New CKYC Rules

Dear Investors,

SEBI has modified KYC rules. New CKYC rules for Mutual Fund investors:

1) Investors whose records are already existing in KRA as “KYC OK” may invest freely in any fund.

2) A new MF investor – first time investor whose records are not available in KYC-KRA will have to fill the new CKYC form.
3) The above rules are applicable for individual investors only including NRIs.
4) In case modifications to be made for existing KRA compliant investors, CKYC form to be filled in.

The new form will be available on CKYC link on our website shortly.

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Dont go by star ratings alone

Look at the performance of an ‘Unrated’ fund and then compare it to the Rated ones!

We are not saying that this is the best fund and others are bad. But investors looking at ‘stars’ *** and investing themselves can be dangerous!

Always seek advice and then invest..!

Don’t believe in stars of others, believe in your stars advisors study!

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FATCA updation

Attention VRIDHI Investors and future VRIDHI Investors

As per the latest circular, the folios of all those who still have not updated the FATCA details may get Auto-Redeemed.

Kindly update details immediately, you can do it online, details here in Table.1: https://vridhi.co.in/mf-online/

Update all: ‘CAMS Fatca’ ‘Karvy Fatca’ ‘FT Fatca’ ‘Sun Fatca’

In case you are not able to do it, please take prints sign and send them to VRIDHI office immediately.

Call us in case of doubts

Gold ETF

#AkshayaTritiya falls on 9/May/2016. Below are the few ETFs you can Buy instead of buying physical gold.

Gold Monetisation Scheme, Gold Bonds, Akshaya Tritiya, Gold Mutual Funds, Gold ETF

5 things that you should know about SIPs

There are now almost 9.5 million SIPs in the mutual fund industry with an average ticket size of around Rs.3,000 per month

Manoj Nagpal, Mint, 18/4/16, source: http://www.livemint.com/Money/xyKh3GIUkaTPVncHajFnwM/5-things-that-you-should-know-about-SIPs.html

Systematic investment plans (SIPs), or dollar-cost averaging, as they are known globally, are becoming a preferred investment tool in India too. There are now almost 9.5 million SIPs in the mutual fund industry with an average ticket size of around Rs.3,000 per month. During my interactions as visiting faculty in professional colleges, an overwhelming number of graduating students now tell me that their first investment when they join the workforce would be starting an SIP for long-term investing.

The SIP culture is gaining ground elsewhere, too, but without adequate awareness. Gajendra Kothari, chief executive officer, Etica Wealth Management Pvt. Ltd, recently wrote about this in a Mint column (http://bit.ly/MINTgk1). When he visited his home town in Assam, some investors he met wanted to start SIPs for their children. It was a bit of a concern, because when he probed them about investing in mutual funds, they said they don’t want to invest in mutual funds but in SIPs.

Even some independent financial advisers position SIPs incorrectly. Their simple pitch is—invest in an SIP for 10 years or more and get over 15% annual returns. Even this is a concern. Don’t get me wrong, I do believe SIPs are a powerful tool, but keep expectations clear and understand how they work. Here are five things that you should know about SIPs, before you start that journey.

SIPs instil investing discipline

SIPs bring discipline in your investing. Period. These are not a separate product or an investment strategy. SIPs bring the rigour of regularly deploying investible surpluses as soon as they are available. These should be used for regular surplus income—from salary, business or other investments. You can start an SIP in an equity, balanced or debt fund. Choose the underlying asset based on your overall asset allocation and risk profile. Yes, the longer your SIP tenor (or even your lump sum’s), the better compounding works. So, effectively asset allocation and compounding give returns, SIPs bring in the discipline, cutting away emotional biases.

SIP and one-time investment returns may vary

SIP returns of an investment can be significantly different from that of the underlying point-to-point asset class. Most people believe that SIP returns will be higher than the point-to-point return as the average cost of investment is staggered. This is a myth. SIP returns depend on the return curve of the underlying asset movement and the volatility of the asset class. Returns from a debt fund SIP will mimic the underlying asset class but that for equity funds can be significantly different. For example, in Indonesia, one of the best performing emerging markets with 10-year annualised returns of 15.16% in rupee terms, SIP returns were 10.94% in the same period. In India, mid-cap funds gave a point-to-point return of 12.05% but SIP returns were 16.5%, clearly showing that SIP returns can be distinctly different vis-à-vis lump sum investments.

SIPs too need to be managed

One key concept people believe is that SIP investments don’t need to be managed or reviewed since you have taken a long-term view. Though you have committed to a SIP for a long term, one has to review the portfolio. You should see if the original tenet of investments still holds true for your original hypothesis of investment, at regular periods—preferably on an annual basis. In light of any new information that may emerge over the long tenor of an SIP—change of investment style, investment process, and so on—it is advisable to review these as you would do with any other investment.

SIP tenor should be lesser than your goal horizon

Initially, when one starts an SIP in equities, regular instalments reduce the risk-return profile. But when you cross 50% of the SIP’s tenure, the incremental instalments do not reduce this risk significantly, and towards the end of the tenor, risk-return of the accumulated corpus is in line with market returns. Thus, if the market falls significantly in the last year of your SIP tenor, your overall SIP return will be affected. So, it is advisable that the investment horizon for SIP be lesser than your goal horizon. Alternatively, closer to your goal, reduce the accumulated corpus’ exposure of equities.

