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FundsIndia on Mobile

F u n d s I n d i alaunched its firstmobile app forAndroid phones

about two weeks ago. The apphas been received with muchenthusiasm by our investors andscores of people aredownloading it each day. Asalways, this app has been customdeveloped for the FundsIndiaplatform, keeping in mind ourcustomers' needs and usagepatterns.

The app still has ways to go. Atpresent, you can view yourportfolio and set up an SIP usingthe app, apart from using thecalculators, SIP designer, andaccessing the blog. We plan to add more features – investinglump sum and making switcheshappen, to begin with.

Having said that, ultimately, this app is only another toolto make your investment processeasier. At the end of the day, it ishuman intelligence and decision-making acumen that decides howwell your portfolio does.Testament to that fact is at handeven today – the most usedfeature of our just launched appis sending a request to speak withan advisor!

Happy investing!

Srikanth Meenakshi

Fund or Fund House: What matters most?Ratings, rankings, awards, recommendation lists and qualitative discussionrelating to mutual funds are almost always focused on individual funds. Thismay make for interesting-to-follow kind of stuff, but does not often serve thepurpose of investors.

On the contrary, several one-off chart toppers tend to use the transient factto lure more investors into the fold and then slip away to longer periods ofindifferent performance. This hurts investors big time and happens due tochasing of the toppers.

Often times, institutional investors (especially from overseas) ask mutual fundsfor a composite performance over varying times periods. They do take alook at performance of individual funds and assess fund managers.

Yet, they also wish to look at how a fund house is faring across its variousfunds. This is an important aspect for individual investors as well.

Of course, fund houses will not provide them the information though theywillingly produce such numbers for institutional investors. Why is this aspectimportant?

Often times, one or two funds from a mutual fund do well and the rest languishin varying degree. Over long periods if this continues, it is a discomfortingsituation for an investor.

It reflects a lack of cogency in the fund house’s views on the economy, markets andwhat they mean for investment. It could reflect inconsistency in understandingthese trends. It could mean over-dependence on one fund manager.

More can be read into this but the short point is investors must learn to focuson how a fund house fares across funds.

For starters, take a simple average of individual returns over different timeperiods and compare fund houses. You do not need to do this every week ormonth. At the end of every calendar year, ferret numbers to look at theperformance of fund houses over one, three, five and ten years.

If you do this every year, you will end up with interesting facets of fund andfund house performance. You are almost always well off with mutual fundsthat score over peers for performance across funds and over different timeperiods.

S Vaidya Nathan

September 2014 � Volume 07 � 09

FundsIndiaWinner CNBC TV18 UTI Award 2013-14National Online Advisory Services

How we choose our ‘Select’ Equity Funds

First, a disclaimer of sorts – while what we do is notrocket science, it is not quite as simple as picking out apale blue shirt for office wear either.

We use a full database of mutual funds that provideshistorical data for NAV, returns, and portfolios apart fromvarious derivative details such as risk ratios.

We rely on our past experience to figure out whatparameters to consider and what red flags to watch outfor. This essay, hence, is more of an exercise intransparency than an effort to provide a ‘how-to’ manualto investors.

With that caveat aside, here are the key factors we lookfor:

Consistency scores

We are neither too excited by a fund moving into the top5 nor are we disturbed when they move out. For us,consistency scores.

We measure this by rolling the returns every single dayover three and five year periods (or longer, depending onthe fund’s track record) to see how consistently the fundhad been able to beat it benchmark; the number ofoccasions it outperforms its benchmark and by whatmargin, to name a few aspects we look at.

A fund that performs exceedingly well in a year and slipsin the next will be out in the open when we run this test.

This exercise will also throw a fund’s best and worstperformance over different time frames as it is rolled itevery single day.

This provides a good idea of how well a fund canperform or how badly it can slip.

Returns commensurate to risk

While whether a fund scores in terms of consistency is alitmus test, for most peer comparisons, risk-adjustedreturn measures such as Sharpe Ratio, Treynor Ratio andvolatility measures such as standard deviation and betabecome vital to assess performance.

You may see a fund scoring in terms of point-to-pointreturns but when measured against a unit of risk it mayscore low. That means, it does not deliver sufficientreturns that compensates for the risk it undertakes.

Similarly, standard deviation suggests whether a fund’sperformance is too volatile and how much it deviatesfrom its mean returns.

