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Information provided on this newsletter has been independently obtained from sources believed to be reliable. However, such information may include inaccuracies, errors or omissions. and its affiliates, information providers or content providers, shall have no liability to you or third parties for the accuracy, completeness, timeliness or correct sequencing of information available on this newsletter, or for any decision made or action taken by you in reliance upon such information, or for the delay or interruption of such information. , its affiliates, information providers and content providers shall have no liability for investment decisions or other actions taken or made by you based on the information provided on this newsletter.
The best time to start investing is today You are different and so are your needs Why your returns are not the same as the market’s return? Understanding Taxation in Mutual Fund Investments
Indian economy will add its entire GDP of the last 70 years in the next 10-12 years

There are very few things that are worth staying up the whole night for. Topping the list is the live telecast of Berkshire Hathaway’s shareholder meeting—which was held on 2 May 2020—and to be able to listen to Warren Buffett. In the first hour and a half, the repeated messages that Buffett gave us were: 1) He never bet against America; 2) Equities is the only way to create wealth in a sustainable manner in the long term. I think these two simplest dots can be joined on the starting line to be successful as an investor. My third guiding dot—be at it every day. The $3 trillion question here is the impact on the economy.

The Indian economy had one of its toughest five-year periods (2015-19) since 1991. The economy was just showing initial signs of recovery in early 2020 with GST collections trending up, auto sector completing transition to BS-VI, corporate non-performing asset cycle flattening out and building of dollar reserves. The covid-19 pandemic seems to have rewound the tape on recovery, but it is unlikely to have broken it altogether. Before we understand the impact on the economy, there are two unique aspects that are worth considering. Distributed supply chain: In India, most supply chains are distributed across the country. This is due to the fact that we are a land of small and medium enterprises (SMEs), which gives us efficiency. But the flip side is reduced resilience, which is why most of our SMEs are in a spot today. We have 63 million registered companies, but only 5% of them have more than 10 employees and only 19,000 have paid-up capital more than ₹10 crore. This mass distribution across a large set of companies leads to issues of coordination. The best illustration of the same is in the auto sector. You may have a ready-to-produce mother plant in the green zone, the maker of the brake pads in amber and the dealers in the red. You can imagine the near-impossible supply chain problem to fix. Hence, the restart of the economy may be ineffective if the majority of our country is non-green. Small gives efficiency but not resilience. Demand drives supply:  With capital shortage (unlike China), India’s supply reacts to demand and not the other way round. We don’t build malls or airports and wait for demand to fill them over a long period of time. Most of our infrastructure on completion are filled to capacity in just a few years and we then do incremental augmentation.

As you can infer, this leads to lag in supply creation and it’s the reason why our country has episodic inflation spikes. These two factors complicate the estimation of impact (how many SMEs will survive) and revival (which will come first—spend or demand). So how do we think about the impact on the economy then?

The Indian economy is largely consumption-driven, where consumption accounts for 60%. This is how the aggregate consumption basket of our country looks: 1) Largely unaffected—53% of our basket is largely unaffected (food, utilities and communication). 2) Lost sales—goods and services, where if one has foregone consumption, cannot be recouped by consuming more of it in the future (travel and hospitality). This is around 31% of our basket. 3) Postponed sales—This is the bucket where foregone consumption can be made up in future. Some examples being automobile and white goods. This is around 16% of the basket. Taking all this into consideration, we get a 5-7% drop in GDP for this year. Most of it will be front-loaded and we should start seeing positive print from the second half of the year. This is the bad news, but there is some good news as well. If you were to sit back and think about the above, we have done a phenomenal job and I have no doubt that we will add our entire GDP of the last 70 years in the next 10-12 years. This could be the most important phase of wealth creation for most of us. The only thing left to do then is to buy quality companies, which will grow profitably for a long period and buy them at a price which is reasonable.
When the allocation level of any asset class is breached, it should lead to rebalancing. Follow this rule without exceptions and you will definitely earn better returns. The Covid-19 pandemic has demonstrated how volatile equities can be. The benchmark indices have moved up and down like roller coasters during the past three months, even as investor sentiment has toggled between elation and consternation. One day it looks like the bears have an upper hand. The very next day the bulls come back with a vengeance. Investors are confused whether they should buy, sell or just sit tight. Actually, investors should do all three depending on how their portfolio has performed. Though you cannot control volatility, you can control the risk in your portfolio through prudent asset allocation. They should just rebalance their portfolios to restore the asset allocation mix they had decided for their investments. Back-testing studies have shown that investors who regularly rebalance their portfolios and stick to a predetermined asset allocation tend to do better than investors who keep their portfolios static and let them flow with the market.

