Happy investing!

Srikanth MeenakshiCo-Founder & COOFundsIndia.com

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A simple resolution

Wish you a veryhappy 2015!

Looking back, themost significant

change that we’ve made in 2014at FundsIndia is that we’vesignificantly grown the advisoryservices we provide. We have setup a highly qualified team toprovide consistent, high-qualityand unbiased counsel to ourinvestors.

We wish all our customers madefull use of these services. Takinghelp from us is the best way toensure that you are alwaysinvested in the right funds, whilealso enabling you to manage yourportfolio in an optimal manner.

We request you to make a simpleresolution – that you will seek totake advice for your investmentdecisions – choosing funds,saving taxes, redemption, profitbooking, rebalancing, reviews, oranything else you need. All youneed to do is drop a mail toadvice@fundsindia.com. We’rehere to help you.

2015 - When seeds of reforms germinateCall it a turnaround year for equity markets if you will, but I would like tobelieve 2014 would go down in history as a watershed year. It was a year thatlaid the foundation for vital reforms in the country and the impact of this canbe felt in the years to come.

2014 appears to have reversed the seriously worrying rate of inflation, deficitnumbers, a free falling rupee, tapering production and capital flight.

Painful measures, calculated policy moves, a few hard stances, and a bit ofluck in the form of lower crude and commodity prices - all helped move outof troubled waters. Hence, we were blessed with a 32 per cent return in equitymarkets and double-digit returns with the 10-year gilt.

Now, if this makes you think that the equity ‘rally’ is over and you need tocash in while the going is good, it would be nothing short of being impulsive.

Here’s why. The rally thus far has been a P/E re-rating rally - from verydepressed valuations, to a recovery driven by positive news and sentiments.That is typically the first leg of any rally post a slowdown. While this ensuredthat the good as well as the bad (stocks/funds) moved up, it did not specificallyreward all good stocks/funds. It was a broad market rally.

The next leg of the rally is likely to be triggered by an expansion in corporateearnings growth, on the back of various economic and regulatory reformsthat have been introduced. This period should be the one that matters toserious investors, for this would be the one to separate the wheat (goodcompanies) from the chaff, while also making good fund managers stand out.

That, in our opinion, is where long-term money is to be made. And that is themarket you should stay in. On the flip side, it also means that you cannot easilypick a ‘chart topper’ and hope to make money.

This is where you would have to dig in more, or seek your advisor’s help topick the right funds for you, or at least make a check if you picked the rightfunds for yourself.

And with debt markets also offering equally exciting opportunities (you canread our debt market view here), you will do yourself no favours by sitting oncash and earning close to nothing. The lesson is simple - simply stay thecourse.

Vidya BalaHead – Mutual Fund Research

FundsIndia.com

January 2015 � Volume 08 � 01

FundsIndia Strategies: Dos & Don’ts when your portfolio runs up

Weed out erstwhile underperformers

We are consciously using the term ‘erstwhile’ because it islikely that the funds that were underperforming until early2014 would now have bounced back and may seemhealthy; so, you would no longer view it as anunderperformer.

If you have funds whose value kept falling steeply duringthe 2013 or 2011 market falls, or performance keptswinging from good to bad, or whose strategy or objectiveno longer suits you, then a rallying market is a good pointto weed out such funds. Be careful with the following:

• First, make sure you have identified the weak link. Else,seek your advisor’s help (At FundsIndia, you canalways email or call your advisor to seek a portfolioreview). This is because usually, the first impulse wouldbe to sell funds that appear mediocre at present, butare actually consistent performers.

Just to give an example, a large-cap fund that is usuallya consistent performer might appear to lag a few ofyour diversified or mid-cap funds at this point. Thatdoes not mean you exit it. While in a rallying market,mid-cap funds may seem to outperform, you need thesupport of large caps in a volatile market and also overthe long term. Hence, make sure you are exiting thefund for the right reasons.

• Second and more importantly – Redeploy. Unless youintended to take out money in any case, or you needthe money badly, you could do much harm to yourgoal and to your portfolio by taking out moneymidway.

This is very true if you have a long-term portfolio. If

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Vidya Bala

Whenever you see your portfolio run up in a year such as 2014, your immediate reaction wouldbe to take partial profits from the table. If you, however, randomly choose to sell funds basedon the returns generated, and worse still, if you don’t reinvest them effectively, you may be doingmore harm to your portfolio than you know. Here are a few aspects to keep in mind when yousee your mutual fund portfolio run up.

you remove even a fifth of your money and do notreinvest it, if it earns about 12 per cent annually, youcould easily manage 25 per cent more corpus thanwhat you ended with, had you left the money investedfor five years.

