, would be a better way of lookingat these themes.

Over a 10-year period, both the European and USmarkets have delivered single-digit returns (MSCIEuropean Index delivered 4 per cent annually over 10years in USD and MSCI US delivered 6.3 per centannually in USD).

Even otherwise, the chances of Indian marketsunderperforming these markets over a 10-year timeframe appears less.

Hence, we would think it may be better to have a 3-

year view, and then take it forward from there. Also, itis important to view these funds as diversificationoptions and ensure they do not exceed 10-15 per centof your overall portfolio.

You are right that increasingly, a good proportion ofUS companies or European companies derive a chunkof earnings from emerging markets.

While that would help butress their growth, their ownvaluation, prospects and returns, the prospects wouldto some extent be capped by local dynamics than thefortunes of emerging markets.

To this extent, it would definitely not fully have thereturn opportunities as direct emerging marketexposures.

MOSt Nasdaq 100 ETF has higher weight totechnology sector.

While the other two funds do have differentiatedportfolios compared with this ETF, they may wellchange their stock holdings.

Hence, we cannot say that at all points they will remaindifferent.

Also Nasdaq 100 ETF ran up quite a bit during thelast few years and may not hold attractive valuationsnow (24.1 times P/E compared with 21 times a yearago).

Q & A

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Lazy Password SyndromeIdentity thefts, simply defined, is when someone elseillegally gains access to your information and uses it forwrong reasons. One of the biggest reasons for identitythefts is the easy access to your passwords. Interestingly,you could be the biggest accomplice to the crime. Justthink about this – you tend to forget your password andso, your easy solution is to write it on a “post it” and stickit above your desk. Or, you would create a file with allyour passwords and keep it on your desktop, without apassword protecting the file. And then comes thejustification – “There are so many passwords I need tocreate – how do you expect me to remember them all?”

Another universal reason for password thefts is the sheerpredictability of the choice of passwords. Research hasshown that creativity hits a low when it comes to choosingpasswords and 83% of people use the name of theirspouse, child, sibling, parent or pet, and dates of birth asthe password of preference.

Your cyber security depends on your choice of passwords– here are a few dos and don’ts:

• Understand the importance and seriousness of having“good passwords.”

• Do not oversimplify or over complicate your passwords– both will work against you!

• Be disciplined – do not leave your passwords within easyaccess.

• Change them whenever you feel that your password hasbeen compromised, or you had to share it withsomeone.

• If you need to keep a document listing your passwords,make sure you “secure” the file with a super safepassword.

• If you want, build a pattern into your choice ofpasswords – just don’t make the pattern predictable.

Fight the “Lazy Password Syndrome” and don’t fall preyto it.

Satish Mehta is the Founder and Director of www.credexpert.in – a credit and debtcounselling company. Read more such thoughtful articles at Market Place –FundsIndia, the official blog of FundsIndia.com at http://www.fundsindia.com/blog.

Market Place FundsIndia Blog

‘Market’ is...If you watch the electronic media, or read online portalsor business newspapers, you are likely to quickly fall intoa trap on what exactly is market. They would have youbelieve that ‘market = equity.’

There is so much of vested interest and so much of easyand lazy reporting that is possible out of equity that thishas almost become the sole focus of discourse in themainstream media. Yes, the ups and downs in equity aremore conspicuous, exciting to report and also exciting tofollow, if you are not the discerning type. This is trueworldwide and is not only an India phenomenon.

Only when you get a year such as 2000 or 2008 do thesevehicles suddenly pretend to be ultra knowledgeable andultra concerned about your financial well-being and startdiscussing a few other investment options.

As investors, each of us must always remember that themarket is not just equity. There are several asset classesout there - short-term bonds, long-term bonds, gold,commodity, real estate, currency and old-fashioned fixedincome assets.

Each is a market for every investor. If you fall prey tocommon media trends and follow just equity big time, youwill never invest quality time to understand otherinvestment options that should and normally wouldaccount for a large part of your portfolio. Bonds are amuch bigger market, but are also much more complex tounderstand. Most of us may never muster enoughknowledge to track this asset class well.

What is, however, important is to at least learn to trackbond funds in a reasonably intelligent manner. Likewise,you must have a good idea of the safe places for fixeddeposits. You must also always know what is on offer inpost office savings schemes.