Don’t stop your SIP when the markets correct

In your investment journey, it is a given that markets will correct many times. Globally, behavioural finance studies have shown that it is at this time that investors stop further instalments. In standard finance, investors shouldn’t have pride or regret. But as behavioural studies show, most investors have a strong aversion to regret and emotional biases creep in when markets correct. Investors assign higher probability to future-based or recent events and start believing that the current trend, either up or down, will continue. Do not, and I repeat, do not stop your SIPs when the markets correct and you will be on your way to achieving your financial goal.

Manoj Nagpal is chief executive officer, Outlook Asia Capital.

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The best way to choose an Equity Mutual Fund

Most investors end up buying 4-6 and at times even 10 mutual funds. If each of these funds own 50-70 stocks, as most funds do, then the investor eventually ends up owning anywhere in the range of 300-500 stocks

Aashish Somaiyaa, Mint 2/2/2016, source: http://www.livemint.com/Money/SUEHV7ryrav0I0Q2shyo0K/The-best-way-to-choose-an-equity-mutual-fund.html

The biggest conundrum in the mutual fund industry stems from: “Past performance is not an indicator of the future”. And yet, in the absence of any insights on what to look for, an investor ends up looking at past performance. A word closely associated with performance is ‘consistency’. But what is consistency? More linearity of returns? A narrow range in which returns fall? Consistently No.1 in returns or at least in the top quartile all the time?

Let’s look at practical experience on ‘consistency’ and ‘past performance’. Managing equity mutual funds is all about creating wealth for investors through investing in the stock markets. In roughly the past 10 years, at different points in time, different segments, sectors and components of the market have delivered. From 2004 till mid-2006, it was a secular bull run with mid-caps and value picks leading all the way. May 2006 saw a large correction and from then on leadership was with large-caps, real estate, retailing and infrastructure companies. Year 2008 saw the global financial crisis, and except for cash and gold, nothing worked. In 2009, the S&P BSE Sensex bounced back, doubling in six months. In 2010 and 2011, the banking sector rocked; and in 2012 and 2013, international equities fired while India took a beating, especially in interest rate sensitive sectors and mid-caps. The next two years saw great momentum in high-growth companies and mid-caps, while all positive indicators on value buying misfired.

This tells you how nightmarish investing in equities in the past 10 years has been. And it’s been the same in any 10-year period, with leadership among styles, sectors and asset classes rotating every year, sometimes even every six months. In this kind of a scenario, the only way to perform consistently—in terms of highest returns or being No.1 or in a top quartile—is to be Nostradamus. And this is borne out by the fact that practically every year or two, leadership in equity fund performance has changed.

So, what should an investor do? Past performance definitely helps identify a universe of funds that have done well in a few buckets of time and hence arithmetically they show great compounded average returns. But it doesn’t say anything about your probable investing experience.

Equity investing is a process where one cannot control or predict the outcome. But yes, there are those with average scores that are way above the rest. Considering that we can’t predict outcomes for every quarter, or a half year, or any other plausible investing horizon when it comes to equities, the only thing we can do is to look for fund managers with a distinct style or technique which helps them tide over varying market conditions and macro factors.

Does this show up when it comes to fund management? Do fund managers have techniques or styles? The answer is: they do. So the next time you evaluate funds, you could shortlist by way of brands, expertise and, of course, past performance. But when it comes to performance, ask one question—how did they get it and how do they plan to sustain? If the answer lies in a process, an approach to stock picking, an investment philosophy with an implementation plan, then that’s your pick. But if the answer lies in excellent forecasting skills which keeps them ahead of macros and market movements (basically, everything other than process), then you are dealing with someone who is Nostradamus reincarnate.

The other conundrum in recent times regarding fund selection has been about focus and conviction versus diversification. Are focused funds better or are diversified funds better? While the jury is still out on this one, there are a few things to keep in mind. Financial theory suggests that 20-25 stocks is optimal risk diversification; beyond that, diversification only adds market risk. Investment guru Warren Buffett said that risk doesn’t come from owning more or less stocks; risk comes from not knowing what you are owning.

Most investors end up buying 4-6 and at times even 10 mutual funds. If each of these funds own 50-70 stocks, as most funds do, then the investor eventually ends up owning anywhere in the range of 300-500 stocks. Some diversification that.

If you allow for some de-duplication, an investor would still end up with 200-plus stocks. It’s worth remembering that Nifty 50 and BSE 200 alone respectively account for over 50% and 85% of our entire market capitalisation. So, if you have over 200 stocks in your portfolio, you own the full market. How do you beat the market if you own the market?

Secondly, the Pareto principle, or the 80:20 principle as we know it, is all pervasive. Whether a fund has 20 stocks or 100 stocks, bulk of the return will indeed come from the top 20% or top 8-12 stocks. So why own positions running in decimal points like 0.1%, 0.5%, or even 1%? What will an investor achieve if a stock is 0.5% of the portfolio and it turns out to be a multi-bagger? While high conviction positions can work both ways—there must be an optimal level of diversification and it may just help the investors’ cause to have funds with crisp, concise, one-page portfolios—at least you would be able to see all of what you own and not just the top few holdings.

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FATCA Declaration

Dear Investors, As per the recently signed agreement between Indian and American government’s, all Mutual Fund Investors need to update their KYC’s with the FATCA-CRS declaration. The process is simple and easy. You need to update the same with both CAMS and Karvy. Do it online (links provided in the below box) or print both CAMS and Karvy forms, sign and send them to VRIDHI office. Thanks- team VRIDHI.

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FATCA Declaration, FATCA Online Updation Declaration, CAMS Fatca Updation Online Declation, Karvy Fatca Updation Online Declaration