Look at portfolio allocation, not just portfolio returns

When you have an asset allocation: If you have a wellconstructed portfolio without any dud funds, but you feelyour portfolio looks inflated, then give it a proper check.Do not simply go by how much your portfolio returned– it could be up by 30 per cent, or 40 per cent, or evenmore. But that does not automatically mean your portfoliois inflated.

If you have your money allocated across equity and debt,then the right thing to do would be for you to see howmuch your equity has run up against the other assetclasses you hold – debt or gold. For instance, if youstarted out with a 70:30 allocation to equity funds anddebt funds and the proportion now is say 72:28. Youroverall allocation has not been disturbed much. In otherwords, your equity is not as inflated as you think it is.

In general, a change of 5 percentage points or more canbe a base for you to reallocate money. So what should youdo if the change in allocation is indeed high? The mostdesirable thing for you to do would be to not disturb theexisting portfolio, but bring in more money to ensure thatthe allocation is back to where it was.

For instance, if you had a 70:30 allocation (say Rs 1 lakh)in equity and debt, and that has climbed to say 75:25.Then, you would have to deploy more money in theundervalued asset class (debt in this case) to ensure theoriginal allocation.

See the illustration presented in the accompanying table.In this case, you additionally invest only about Rs 1,000 indebt to ensure that you rebalance. But if you cannotplough fresh money, then you would have to book someprofits in equities and redeploy the rest in the debt fund.

That would mean having the same Rs 13,618 as yourcurrent value of investment. Of course, this may entailcapital gains when you try to sell equity funds in less thana year. This is why it is desirable to bring in more moneyif you wish to rebalance a portfolio that is too young.

If you find that too complicated, you have FundsIndia’sofferings such as Smart Solutions, which will not only helpyou do the math, but will ensure you rebalance in the rightfunds.

When you do not have an asset allocation: If you are a long-term investor, why should you be bothered about your‘fund’ running up? Let’s get this straight: When stocks runup sharply and appear overvalued, it does make sense tobook some profits as the upside potential may be limitedand you may miss out on opportunities elsewhere.

But a mutual fund is not a single stock. It is a portfolio ofstocks and the fund manager knows too well when stocksdo run up. That means he/she is constantly keeping aneye on valuations and upside potential, pruning/bookingprofits, and looking for new opportunities.

In other words, the fund manager is constantly doing thejob of booking profits and redeploying. So, why wouldyou want to replicate what the fund manager is doing,especially if you think you have a well-managed fund?

If the idea of your taking profits off the table is toreallocate to other asset classes (which we just discussedabove), then fine. Otherwise, if you are invested in anequity fund to get ‘equity’ exposure for the long term(more than five years), and the fund does that for you,you have little reason to bring it to cash.

Remember, funds themselves move some of their assets

to cash when they either find the market overvalued orturbulent. So they still do the job for you. Moreimportantly, chances are, they know better than us toredeploy them quickly when the opportunity arises.

This being the case, the best thing to do if you have along-term time frame, without any need for the money, isto let your portfolio be. But if you feel like the entireequity market has run up and there could be very littleopportunities for fund managers to deploy your moneyeffectively, then you may consider selling a part of yourfund’s holding and moving to some short-term debt fund.If you are savvy enough, redeploy them on equity marketdips. But we would not bet on this strategy.

Quick Summary

• Use the run up to exit the poor performers in yourportfolio, and reinvest them right away in the othergood funds you have. Remember, you do not run the‘timing’ risk if you redeploy immediately as you areshifting from one equity fund to another - it is thesame asset class. You face the risk of improper timingif you postpone.

• Look at your asset allocation change and not just thereturns on your portfolio before deciding whether yourequity or debt fund has run up too much.

• If you do hold only equity funds and have no use forthe money in the near to medium term, unless you canfind an asset class that can deliver superior returns,booking profits would only mean losing out on returnsand disrupting compounding of wealth.

• With falling interest rates in traditional debt optionssuch as fixed deposits, you run the reinvestment risk bybooking out from equities, unless you need the moneyover the course of the next one year.

