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Investing well, but are you saving enough?Most of you will be pleased when you look at the returns on your portfolioin the FundsIndia dashboard. I am sure you have reason to rejoice, what withmany of the equity funds sporting high double digit returns. But are thosereturns alone reason enough for you to rejoice? A 20 per cent annualisedreturn on X fund in which you had invested ` 1,000 every month through aSystematic Investment Plan (SIP) two years ago will be over ` 29,000 today.Good returns, no doubt. But what do you exactly do with ` 29,000?

Even if you continue for another five years, will it fulfil any medium-termgoal of yours? I doubt it. We come across far too many investors with SIPvalues that are too low to make any meaningful contribution to goals, evenafter 5-10 years. And then, there are a few of you who invest a random `10,000 or ` 50,000, followed by nil savings.

While all of you can feel rightfully satisfied that you chose a contemporary,superior wealth building option such as mutual funds, it will still not helpyou if your savings are way below your capacity to save, and way below whatyou need to save! When presented with the fact, most of you are eitheruncomfortable or get defensive, saying that you cannot save more. I agree,for those in the economically lower strata, saving is tough.

But I think most of those who have told us they cannot save 10-25 per centof their income are working professionals, in the middle, upper middle andhigher income bracket; and may I add, likely updating their gadgets regularly,and placing a few orders every month on e-commerce sites. So, do you getit? The problem is not with saving; the problem is with spending. What doyou do to stop this habit? Stop saving arbitrarily.

Know what you are saving for, and how much you need to save. Talk to ouradvisors if you need. Once you do that, see what you can do to generate thatsurplus every month by cutting back on at least 1-2 items on your expenseslist that you can at least postpone. If you cannot, make sure you increaseyour investments (half yearly, or annual step up SIPs are ideal), even as yourpay grows. Use products such as tax-saving funds when your surplus islimited, and you need to do both - save tax and build wealth. These smalltweaks can go a long way in improving how your portfolio value (and not justreturns) looks a few years from now.

Vidya BalaHead – Mutual Fund Research

FundsIndia.com

May 2015 � Volume 05 � 05

Advisory Board for youWe are happy andproud to announcethe launch of theFundsIndia Advisory

Review Board (ARB), a mechanismby which FundsIndia’s customerscan seek a second-opinion aboutthe advice they’ve received from aFundsIndia advisor.

This service is available right awayto all FundsIndia investors, and isfree of cost.

The FundsIndia Advisory ReviewBoard will have three members -the Head of the Advisory group inFundsIndia, a representative fromthe Mutual Fund Research teamand a person from themanagement. The FundsIndiaARB will meet regularly.

Any customer who would like anadvice they received to be reviewedwould simply have to write toarb@fundsindia.com. TheFundsIndia ARB will assess everyrequest in a timely manner, andfeedback will be provided to theinvestor concerned.

Our motto, from day one ofstarting this company, has been‘Enriching India, one investor at atime’. We see the FundsIndia ARBas reinforcing this commitment toour customers.

Happy investing!

Srikanth MeenakshiCo-Founder & COOFundsIndia.com

FundsIndia View: How many funds do you need?

The amount

While this is not the first thing to really influence yourdecision, it is the most practical point to consider wheninvesting, especially by small, retail investors.

If you had ` 1,000 or ` 2,000 to invest every month, youcan’t possibly have an asset balanced, category allocated,and style-diversified portfolio of funds. It leaves you withan option of one or two funds at best.

When you have a single-fund portfolio, it is a good idea toget these points right: one, the choice of asset class (debtor equity fund) based on your time frame; two, if it is anequity fund, do not hold a mid/small cap, theme orinternational fund as the one fund you are going to investin. Often times, such a choice of equity funds is onereason why many first-time investors get disenchantedwith mutual fund investing.

They would have chosen a risky fund to begin with, andprobably burnt their fingers in a declining market. If youhave a higher sum to invest - say ` 5,000 or above on amonthly basis, then arises the question of asset allocationand diversification.

Asset allocation

If you need to allocate across asset classes, then you mayneed 2 or more funds, unless you think a balanced fundwould suffice. If you are investing in a portfolio with aspecific goal in mind, then ensure you have a proper assetallocation based on the goal and time frame.