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Housing loans as a percentage of GDP in our country has remained quite low at around 9 per cent.Further, the housing shortage in the urban areas was estimated, as of 2012, at 18.78 million unitsand at more than 40 million units in rural areas.

R. Gandhi, Deputy Governor, Reserve Bank of India

Vidya Bala

We often receive queries from our investors on how we choose equity funds for our ‘Select’ listand why a particular fund, that has a ‘five-star’ rating or has high one-year returns did not makethe cut. In this month’s article, let’s see how we sift and sort hundreds of funds to arrive at thehandful that we present to you as ‘FundsIndia Select Funds’ – our own list of funds we deem‘investment-worthy’. This is offered in several categories, equity funds (moderate risk), equityfunds (high risk), tax saving funds and thematic funds. Debt funds are covered, but we will discussthem on another occasion.

Performance across market phases

It is one thing for a fund to shine in a bull market andanother when it goes into oblivion in a bear phase. Andif your goal was closing in during a bear phase, youcertainly don’t want the fund to destroy much of thewealth you had created till then.

This is why checking performance across market phasesis a must, to know whether a fund is worthy enough fora long-term portfolio.

The above three are few of the many quantitative metricsthat we look at, to choose a fund. Besides, factors such asasset size, expense ratio and minimum period of trackrecord are considered.

A number of qualitative factors such as fund’s statedmandate versus what it actually does, the fund manager’strack record and the fund’s ability to stay invested inequities, to name a few, also go into our choice of funds.

But then, all of the above is more like an ‘audit check’ toassure oneself of the quality of the fund.

Beyond all this, the fund’s strategy in different markets,its exposure to sectors and its stock specific calls andmoves – all ultimately decide the future prospects of afund. All this, of course, must be within its statedmandate.

This is where, studying sector prospects, whether the fundhas taken a contrarian call, how its stock moves delivered,matters. And often times, this decides whether a fund cando well prospectively.

For instance, a fund such as HDFC Top 200 or FranklinIndia Prima, which took exposure to cyclical sectors,ahead of the upward move benefited when such sectorscame into the market radar. The call, which seemed an

uninspiring one in 2013, worked well later.

On the other hand, a fund such as Franklin IndiaBluechip, that cannot go much beyond the blue chipuniverse and also therefore missed out on some of thecyclical rally (since a number of cyclical stocks areemerging large-caps or mid-caps) cannot be written offfor poor performance, when the fund did what it could,within its mandate.

These qualitative factors, start mattering more, especiallywhen you choose a fund for a specific, stated quality.

Even with all these tests, there does remain somepossibility of a fund not performing up to the mark.

All we try to do is keep that error in choice in yourportfolio to the minimum. Our regular reviews also helpweed out such funds.

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One of the greatest dangers to the growth of developing countries is the middle income trap,where crony capitalism creates oligarchies that slow down growth. If the debate during theelections is any pointer, this is a very real concern of the public in India today. To avoid thistrap, and to strengthen the independent democracy our leaders won for us sixty seven yearsago, we have to improve public services, especially those targeted at the poor. A key mechanismto improve these services is through financial inclusion.. Financial inclusion in my view isabout getting five things right: Product, Place, Price, Protection, and Profit. If we are to drawin the poor, we need products that address their needs; a safe place to save, a reliable way tosend and receive money, a quick way to borrow in times of need or to escape the clutches ofthe moneylender, easy-to-understand accident, life and health insurance, and an avenue toengage in saving for old age.

Dr Raghuram Rajan, Governor, Reserve Bank of India

Viewpoint

source: www.rbi.org.in

Health Insurance Top Up

Medical costs are skyrocketing by the day. To combatthese costs, most individuals opt for either a personalinsurance policy, or a group insurance policy that isprovided by their organizations. The average corporate orindividual insurance cover is, however, in the range of Rs1 lakh – Rs 3 lakh. With the complexity of diseases andthe cost of treatment (a cardiac treatment could cost youclose to Rs. 5 lakh) increasing with every passing day, it isbest to take a ‘top up plan’ or a ‘super top up plan.’ A topup cover means the additional cost on top of theinsurance threshold limit will be covered by the plan.

Read the full version by S Sridharan of FundsIndia, and more atMarket Place – FundsIndia, the official blog of FundsIndia.com athttp://www.fundsindia.com/blog.

