Monday, April 03, 2017

How to Invest in Mutual Funds?

“Do not save what is left after spending, but spend what is left after saving.” - Warren Buffet

As is common knowledge, there are many ways to save and invest your funds and generate wealth. After hearing a lot of stories, reading a lot of testimonials and seeing my friend’s experiences, I am on the Mutual Funds bandwagon right now. From my experience, investing in Stocks on a regular basis demands a lot more time, dedication, research and market knowledge than what I can afford. Real Estate is not really my forte and I am doubtful if the returns are going to be as exciting as they used to be. If you are a salaried individual and is looking for a steady investment plan for future wealth generation, a systematic investment plan in Mutual Funds is a good bet. As they say, the earlier you start, the better.

Rupee cost averaging (RCA) is one of the main reasons why I am inclined towards a systematic investment plan (SIP) in Mutual Funds (as against Stocks). In simple terms, because you are investing the same amount every month, you end up getting less units when the price is higher and more units when the price is lower. On an average, this will help you average out the costs over the entire period. This takes away one of the major risks of directly investing in Stocks, which is timing the market. If you don’t follow a SIP approach, you will have to make sure you are buying when the prices are low. How do you ensure you do that month after month? Considering a long term investment approach, rupee cost averaging can even out any market ups and downs in the long term, allowing the investor to gain maximum benefits on his or her investments over time.

Power of compounding is the next important aspect to be considered. We often don’t understand the full impact of this. Consider you are able to invest 10,000/- every month in a plan which gives you 8% interest (standard for fixed deposit bank plans these days). Let us say tax is deducted on the accumulated interest every year at the rate of 30%. If you can sustain this investment plan for 10 years, you will end up having around 16 lakhs. You will have around 44 lakhs by the 20th year and 93 lakhs by the 30th year. Let us say you manage to find a fund which gives you 15% return, in which case you will get around 21 lakhs in 10 years, 80 lakhs by the 20th year and 2.3 crore by the 30th year. If you can invest 50,000 rupees per month at an interest rate of 15%, you will have around 12 crores in 30 years. This kind of multiplication is the power of compounding. Two factors are important here – being steady and systematic and finding a plan which can offer good returns. Traditional bank fixed deposits give you a return of around 8% these days. A good Mutual Fund can give you returns anywhere above 12%, and there are many which can afford 15% or more. You will be generating a lot more wealth for yourself by shifting your investment plan from a classic fixed deposit to a Mutual Funds plan.

Can’t you do all these through Stocks? Yes, you can. But you need to be spending a considerable time each month finding out the best Stocks to invest in the given month. You have to make sure your picks are diversified and risk-free. If you are ready to find a list of good performing Stocks, read up about the companies and keep adjusting your investments by moving it off of a poor performing stock to a better performing stock at periodic intervals, you should be able to beat the 12% year-on-year returns that a typical Mutual Fund offers. But trust me, that is an expert undertaking and will need considerable knowledge and effort from your part. Investing in Mutual Funds is more passive and much more secure for somebody who has another full time job to manage.

Type of Mutual Funds
Once you decide on Mutual Funds, your journey doesn’t end there. You have to decide on the type of Mutual Fund you want to invest in and then narrow down on a specific Mutual Fund within that type. My pick right now is to concentrate on Index funds. Look at this article for an experimental reason - J. In 2007, Buffett took the challenge that an S&P 500 index fund would best a carefully chosen investment in hedge funds over 10 years. Smart call. As The Wall Street Journal calculated last week, Buffett’s chosen Vanguard’s S&P 500 fund (Admiral shares) is way, way ahead with just under 10 months to go.