Vidya BalaHead – Mutual Fund Research

FundsIndia.com

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Investment Original Returns Current Current New New(Rs) Allocation (%) (%) Value (Rs) Allocation (%) Allocation (Rs) Allocation (%)

Equity Fund 7,000 70 45.80% 10,206 75 10,206 70Debt Fund 3,000 30 13.75% 3,413 25 4,374 30Total 10,000 13,619 14,580

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It may be logical to think that it is not too difficult to pickfunds in the type of market we had in 2014. It is tough toresist the temptation to pick funds merely because theyare chart busters. In other words, it was a tough call onwhat not to pick, especially when we know such fundsattract ‘universal’ attention.

Overall, it was a dicey year; a year that required us toconstantly internalise our house view – that consistencymatters over flash-in-the-pan returns. So, while we knewthe absence of chart toppers may drag our fund list’s near-term returns, we also knew we would not have to worryabout it in the long term.

So let us begin with the caveat – a one-year performancewould not tell you whether our calls were good enough,nor will it let you know where we lack. You may view thisas a disclosure exercise, as we like to keep you informedat all points, and the end of the year is a good juncture totake a re-look.

Equity Funds: Our equity funds included large-capfunds, diversified funds, mid-cap funds and tax-savingfunds. As an asset class, the funds in the FundsIndia SelectFunds List delivered 45 per cent on an average, beatingthe Sensex return of 28 per cent, and a broader index,BSE 500’s return of 31.4 per cent. The outperformance,by itself, was comfortable. The averages could, however,have been much higher, but for some delay in a fewdecisions.

For instance, while we knew dividend yield, as an idea,was underperforming, we chose to keep some of thosefunds in our Select Funds list and did not remove them,at least until the first half of the year. This did cost us abit. Even now, we believe these funds are a ‘hold’, andthere is no reason to throw them out of any portfolio.

Similarly, we delayed a bit in introducing funds that werea little more than large-caps, but still did not go much intomid-cap territory (for example, the Top 100 funds). Asopportunities in large caps faded a bit in the early part ofthe year, we could have introduced this category of fundssooner to help move into funds that invested beyond theblue-chip large-cap stocks.

What we could pride on were a few of the early calls inthe aggressive/mid-cap category.

We, in fact, came up with a call in early March, ahead ofthe elections, with a 3-fund equity portfolio for theelection euphoria and beyond. Funds such as HDFC Top200, Franklin India Prima and ICICI Pru Value Discovery,which were all tilted towards cyclical sectors, were part ofthat call and worked well for those who took exposureearly on.

If you break our Select Funds List into large-cap anddiversified funds on one hand, and mid-cap funds andaggressive funds on the other, the performance card readsthus:

• Large-cap and diversified funds in the Select Listdelivered 40.4 per cent returns in 2014 outpacing thebenchmark by 12.4 percentage points.

• Mid-cap and aggressive funds in the Select Listdelivered 55 per cent returns in 2014 outpacing theBSE Mid-Cap Index by 9.7 percentage points.

Clearly, our aggressive calls worked quite well consideringthat the BSEMid-Cap Index is extremely hard to beat andthat is not surprising in a market such as the one in 2014.

Debt Funds: To be honest, we have preferred to err onthe side of caution when it came to debt calls. The interestrate uncertainty did not make things easier; but then wedecided to be bolder than we usually are.

In general, when it comes to long-term debt funds, weprefer moderate credit risk, and shun taking long-durationcalls. This is why you will not find pure gilt funds in ourlist. However, rate cuts or not, with yields easing off theirhighs, it is tough not to participate in the duration game,albeit limiting the risk to some extent.

We did this, but only in the later part of the year. As aresult, while we comfortably managed double-digitreturns, our funds lagged the CRISIL Composite BondFund Index, which has long-term gilts, by 0.70 percentagepoints.

We did, however, manage to beat the index that is the

How our Select Funds Portfolio fared in 2014

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benchmark for many of the funds in our list – CRISILShort Term Bond Index by 2.40 percentage points.

We have decided to add a bit more of duration calls inour latest review, and you will see a few aggressivelypositioned funds too. Also, we believe the changes wemade in the second half of 2014 will start demonstratingbetter results in another quarter or so.

What’s in it for you

If you are going to ask whether you should shuffle yourportfolio based on the changes in our Select list, theanswer is ‘no’. Your portfolio would have been built witha specific goal, purpose, time frame, or risk profile; andmany of the funds we exit are not really ‘sells’.

