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RBI beats expectations with 50 basis-point rate cutThe Reserve Bank of India (RBI) made a surprise repo rate cut of 50 basispoints (a basis point is 0.01 per cent) through its September 29 MonetaryPolicy Statement, taking the repo rate to 6.75 per cent. The RBI Governordid what he usually does – surprise the markets. Only this time, it was witha rate cut that was higher than the analyst consensus estimate of 25 basispoints.

The RBI’s policy actions mean the following: the RBI has explicitly statedthat it is frontloading its policy actions. It hopes that investment activity inthe economy will likely respond to certainty about the extent of monetarystimulus in the pipeline, low transmission notwithstanding. This raises thebar for any rate cut in the next 3-6 months, as the ball is in the court ofgovernment and private companies to revive investment, or evince interestat least. With the low base effect in inflation waning by late 2016, foodinflation risks not entirely abating, and with the constant changes in theglobal environment, the RBI could well hold, or delay any further policymoves.

That essentially means that the game in the bond market may be a long drawnone, and more rate easing could be due later, provided the bulk of RBI’sconditions (inflation, deficit, global environment, commodity price) for suchaccommodation are met. The current rate cut is clearly a boost to the debtmarket. A rally caused by easing yields could lead to capital appreciation ingilts as well as corporate bonds. RBI’s willingness to accommodate, basedon further data, suggests that there could be room for more rally in debt.

That means gains may accumulate over a longer period than at one shot. Forthe stock market, a 75 basis-point rate cut until June resulted in just arounda 35 basis-point transmission in terms of lowering borrowing costs. The 125basis-point cut, in all, certainly leaves much more scope, in part at least, forborrowing costs of companies to ease.

If this happens, improved margins, both from lower input cost and interestcost could bring cheer to companies with debt in their books. We do notexpect such a rate cut to immediately translate into investment activity sincethe capacity utilisation (in manufacturing) is said to be around 70-72 per cent,leaving scope for improved utilisation before any fresh capacity addition canhappen.

Vidya BalaHead – Mutual Fund Research

FundsIndia.com

October 2015 � Volume 08 � 10

Greetings fromFundsIndia!

“Mutual funds aresubject to market

risks.” These seven wordsmandated by the regulator as apart of all mutual fund relatedcommunications have been ascarecrow for potential investors.

As mutual fund investors know,risk can be a good thing;something that is an inevitable partof anything that is better than theordinary. A risk-free endeavour willalways yield a pedestrianexperience compared to treadingoutside the beaten path.

At FundsIndia, we view risk as apositive change agent that is vitalfor the growth and progress ofindividuals, and of the society atlarge. We have started an initiativeto underscore this point.www.riskisgood.com has beenstarted as a social platform to sharestories about risk-taking.

We aren’t just talking aboutfinancial risks; we’re talking aboutall kinds of risks. These would bestories illustrating that risk,rewards, and learning form thegolden triangle of life. Check outthe site and inspire us with yourown experiences with risk.

Thanks

Happy investing!

Srikanth MeenakshiCo-Founder & COOFundsIndia.com

www.riskisgood.com

FundsIndia Strategy: Guard yourself from risks in debt funds

When we say ‘limit’ your risk, we clearly mean that thedebt space is not devoid of risk. The risk arising from theinterest rate cycle, called the duration risk, affects mostmedium to long-term debt funds.

Credit risk (risk arising from exposure to debt instrumentcompanies that do not have top credit quality) is aconscious decision that fund houses choose to take, andtherefore, does not affect all funds. While you have littlechoice but to ride out duration risk, if you take it, here areways to limit credit risks in debt funds.

Time frame based category choice

With equity funds, your time frame is clear – it has to belong-term. With debt funds, time frame has, however, alarger role to play in the choice of your funds, and thereby,the risks you assume. When you have a short time frame,you cannot be taking duration risks or credit risks. Youneed to be reasonably sure of getting back your capital,and earn returns that are slightly better than other liquidoptions such as your saving bank account.