Some Jargon and some concepts
It is important that you have an investment story and a plan. You should do your own research and find out basics about some funds, observe their performance, invest trial amounts, track progress and adjust your investments accordingly. To understand more about Mutual Funds, the following terms may come handy.
·        Benchmark - A group of securities, usually a market index, whose performance is used as a standard or benchmark to measure investment performance of Mutual Funds, among other investments. Some typical benchmarks include the Nifty, Sensex, BSE200, BSE500, 10-Year Gsec.
·        NAV - The NAV or the net asset value is the total asset value per unit of the Mutual Fund after deducting all related and permissible expenses. The NAV is calculated at the end of every business day. NAV of a mutual fund is the market value of the assets of the scheme minus its liabilities. It is calculated by dividing the value of net assets by the outstanding number of units. In simple words, NAV is the value of each unit of a particular mutual fund scheme on any given business day. It varies day to day as the market value of securities changes every day. NAV helps in determining the price at which an investor can purchase or sell mutual fund units.
·        AUM - AUM or assets under management refers to the recent/updated cumulative market value of investments managed by a Mutual Fund or any investment firm.
·        SIP - SIP or systematic investment plan works on the principle of making periodic investments of a fixed sum. It works similar to a recurring bank deposit. For instance, an investor may opt for an SIP that invests Rs 500 every 15th of the month in an equity fund for a period of three years.
·        Alpha - The simplest definition of an alpha would be the excess return of a fund compared to its benchmark index. If a fund has an alpha of 10%, it means it has outperformed its benchmark by 10% during a specified period.
·        Beta - It measures a fund's volatility compared to that of a benchmark. It tells you how much a fund's performance would swing compared to a benchmark. A fund with a beta of 1 means, it will move as much as the benchmark. If a fund has a beta of 1.5, it means that for every 10% upside or downside, the fund's NAV would be 15% in the respective direction.
·        Standard deviation (SD) - Standard deviation is a statistical measure of the range of an investment's performance. When a Mutual Fund has a high standard deviation, its means its range of performance is wide, implying greater volatility. Standard deviation measures the volatility of the returns from a Mutual Fund scheme over a particular period. It tells you how much the fund's return can deviate from the historical mean return of the scheme. If a fund has a 12% average rate of return and a standard deviation of 4%, its return will range from 8-16%.
·        Sharpe Ratio - This measures how well the fund has performed vis-Ã vis the risk taken by it. It is the excess return over risk-free return (usually return from treasury bills or government securities) divided by the standard deviation. The higher the Sharpe Ratio, the better the fund has performed in proportion to the risk taken by it. Tells how volatile the returns of the fund have been over a period.
·        Entry Load - A Mutual Fund may have a sales charge or load at the time of entry and/or exit to compensate the distributor/agent. Entry load is charged at the time an investor purchases the units of a Mutual Fund. The entry load is added to the prevailing NAV at the time of investment. For instance, if the NAV is Rs. 100 and the entry load is 1%, the investor will enter the fund at Rs 101.
·        Exit Load - Exit load is charged at the time an investor redeems the units of a Mutual Fund. The entry load is added to the prevailing NAV at the time of redemption. For instance, if the NAV is Rs 100 and the exit load is 1%, the investor will redeem the fund at Rs 101.
·        Yield to Maturity - The Yield to Maturity or the YTM is the rate of return anticipated on a bond if held until maturity. YTM is expressed as an annual rate. The YTM factors in the bond's current market price, par value, coupon interest rate and time to maturity.
·        Compounded Annualised Growth Rate (CAGR) - It is the return of a fund from one point to the other after factoring in the time for holding investments. It gives an idea about the value of investment during its tenure. While investments usually do not grow at a constant rate, the compound annual return smoothens out returns by assuming constant growth. For example, an investment of Rs 5,000 over a five-year period has grown to Rs 6,500 and given absolute returns of 30%, which is very high, but the gains are over five years and, hence, the CAGR is 5.38% obtained in the following manner - ((6500/5000)^(1/5))-1. CAGR calculates the growth rate of investment per annum by considering the compounding effect.
·        NPV - Net Present Value - The cash that we have today is more valuable than the cash that we will receive after five years due to inflation. Hence, when you decide to invest money each year, you need to first check how much that money is worth today. This is called net present value of money.Assume IRR is around 8% for project ‘A’. IRR is also called discount rate. To calculate NPV of this project, discount each cash flow with IRR keeping in mind the time lapse. The formula to compute NPV is cash flow / discount rate + 1^N. The term ‘N’ stands for the number of years
·        IRR (Internal rate of return) - usually used to calculate the profitability of investments made in a financial product or projects. Internal rate of return or IRR is that rate of return at which NPV from the above investment & cash flows will become zero. IRR is the rate of interest that makes the sum of all cash flows zero, and is useful to compare one investment to another. Therefore, IRR is defined as the discount rate at which the NPV of a project becomes zero. Higher the IRR, the more profitable it is to invest in a financial scheme or project.
·        XIRR is a more powerful function in Excel for calculating annualized yield for a schedule of cash flows occurring at irregular periods.

