How to Select the Right Portfolio Management Service for You?

Portfolio Management Services, Portfolio Management, PMS advisory services, Portfolio Management Services in India

Portfolio Management Schemes (PMS) have done well, so you may be looking to invest in one of them.  Since the minimum investment into a PMS is Rs 50 Lakh, you may not be able to diversify as one does for Mutual Funds.  Further, most schemes also have an exit load up to 2-3 years.  Hence, choosing the right PMS becomes critical for you. A few points to consider:  

  • Establish clarity of purpose

There should be clarity and understanding of your risk appetite while choosing your service provider. i.e. Do you want the highest returns (which comes with higher volatility) or a consistent performer who manages risk well. You should accordingly shortlist the most suitable ones.

  • Vet the credentials of your PMS provider

Make sure that you have gone through all the required credentials of the provider like the past track record, transparency, and risk-adjusted returns; and draw out a comparison. Ultimately, there should be a consensus of minds before finalizing any deal and you shouldn’t be discriminating based on past performances alone.

  • Make informed decisions about the cost structure

You should be well-versed with the cost structure. It should be flexible enough to accommodate all your financial constraints and should allow you to choose between fixed and variable fee options. Annual fund management charges normally apply both for fixed and variable fee structures.  Variable fees are normally computed as a percentage of the profits generated above a threshold but would have a lower fixed fee component. Make sure that your manager briefs you about the expense structure apart from the fund management fees.

  • Choose a fund that aligns with your goals

Whether it is a large or multi or small cap fund, choose a fund based upon your risk-taking capacity. You may also choose your strategy based on the market environment as it keeps oscillating between large and midcap funds.  One way to take a mid path through a multi-cap fund.  It’s important to see what you are capable of and align your investments accordingly.

  • Allocate your funds suitably

While the PMS requires you to invest in lumpsum, many PMS houses have created a systematic transfer approach into the equity fund. They take your money into a debt fund and allocate it in a phased manner based on your instruction.  This protects you from the risk of buying equity at its peak value and a down-cycle may impact you adversely.

Things to watch out for

First, going after the highest returns could also mean higher risk. Ask yourself if you have the risk appetite to bear higher losses. In any case, you can mitigate risks through systematic transfer mechanisms.

Secondly, pay attention to your portfolio size. Considering the minimum investment is Rs 50 lakhs, track what percentage of your investment is going into this scheme. Some portfolio managers may allow mutual fund strategies to lower the risk for you.

Remember, diversification complements your safety margin with a value-driven approach. It also helps smooth out the effects of changes in stock price momentum and other market risks. If it’s too complex, get a professional to help you there.

Yes, there’s a better way to spend your Diwali bonus!

Security beats uncertainty. Light triumphs darkness. Hope prevails over fear. And that is the reason for this season. We at Right Horizons are inspired by the human propensity for security and peace. Investments, when done right, are made up of such timeless themes.

Calendar 2020 has made trivial pursuits seem all too trivial. Savings, investments, and security are taking center stage. 

Here are 5 learning on how to navigate this bear market.

  • The science of security: Invest in what counts

Security is both a feeling and a reality. And the two are not the same. To guarantee security for real, it is important to gauge the market flows and sentiment. Lights, clothes, and other festive gifts are all cute. And holidays aren’t happening until we have a vaccine that works. What is comfortable is rarely profitable in investing. Don’t you think sparking off a new plan with your Diwali bonus might do some good? Invest your time into doing a financial plan if you have not done it already. This would be the best Diwali gift for you and your family.

  • The better way: Pay yourself first

If you stripped investments of the jargon, it’s pretty simple. Like Warren Buffet maintains: Pay yourself first. This may mean taking time off for a meaningful chat with your mutual fund’s planner and educating yourself first. If you’re already savvy, go on right ahead to invest in plans that resonate with your goals. Try your hand at debt and equity mutual funds, and if you have a larger capital, look at other options like portfolio management schemes. 