The Select list makes an endeavour to feature good fundsat that point in time. Hence, for investors entering afresh,it is a good list to refer. It is not a portfolio by itself.

When we write to you about our quarterly reviews, wemake it clear whether a fund that exits our list needs to beexited, or is a ‘hold’. Over and above this, when in doubt,you can always talk to our advisors who use the Select Listas a reference point but customise the same to suit yourspecific need.

My suggestion to you would be to use our portfolioreview service (through our advisors) more actively, notjust to choose funds, but even to decide when you wantto exit something.

This way, you will have some assurance on whether youare not making the wrong moves, and you can continue tohold an optimal portfolio.

2015 would be a year where you need to be morediscerning about the quality of funds you hold, as stockpicking would no longer be easy. We hope to do all wecan to ensure you have a smooth ride.

Our latest review of the Select list for the upcomingquarter is complete and we will mail you about thechanges in the coming week. Have a prosperous yearahead and happy investing!

Read more of this article as well as several others throughthe month at MARKETPLACE – FundsIndia , the blogof FundsIndia.com (http://www.fundsindia.com/blog).

FundsIndia Power Tips

Building an investment portfolio is a mammoth task. Youhave to zero in on one goal and consider a string offactors - the amount of risk you can handle for thatparticular goal, the time frame of your investment, andyour age too.

All this, before you even get to the stage of choosing theright mutual funds from the vast universe of availablefunds.

Thankfully, the solution to your problem can be pickedquickly, in a few minutes, right 'off-the-shelf.' Here's whatmakes it even better - they come designed by India'sleading mutual fund experts, and that too, in anassortment of flavours that are built to suit you!

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Depending on your age (25 – 35 years, 35 – 45 years toname a couple), the amount of risk you can handle(aggressive, moderate, or conservative), or the time frameof your investment (less than a year, 1 – 3 years, 3 – 5years or more than 5 years), you can view and invest inportfolios that feature India’s most consistent mutualfunds.

All you have to do is login to your account, pick a categoryof your choice and that’s it – an expert- recommendedmutual fund portfolio presents itself before you.

What is really notable about these portfolios is that youwill also get a brief explanation on the portfolio and itssuitability to you, along with information on the allocationof funds, and their returns over different time frames.Overall, you get to make an informed choice, without thepain of research and analyses!

So, which Ready-to-go portfolio are you picking today?

Ready-to-go portfolios are a free offering ofFundsIndia.com. You can view them by clicking here.

Noorain Mohammed NadimFundsIndia.com

ITCThe long-term upward trend for ITC remains intact atthis juncture. The stock corrected after testing a high ofRs 400. The immediate support is at Rs 360, whileresistance is at Rs 379 and Rs 398.

ITC needs to clear its resistance levels to resume itsupward trend. The stock has a strong possibility of testingthe Rs 425 level in the medium term. Its stop loss is at Rs339, below which level the stock will turn bearish.

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.

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 in the opinion of the Editor.

Publisher:Wealth India Financial Services Editor: Srikanth Meenakshi

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NiftyA rally in the Nifty, which emerged during October 2013at 5,108 levels, peaked out after testing a high of 8,526.95.Since the beginning of 2014, this is the third time theindex would experience a negative close on a monthlybasis. The immediate resistance for the Nifty is at 8,365.The index needs to stay above this level for the trend toremain strong.

At the current levels, the possibility of a correctionremains low with immediate support at 7,960. A closebelow this level will lead to further weakness to test 7,800.The latest 21-day simple moving average is at 8,339.1.

Perumal Raja-Technical Analyst (Equity Research Desk)-FundsIndia.com

State Bank of IndiaThe current leg of the upward trend in the stock of StateBank of India emerged at Rs 235. Since then, it has beenmaintaining a strong trend that faced resistance at Rs326.95 levels. The immediate support is at Rs 282.

A breakout above its previous high is expected to triggera strong upside momentum with the target at Rs 345 inthe medium term. The stop loss is at Rs. 279, below whichlevel the stock will turn bearish.

In investment management today, everybody wants notonly to win, but also to have a yearly outcome path thatnever diverges very much from a standard path except onthe upside. Well, that is a very artificial, crazy construct.