How to select the right Mutual Fund?

Within a category the right scheme can be selected based on criteria such as past performance of the scheme, comparison with peer set and benchmark, volatility measures and risk adjusted performance of the scheme, scheme size, expense ratio of the scheme etc.

Growth Vs Dividend
This is a choice which can confuse a novice investor. Dividend option means just that – whenever you Mutual Fund announces profit; it offers a dividend to the investor. The dividend won’t be invested back into the fund. Growth option does just that – ie, the interim profits which are made are invested back to the fund so that the overall wealth grows. So if you are accumulating wealth for future, Growth should be your choice.

Be concerned about expenses
If you start with high costs, whether you’re paying extra for a sales fee, a commission, or in pricey expense ratios, you’re setting the bar higher at the beginning of each year for the investment to outperform the market. What’s the likelihood that will happen every year?
One of the ways of avoiding higher fees is to go for ‘Direct’ plans instead of ‘Regular’ plans. In case of Regular plans, a broker is involved as an intermediary, and he/she often gets a hidden fee of around a 1% of your investments. When this is compounded over the life of your investment, this accounts to a huge sum. Always avoid the middlemen. Do not invest in third party mutual funds from within your Demat account’s dashboard just for the convenience it offers. Your Demat account provider will act as an agent with the Mutual Funds provider and extract a commission from you. Always deal directly with the Mutual Fund.

Annual reviews
So how can you push your portfolio in the right direction and what’s the best way to screen your portfolio for excessively high fees? Consider an investment detox to rid your portfolio of excessive fees. Commit to a regular review, much like an annual checkup and compare your funds to their peers — the easiest way is to type each fund’s ticker into fund tracker Morningstar’s website and look for the category average. Or if you’re working with advisors, ask them to run the numbers.

Three steps for trimming costs:
•Schedule an annual review of investment costs; if you’re a do-it-yourselfer, compare each fund’s expense ratio against its category average on Type your fund ticker in the quote box, click on the expense tab to compare the expense relative to the category average. As an example, check out that Vanguard S&P 500 fund and you can see at a glance its 0.16 % expense ratio has been nearly a full percentage point below the category average over the last few years. And if you’re working with advisors, ask them for a breakdown showing cost comparisons
•Perform the same exercise with your investments in your 401(k)s or IRAs
•If you have an advisor, review your fees there too. There are ample choices to still get help with investment advice at lower costs, including fee-only financial planners and robo-advisors. Even Mutual Fund companies offer guidance

Bottom line
Consider whether the gains you’re getting are worth the haircut you’re taking. Now extrapolate that over a decade or more. Chances are you’ll come to the same conclusion Warren Buffett did: That unless you’re Warren Buffett, the best bet for prospering in the markets is to cut the costs of investing. Index funds are a reliable way of doing that.