  • The death of decision anxiety: Asset allocation

Global studies have shown that asset allocation has a higher impact on portfolio performance. This removes the decision anxiety of shopping and gives you a more balanced, risk-free, and data-driven approach to spending your disposable income.  There are multiple competitive discounts on gold. Make your Dhanteras-Diwali extra special this year. Start investing in gold funds, especially if you’re expecting to plan for your children’s weddings.

  • Lifestyle changes are welcome: Investing as a way of life

In the wake of the pandemic, everyone is forced to make massive lifestyle changes. Pumping up your existing investments is a great way to use your bonus or even lower expenses on account of the pandemic impact. It could be as simple as boosting your SIP to reach your investment goals faster.

  • The reason for the season: Legacy and dynamic themes

You’ve revisited your portfolio and re-shuffled your investments. Given the global atmosphere, you can also add more value to your gifting choices. It’s time to show your loved ones that you care, more so if they’re far away. Pass your learnings on to your children and pay it forward. And remind them of the reason for this season: light, love, and life. 

Go on, make the right choice. We’ve got you. Both you and yours.

5 Healthy financial practices post-COVID

New rules for the new world order
What’s the easiest, most certain way to achieve your financial goals even in uncertain times?
Healthy financial habits.

Any goal you want to achieve is reachable through a few key habits with a little bit of time. It’s really that simple. Here are a few of these practices that you can include in your financial habits.

1. Leverage the gig economy.
On-demand contract work and the gig economy was possible even before the pandemic. But the paradigm shift in corporate culture has caused several companies to transform almost overnight. Gig economy workers have the benefits of earning money on their terms. The flight to digital and remote models of working have opened up opportunities to

2. Review expenses and savings
Even if salary budgets have been slashed, the virus outbreak has influenced consumer expenses in every industry (think cuts in expenses like fuel, travel, entertainment, shopping, dining outdoors, etc). Spending behaviors are settling into a new normal with a shift to value and essentials. You may also try to further optimize your cash flows and treat the margins as impact savings.

3. Reprice or refinance your home loans
Interest rates have also taken a plunge over the last few months. If one has home loans, check your rates of interest, and approach your bank for lowered rates. It is an opportune time for homeowners to review monthly cash outlays and ease up financial strains. You may either refinance (i.e., take a loan with another bank with lower rates of interest) or reprice (switch to a more competitive loan plan with the same bank), depending on which works for you best.

4. Review your financial plan
You may use the time to also re-visit your financial plan. Take an inventory of all your assets and liabilities and check for optimal diversification. Re-evaluate your choices. See if you have financial plans that can balance out your risks and guarantee safer and more secure returns. Re-shuffle your investments. Consult a professional if it helps.

5. Review your insurance covers
COVID-19 is a wake-up call. Very low medical covers in the past have fallen woefully short considering the number of days one is likely to be hospitalized if tested positive and serious. Check for the family floater plan of Rs 10L/25L/50L. The good news is that incremental premium is much lower for these. Protection instruments like health and life insurances can leave your savings scot-free while retaining your family’s lifestyle and long-term financial goals without disruption.

As local and global communities re-orient themselves to the new norm at a time such as this, you can re-organize your finances. The proverbial rainy day is here, and if you’ve made it this far, you can secure the future for you and your family. Even amid a pandemic, you can identify the new rules of financial planning and optimize.