If you have a short time frame of say less than 1 year, youshould be happy to stick to liquid and ultra short-termfunds, and not venture beyond that. These categories havelow-risk papers, and even if they do have commercialpapers of corporate houses, their duration is too short toballoon into unforeseen risks.

Avoid unless you understand

In recent years, there have been a number of funds thathave a stated strategy of digging deeper into the creditspace for higher yields, or looking for temporarymispriced opportunities in the corporate credit space.Either which way, unless you understand the overall creditcycle of the corporate world, and whether you are riding

on top or bottom of such a cycle, it may not be an easycall to ride this high-risk category.

Investing in this category is akin to investing in sectorfunds in equity. You should know when to enter and exit,and for that purpose, understand the cycle of that sector.Also, funds with such strategies would sportlow-to-medium portfolio maturity, but require areasonably long time frame, overall, for the accrual todeliver.

So, if there is a mismatch of time between your ownhorizon, and what the fund ideally requires you to hold,you may lose. Long story short, this game is not foreverybody, and definitely not for those merely using debtfor asset allocation purposes. So, how should you takeexposure to corporate opportunities, if at all? Move on tothe next point.

Play it safe with ‘diversified’ debt funds

If you have a medium-to-long time-frame (two years andmore), look for a fund that has a diversified approach; thatis, a mix of gilts, corporate bonds, and a bit of allocationto short-duration papers such as certificates of deposits,and commercial papers. This should give you adequateexposure to corporate opportunities, as well as play theduration game through gilt.

Funds in the dynamic bond and income accrual categorysport this kind of profile. But then, one of the funds thathad Amtek Auto was a short-term fund, and ended withhigher risks. What do you do about it? Here again, suchrare instances are inevitable. You cannot be sure that everyAAA or AA paper is of a high credit standard. What youcan do, though, is to ensure that single instrumentexposure to AA-rated or a lower instrument is not over

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Vidya Bala

The recent news of Amtek Auto’s problems with its debt, and the holding of its debt instrumentin a few mutual fund schemes raised a debate on whether debt mutual funds are indeed safe.While such a debate may be a never ending one – it came up during 2008 Fixed Maturity Plan(FMP) troubles, the 2013 liquid fund mark down, and now - let us focus on what you as aninvestor can do to limit your own risks with debt funds.

We have to have the discipline to stick to our strategy of building the necessary institutions andcreating a new path of sustainable growth. For this, we need the cooperation of business, notimpatience and pressure for quick impossible fixes.Dr Raghuram Rajan, Governor, Reserve Bank of India

If we look around the world today, it does not present apretty picture. Industrial countries are still struggling, witha few exceptions, to grow. Our fellow BRICS nations allhave deep problems. Indeed, India appears to be an islandof relative calm in an ocean of turmoil. What is different,and how can we be assured that it will continue?

Growth must be obtained in the right way. Of course,India is not in the same situation today. But with the worldbeing an inhospitable place, we have to work hard tostrengthen our current recovery, and put it on a moresustainable footing

Edited extracts from a speech by Dr Raghuram RajanGovernor, Reserve Bank of India

5-10 per cent in the fund you choose. When an illiquidbond instrument accounts for 10 per cent of your NetAsset Value (NAV), then any default can hurt you.

If it is lower at say one-to-three percent, it means lessharm. Do a quarterly check, or ask your advisor for oneto understand the fund you hold does not have suchconcentrated exposures.

Go for funds with larger AUM

As retail investors, you may be impacted by a largeredemption placed by institutional investors (who aremajor investors in debt funds), if the asset size of a fundcannot take that impact comfortably with sufficientliquidity. Hence, look for funds (within the category fittingyou) with large assets of Rs. 1,000 crore, or over, in caseof liquid or ultra short-term funds, and at least Rs.400-500 crore for medium-to-long-term categories.

Don’t chase yields taking credit risk

When you see a fund with top returns in equity, you aretempted to pick it. The same happens with debt. Thequestion is whether it fits you. No debt fund would beable to have a higher yield to maturity (the yield ofinstruments in the portfolio), unless it goes for risks, ortakes bets that the category, on an average, does not take.