Friday, April 26, 2013

Airtel India's unprofessional customer service

I have been using Airtel broadband connection for a number of years now. As long as it works, it works well. Connection speeds are decent and you get a good experience. But once something breaks, you are out of luck as you have to deal with a bunch of unprofessional support staff. They are incompetent, they avoid taking responsibility, and they just close your complaints without fixing the issue and put unrelated and confusing comments on the issue.

Recently my broadband connection became unstable and I have been facing frequent disconnections. I logged a service request on April 23rd. A support staff called me on 24th morning. I wasn’t at him, was at work, and he didn’t visit my home.  He told me there was some jumper issue at the Airtel end and he could fix it and everything was all right and he was closing the issue. I came home in the evening and checked and saw the issue to be recurring. So I logged a second complaint on 24th evening. Next day I got a call from another technician. This time he offered to come home and check. He came in the evening. Checked my modem and told me there was nothing wrong with the equipment at my end. I had rechecked with him if anything was wrong at my end, he confirmed that it was probably a cable related issue at the Airtel end. He did some reconfigurations using my laptop. He left saying the issue was sorted out.

It was fine for some time after that. Now on April 26th I started noticing the issue again.  I called the customer service a third time. The customer service representative checked the previous history and told me that the disconnections were because of a faulty modem at my end. The technician who had assured me that my modem was all right had updated the issue saying it was a modem problem. So much for professionalism and customer service ethics. I am still waiting for my issue to be resolved.

It is really irritating when Airtel just closes off your first couple of complaints without even attempting to solve the issue.

#airtel #airtelin #airtelindia
@airtel @airtelin @airtelindia

Monday, July 06, 2009

Gladiators at Center Court

Who thought someone could match Federer in sheer class? Yesterday Federer could only outlast Roddick and not outplay him. Roddick proved to be the better player, with a bigger serve, with fewer errors and all in all in better control of the situation.

Who thought someone could come out with services which turned out to be mysterious even for Federer? The same Federer who could return with ease the bazooka like serves from the 6 foot 10 inches tall Ivo Karlovic in the quarter finals, whose serves used to be a terror for lesser mortals. Given, Roddick's been known mainly for his serves, but then so far we haven’t seen anybody holding those many service games against THE Federer.

Right from the start Roddick was in an elevated state. Everything went his way starting with the toss, and then the first game, first set and so on. It was amazing to see him coming up with big serve after big serve and then following up with volleys which didn’t let Federer come anywhere near a break point. It was amazing to see Federer not being able to convert all five of his advances to the net in the first 2 sets. Too many, far too many for comfort, unforced errors from the champ’s racquet. Federer was clearly tensed from the word go, and it was evident in his game. He could never come out of that all through the match, and he mentioning the word ‘crazy’ multiple times in the post match interview was not at all a coincidence. His head would have been literally spinning on seeing those extraordinary replies, from the spirited American.

Volleys were rare. It was more of a serving competition. Break points were rare too. The very few and far between 15-40 score lines were rapidly cleared with 2 consecutive aces. Aces were the norm. How can somebody continue to send down aces, as if factory generated, even after toiling on the court for a good 4 hours is still a mystery to me. One could always predict an ace and be bang on the prediction no matter which of the two was serving at crucial points. It was bewildering to notice the stats that Federer was ahead with a 1 to 1.5 ratio in terms of the number of aces. It was Roddick who seemed to be sending down all the aces. Or it may be because we are so used to seeing Federer The God that we aren’t amused much when he pulls out one of his routine tricks. 50 aces in a championship final and still not being advantaged because of them speaks volumes about your opponent.

Full points to Federer for coming back from 2-6 down the second set tie breaker. Reminded of his come back from 2 sets down in his French Open match against Tommy Haas. But then these days you can trust Federer to do these magical come backs if the opponent is not Nadal.

Federer has elevated the standards of not just his game, but the competition’s standard too, so much so that his opponents have started becoming too good for himself. He showed the world so many new things which are possible. And now he sees his opponents closely following him on those so far untrodden paths and at times bettering him in emulating his own tricks. May be we can set aside the discussion about the greatest player ever, and admit that this is the player who has raised the standard of the game so much that there is no distinction among the best of this sport any more. Its only about the sides from which they got up from their beds on the given day.

