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Budget 2015, a facilitator for growthFor once, nobody expected populist measures from the Union Budget. Theyexpected responsible measures. And by and large, the Budget presented byArun Jaitley, the Finance Minister, did not disappoint on this count.

Budget 2015 was expected to play a balancing act between achieving fiscalconsolidation and managing pro-cyclical spending to revive the economy.The Budget did not do that. The Government, instead, chose to go slow onthe former, so as to enable a public spending triggered capex revival.

Balanced or not, we think this is a good move; and this is what ultimatelymatters to revive the economy and the corporate world. It would need someluck (such as continuance of low levels of crude oil prices) to ensure that thegovernment does not slip much in its fiscal target. The Budget was also aresponsible one in the following aspects:

• It agreed to the recommendations of the Fourteenth Finance Commissionby taking the divisible pool of gross tax revenues to states from 32 percent to 42 per cent.

• In the direct tax space, lowering corporate tax rate over 4 years, even whileremoving exemptions, and in indirect tax, the introduction of the Goodsand Services Tax (GST) from FY-17 are measures whose impact would befelt over longer periods of time. These could reduce not just the cost ofcompliance, but make corporate entities more competitive. The benefitsof these will be felt in corporate earnings and balance sheets.

• It did not do anything that can disturb the current disinflationary trend. Tothis extent, there are no interferences (other than market risks) for interestrate cuts to happen in a phased manner.

In our view, small incentives, in terms of more tax deductions to you, palein comparison, when seen against the benefit that you will derive in yourequity and debt portfolio from economic reforms.

It is for this reason that you should not get too carried away with budgetgoodies. Increasing your health cover if you are already adequately covered,or locking into a product that does not fit you simply because of the taxbenefits may be imprudent strategies for wealth building.

Stay focused and follow an investing strategy that takes you to your goals.

Vidya BalaHead – Mutual Fund Research

FundsIndia.com

March 2015 � Volume 10 � 03

For freedom of choiceGreetings fromFundsIndia!

In a welcome move,the Finance Minister

(FM) has announced a deductionfrom taxable income of up to Rs50,000 for investment in theNational Pension Scheme (NPS).

It is, however, not a good idea tohave restricted the investmentoptions for retirement for this tojust the NPS. There are alternativeavenues available.

An investor should have the choiceto pick where he/she wants toinvest for the long term. Also, NPShas structural flaws as a long-termretirement vehicle.

With equity exposure capped at 50per cent via only index funds, theequity component of NPS couldtrail the broad market.

A young investor, who has at least15-20 years to go for retirement,may want to choose a moreaggressive asset accumulationoption.

Additionally, the redemptionproceeds of NPS are not taxexempt in contrast with moreequity-oriented options. Finally,this announcement also goesagainst the principle of fair play.

Will the FM relent and allowinvestors to choose how they savefor their own retirement?

Srikanth MeenakshiCo-Founder & COOFundsIndia.com

Does real estate score over equity?

You follow a few basic rules while investing in real estate.You will be surprised to know that you throw all theserules to the wind, and just do the opposite when it comesto equity investments.

Let’s see what you subconsciously follow in real estate,and hardly bother to follow when it comes to equity.

Adequate Research & Due Diligence

As you are committing a large sum, you do adequateresearch before investing in a property.

You enquire about the property with real estateconsultants, local residents, banks, friends and relatives.You may also take the legal opinion from a lawyer toclarify the title and other legal issues.

Think about the stock in which you lost 90 per cent ofyour capital. It is likely that you invested in that stockbased on a tip from your friend, or from a stockbroker.

You would not have bothered to check the quality andcredibility of the tip.

If you had spared even a third of the effort you did forreal estate, chances are you would have realised that it wasnot a good stock to invest. And who is to be blamed? Theasset class called equity?!

Bargain Buying

A penny saved is a penny earned. Before buying aproperty, you mostly bargain with the seller to get areasonable price. If the flat promoters are ready to offera 10 per cent discount, you rush to buy from them.

You follow the exact opposite while investing in the stockmarket. The stock market is probably the only place wheremost people invest more in stocks when the prices are

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“I made huge money in real estate, but not in equities.” You may well be one of those who willagree with this statement.

And it may be true. But have you ever wondered why you were not able to replicate the samewith your equity investments? Both asset classes, after all, are known to deliver high double-digitreturns in their own way in the Indian context.

What could differ is the approach you follow while investing in real estate and equity.

higher. Many of you may not be ready to buy a good stockeven if it is available at a 50 per cent discount to itsintrinsic value.