So a simple thumb rule is – ‘higher returns must come athigher risk’. It may not be worth taking such risks if youchose debt to simply hedge your equity portfolio, andprovide a bit of diversification. Debt funds, as a category,are often misunderstood by retail investors. Remember,banks, whose primary job is to lend, have large NonPerforming Assets (NPAs) in their books, despite all theirdue diligence.

Hence, to expect mutual funds to be free of such issueswould be unrealistic. Be surprised that mutual funds havemanaged to keep their ‘bad loans’ reasonably low. As aninvestor, you do know that debt fund is a better vehicle toride than traditional options in terms of returns and taxes.Events such as the present one will also help you ride it,with lower risks.

Vidya BalaHead – Mutual Fund Research

FundsIndia.com

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“Rule number one: Don’t lose money. Rule number two: Don’t forget rule number one.”

Warren Buffett, Chairman, Berkshire Hathaway

A lesson from Brazil

Further, Brazil’s government funded development bankhugely increased subsidized loans to corporations. Certainindustries were favored with tax breaks while pricecontrols were imposed on gasoline and electricity, causinghuge losses in public sector firms. Petrobras, the nationaloil company, which was supposed to make enormousinvestments in oil drilling, instead became embroiled in acorruption scandal.Even as government pensions burned an ever-larger hole,budget deficits expanded, and the political consensus tonarrow them has become elusive. While the Brazilianauthorities are working hard to rectify the situation, let usnot ignore the lessons.

Perhaps Brazil offers a salutary lesson. Only a few yearsago, the world was applauding the country’s thrivingdemocracy, its robust economic growth, and theenormous strides it was making in reducing inequality. Itgrew at 7.6 per cent in 2010, and had discovered hugeoilreserves, which the then President Lula likened to“winning a lottery ticket”. Yet the country is expected toshrink by 3 per cent this year, and its debt just gotdowngraded to junk. What went wrong? Paradoxical as itmay seem, Brazil tried to grow too fast. The 7.6 per cent growth came on the back of substantial stimulusafter the global financial crisis. In an attempt to keepgrowth high, the New York Times says the central bankwas pressed to reduce interest rates, fueling a creditspree that overburdened customers are now strugglingto repay.

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FundsIndia Features: Reports that help you with investing

For the touchy-feely ones among us, these emotions comeinto play even on seeing any / all industry or market news.There’s drama (when the markets go sliding up or down),action (buying / selling), romance (oh, the way highreturns kindle our heart), tragedy (need I say anythinghere?), and more!

Whoever said that investing is a boring affair has clearlynot known investing well enough.

Your investment film typically involves the following starcast: The main protagonist of your film, the hero, is, ofcourse, your investments.

He is truly, madly and deeply in love with ‘high returns’ –his beloved. In spite of all the obstacles in his way, hekeeps working hard to make sure he wins her heart.

Now there is another main protagonist who is central tothe success of this film – the heroine’s father, whoseapproval and blessings are important for your hero’s‘happily ever after’ with his beloved. Introducing –investment reports aka the heroine’s father.

Says Gopalakrishnan Upadhyaya, Head of Products,FundsIndia.com, “Investing money is the easiest partabout investing. It’s the tracking and maintaining ofinvestments that’s challenging. That’s why we’ve madeinvestment reports available to every investor atFundsIndia.com. These require minimal effort on aninvestor’s part for they are updated automatically, andstored online.There is no hassle at all as there is nopaperwork involved. Moreover, they can be downloadedin just the click of a button whenever an investor wouldlike to review his investments.”

To make sure your investment film is a blockbuster hit,you can use investment reports to your advantage at

www.fundsindia.com by simply logging in to your account,and selecting ‘Reports’ from the top menu.

A few of the reports available to you are:

1. Holdings Reports – This report gives you instantinformation on your current investment holdings.

2. Transaction Reports – This is a detailed report on allyour investment transactions with FundsIndia. You’llknow exactly how much you’ve invested, how manyunits you’ve purchased, when you’ve invested, andmore – all in one report.

You get two variants in this report – a fund-wise report,and a chronological report.