If you are clear that you have already allocated certainsums outside of mutual funds for certain asset classessuch as debt or gold (say deposits or physical gold) forthe said goal, then this might be a less significant factor to

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Vidya Bala

Well, my answer is ‘it depends’. Don’t be disappointed. If you knew the factors that determinethe number of funds you need to hold, you will likely have the answer yourself. So here’s whatyou need to take into account before choosing the number of funds to hold in a portfolio.

consider. Otherwise, asset allocation helps capitalise onreturns across various asset classes, and also acts as ahedge against risk.

Once you decide the proportion of equity, debt or gold tohold, the next requirement would be to decide how manyfunds to hold within each asset class.

Diversification

Now, this is the key. If you are an investor who does notthink you need a portfolio diversified across market capcategories (large, mid and small cap stocks), or differentstyles of investing, then holding one or two diversifiedequity funds, and perhaps an income fund for debt maysuffice, provided you are a long-term investor.

Of course, when you have a concentrated portfolio, makesure you get the funds reviewed at least annually, as therisk profile of your portfolio would be high as a result oftaking fewer exposures.

But if you like to diversify across higher risk and lowerrisk funds, and across fund houses and fund managementstyles, then you will need more funds. Here are somegeneral tips that may help you in your choice:

Diversification across market-cap segments

• You don’t need ‘diversification’ across large caps. Thisis because, given the restricted universe within whichlarge-cap funds can operate, you are unlikely to getdifferent sets of stocks, or markedly varying styles ofinvesting. Hence, unless you want a portfolio of onlylarge caps, holding one large-cap fund should do thejob for you.

• Diversified/multi-cap funds come in different formsand shape. But largely, most of them have a large-cap

The RBI is also respected for its integrity. It is a matter of great pride for me today that whensomeone enters our building to persuade us to change a regulation, they come armed not withmoney, but with arguments about what is right.Dr Raghuram Rajan, Governor, Reserve Bank of India

bias and seldom go overboard on mid-cap stocks.Funds such as Mirae Asset India Opportunities or UTIOpportunities are good examples. Hence, if theamount you can spare to invest is not high, and youhave a moderate risk appetite, you can even skip alarge-cap fund and choose a diversified fund with agood track record.

• You can specifically ask your advisor to provide youwith a relatively low-risk diversified fund if you areskipping the large-cap category. This is one way toensure your portfolio remains compact.

• A mid-cap fund is a good addition if you are buildingwealth for the long term, and if you can take some risk.But in general, given that it is not too prudent to holdover 30 per cent of your portfolio in mid-cap funds,you may not be able to accommodate too many fundswithin this segment.

• If you are going for just one fund, choose one thatinvests in mid-caps, but not too much in small caps,and has at least a fifth or more in large caps as well.Just to illustrate, within FundsIndia’s Select Funds’ list,funds such as HDFC Mid-Cap Opportunities, BNPParibas Mid Cap or Franklin India Prima will fit thisdescription well.

• If you are the aggressive kind and need funds thatexplore lesser known stocks, then adding one moresuch fund is fine, provided you have that much moneyto spare. Again, to illustrate, funds such as FranklinIndia Smaller Companies or UTI Mid Cap may fit thisdescription.

• While it is market-cap segments in equities, it isportfolio maturity and credit risk in debt. Here, toomuch diversification is not required, as most fundsfollow the interest rate cycle and invest accordingly. Asa thumb rule, if your time frame is short, go for fundswith low portfolio maturities (short-term debt funds).You don’t need too many funds in this category.

• If you are looking for long-term investing in debt, thesimplest option to avoid crowding is to choose a fundthat will invest across instruments (gilt, corporate

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bonds, commercial papers, deposits), and also vary itsportfolio maturity based on the interest rate cycle. 1-2funds should suffice.

• Funds that will take exposure to credit, and specificallyhave corporate bonds as a theme, are only for risktakers. View these as equivalent to holding themefunds in equity.