You only buy it when everybody is buying it, that is whenthe stock trades at dizzying valuations.

Long-Term Investment

You invest in real estate for the real long term and youare willing to hold it even for generations. Even in yourworst financial situation, you will always try your level bestto avoid selling real estate investments, and may, at best,prefer to take a loan against it.

It’s a small wonder you reap the benefits of long-terminvesting!

Only 10 per cent of investors who invest in the stockmarket and equity mutual funds are known to hold theirinvestments for more than three years. That means amajority are short-term investors and that’s bad news.

Real Estate Sensex

01-Jan-70 Rs 600 01-Jan-80 119

30-Jan-15 Rs 1,25,000 30-Jan-15 29,183

Years 45 Years 35

CAGR (%) 12.60 CAGR (%) 17.00

`The Sensex is now trading at over 20x trailing earnings – this is well short of the highest valuationpeaks recorded for the index in the past. But this is not particularly cheap’. says Vetri Subramaniam,CIO, Religare Mutual Fund. Click here to read more of this interesting interview on theMarketplace, the blog of FundsIndia.

N Sathyamoorthy

You would have sold your holdings for a bit of profit ina rising market, or sold them at a huge loss in a fallingmarket. Only the truly long-term investors (just like realestate investors) gain superior returns over the long run.

Let us take the price of a premium sea-facing apartment‘Samudra Mahal’ in Mumbai. The current price in thatlocation is Rs 1,25,000 per sq. foot. In 1970, the price inthe location was Rs 600 per sq. foot. That means the pricehas increased by 208 times in 45 years.

If you held on to your investment since then, you couldhave realised a Compounded Annualized Growth Rate(CAGR) of about 12.6 per cent per annum. Let us takethe equity scenario.

If you had invested in the Sensex even 10 years hence(January-1980), and held on to your investment, it wouldhave grown by 246 times in 35 years! That is aCompounded Annualized Growth Rate (CAGR) of about17 per cent.

If you add the dividend received (about 2 per cent) fromthe index constituents, then the CAGR could be over 19per cent. This is much higher than the returns generatedby several of the premium real estate investments.

Several individual stocks could have delivered much more.

The value of Rs 10,000 invested in a few stocks onJanuary 31, 1991 as on January 30, 2015, without anydividend reinvestment, is given in the accompanying table.

Even from a prime location in Mumbai, you are makinglesser return in real estate investments when comparedwith equity investments.

And we are talking of such a performance at a time whenMumbai was the most growing real estate market!

Judicious Use of Leverage

While investing in real estate, many of you may not fundthe entire amount from your pocket. You need bankfunding for most of the amount. Normally, you try toincrease your share to avoid paying a higher EMI.

Even though banks are ready to fund up to 80-85 per centof the property value, you will try to mobilise funds fromvarious sources to increase the down payment for yourhouse.

And in any case, banks ensure that you borrow based onyour income and repaying capacity. Thus, you judiciouslyuse / are forced to use leverage while investing in realestate.

While investing in the stock market, you try to exploit theleverage option provided by your stock broker. A few ofyou may go overboard in futures and options usingmargin-funding limit, or with borrowed money.

Volatile market movements could wipe out your margins,and your stockbroker might exit your positions for steeplosses. To summarize, the simple rules that youunknowingly follow for real estate is what provides youwith decent returns; not so much the asset class per se.

If only you followed the simple rules you did for realestate, then you should be able to build superior long-termwealth with equities too.

Note:Data and inputs from a presentation sourced fromKotak Asset Management.

N SathyamoorthyAnalyst, Mutual Fund Research

FundsIndia.com

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Stock Invested Value as CAGRamount as on on (%)Jan 31, 1991 Jan 30, 2015

Wipro 10,000 17,839,706 37

Cipla 10,000 9,154,605 33

HDFC 10,000 5,327,004 30

ITC 10,000 3,543,750 28

Asian Paints 10,000 2,812,295 26

ABB 10,000 1,783,194 24

MRF 10,000 1,344,919 23

Castrol 10,000 1,310,083 23

M & M 10,000 1,272,736 22

Britannia 10,000 1,205,488 22

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Q: I want a fund to take exposure to defence, renewableenergy and infrastructure. I find many funds having highexposure to banks. Can you name a fund with theexposure I am looking for?

A: If your question is about how to participate in a broadtheme such as infrastructure, or banking, the answer issimple; but if you ask for a fund to play micro themessuch as defence or renewable energy or the railwayssector, or you ask us for funds with high weights to certainsectors, here are a few points that you may want to know.