It makes sense to load up on the very few good insightsyou have instead of pretending to know everything abouteverything at all times. You’re much more likely to do wellif you start out to do something feasible instead ofsomething that isn’t feasible

I know of no really rich sector rotator. Maybe somepeople can do it. I’m not saying they can’t. All I know isthat all the people I know who got rich—and I know a lotof them—did not do it that way.

What makes sense for the investor is different from whatmakes sense for the manager. And, as usual in humanaffairs, what determine the behaviour are incentives forthe decision maker. So getting the incentives right is a very,very important lesson.

There’s an iron rule that just as you want to start gettingworldly wisdom by asking why, why, why, incommunicating with other people about everything, youwant to include why, why, why. Even if it’s obvious, it’swise to stick in the why.

Charles Munger, USC Business School, 1994 `A Lessonon Elementary, Worldly Wisdom As It Relates ToInvestment Management & Business’

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Q & A

Q - Many funds quote annual returns in excess of 20per cent. I am a new investor and these returns lookquite high. I wanted to know if they are misleading.

A - If you are talking about the returns of equity funds,it is correct as such returns can be delivered in an equitymarket. These returns tend to normalise over longerperiods, as the funds go through up markets and downmarkets. What you need to look at is the annualisedreturn over longer periods of 3, 5 or 10 years. A goodfund will deliver returns that will comfortably beatinflation, while also protecting you from steep falls in abear market. When you look for funds, look forconsistency in performance – that is, how well a fundperformed in an up market as well as a down market.Don’t just chase the top performers. Our Select Fundslist will help you choose such funds for the long term.

N SathyamoorthyAnalyst Mutual Fund Research, FundsIndia.com

Investment Wisdom

Index 1 Year 5 Years 10 Years

CNX Nifty 31.4 9.7 14.8S&P BSE Sensex 29.9 9.5 15.3CNX Mid Cap 55.9 11.1 15.5CNX Small Cap 55.0 8.6 14.6CNX 100 33.2 10.1 14.9CNX 500 37.8 9.4 14.1CNX Bank 64.6 15.7 18.3CNX Energy 8.5 -1.8 9.0CNX FMCG 18.2 22.8 21.9CNX Infrastructure 22.7 -3.3 8.2CNX IT 17.8 14.0 14.3MSCI Emerging Markets -4.8 -0.7 5.8MSCI World 2.8 7.9 3.9

Returns (in per cent as of December 31, 2014) for less than one year is on anabsolute basis and for more than one year on a compounded annual basis.

Equity Performance Snapshot

1 Who is the head of UTI Mutual Fund now?

2 What is the limit per stock in the case of a sector-specific fund?

3 What is the commonly referred index to trackperformance of emerging markets?

4 Who is the author of The Big Short: Inside TheDoomsday Machine?

5 Name the person in the image? Hewas the first head of the NationalSecurities Depository Limited(NSDL).

Answers may be sent to: quiz@fundsindia.com.Answers for December 2014 Quiz: 1 Rule of 72 gives you anapproximate number of years in which an investment willdouble for given annual rate of return 2 G V Ramakrishna3 65% 4 Birla SunLife Mutual Fund 5 Vivek ReddyDecember 2014 Investment Quiz: There are no winners forthis quiz.

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About us: FundsIndia.com is India's leading online investment platform. It offers a wide range of investmentoptions such as mutual funds, equities, corporate deposits, bonds, loans, insurance and 24 Karat gold, to name afew, in one convenient online location. FundsIndia also offers a host of value-added services such as SystematicInvestment Plans (SIPs), Alert SIPs, Flexi SIPs, trigger-based investing, an Andorid App, and more, that furtherenrich your investment experience.

Investment QuizC R Chandrasekar, Co-founder & CEO, and SrikanthMeenakshi, Co-founder & COO, FundsIndia.com, withthe Award for National Online Advisory Services 2013-14at the CNBC-TV18 - UTI Financial Advisory Awards.

FundsIndia Select FundsEquity Moderate Risk: Preferred picks in this category are:

Axis Equity Birla SunLife Top 100BNP Paribas Equity Franklin BluechipHDFC Top 200 ICICI Pru DynamicICICI Pru Focused ICICI Pru Top 100Kotak Select Focus Mirae Asset AllocationUTI Equity UTI Opportunities

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 specific investment requirementsbefore designing a portfolio that suits your needs. Pleaseclick here for a complete listing of our preferred funds.

To invest, call 0 7667 166 166

@fundsindia.com in 2014

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