3. Capital Gains Statement – This report features yourcapital gains for the current financial year, or for aperiod you specify. You can get the current update onrealized, un-realized, short-term and long-term gainsfor all your investments in a single place using thisreport.

4. Systematic Investment Plan (SIP) Reports – Youcan download an instant report of all the SIPs (SIP,STP, SWP, VIP, and VTP) you have set up on theFundsIndia platform.

5. Portfolio x-Ray, Instant Reviews, and PortfolioAnalysis – Yup, there’s more to ensure you get yourcapital’s worth at FundsIndia.com!

Have you ever felt like investing is similar to witnessing a grand film on screen? For one,investments evoke the same myriad emotions we’d feel much as we do when watching aspectacular movie. To experience a trailer of what we’re telling you, just open your accountdashboard and take in what you see.

Noorain Mohammed

These tools will help you take stock of where yourportfolio currently stands, where you wish to go withit, and what needs to be done in order to reach yourdesired goal, and more. You can read more about thesereports by clicking here.

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Our goal is to build a bank unlike any other. Our goal is to present ourselves to the market andthe customer in a ‘hatke’ (different) manner. The experience has to be ultra convenient. Thecustomer has to get the sense that he is treated with respect and responsiveness.Rajiv Lall, Managing Director, IDFC Bank

Filing taxes – These reports are exactly what you need atthe time of filing taxes. Last minute computation worries?Say goodbye to them once and for all!

Compare performance – Your FundsIndia dashboardprovides substantial information on the performance ofyour investments at a glance.

If you would, however, like specific information on howyour investments have done over specific years, and ifyou’d like to compare that performance, then all you needis any one of these reports.

Track performance – Track how much you’ve invested,and when, to analyse your investment behaviour withthese reports.

You can also download the transaction history ofindividual funds / folios, and check their performanceover a specific period of time.

Moreover, you get detailed insights on the age ofindividual investments, your unrealised short-term andlong-term returns, number of active / inactive SIPs, etc.

Easy format – These reports can be downloaded asExcel sheets / PDFs as per your convenience.

While Excel sheets make computation easier (if you’d liketo analyse the XIRR, conduct a regression analysis, etc.of your investments), PDFs are easier to print andmaintain, or to just print and save in a folder on yourlaptop.

See?! Investment reports can be so helpful when it comesto tracking and maintaining your investments.

Q & AQ: Please provide a comparison between equity funds andliquid funds in terms of their returns. I understand thatif we redeem units before one year, an exit load will becharged, and no such exit load exists for liquid funds. Anequity fund’s gain is, however, higher than that of anyliquid fund if exited in the same duration. Then whyshould we choose liquid funds?

A: Liquid funds and equity funds belong to different assetclasses. Liquid funds are a class of debt funds that arehighly liquid, and have low risks since they invest in veryshort-term, overnight bank treasury papers. They aremeant to park money temporarily, can be exited atanytime, and still earn better returns than a banks savingsaccount.

Equity funds are a different ball game altogether. Theyinvest in stocks (shares of companies), are subject tomarket risks, can be volatile in the short-term, and willhopefully, if you invest in the right funds, return well inthe long term.

As equities involve risks, to reduce the risk and enhancereturn potential, it requires a long holding period. Ideally,such a holding period should not be less than five years.To encourage investment in the capital market (equitymarket), capital gains tax exemption is given for a holdingperiod of more than one year for equities and equityfunds. To answer your question, expect only savings bankplus returns from liquid funds. Expect a few percentagepoints over inflation from equity funds in the long term.Check out our recommended list – FundsIndia SelectFunds, to know the best funds in each category.

Choose the right category of funds based on your riskprofile, time frame, and savings. Invest through aSystematic Investment Plan (SIP) every month to reducethe volatility and risk in equity. Remember: equity fundsare necessary to generate inflation beating returns forlong-term goals such as retirement, children’s education,or marriage. Liquid funds are only for temporarily parkingyour money.

Vidya BalaHead – Mutual Fund Research

FundsIndia.com

Download these reports and start using them to youradvantage right away to give your investment film the fairytale ending it deserves.