Roddick wished, worked hard, wanted, toiled, played, elevated his game and over all deserved to be the 2009 Wimbledon Men’s single’s champion. But Destiny’s child was around to deprive him of that. This year Federer won because - It was written. If The Architect appeared on the Center Court and uttered the following words to Federer at the end of the match, I wouldn’t have been particularly surprised , as the rest of the events yesterday afternoon were as much real and believable – “Your life is the sum of a remainder of an unbalanced equation inherent to the programming of the matrix. You are the eventuality of an anomaly, which despite my sincerest efforts I have been unable to eliminate from what is otherwise a harmony of mathematical precision. While it remains a burden assiduously avoided, it is not unexpected, and thus not beyond a measure of control. Which has led you, inexorably, here.”

Sunday, May 24, 2009

Jay Ho!

In the given circumstances, general elections 2009 have produced probably the best result one can hope for. Like the recent state assembly elections in Delhi, Gujrat and MP, voters continued the good trend of electing governments based on their previous developmental policies, rather than based on cast and creed politics.

The fact that this is the best result becomes obvious, when we consider the alternatives. Here are some could have been scenarios.

1. BJP with absolute majority: India will be walking right-bound (or backwards, whichever way you want to look at it) for at least five years in foreign relationships, energy generation, communal harmony etc. Merchants of deaths, culture police gangs, anti valentine day crusaders etc will be roaming our streets freely.

2. Lalu+Mulayam+Paswan gathers 60+ seats and are an integral part of the government: All development work, i.e. the ones which squeeze through the stubborn blockage of these parties, will be concentrated in UP and Bihar, not to mention the personal gains these leaders are going to make for themselves. Whichever govt accepts the support of these parties will be subject to constant arm-twisting from them. Just imagine opportunists like Lalu or Amar Singh deciding our foreign policies or developmental roadmap.

3. Mayawati getting 60+ seats and third front getting simple majority: We will have the honor of being ruled by Behan Mayawati. But then we already had the honor of being ruled by Humble Farmer Deva Gowda, so this prospect might not match in shock quotient. If she becomes the PM, no points in guessing which state will prosper and whose bank accounts are going to go through the ceiling. If she could make all these assets by looting, oops ruling, just a single state, just imagine who will be the wealthiest person on earth in a couple of years.

4. Jayalalitha sweeping TN polls: Instead of DMK, it would have been AIADMK mistaking portfolio allocation meeting for fish market, employing the same tactics of bargaining.

5. Deva Gowda and sons getting enough seats for bargaining: Or stretch that even further and think of a scenario where they get enough seats to bargain for the PM's post. We will see Kumaraswami getting into five different pacts with five different parties to have coalitions of one year tenure each. He will switch his partners five times within the five year term.

So lets just be thankful about the small mercies that come our way every once in a while.

Tuesday, April 21, 2009

Interesting battlefields

28 states, 7 union territories, 542 Lok-Sabha constituencies, more than 5,000 candidates. Going through each and every constituency and analyzing each and every candidate might be a little tedious. So here are some ‘news-making’ candidates, constituencies and regions. I am trying to keep track of these battlefields, comments of the candidates, their allegiances & alliances, their shifts etc through this post.

Bangalore South - Captian G.R.Gopinath- Independent

Aviation czar Captian G.R.Gopinath has decided to contest parliament elections as an independant from Bangalore South constituency.

"I am plunging into active politics due to the dramatic events and developments over the last six months in the country and the world over such as the 26/11 Mumbai terror attack, global recession, economic slowdown in India and unsavory incidents in Karnataka."

"My three-point agenda is to fight terrorism, which is impacting our life in terms of safety, security and economic activity; communal violence and divisive forces, which are rearing their head again, especially in Karnataka after the BJP came to power; and socio-economic development of the country, particularly, infrastructure that is holding up the pace of growth."