Rebalance the portfolio

Every investor knows that asset classes do not move in the same direction or at the same pace. This differential growth changes the complexion of the portfolio mix over time. If equities are assumed to rise 15%, debt gives 7% and gold moves up 5% per year, in just six years a portfolio that has allocated 60% to equities, 35% to debt and 5% to gold will have more than 70% in equities. This is not a problem if the equity market continues to rise at an even pace. But the portfolio will see a more pronounced decline if stock markets tank. Besides, an investor who was willing to put in only 60% in equities 10 years ago should logically allocate less to this volatile class as he grows older. Obviously, an investor cannot rebalance the portfolio very often. It is recommended that the rebalancing exercise is undertaken at least once a year. This should preferably be at the fag end of the financial year or the beginning of a new one when you ought to book capital gains or losses.

It is also advisable to rebalance in case of a major market development, where a particular asset class moves up or down by more than 15-20%. A perfect example is the Covid-induced crash in March this year when the Nifty briefly fell below 8000. Disciplined investors who rebalanced their portfolios in March would be sitting on a neat gain of 20-25% in their equity investments.

Asset allocation of the portfolio

By restoring the asset allocation of the portfolio, rebalancing helps control the risk in the investments. This, in turn, helps in boosting the investor’s confidence. When the markets tumble, a rebalanced investor is less likely to panic and more likely to remain invested.

Despite its advantages, the rebalancing exercise is seldom carried out by small investors. The decision is a contrarian call, where the investor is expected to sell assets that have performed well and instead invest more in underperformers. Nobody wants to cut the flowers and water the weeds. When the Nifty rose above 12400 earlier this year, very few investors thought of booking profits in stocks. But selling some of their holdings at that point would have somewhat cushioned them against the big decline in March.

This underlines the role played by a financial advisor. Egged by greed during a bull run and overwhelmed by fear in a down market, retail investors often get carried away by emotions. They are not able to take the right decisions and usually end up losing money. On the other hand, a qualified financial advisor is able to see things dispassionately and provide the right guidance. When the allocation level of any asset class is breached, it should lead to rebalancing. Follow this rule without exceptions and you will definitely earn better returns.

Rising number of SIP accounts show a silver lining amid the current market gloom and stand as a testament that there will be light at the end of this tunnel.

With markets slowly gaining momentum on the back of gradual resumption of economic activities, fiscal stimulus from the Centre and rising FPI flows following the novel coronavirus pandemic-induced slump, investors are looking to make the most of this opportunity to recover their recent losses. It is an opportune time for mutual fund investors to reassess their current portfolios and rejig their strategies. They stand to gain from ongoing market developments and build a sizeable corpus that can help them achieve their financial life goals. At the core of this strategy lies ramping up of SIP investments which can be done in two ways. Let me explain in detail:

Top-up your existing SIP:

A SIP top-up is a mechanism where you increase your existing SIP instalment by a fixed amount at pre-determined intervals. Through this, you can invest higher amounts in your chosen fund, during the tenure of the SIP. At a time when markets are yet to fully recover and most investments still in the red, many may question the rationale behind this approach. Note that the path to recovery is long-drawn and mutual fund NAVs, are yet to pick up. A SIP top-up now will fetch more units at a lesser price, on the lines of rupee cost averaging. To put it otherwise, you will be able to accumulate more units at a lower price. When the markets rebound, these extra units can make a big difference in your end corpus as they will be redeemed at the then prevailing NAV and not at purchase valuation. Also, a periodic increase in your SIP amount can help you accumulate a bigger corpus, in the long run.

For example, a regular SIP of Rs 5,000 in a fund offering annualised return of 12 percent for 15 years, can help you accumulate a corpus of close to Rs 25 lakhs. However, topping up the SIP amount annually by an additional 10 percent can help you garner a corpus of above Rs 37 lakhs.