There are theme funds and sector funds; but there are nofunds for every theme or sector.

For instance, a fund with chemicals and fertilizers, or say,ports as a theme would not be available for this simplereason – there are not that many stocks in the listed spaceto run such a fund.

Besides, these themes do not receive much weight(because they are few in numbers) in key indices. Hence,a fund may not be able to exclusively run a fund forthemes that have less presence in the listed space.

A few theme funds do, however, provide a flavour of suchmicro themes within a broader theme. For instance, portsmay be a part of an infrastructure fund, defence can beoffered as a part of a capital goods and engineeringtheme, and chemicals and fertilizers may be a part of aconsumer theme.

Hence, you may need to settle for the micro themes youask for by choosing a broader theme fund.

Even then, you may not always find ‘theme’ funds thatfulfil your requirement. Hence, you can look fordiversified funds that may also hold the themes you wishto take exposure to.

This is where it gets tricky. You will have to start lookingfor a fund that will have the highest weight for the themeyou are looking for. This may not always happen.

A diversified fund cannot completely ignore key sectors(banking, energy, IT, FMCG) that receive maximumweights in the index, and instead, choose smaller sectors.

They may go a bit underweight (that is taking slightly

lower exposure to the sector than its weight in the index)

or overweight on the sector. Ignoring it may prove to becostly if the index moves.

Even if you do manage to spot a fund with the exposureyou seek, remember, the portfolio is subject to change.

The fund manager may dynamically manage the portfolioand may rejig it after you invested in the fund. Hence, toexpect a diversified equity fund to provide you withcertain thematic exposure is not a practical proposition.

So what do you do when you wish to invest in yourchosen themes when there are no such theme funds?

- It is best you own a couple of good stocks in thattheme, if you know how to pick one, track them andexit when you have made good profits, or exit to cutlosses, if the tide goes against you.

- But if you are a regular mutual fund investor, justremember, the fund manager, very likely, is trackingthe reforms/changes in the macro environment andtheir impact on stocks/sectors more than we do.Hence, he/she would be tweaking the portfolio to tapinto such potential. If this be the case, there may belittle point in further trying to manage anexpert-managed portfolio!

Besides, if the idea of investing in mutual funds is tomanage less, then there is little point of sweating it out.

Vidya BalaHead – Mutual Fund Research

FundsIndia.com

Q & A

One of the most enjoyable experiences at the RBI is meeting the children of our Class IVemployees, many of whom hold jobs as business executives in private sector firms. Education makesour youth economically mobile, public support for free enterprise has expanded.Dr Raghuram Rajan, Governor, Reserve Bank of India

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Must Read: The S&P 500 registered a record high after an advancing half-cycle since 2009 that ishistorically long-in-the-tooth, and already exceeds the valuation peaks set at every cyclical extremein history, but 2000, on the S&P 500. Read this insightful commentary on economics and marketsby John Hussman, President of Hussman Funds at www.hussmanfunds.com.

Know your spouse’s investmentsYes. You must be fully aware of your spouse’s investments. It’s your right.

Do you share your investment details with your spouse? Does your spouse share investmentdetails with you? If your answer to any of these questions is ‘no’, then you might just be brewingyourself a financial storm. In many an Indian household, saving is a common practice. Keepingthe spouse informed of all saving and investment decisions is highly uncommon. You are doingyour part by saving for your family and goals, but what you don’t realize is that all yourinvestments might be worth nothing if you don’t keep your family informed of the same.

If anything untoward (death, memory loss, a condition ofinability to act) happens to you or your spouse due tonatural or unnatural causes such as an accident, it wouldbe extremely difficult, if not impossible, for yourimmediate and entitled family members to trace all theinvestment details and rightfully claim them.

Having a vague idea on investments will not help. Youneed to have the full investment picture.

Here’s what you need to know:

• Is your spouse insured? If yes, what is the coverageamount?

• What are the different investment products in whichinvestments have been made?

• Details of loans (if any)

If you are a joint account holder with your spouse in anyof the above, then claiming the investment at a later dateis a hassle-free process. If not, then the claim process canbecome highly tedious.

To avoid such a scenario, it is best to add your spouse asa nominee in your investments and other financialproducts.

It is even better if you can make joint investments withthem, as both of you would have a sense of ownershipand will work together to invest for your goals.

It’s never too late to share your investment details withyour partner. Take a step now to ensure that yourhard-earned money reaches them at a time when theymost need it.

Here are a few simple ways to get started:

# 1 Chart aspending plantogether everymonth – That way,your spouse wouldknow how yourmoney is beinginvested (forinvestments), ordeducted (forloans).