Noorain MohammedSenior Executive – Corporate Communications

FundsIndia.com

How these reports benefit youThese reports benefit you in the following ways:

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Whoever swims the fastest, whoever is the most efficient, and whoever has the least amount offat on the body will win the race. We are the lowest cost producers in India. As long as you are thelowest cost producer, especially in the airline business you are a winner.Aditya Ghosh, President, IndiGo

The stock market is a capriciousbeast, up one month, and down thenext. So how would you knowwhether you are following the ruleof buying low and selling high?This is where a SystematicInvestment Plan (SIP) makes adifference.

There are other ways an SIP is useful to build wealth overthe long term. Here’s how:

First, it turns market volatility into an advantage. In an SIP,investments will be made at regular intervals - ideally,every month. Therefore, when markets slide, there is moreunit accumulation at lower NAV (Net Asset Value).

This leaves you with a higher number of units whenmarkets pick up again, therefore improving overall return.You benefit from the effect of compounding.

Second, it reduces the cost of investment. You are, in effect,striking bargains by buying more when equity markets arecheaper, thereby staying true to the maxim of buying low.In the past two decades, barring the bull run of2003-2008, market cycles have generally lasted around twoto three years.

Therefore, it’s important that you continue your SIP,especially when markets are correcting, as that is the bestphase for averaging out costs.

If you had started an SIP in a large-cap fund for Rs. 5,000in October 2010, when markets had already rallied afterthe 2008 crash, the worth of your investment surges farahead once the proper 2013 rally takes root after years ofdithering. The compounded annual return on yourinvestment works out to 14.6 per cent. Not bad, is it?

Third, it lets you gradually save up. If you notice, in theexample, the amount saved at the end of five years is agood Rs. 3,00,000.

It’s hardly possible for most of us to save such a high sumat one go. But goals such as retirement, or educating yourchildren do require such high savings.

To retire 20 years from now, for example, you would need

a corpus of Rs. 2.2 crore to last for the next 20 years,assuming that your monthly expenses are Rs. 30,000 now.

In an SIP, investments can start as low as Rs. 1,000, whichcan be increased progressively, as salaries and surplusesgrow. It therefore helps build wealth over the years.

Fourth, it brings discipline into your investments. An SIP doesnot need you to have the smartness to time markets. Itsimply introduces regularity in investing. Because an SIPis automated, you don’t have to remember to invest eachmonth yourself either.

Once the SIP is done, you can splurge for the rest of themonth with a clear conscience! Allowing an SIP tocontinue will also eliminate the tendency to sell whenmarkets turn gloomy, which can scupper your wealthbuilding.

Bhavana AcharyaAnalyst – Mutual Fund Research

FundsIndia.com

Equity Performance Snapshot

Index 1 Year 5 Years 10 YearsCNX Nifty -1.5 5.5 11.6

S&P BSE Sensex -3.1 5.3 11.5

CNX Mid Cap 11.8 6.7 12.8

CNX Small Cap 4.5 3.8 9.5

CNX 100 0.7 6.0 12.0

CNX 500 2.3 5.9 11.1

CNX Bank 11.7 7.1 14.1

CNX Energy -18.9 -5.5 5.4

CNX FMCG -1.2 15.6 16.7

CNX Infrastructure -9.4 -5.8 4.1

CNX IT 4.7 12.5 13.7

MSCI Emerging Markets -27.7 -6.1 1.8

MSCI World -9.5 5.6 2.4Returns (in per cent as of September 29, 2015) for less than one year is on anabsolute basis, and for more than one year on a compounded annual basis.

How an SIP makes a Difference

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HDFC BankHDFC Bank, for the past three months, has declinedsharply from a high of Rs. 1,120, and has formed a strongbase at Rs. 980. The stock needs to clear a stiff resistanceat Rs. 1,100 to trigger a strong upward momentum, witha target of Rs. 1,220 in the medium term. Else, it couldlead to sideways action in the short term. Accumulate thestock on declines. Crucial support level is at Rs. 980 andRs. 940, while resistance level is at Rs. 1,100 and Rs. 1,160.Stop loss is Rs. 935.