Stagger your deployment

Staggering the deployment of your investment capital is another SIP strategy that can help enhance your wealth in the long run. Instead of being tied to specific SIP dates and a pre-defined amount, you deploy lump-sum amounts of capital in a staggered manner, over and above your ongoing SIPs. For instance, if you have Rs 1 lakh as an investable surplus, you can deploy SIPs of either Rs 10,000 or Rs 25,000, as you desire.

You can try different ticket size combinations that fit in with your requirements and make your investments accordingly.

In the event of a quick market rally, a SIP top-up may not capture the downsize effectively and you may lose the opportunity of buying more units at a lesser price by the time your SIP instalments hit and NAVs are allocated. On the contrary, staggered investments with larger capital can help you better utilise money in-hand and make meaningful gains in the long run.

Also, it can help bridge any shortfall in the target corpus and ensure you don’t divert funds from other financial goals or dip into your saving The rising number of SIP accounts show a silver lining amid the current market gloom and stand as a testament that there will be light at the end of this tunnel. Happy investing!

An institution too big to fail - the collapse of Lehman Brothers in 2008 was a bolt from the blue for investors and triggered a crisis still talked about across boardrooms. The 2008 global financial meltdown had long roots, but the effects became apparent only after September 2008 when Lehman Brothers filed for bankruptcy, sending shock waves across the globe. The crash triggered by the collapse of one of the largest investment banks unleashed chaos, with investors registering a sharp decline in their equity portfolio. Paving way for several reforms and changing the financial landscape, the 2008 crisis also taught some crucial lessons along the way. So, what were they? Let’s find out.

Approach Equity Investments with a Long-term Perspective

An asset class that has the potential to deliver inflation-indexed returns in the long-term, equities often end up being the first victim of skepticism of investors when markets turn turtle. However, those who can muster the courage to swim against the tide often end up being winners. One of the profound lessons taught by the 2008 crisis is to adopt a long-term approach towards equity and stay invested, blocking all noises, something which Ryan did. His equity portfolio had eroded by over 30% in 2008 with the deepening of the crisis. However, he realised that he didn’t need the money immediately and remained invested. Today, he feels it’s the best decision he could have taken back then as panicking and selling stocks would have turned his notional losses into real ones. By staying invested, he recuperated the losses of his investments within the next few months, once markets rebounded.

A Good Buying Opportunity:

While the financial meltdown made investors nervy, it turned out to be a blessing in disguise for those looking to add quality stocks to their portfolio at attractive valuations. Those with cash-in-hand utilised the opportunity to buy stocks of fundamentally-strong companies and add them to their portfolio, making meaningful gains in the long run. One of the most celebrated investors of our times, Warren Buffet made USD 10 billion, and counting, during the financial crisis. During this period, Buffet’s Berkshire Hathaway struck deals with giant blue-chip companies using its cash reserves. Those financially prudent, like Buffet, turned the crisis into an opportunity to beef up their wealth in the long run.

Diversification is not Just a Word:

The 2008 financial crisis once again brought to the forefront one of the core tenets of investing – diversification. Those who invested solely in stocks of financial companies that went bankrupt lost the money forever. It drove home the point that diversification is not a mere word and to successfully tide market volatility, you need to diversify across asset classes. Equally important is to diversify within asset classes. For example, an equity portfolio should have exposure to large, mid, and small caps instead of just one category. Also, the Lehman lesson taught that it’s more important to look at overall portfolio returns rather than individual stock performances because winners can turn into losers in no time.

Is the Situation Any Different Now?

While the nature of the crisis we have on our hands now is different from the 2008 meltdown, in the sense that the former is fundamentally a health crisis with ravaging financial implications, the lessons are not. While markets have gained some lost ground, . Having said that, we have spent enough time amid uncertainty, and living with the virus seems to be way out least for now, until a vaccine is developed. Until then, it’s essential to adopt precautionary measures and stay calm with investments and finances.

A defining moment for global financial markets, the wisdom of 2008 can hold you in good stead now and prepare you better to handle such crises with optimism. Be safe, stay positive!
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Information provided on this newsletter has been independently obtained from sources believed to be reliable. However, such information may include inaccuracies, errors or omissions. and its affiliates, information providers or content providers, shall have no liability to you or third parties for the accuracy, completeness, timeliness or correct sequencing of information available on this newsletter, or for any decision made or action taken by you in reliance upon such information, or for the delay or interruption of such information. , its affiliates, information providers and content providers shall have no liability for investment decisions or other actions taken or made by you based on the information provided on this newsletter.