Same funds for different purposes

All that we are talking of here is the number of funds fora single portfolio that is built towards a specific goal. Youmay have three funds for your child’s education and fourfunds for your retirement. Treat each portfolio as a unit.In this, no harm in having the same funds earmarked fordifferent goals. After all, if a fund performs well, it is onlygood to have them for your goals, albeit different ones.

Vidya BalaHead – Mutual Fund Research

FundsIndia.com

Index 1 Year 5 Years 10 YearsCNX Nifty 22.7 9.4 15.8S&P BSE Sensex 21.2 9.2 16CNX Mid Cap 42.1 9.7 16CNX Small Cap 36.8 7.9 14.2CNX 100 25.1 9.7 15.9CNX 500 28.3 9.3 14.9CNX Bank 41.8 13.3 19.2CNX Energy -0.4 -1.1 9.4CNX FMCG 12.4 21.6 21CNX Infrastructure 18.8 -1.5 9.1CNX IT 19.9 13.3 15.9MSCI Emerging Markets 4.8 0.7 7.1MSCI World 6.3 8.4 4.8Returns (in per cent as of April 29, 2015) for less than one year is on an absolutebasis, and for more than one year on a compounded annual basis.

Equity Performance Snapshot

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Avoid these emotional biases while investing

Investing where the valuations are lower has been a far better strategy historically. We believe thatinvesting in the various bad and ugly places in the world is going to wind up far more rewarding thanthe admittedly good-looking U.S.Ben Inker, co-head of GMO's Asset Allocation team

Familiarity bias

Familiarity bias has a strong influence on what you buy.The main problem is that when you buy the familiar, youunderestimate the amount of risk in the investment.Because you underestimate the risk, you do not take thepurposeful steps of reducing risk such as diversifying yourinvestments. Therefore, you end up taking more risk thandesired.

For instance, while investing in a mutual fund, you mayfeel comfortable with a mutual fund company that is apart of a large industrial group, or a big bankinginstitution.

But in reality, factors such as fund management process,fund manager experience, fund objective, and fundexpenses determine the future performance of the fund.

Familiarity bias may restrict your investments with a fewmutual fund companies. This may lead toless-than-desirable diversification of the portfolio.

You may also end up owning funds just because there arenew funds launched by companies you are familiar with.Just because a new fund is launched by your favouritemutual fund, you should not invest in that scheme.

You should assess the fund logically and understand thepros and cons of the scheme’s objective. In addition, youshould also check whether that particular scheme matchesyour investment objective.

Recency bias

We recently received a query from an investor – “Whyshould I invest for the long term (more than five years)when I receive more than 50 per cent returns in oneyear?” Over the last one year, many mid- and small-cap

While most of you would like to be rational ‘wealth maximizers’, in reality, emotion andpsychology influence your investment decisions. This causes you to behave in an unpredictableand irrational manner. Most of your investment decisions are based on your own gut or instinct,rather than on logic.

By understanding these behavioural biases and knowing how they interfere with your goals, youmay be able to improve your portfolio returns. Here are a few of the behavioural biases investorsare typically prone to.

funds have generated more than 50 per cent returns.

Every mutual fund company highlights the following linejust below their performance numbers: ‘Past performancemay or may not be sustained in the future’.

Many of you still believe that you will get the same returnsas the previous year, and are disappointed when you don’t.

Recent performance will not be an indicator for futurelong-term performance. Over the long term, high degreeof variations may be evened out, and you may get 12-15per cent annualised returns in an equity fund.

Moreover, high return comes with high risk. Hence, youshould not be carried away by the recent performance ofthe fund, especially when it is purely driven by a massmarket rally.

For instance, as illustrated in the chart below, even thoughthe recent performance of Fund A is better than Fund B,Fund B has better long-term performance whencompared to Fund A.

You should choose the fund with a better long-termperformance for stable returns.

N Sathyamoorthy

75%

35%

9% 18%

1-Year Return 10Years CAGR

Fund A Fund B

Fund Performance

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The minute you get away from the fundamentals – whether it’s proper technique, work ethic, ormental preparation – the bottom can fall out of your game.