NOT a Contagion – Impact of the FT Debt Debacle

Introduction
Last week, Franklin Templeton India funds, in the debt category, went into freeze with investors in 6 of the large schemes locked out of redemptions and any sort of movement till further notice. This has come at a distressing time of CoVID19 crises where incomes of individuals, businesses, and MSME’s have been severely impacted. The investors in these funds are severely impacted due to their dependence on these funds for their immediate or medium-term cash flows and now above all the safety of their monies. In some cases, it could be most of the savings/corpus that has been put to work. The investment rationale for most investors in these funds have been
1. The general safety of such category of funds
2. Getting regular incomes on their investment
3. General faith in the system and/or
4. Established product type.
While this might be the case, in good times or bad the onus of safety of investors’ fund lies with himself and the rule of “Caveat Emptor” or “Buyer Beware” always prevails. This is true for any investment or generally parting of monies from an investor to a third person.
The FT Debt Debacle
The situation with Franklin Templeton funds could have happened with any other AMC given the dislocation in the financial markets and the positioning of the funds in the current market environment.
For starters, Franklin debt funds were positioned to deliver higher returns as compared with competition and thereby were invested into marginally higher risk than the general markets. This strategy works well under most circumstances given that liquidity and funds flows keep investors and borrowers from accessing / rolling over monies quickly.
Secondly, the line between swimming in the middle of the pool to the deep end of the pool is often non-existent (not even blurred). This results in asset managers taking marginally higher risk without any commensurate return benefit. This is obvious in hindsight and might appear rationale during normal times. Both for investors and asset managers. In the case of FT funds, most investments were in risky papers without commensurate returns.
Thirdly, the diversification in asset managers strategy on funds ought to save the day. Unfortunately, the asset manager had not differentiated between its medium-term funds and ultra-short-term funds, using the same strategy across these funds. Clearly, the investor has been taken for a royal ride here, for no fault of his.
Finally, most of us are guilty of being slightly complacent when things are going to get rough. The first indication of the FT issue was evident when in a couple of these funds’ exposure to Vodafone and Yes Bank papers were side pocketed in 2019. Prudence dictates that the troubled ship be abandoned before the stampede begins.

How are we impacted, and are we prepared?
The current CoVID19 pandemic has been mild so far and there are numerous reasons – including on-time assessment and steps taken, higher immunity, sunshine factor, etc. There is much literature on the topic in the public domain. The financial impact is still yet to come to full-blown proportions but can be assessed individually by each one of us. The individual and collective response to the situation is developing in nature and as weeks go by, the complete impact of the same would be evident.
There is a great economic impact on several direct sectors such as tourism and aviation, transportation and logistics, and MSME’s. Stage II of the financial contagion (Risk Aversion) is being felt across businesses and individuals alike. The central bank (RBI) and capital market regulator (The SEBI) has so far responded to the situation like other peers across the globe. Stage III of complete liquidity freeze and volume collapse is unlikely to happen soon in India given the evolving situation and talks about normalcy returning in a phased manner soon. The systemic liquidity so far has been managed; however, the deeper impact could be felt if the situation lasts longer than everyone is prepared for.
Most of the participants are barely prepared for such emergency situations which is all-pervasive and systemic. And yet some sectors/participants are better than those who are severely impacted. Staples, non-durables, and certain services have been relatively smooth, so far. The lessons from the current episode for individuals and institutions should be to be prepared for a war-like situation for 4-6 months during any market cycle. This means putting up safety nets around – Liquidity, business/income continuity, risk management, back-up plan (secondary work-related stuff), and communication. For instance, unscheduled maintenance for industries, skill upgrade for workforce or individuals, and strategic planning for normalcy. All these and more should be a part of any individual or business plan when there is still time.
Conclusion
From an individual perspective, investors who are now stuck into the current frozen FT debt funds; the following things are necessary.
1. Access your liquidity conditions and work on a plan to sort it out. There is a great likelihood that your money would be returned soon
2. Ask questions around your investment methods and know why you ended up in the current situation. If only a small portion of your overall investment is in these funds, you have already done a good job.
3. No, there is NO reason to panic and start pulling out of every conceivable investment, since that way you could be creating a chain reaction and worse you will end up jeopardizing your objective (goals) and your return profile

For those who have no exposure to FT funds frozen or have FT equity funds, it might be a good time to reassess your exposure. While that might be the case, if your liquidity profile, asset allocation and goal planning is mapped, there is little concern for you. There is no point in losing sleep over things in which everyone is in the same boat and you are well prepared than others. Chances are you will come out stronger than most.

Should I invest in NPS?


Should I invest in NPS?