Market Place FundsIndia Blog

2014 vs 2007

I couldn’t help but to recall Ben Stein’s summer 2007article, as pundits were this week dismissing that tiny littlePortugal could have any bearing on the juggernaut U.S.economy and booming financial markets. And thinkingback to August ’07, Mr. Stein looked pretty smart for awhile, with stocks rallying back from that month’s selloffto post all-time highs in mid-October. On the surface,things did look pretty good – “This economy is extremelystrong. Profits are superb. The world economy isexploding with growth.” Unappreciated back then was theacute fragility inherent to massive quantities of mispricedfinance and speculative leverage. So flawed was marketfaith that Washington would never tolerate a generalhousing downturn.

From my perspective, 2014 and 2007 share troublingsimilarities. Both periods feature overheated securitiesmarkets, replete with the rapid issuance of securities atinflated valuations. Both are characterized by investorexuberance in the face of deteriorating fundamentals –and in both cases central bank policymaking wasfundamental to heavily distorted market risk perceptions.It’s no coincidence that today’s overheated backdrop –record securities issuance and meager riskpremiums/record high prices – readily garner statisticalcomparison to 2007…

Late-stage speculative Bubbles grow into wild animals.There is always a fine line between manic speculativeblow-off excess and problematic cracks appearing in theunderlying Bubble. As was certainly the case in early-2000and late-2007, deteriorating fundamental prospects andresulting shorting (and hedging) provide combustibletinder for squeezes and destabilizing market advances.Moreover, upside market dislocations in the face ofdimming fundamental prospects create divergences andlatent fragilities.

Source: We present Edited extracts of Doug Noland’s blog Credit BubbleBulletin. The full version is available at www.prudentbear.com

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Blog Pick

The legacy of the boom is too much debt. This debt overhang has to be reabsorbed if the basis fora lasting, self-sustained and sound recovery is to be established. To expect credit to grow stronglyduring the bust is both unrealistic and counterproductive.

Claudio Borio, Bank of International Settlements

Index 1 Year 5 Years 10 Years

CNX Nifty 50.5 10.9 17.3

S&P BSE Sensex 48.0 10.8 17.9

CNX Mid Cap 72.1 12.7 18.0

CNX Small Cap 94.7 10.5 18.1

CNX 100 52.4 11.4 17.5

CNX 500 57.1 10.5 16.7

CNX Bank 79.7 16.0 21.2

CNX Energy 35.1 1.5 12.0

CNX FMCG 23.0 24.2 24.4

CNX Infrastructure 64.0 -3.8 11.8

CNX IT 30.6 17.7 16.5

MSCI Emerging Markets 14.4 18.1 13.2

MSCI World 15.6 21.1 10.4

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

Equity Performance Snapshot

Must ReadWhen Fed Tightens

Charlie Minter and Marty Weiner of ComstockPartners have an outstanding track record in analyzingeconomic and market trends, and the implications forinvesting. They may be considered too bearish butthey have got major calls right for more than 15 yearsnow. In their latest report titled `This is what happenswhen the Fed tightens’, they write: For all the peoplethat believe the Fed is omnipotent, you have to keepin mind that the Fed did not see the bubble that theywere causing in housing all through 2003, 2004, 2005,2006, and 2007 when they lowered Fed Funds to 1%in June of 2003 and kept it there for a year. They alsowatched as banks and mortgage companies enticedevery American with a heartbeat to buy homes theycouldn’t afford….Please read them regularly atwww.comstockfunds.com.

Your age is important, tooAll the basics that relate to investment bear a vital link toyour age. You may understand investment basics well, butif you are not able to build your age into investment plan,there is a high chance of suffering, especially at times youcan ill afford to do so. The age at which you start investingfor building a long-term corpus is very important.

Fund managers often exhort you to start young, as thatwould give you three to four decades to save and buildwealth. There is much right in what they tell you, but whatis usually wrong is where they suggest you invest.

You go to the good investment textbooks, and they willusually tell, ‘home’ first (of course with sizeable loans thatcould be paid comfortably with your salary). There ismuch merit in this focus and keep the home central toyour plans when you start saving and investing for thelong term.

Over the past decade, it has become fashionable to exhortthe young to take risks and go for riskier asset classes suchas equity and commodity in a big way when they start theprocess. You are told of opportunities galore, and alsoinformed that even if things go wrong, you have many,many years to fix and move on.