This column is targeted at investors who are registered customers ofFundsIndia for trading and investing in equity as well as prospectiveinvestors who wish to open an equity account with FundsIndia.

It was a volatile month for the Nifty with a mixed bias.After hitting a low of 7,540 on September 8, 2015, it facedstrong resistance at 8,050, resulting in the formation of aconsolidation band of 7,540 to 8,050. A pullback rally isexpected in the short term. The latest 21-day simplemoving average is at 7,831.2. The crucial support forNifty is placed at 7,670, and its major resistance is at 8,220.The trend will turn positive only if the index closes abovethe 8,050 levels for a target of 8,300. A close below 7,830will lead to further weakness to test at 7,540.

Perumal RajaTechnical Analyst (Equity Research Desk)

FundsIndia.com

Tata Consultancy ServicesSince the beginning of the year, TCS has remainedvolatile, building strong support at Rs. 2,400 levels, whileits resistance is at Rs. 2,650 and Rs. 2,750. There is astrong consolidation building up in the Rs. 2,470 to Rs.2,650 price band. The latest 100-day simple movingaverage is at Rs. 2,565. The stock can be accumulated ondeclines. A breakout above Rs. 2,650 will lead to amedium-term upward trend with the target at Rs. 2,900.Stop loss is at Rs. 2,350.

Technical View Nifty

Disclaimer: Mutual fund investments are subject to market risks. Please read the scheme information and other related documents beforeinvesting. Past performance is not indicative of future returns. Please consider your specific investment requirements before choosing a fund,or designing a portfolio that suits your needs. Wealth India Financial Services Pvt. Ltd. (ARN code 69583) makes no warranties orrepresentations, express or implied, on products offered through the platform. It accepts no liability for any damages or losses, howevercaused, in connection with the use of, or reliance on its products or related services. The terms and conditions of the website are applicable.Think FundsIndia, a monthly publication of Wealth India Financial Services Pvt. Ltd., is for information purposes only. Think FundsIndiais not, and should not, be construed as a prospectus, scheme information document, offer document or recommendation. Information inthis document has been obtained from sources that are credible and reliable in the opinion of the Editor.Publisher:Wealth India Financial Services Pvt Ltd. Editor: Srikanth Meenakshi

If you take e-commerce, the value created in five years will be substantially larger than the valuethat it existed at. So, it is a large opportunity, and somebody will win and somebody will lose. Butit is hard for me to say who the winners are, and who the losers are.Vinod Khosla, Founder, Khosla Ventures

1 Which two regulatory bodies merged recently?

2 In 2008, which real-estate company had to enter intoa staggered repayment schedule with the mutual fundindustry in India?

3 What is a basis point? (For example, you may haveread headlines saying ‘RBI cuts rates by 50 basispoints.’)

4 The debt woes of which company has recentlyimpacted a few debt funds?

Answers may be sent to quiz@fundsindia.com.

Answers for September 2015 Investment Quiz: 1 A liquid fundinvests in debt market instruments with maturity of lessthan 91 days. 2 State Bank of India 3 10% of the size ofthe fund (not exceeding 10% of the equity capital of thecompany) 4 James Kynge 5 Tim Cook

The winner of the September 2015 Investment Quiz isJay Shah

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FundsIndia Select Funds Investment QuizTax Savings Funds

These are equity-oriented funds with a lock-in period ofthree years, investment in which qualifies for deduction ofup to Rs 1.5 lakh under Section 80C of the Income TaxAct in the year of investment.

Moderate Risk High RiskCanRobeco Tax Saver Axis Long-Term EquityFranklin India Tax Shield ICICI Pru Long Term

EquityIDFC Tax Advantage Reliance Tax Saver

Please click here for a complete listing of our preferredfunds.

@fundsindia.com:We have released a revamped equity section to provideimproved user experience to our stock trading customers.We have and improved our transaction pages. You canshare your feedback by writing to us atcontact@fundsindia.com.

5 Name the person. He is the authorof the books – 'The IntelligentInvestor' and 'Security Analysis'.