"I am not joining any political party as people are disgusted with their functioning. As candidature is decided on the basis of caste, community and ulterior considerations, I have decided to be on my own. Even their manifestos and election strategies are driven by the interests of industrialists and business houses."
Captain Gopinath hails from Gorur in Hassan district, about 250 km from Bangalore. He has turned down support from SP, JD(U) to back him.


Mumbai South – Meera Sanyal - Independent

Meera Sanyal - country head, ABN Amro Bank is contesting on an independent ticket from South Mumbai. Sanyal hopes to bring about a change she truly believes in.

"I have decided to contest the forthcoming Lok Sabha elections from South Mumbai. I have been associated with community development programmes and policy reforms for a long time now and feel that I can bring about some positive changes in our system by participating in the election."

Asked if she had approached any political party for its ticket, Sanyal said "I did not look at all towards any political party to stand as its candidate. I found it difficult to align myself with their ideologies."

"There is no shortage of talent in our country but there is a vacuum of leadership." "We demand that our corporate leaders be honest, we demand the best from them. Then why should we accept anything less from our political leaders," she asked.

Sanyal, who is on leave from the bank till May 15 to concentrate on her campaigning, said she would be contesting as an independent and her entire campaign would be self-funded and within EC's prescribed ceiling of Rs 25-lakh.


Gandhinagar – Mallika Sarabhai - Independent

Danseuse Sarabhai has decided to fight BJP's prime ministerial candidate L.K. Advani from Gandhinagar constituency as an independent candidate. Interestingly, her symbol is a harmonium. Sarabhai who will be contesting against BJP prime ministerial candidate L K Advani and Congress leader Suresh Patel, said that the issues included in her manifesto or action plan, as she calls it, are based on the outcome of her interaction with people in her constituency.

"I have interacted with over 1.3 lakh people and visited over 130 villages in my constituency. The points in my action plan are based on the inputs of people with whom I interacted during the campaign," Sarabhai told reporters. According to her manifesto, she aims to make politicians more accountable and bring transparency to the way they function.

State capital Gandhinagar is also known as the green capital, with the number of trees perhaps exceeding the voters. Housing the secretariat and the official residence of members of the cabinet, a sizeable chunk of Ahmedabad city and Sanand — where the Tatas are relocating their Nano manufacturing plant — now comes under the new limits of Gandhinagar constituency. Victory margin for Mr. LK Advani has remained more than one and a half lakh votes consistently for the last three terms.


Pilibhit - Varun Gandhi - BJP

The only claim to fame of this grandson of an ‘unconverted Muslim’ grandfather and ‘legally converted Muslim’ grandmother, is his hate speech-ability.

2V. M. SINGHINC138038

Thiruvananthapuram - Sashi Tharoor- Congress

The seasoned diplomat and former UN Under-Secretary General Shashi Tharoor was on Thursday (19th March) named the Congress candidate for the key Thiruvananthapuram Lok Sabha seat in Kerala. Tharoor is fielded against Ramachandran Nair, the current Thiruvananthapuram district secretary of the Communist Party of India (CPI) and the candidate of the ruling Left Democratic Front (LDF). Another formidable opponent is Neelalohithadasan Nadar of Bahujan Samaj Party (BSP).

“I speak a simple Malayalam, not the high-flaunting literary variety. And I connect with people particularly well”

“I do represent the educated Indian middle class which has tended to abstain from politics. I have often argued in my writings that it’s a mistake for the middle class to abdicate this political space to others”

“I certainly come from a non-political background. In a parliamentary system, you can’t do an Obama so one has to find a party that embodies one’s ideals and beliefs. The Congress fitted the billing,”

53-year-old Tharoor has authored nine books, including ‘The Great Indian Novel’ and the bestseller ‘From Midnight to the Millennium’.