When you start to invest, go for a conservative approachwith focus on capital preservation and steadyaccumulation (say via government saving schemes, fixeddeposits of quality companies and ultra-short term debtfunds). You can consider a small allocation to risker assetclasses that can be increased gradually and carefully. Letyour savings and portfolio value grow. It would take time,given the conservative yet safe choices you have made.

Spend about a decade in this mode and then you can startprudently hiking exposures to risker asset classes, as youwould have a good base. Similarly, five years before yourretirement age, back off almost completely from riskierasset classes. You are at a stage where you cannot affordrisk or loss of capital.

Never forget you age when you make investment plansand decisions.

16 Rules for Investment Success

Sir John Templeton, founder of the Templeton Group,has distilled his years of experience.# 1 If you begin with a prayer, you can think more

clearly and make fewer mistakes.# 2 Outperforming the market is a difficult task.# 3 Invest - don’t trade or speculate.# 4 Buy value, not market trends or the economic

outlook.# 5 When buying stocks, search for bargains among

quality stocks.# 6 Buy low. So simple in concept. So difficult in

execution.# 7 There’s no free lunch. Never invest on sentiment.

Never invest solely on a tip.# 8 Do your homework or hire wise experts to help

you.# 9 Diversify - by company, by industry.# 10 Invest for maximum total real return.# 11 Learn from your mistakes.# 12 Aggressively monitor your investments. Remember,

no investment is forever.# 13 An investor who has all the answers doesn’t even

understand all the questions.# 14 Remain flexible and open-minded about types of

investment.# 15 Don’t panic.# 16 Don’t be fearful or negative too often.Source: www.franklintempleton.com

Invest With A Plan 6

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wisdom

Being slow and steady means that you're willing to exchange the opportunity of making a killingfor the assurance of never getting killed.

Carl Richards

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Q If some funds deliver good returns in a year then whynot redeem it after one year, and again invest it in thesame fund or some other fund? This is what ispracticed in equity stocks.

A Yes, in years of extraordinary performance, whenyour portfolio return is very high (over 100 per centreturns), or you have already achieved your goal, itmakes sense to book profits and move to saferoptions (if you are nearing your goal), especially ifyou are holding a high risk fund like a mid-cap orthematic fund.

In other circumstances, our view is as follows:

• Funds are a portfolio of stocks, in which the fund manager is doing the job of profit-booking and reinvestingin opportunities that look good. Hence, the idea of investing in a fund is to ensure that an expert does thejob of exiting and entering the right stocks with right opportunities.

• If an investor believes that he/she would be able to do that better, then they should be directly into equitiesand not funds?. Why? Because it is a lot tougher to know the prospects of a portfolio of 40-50 stocks andknow which fund will do better. You may be better off picking a stock or two directly.

• Of the funds that gave 120 per cent returns this year - would you have entered them when their NAV hadseverely fallen? Note that their 120 percent return comes after the fund was badly beaten down before that.Do you think an investor would be able to identify a fund that may still hold good prospects although it hasa very poor track record at that point? On most occasions, it has been proved that a topper in one year doesnot sustain performance in the next.

• Assuming that you do not take risks with the seemingly top funds and instead go with the same steady funds,what is the benefit from exiting and entering? The returns are not going to vary. This will make a differenceonly if capital gains from equity funds are taxed some day. Today, capital gains from equity funds held formore than one year are exempt from tax.

• How will you time your entry and exit? Which is a 'good time' or 'good return' to exit? In years such as 2008,would you have exited and re-entered when your fund lost as much as 55 per cent or would you haveanticipated timing entry on March 2009 lows?

• Also, theoretically, you may be able to exit and re-enter. Would you re-enter the very next day? What if it tooka few days or weeks to reinvest and you lost key days?. Please see the link below from Franklin Templeton(an old one but relevant) on how much you miss by not staying in the market in the best days, even if suchdays are few. http://www.franklintempletonindia.com/downloadsServlet?docid=h65amj5h

• End of the day it is about 'time in the market' and not timing the market, simply because timing is a lot moredifficult and even experts have struggled to do so. It is to make our lives easier in these aspects that mutualfunds act as a good vehicle for long-term investment. If one wishes to time the market, the optimal way todo so would be through SIPs, especially if the tenure is 5 years or longer. This will afford multiple entry pointsat least.

Q & A

I think the biggest challenge on compliance in India is that some unacceptable practices aresometimes a way of life here. At the end of the day, paying a traffic policeman a small sum ofmoney when you don’t wear a seatbelt is illegal.