NPS or the National Pension Scheme is relatively a recent introduction by the government. The NPS helps individuals to plan for their retirement income. Being a long term need it encourages people to invest into NPS from an early age by also giving tax benefits while you invest.

Talk to our certified “Senior financial planning advisors and Investment Advisory ”.

* – If you are salaried, upto 10% of your salary can be invested into NPS. There is an additional deduction available for NPS to the extent of Rs 50,000 which is over and above the limit of section 80C.
* – NPS is a low cost scheme that allows you to choose how the funds are invested. You can invest both in equities and also safer debt instruments. The equity exposure is capped to 50% for investors, which reduced the flexibility.
* – One needs to keep in mind that NPS is has restrictions on withdrawals. One can withdraw amounts for specific needs.
* – After 60 years, 60% of the corpus can be withdrawn in lump-sum. This has now been made tax free. The pension that you receive is taxable.
* – NPS is definitely and option to consider as part of one’s pension planning. It provides tax benefits on investing and is a very low cost scheme. On the flip-side keep in mind that the scheme is not as flexible as avenues like Mutual Funds and liquidity is poor.

Talk to our certified “Senior financial planning advisors and wealth managers”.

Call us +91 98453 99780
Email : contactus@righthorizons.com

Whatsapp : +91 9148096684

What are the Investment options available for retirement planning?


The traditional way of planning for retirement is to buy a pension product. Buying a pension product suffers from a few disadvantages. Firstly, most pension products do not take care of inflation post retirement. Secondly, its too concentrated to the avenue it invests into. Thirdly, it lacks the flexibility. A pension plan can be one of the options to plan for your retirement.

Talk to our certified “Senior financial planning advisors and Investment Advisory ”.

* – We suggest that you look at a diversified set of options to plan for your pension. You could use a set of options that are liquid, and provide stable returns even if they are lower. You could use long term avenues that deliver superior returns as well.
* – We like to use a diversified set of options including debt and equity mutual funds, pension plans, direct equity, PPF, tax free bonds, NPS, etc. One option that I would like to specifically mention is NPS since it is relatively a recent introduction. There are tax benefits when you invest into the NPS which you can take advantage of. It was tax inefficient before and this has been now addressed with withdrawals becoming tax free.
* – As you come closer to retirement, it is important to manage your asset allocation so as to provide for your monthly pension from avenues that are not market linked.
* – You also need to provide for some liquidity to take care of unforeseen expenses.
* – In summary, we suggest that you use a diversified set of options that take care of risk, return, liquidity and taxation. Further, tracking the performance of your portfolio to ensure that you achieve your pension requirement is critical.

Talk to our certified “Senior financial planning advisors and wealth managers”.

Call us +91 98453 99780

Email : contactus@righthorizons.com

Whatsapp : +91 9148096684

The General Elections in India to pave the way forward

Every general elections year is always a volatile year as you get huge moves in Index on both the sides and 2019 is not going to be different, as we step into general elections.

The election result may impact the economy’s road map ahead. In Jan 2018, many experts were cautious because of high valuations in mid and small caps without having earning growth.

The whole matrix has changed in 2019 as stocks have given significant corrections and earnings growth also picked up in 2018. We expect 2019 to be a year of net positive investment for both FII’s and DII’s, unlike 2018 where only DII’s were supporting Indian markets.

This is not the year for light-hearted investors who get worried when they see 10%- 15% down move in the Index. Past data shows that those who stayed invested in these volatile period were the biggest beneficiaries including in years of coalition governments.

If we analyze last 5 general election data, Nifty has never given negative return in an election year. In 1999, 2004, 2009 and 2014 Nifty has given 51%, 18%, 80% and 39% each respectively. Equity markets always ride on fear and hope and this year would be no different.

Everywhere we are hearing that central elections are there and markets will be volatile, but holding on to your investments at these times might reward you significantly. The recently concluded State elections resulted in BJP losing in all 3 major states. Now markets have given big thumbs up to the result and up by more than 5%.

This signifies value buying is emerging and we should be invested at these time irrespective of any party takes control of government with majority mandate.