Michael Jordan, Legendary basketball player

Profit bias

A few of you may have the tendency to book profitsfrequently from your investments. Profit booking may be,to an extent, beneficial for stock investing; but the sameisn’t applicable for investments in mutual funds.

Don’t forget that a fund manager does the job of exitingover valued stocks and reshuffling the portfolio, wheneverit is necessary.

Frequent profit booking could lead to sub-optimalportfolio returns, deterring long-term wealth creation.Time in the market is more important than timing themarkets.

When you monitor your long-term portfolio daily orweekly, then most likely, you will be tempted to bookprofits. Review your portfolio yearly and change the fundsor allocation (re-balancing), if necessary.

If the performance meets your expectation, then youshould stick to your plan, and stay focused on yourlong-term goals.

Negativity bias

In general, most of us are conservative, and we wantspectacular returns with zero risk from our investments.The fundamental investment principle is that potentialreturn rises with an increase in risk.

Taking on a bit of risk is the price of achieving potentialreturns. Therefore, if you want to generate returns, youcannot cut out all risk.

The goal instead should be to find an appropriate balance- one that generates some profit, but still allows you tosleep peacefully at night.

All investments carry some amount of risk. EvenGovernment guaranteed fixed return investments carryinflation risk.

Risk aversion is a major roadblock for creating long-termwealth. For instance, past memories of the 2008 marketcrash prevented many from entering the equity marketduring the last few years.

Many of you may miss a rally out of fear that the marketmay crash from the highs. For instance, just by postponing

your investment decisions, you may have lost between 35per cent to 50 per cent returns on your portfolio in 2014.

Negativity bias pushes you to place more weight on thebad news than on the good.

You might call this risk management; but this bias cancause the effects of risk to hold you frommoving towardsthe rightful reward that such risk may have delivered.

Choice paralysis

More choices have some distinct advantages anddisadvantages. It is good to have multiple choices so youcan weigh them all, and choose what fits you best.

The sad truth, however, is that too many choices can leadto decision paralysis, accentuated by information overload- the order of the day now. It will also delay yourdecision-making.

While investing in mutual funds, you may look for starratings and rankings from various online portals tonarrow down your choices.

But still, you may find it difficult to short list suitablefunds from the dozens of 5-star-rated funds, or from thetop-ranked funds.

You should then seek the counsel of an investmentadvisor who understands your life goals, and who will letyou know your risk capacity, rather than merely judgingyour risk tolerance. This may well change the choice offunds you go for.

Investing beyond biases

Emotional biases stem from impulse, intuition, andfeelings, and may result in personal and unreasoneddecisions.

Now that you can identify a few of the biases, it's time toapply that knowledge to your own investing, and if needbe, take corrective action. Once you do this, you will haveevery right to expect your portfolio to deliver well.

N SathyamoorthyAnalyst, Mutual Fund Research

FundsIndia.com

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Bharti AirtelFor the past six months, Bharti Airtel has remained rangebound (` 320 - ` 340) and needs to clear the upper priceband for a fresh upward trend to emerge. The pricebreakout will lead to further upside, with its immediatetarget being ` 480 in the medium term. A failure to cleareither of the price bands could lead to sideways action inthe short term. Crucial support level is at ` 375 and Rs340 (stop loss), and resistance is at ` 420 and ` 450.

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 weak after it slipped belowthe crucial support level of 8,510. It witnessed volatilesessions with a negative bias in the month of April. Atpresent, the index faces stiff resistance around the 8,510and 8,620 levels. Strong support is placed at the 8,270 and8,060 levels. The short-term trend is bearish and goingforward, we expect the downward trend to continuetowards a target level of 8,200, followed by 8,060 in May.The trend will turn positive only if the index closes above8,620 levels.

Perumal RajaTechnical Analyst (Equity Research Desk)

FundsIndia.com

Coal IndiaThe current leg of upward trend in Coal India emerged at` 340. The stock has, since then, been maintaining astrong trend that faced resistance at the ` 398 levels. Theimmediate support is at ` 360 and ` 345. A breakoutabove its previous high of ` 400 is expected to trigger astrong upside momentum, with the target at ` 450 in themedium term. The latest 50-day Exponential MovingAverage is at ` 358. Stop loss is at ` 335.