These are likely to be the dominant part of a portfoliofor all, except those who have huge sums to invest andcan also afford to take high risks. Keep track of equitybut do not get obsessed the same way media and severalfinancial advisors would like you to do.

Invest With A Plan 7

An investment in knowledge pays the best interest.

Benjamin Franklin, a Founding Father of The United States of America

Technical View

Asian PaintsThe Asian Paints stock is on a strong uptrend and therecent minor pull back presents an opportunity to buy thestock. Any price weakness may be used to buy the stockfor short-term gains. As long as it trades above the stoploss level of `598, there is a possibility of a rally to thetarget zone of `690-700. A breakout past `700 couldtrigger a rally to the secondary target of `730.

This column is targeted at investors who are registered customers with FundsIndia for trading and investing in equity as well as prospectiveinvestors who wish to open an equity account with FundsIndia. B Krishna Kumar hosts a weekly webinar that discusses the market outlookfor the following week. You can follow him on Livestream. If you wish to receive reminders for his webinars, go tohttps://www4.gotomeeting.com/register/131985103

Disclaimer for Think FundsIndia: Mutual Fund Investments are subject to market risks. Please read the offer documents available at the website of each mutual fund carefullybefore investing. Past performance does not indicate or guarantee future performance. There is risk of capital loss and uncertainty of dividend distribution. Think FundsIndia,a monthly publication of Wealth India Financial Services, is for information purposes only. Think FundsIndia is not and should not be construed as a prospectus, schemeinformation document or offer document Information in this document has been obtained from sources that are credible and reliable.

Publisher:Wealth India Financial Services Editor: Srikanth Meenakshi

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NiftyNifty was confined to a narrow trading range butwitnessed volatile action in the last week of September.The overall bullish configuration in the Nifty is still intact,despite the volatility. Nifty has managed to hold above keysupport level of 7,850 and this strengthens the bullishcase.As long as the support at 7,850 is not breached, therewould be a strong case for the Nifty to rally to the nexttarget zone of 8,350-8,400.Investors may use any weakness to buy fundamentallysound stocks from the banking, automobile, auto ancillaryand real estate sectors.

B Krishna Kumar, Head – Equity Research, FundsIndia.com

What we are observing in the recent past is that at each spike in stock indices, retail investors haveredeemed. High net worth individuals have started coming back to equity. Retail investors are sittingon the fence.

Dinesh Khara, CEO, SBI Mutual Fund

Axis BankAfter a sharp rally, Axis Bank corrected last month. Thedecline was arrested at the crucial support of `365-370,and it staged a sharp recovery on Sept. 26. Pointing tobuying interest at the support zone, this is a positive sign.Buy Axis Bank at the current levels and on a weakness foran initial target at `425 and a secondary target of `450.Have a stop loss at `340 for long positions.

In his Q2 2014 Letter, Jeremy Grantham of GMOoutlined lessons learnt over 47 years. We present editedextracts:

1 You can’t know how people who are important to youwill behave under pressure. And if you have to pickone who will outperform, pick your wife.

2. Local cultural differences can be very enduring evenbetween Britain and the U.S.

3. Sometimes even a great idea will fail because thetechnology infrastructure is just not there; that it isahead of its time.

4. Much more importantly, investing is serious. It can andoften is intellectually compelling. But it should not bedriven by excitement, as it is for many individuals, andwhen treated that way will almost always end badly. Myexperience with American Raceways and MarketMonitor and, more importantly, my experience atpainfully wiping out my wife and myself financially didfar more than teach or reteach some of the basic rulesof investing. It turned me profoundly away from thespeculative and gambling possibilities of investing andturned me permanently, and pretty much overnight,into a patient, long-term value investor. Luckily, thenew style fitted nicely with my natural conservative andfrugal upbringing. The value perspective is pretty muchbaked into the Yorkshire culture. Happily, it also seemsto work most of the time.

5. It is better to be lucky than good, but of courseappropriate to aspire to both.

Source: www.gmo.com

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Must Read

India’s New Government Messiah

Satyajit Das has been one of the very best when itcomes to analyzing economic trends over the pastdecade and more. His latest post (done in end July –yes, we did get to it a month later) is titled India’s NewGovernment Messiah. It is a very interesting read by anobserver who does not have any vested interest.Sample - ‘The government will have to deal with abureaucracy resistant to change and an independentcentral bank led by a formidable, well-credentialedGovernor…. Unburdened by detail, the governmentnevertheless promised to increase economic growth to7-8% within the next three years, reduce the fiscaldeficit, increase employment and improve livingstandards. There were vague proposals about increasingforeign investment in defence and insurance, reductionof an ineffective subsidy regime, and tax simplification.’