Historical Calendar Year returns in an election Year

Past data shows that we may have a pre-election rally.

Keeping in mind the above data points, we believe that while markets are likely to be volatile, it would end the year on a positive note.  Subsequently, I expect both economic parameters and markets to gather momentum.

Loan Against Mutual Funds

There are times in life when you just have to take loans- for a medical emergency, a marriage or a much-needed holiday. You would most likely avail a personal loan which charges high interest and struggle with EMI repayments. This is exactly what happened to Shankar, a 28 year old man, who took a personal loan to go on a holiday.

Shankar a young man had dreams. He lived in the southern part of India, in a town in Kerala. He was a teacher at a nearby school with a take home salary of Rs 20,000 a month and he wanted more from life. He badly wanted to holiday in the North East. So he availed a personal loan of Rs 2 Lakhs from his bank with a tenure of 3 years at an interest rate of 16% a year.

For those who don’t know, a personal loan is a No Reason Loan. Banks don’t ask reasons for availing the loan.  There’s no collateral. The problem is banks charge interest of 14-21% a year on a personal loan. You might not be able to afford the EMIs and fall in a loan trap.

This is exactly what happened to Shankar. After an enjoyable holiday, it was time to think of the personal loan EMIs. He had to pay nearly Rs 7,100 a month for the next 3 years. This didn’t seem a problem till a medical emergency ate up his savings. Shankar struggled with personal loan EMIs and today is in deep debt.

Ideally, one should not take a loan for your wants.  You could take it for your needs.  We suggest you invest towards your vacation and then take your vacation.  However, if you cannot avoid taking a loan, taking a loan using your mutual funds as security, is one option. Use an overdraft facility in your bank account. This will help if you need is only temporary.  There’s no need to redeem mutual fund units and you can continue with SIPs. During a financial emergency, don’t liquidate mutual funds. Just avail a loan against mutual funds.

You can avail a loan against equity mutual funds, debt funds or hybrid mutual funds by approaching a bank or an NBFC and pledging mutual fund units as collateral. The loan is sanctioned based on the Net Asset Value, NAV of the mutual fund units in the folio and the loan tenure. You get loan against mutual funds at an interest rate of just 10-11% a year and as its secured, interest rates are much lower than the commonly availed personal loan. If you have a good credit score and have been a customer at the bank for a really long time, negotiate for a lower interest rate.

If the mutual fund units are in demat form, several online portals are willing to sanction loans within minutes. If the units are in physical form, you might need a loan agreement with the bank. You have to understand lien on mutual funds before we go further. It’s a document that gives the bank the right to sell the mutual fund units. This comes in handy for the bank if you’re not able to repay the loan. The lien grants the bank ownership of the mutual fund units you own. Approach your mutual fund house and request for a lien on mutual fund units in the name of the bank for a lien transfer to the bank.

How to get loan against mutual funds? Simply log on to your internet banking account and select the equity or debt funds you want to hypothecate. Your application is redirected by banks to CAMS or Karvy which verify the mutual fund holdings. The registrar marks a lien against mutual fund units being pledged with a letter send to the bank and a copy marked to you to confirm the lien. The lien is marked against the mutual fund units, so this means you cannot redeem units, until the loan is repaid. You continue to enjoy dividends and other ownership benefits, but you can’t redeem the pledged units. Equity based funds can fetch a loan as high as 50% of the NAV, while for debt funds its 60-70%. Banks allow you to avail a maximum of Rs 20 Lakhs against equity mutual funds.

Don’t make the mistake of not repaying; or the bank will ask the mutual fund to redeem units and take the money. Banks have a list of mutual fund units against which they lend.

Shankar availed a personal loan at an interest of 16%; while you get a loan for just 11% against mutual funds. This is a sizeable savings in interest. Shankar should have invested in mutual funds via SIPs and then gone on holiday. Loan against mutual funds are great when stock markets fall. If you need money in a hurry, just pledge mutual fund units, instead of redeeming them at a loss.