# 2 Invest together – According to a 2014 report by UBSWealth Management Americas, couples are more satisfiedand confident when they take on money responsibilitiestogether.

Investing together means that you and your spouse are onthe same page when it comes to your goals, and there iscomplete transparency involved. Moreover, it can be awhole lot of fun too!

If your spouse is new to the world of investing, you couldstart saving money in liquid funds for short-term goalssuch as buying a mobile phone, or a piece of jewellry.

If you adopt such an approach, your spouse getsacquainted to the healthy habit of investing. It would alsobe easier for you to “break the investment ice” with them.

# 3Make your spouse a nominee for your investmentsand keep him / her informed of the same, if theinvestments are not in joint names.

Remember, precaution averts peril. Share your investmentdetails with your spouse. It is their right to know too.

Noorain Mohammed NadimFundsIndia.com

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ICICI BankSince the beginning of the year, ICICI Bank has remainedvolatile, building strong support at Rs 320, whileresistance is between Rs 350 to Rs 360 levels. There is astrong possibility of a consolidation building up betweenthe above mentioned price band. A breakout above Rs360 will lead to a medium-term upward trend with thetarget at Rs 420. The stop loss is placed at Rs 305.

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.

The Nifty continues to remain strong after it managed torebound from the December low of 7,961.3.At present, it faces resistance at about 9,000 levels, andthis was tested in January. February witnessed volatileprice action, but the Nifty managed to recover from itslows closing at 8,901.9, gaining 1.1 per cent for the month.Going forward, we expect the upward trend to continueabove 9,000 levels towards a target level of 9,350,followed by 9,500.The support levels for Nifty are at 8,680 and 8,470.

Perumal RajaTechnical Analyst (Equity Research Desk)

FundsIndia.com

KPIT TechnologiesThe stock needs to clear the upper end of its recenttrading band between Rs 198 to Rs. 220 for an upwardtrend to emerge. A breakout will lead to further upside,with the immediate target at Rs. 242. On the contrary,failure to clear could lead to sideways price action in theshort term. The crucial support level is at Rs. 205. Theresistance level is at Rs. 226. The stop loss is at Rs. 197.

Technical View Nifty

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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# 1 Are you an active or passive investor? Do you buyindexes and garner market-level returns, or do you pickstocks (or sectors) and time the market in an attempt tobeat the indices?

# 2 Understand your own psychological make up.Investors are their own most dangerous opponent.

# 3 Admit when you are wrong. The most effectiveapproach is to admit your error, fix the mistake, thenmove on.

# 4 Understand the cycles of the financial world.Another challenging thing to do in investing is to reverseyour thinking, especially after a specific approach has beenprofitable for a long time.

# 5 Be intellectually curious. If everything else ischanging, but you are not, then you are being left behind.

Barry Ritholtz (www.ritholtz.com)

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Investment Wisdom

Index 1 Year 5 Years 10 Years

CNX Nifty 41.8 12.6 15.5

S&P BSE Sensex 39 12.3 15.9

CNX Mid Cap 68.1 12.8 16

CNX Small Cap 73.6 10.8 14.8

CNX 100 44.6 12.8 15.6

CNX 500 49.3 11.9 14.8

CNX Bank 82.9 17.7 18.3

CNX Energy 17.1 0.1 8.9

CNX FMCG 25.3 25.1 22.2

CNX Infrastructure 43.2 0.3 8.6

CNX IT 22.5 17 15.8

Returns (in per cent as of February 28, 2015) for less than one year is on anabsolute basis and for more than one year on a compounded annual basis.

Equity Performance Snapshot

1 In what name is the commonly referred to UnionBudget passed by the Lok Sabha and Rajya Sabha?

2 Who was the first Finance Minister of India?

3 Which financial services company sponsored the firsttwo World Cups in cricket?

4 Who is the author of ‘Fool’s Gold?’

5 Name the person in the image. Hewas the Head of the first electronicstock exchange in India, which wasthe Over The Counter Exchange ofIndia.

Answers may be sent to quiz@fundsindia.com.

Answers for February 2015 Investment Quiz:

1 HDFC Prudence 2 20% 3 MSCI World Index 4 PeterLynch 5 M Damodaran

February 2015 Investment Quiz: There are no winners

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Investment QuizFundsIndia Select Funds

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@fundsindia.com• We are working on enabling the facility to pay forlump-sum transactions through your NationalAutomated Clearing House (NACH) mandate. This willeliminate the need to use Internet banking to makelump-sum investments. Watch out for an update soon.

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