Please read Satyajit Das regularly athttp://www.economonitor.com/blog/author/sdas3/.

Index 1 Year 5 Years 10 Years

CNX Nifty 38.9 9.4 16.4S&P BSE Sensex 37.4 9.2 16.9CNX Mid Cap 63.2 11.2 17.2CNX Small Cap 80.5 8.9 16.9CNX 100 40.6 9.9 16.5CNX 500 46.1 9.3 15.8CNX Bank 60.0 11.8 19.9CNX Energy 23.4 0.1 10.8CNX FMCG 12.7 24.5 23.6CNX Infrastructure 41.5 -4.8 10.6CNX IT 38.4 17.1 16.3MSCI Emerging Markets 1.7 16.0 12.2MSCI World 9.3 20.5 10.1Returns (in per cent as of end September 2014) for less than one year is on anabsolute basis and for more than one year on a compounded annual basis.

Equity Performance Snapshot Wisdom

1 Which organization manages settlements for theNational Stock Exchange?

2 Name two fund houses that have ceased to exist?

3 An Equity-Linked Savings Scheme is a tax-saving fundfor Section 80C purposes. What is the minimumexposure to equity that must be maintained on anaverage?

4 Who is the author of ‘Bailout Nation’ - How Greedand Easy Money Corrupted Wall Street and Shook theWorld Economy?

5 Name the person in the image. Hehas been at the helm of equity fundsmanagement at one of India’s largestfund houses and has been in that rolefor many years now.

Answers for September 2014 Quiz: 1. Insurance RegulatoryAuthority of India (IRDA) 2. DSP BlackRock Mirco-Cap Fund3. Peter Bernstein 4. 10% of the assets of the fund 5. ChitraRamakrishna, Managing Director, National Stock Exchange.

Winners of the September 2014 Quiz: SricharanMonigari, Jay Shah and Kaibalya Rout

FundsIndia Select FundsEquity (Moderate Risk):

Preferred picks in the Equity Funds (Tax-Saving Funds –ELSS) category of FundsIndia Select Funds are:Moderate Risk High RiskAxis Long-Term Equity Fund ICICI Pru Tax PlanCanara Robeco Tax Saver IDFC Tax AdvantageFranklin India Taxshield Reliance Tax SaverThese are equity-oriented funds with a lock-in period ofthree years and qualify for deduction up to `1.5 lakhunder Section 80C of the Income Tax Act in the year ofinvestment.What is FundsIndia Select Funds: This is a listing ofmutual funds that we think are most investment worthyfor a regular investor. We review this list on a quarterlybasis. Do note, however, that past performance is not aguarantee of future results. Please consider your specificinvestment requirements before designing a portfolio thatsuits your needs.http://www.fundsindia.com/select-funds - Please checkout our website for a complete listing of preferred funds.

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• DHFLs SwayamSiddha Deposit for women is nowavailable in our platform. Investors can get up to 9.8%interest per annum along with an insurance cover of `1Lakh• A margin trading facility is being developed for equityinvestors. This facility will be available to investors fromOctober.• Android App – New features such as making newinvestments and additional investments will be availablein the next version of the app.• Several features have been added to make investing intax-saving (ELSS) funds easy.

@fundsindia.com in October

Recommended Book

To invest, call 0 7667 166 166

About us: FundsIndia.com is India's leading online investment platform. It offers a wide range of investment options suchas mutual funds, equities, corporate deposits, bonds, the National Pension System, loans, insurance and 24 Karat gold, to namea few, in one convenient online location. FundsIndia also offers a host of value-added services such as Systematic InvestmentPlans (SIPs), Alert SIPs, Flexi SIPs, trigger-based investing, and more, that further enrich your investment experience.

Changes to FundsIndia’s ‘Select Funds’ list - A 20-30% allocation to mid-cap funds, in our opinion should sufficeto provide adequate upside to an equity portfolio. Read more at Market Place, the FundsIndia Blog, athttp://www.fundsindia.com/blog.

“I’ve found that when themarket’s going down andyou buy funds wisely, atsome point in the futureyou will be happy. Youwon’t get there by reading‘Now is the time to buy.”

Peter Lynch

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