Steven Grubb, Global Compliance Director, Diageo

Technical View

Tata MotorsThe stock in on a long-term uptrend and we expect 8-10% returns from a short-term perspective. The breakoutin the Tata Motors stock past previous highs indicates thatthe upside momentum is still strong. Any price weaknessmay be used to buy the stock for short-term gains. Aslong as the stock trades above the stop loss level ofRs.480, we would expect the stock to rally to the targetof Rs.575-580.

Colgate PalmoliveInvestors may use any weakness to accumulate the stock.After a sharp rally, Colgate stock has been in a correctionsince July 25. The decline was arrested at the crucialsupport zone of Rs.1, 439-1,475 and the stock has sincestaged a sharp recovery. This is a sign that the buyers areinterested in this stock at lower levels. Buy Colgate at thecurrent levels as well as on a weakness for an initial targetat Rs 1,650 and a secondary target of Rs.1, 750.

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. B Krishna Kumar hosts a weekly webinar that discusses the market outlookfor the following week. You can follow him on Livestream. If you wish to receive reminders for his webinars, go tohttps://www4.gotomeeting.com/register/131985103

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.

Publisher:Wealth India Financial Services Editor: Srikanth Meenakshi

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NiftyThe Nifty scaled lifetime highs in August nudging thepsychologically significant 8,000-mark. As anticipated lastmonth, the Nifty edged lower to the support zone at7,450-7,500, and then resumed its uptrend. From atechnical perspective, there is no reason to be bearish onthe Nifty as it has encouraging been making a series ofhigher highs and higher lows. The slowdown in the upsidemomentum is however is a cause of concern and reflectslack of conviction in the bullish camp. A decline belowthe immediate support at 7,850 would mark the onset ofa short-term downward correction that can be used tobuy sound large-cap stocks.

B Krishna Kumar

1 Which organisation regulates the insurance industry inIndia?

2 Name the first fund launched in India to focus onmicro-cap stocks?

3 Who is the author of Against The Gods: TheRemarkable Story of Risk?

4 What is the maximum allocation that can be done to asingle stock in a diversified equity fund in India?

5 Name the person in the image? Sheheads one of the key organisationsrelated to financial markets. She hasplayed a major role in helping Indiadevelop high quality trading andsettlement systems.

Answers can be emailed to quiz@fundsindia.com. Thefirst three to send in all correct answers will be entitled toa must-have book on investment. Answers for August 2014Quiz: Answers for August 2014 Quiz: 1 Ashish Chauhan 2Mastergain 1991 3 10-Year Government Security (G-Sec) Yield4 Michael Panzer 5 Arvind Mayaram. There are no winners forthe August 2014 quiz.

FundsIndia Select FundsEquity (Moderate Risk): Preferred picks are:

Axis Equity Fund Birla Sunlife Top 100BNP Paribas Equity Franklin BluechipHDFC Top 200 ICICI Pru Dynamic PlanICICI Pru Focused Equity Tata Dividend YieldUTI Equity Fund UTI Opportunities Fund

These are funds that seek to generate inflation - beatingreturns and limit downside risks. The recommendedholding period is at least five years

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 specificinvestment requirements before designing a portfolio thatsuits your needs.

For a complete list of preferred funds, please checkout our website http://www.fundsindia.com/select-funds.

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Quiz

Introduction of second level authentication: Tofurther enhance the security of your account, we haveenabled a second level of authentication on your account.Investors will be required to enter their date of birth orPAN in addition to their password at the time of login atwww.fundsindia.com.

Launch of mobile app: As indicated in the lastnewsletter, we have launched a mobile app for Androidphones. We are working on the next version that will allowpurchase of funds and will be rolling it out in September.

@fundsindia.com in August

Recommended Book

To invest, call 0 7667 166 166

About us: FundsIndia.com is India's leading online investment platform offering investors access, in one convenientonline location, to a wide range of options such as mutual funds, equities, corporate deposits, bonds, the NationalPension System, loans, insurance and 24 Karat gold, to name a few. FundsIndia also offers a host of value-added servicessuch as SIP, Alert SIP, Flexi SIP, trigger-based investing, and more that further enrich your investment experience!

"We believe in a concept of relative value. In 2007, we found significant value in consumer, pharmaceuticaland technology sectors," says Sankaran Naren, CIO, ICICI Pru. Read more Market Place, the FundsIndia Blogat http://www.fundsindia.com/blog