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. (with 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 in thisdocument 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

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Q

What is the difference between your fund recommendations and your Select Funds list? Would it be safe to assumethat recommendations are placed a notch higher than your list?

A

Our Select Funds list is a staple list of investment-worthy funds. It has funds chosen across time categories, and wehave segregated it based on either risk (for equity funds), or time frame (for debt). If you would like to make your ownselection, you can use it as a filtered list to choose your own funds within each category.

Outside of this list, there could still be many other funds that may have fallen short in our filtration criteria, or couldnot be accommodated because we need a cap on the number of funds we offer in this list. So while we cover the SelectFunds list in our weekly recommendations, aside of that, we try to cover funds that were close enough to make it tothe list.

These could also include prospective additions to our Select Funds list. We also use our weekly recommendations tocover certain funds with a specific risk profile that are suitable only for some investors. They will not be a part of ourSelect Funds list as they are not funds we would recommend to everybody. Besides, sometimes we simply review (notrecommend) a few interesting theme / international funds / funds with unique strategies.

Please note that our Select Funds list is the one to dip into at all times. If you are unable to choose from our list, ouradvisors will help you choose the right ones within that. With our weekly recommendations, if you understand thefund’s risk profile, and if it fits your overall portfolio, you may then choose to invest in it.

Vidya BalaHead - Mutual Fund Research

FundsIndia.com

Q & A

1 What is NPS?2 What is the maximum limit of a company’s equity thatcan be owned by a mutual fund company across allits funds?

3 Who is the author of Extreme Money: The Mastersof the Universe and the Cult of Risk?

4 Which was the first hybrid insurance cum investmentscheme in India?

5 Name the person in the image. Hefloated a mutual fund in India thathad to be closed down due tomismanagement and legalstrictures.

Answers may be sent to quiz@fundsindia.com.

Answers for April 2015 Investment Quiz: 1 BerkshireHathaway 2 Anoop Bhaskar 3 AT & T 4 Steven Covey 5Deepak Parekh

Winner for April 2015 InvestmentQuiz: Reena Benjamin

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Investment QuizFundsIndia Select Funds

To invest, please call 0 7667 166 166

Equity (High risk)

These are funds with the potential to generate high returns,but come with high risks and volatility. Please invest in theGrowth Option. The recommended holding period is fiveyears, accompanied by an active review of performance.

BNP Paribas Mid-Cap IDFC Premier Equity

Franklin India High Growth Mirae Asset Emerging

Franklin Prima Reliance Equity

Franklin Smaller Companies Religare Mid & Small

HDFC Mid-Cap SBI Magnum Mid Cap

ICICI Pru Value Discovery UTI Mid Cap

What is FundsIndia Select Funds: This is a listing ofmutual funds that we think are most investment worthy fora regular investor. We review this list on a quarterly basis.Do note, however, that past performance is not a guaranteeof future results.

Please consider your specific investment requirementsbefore designing a portfolio that suits your needs.

Please click here for the full listing of our Select Funds.

@fundsindia.comWe have now simplified the process of making NEFTpayments for your mutual fund purchases with us. You nolonger have to provide an NEFT transaction referencenumber to us. Instead, you will have to transfer your moneyto a new bank account, the information for which will bedisplayed while you set up the transaction. The new bankaccount number (provided by Yes Bank) will be unique toinvestors, and will be a combination of 4 digits and theinvestor’s PAN.

FundsIndia’s ‘Select Funds’ list is reviewed on a quarterly basis. In the latest review in April, there were no changesin the list of preferred debt funds. To learn about the changes in the list of preferred equity funds, click here forMarketplace, the official blog of FundsIndia.com

Recommended Book

About us: FundsIndia.com is India's leading online investment platform. It offers a wide range of investment optionssuch as mutual funds, equities, corporate deposits, bonds, loans, insurance and 24 Karat gold, to name a few, in oneconvenient online location. FundsIndia.com also offers a host of value-added services such as free investment advisoryservices, different types of Systematic Investment Plans (SIPs), trigger-based investing, Smart Solutions for importantlife goals, an Android App, and more that further enrich your investment experience.