Start Samvat 2078 With A Bang
Diwali brings with it loads of enthusiasm and a strong positive feeling. This extends to your finances too. And even though last year’s Diwali turned out to be depressing on account of the pandemic, here is how you can look forward to brighter days with good financial planning and the right choice of equity and debt funds
There are four key virtues that the festival of Diwali in India symbolises: a) victory of good over evil, b) illuminating one’s inner self, c) knowledge and d) financial prosperity. As evident, the festival of lights was quite different last year and it is not that hard to guess the reason. Last year the economy, and consequently the equity market, was overturned by the impact of the pandemic. All of a sudden, the world seemed to have turned upside down with fatalities increasing by the day, unemployment numbers starting to zoom up and health concerns taking precedence over everything else. Diwali, as such, turned out to be a dark one.
However, in any critical situation as this one, proper planning and discipline with a little patience can help you appreciate the true essence of Diwali and enhance your personal finances for a better tomorrow. The equity market has been rewarding to those investors who had patiently invested in a disciplined way during the fall. From last Samvat till date, Nifty 50 Total Returns Index (TRI) has surged close to 42 per cent whereas Nifty Mid-Cap 100 TRI and Nifty Small-Cap 100 TRI have ascended nearly 68 per cent and 81 per cent, respectively.
The graph above clearly shows that those who had invested in the previous Samvat have been rewarded quite handsomely handsomely (index values are re-based at 100). In fact, those who were overweight on small-cap stocks or funds dedicated to small-cap stocks would have almost doubled their wealth in the matter of just one year. That said, investors should always diversify their investments. This helps them reduce unnecessary risk. Let us now see the returns that you would have generated if you had invested from Diwali to Diwali.
As seen from the table above, not every Diwali was as wonder-ful as you might have witnessed in Samvats like 2062, 2063, 2065, etc. Moreover, for mid-cap and small-cap some of the Diwalis were not so cherishing when compared to Nifty 50 TRI. Years such as 2012-13, 2017-18 and 2018-19 (Samvat 2069, 2074 and 2075) were the years when mid-cap and small-cap yielded negative returns, whereas Nifty 50 TRI was positive. So, historical data suggests that it was 19 per cent of the times when Nifty 50 TRI failed to make investors happy during Diwali. For mid-cap and small-cap it was 31 per cent each of the times.
Nonetheless, it was Samvat 2065 when investors enjoyed a blast of prosperity with the Nifty 50 TRI, Nifty Mid-Cap 100 TRI and Nifty Small-Cap 100 TRI giving returns close to 94 per cent, 113 per cent and 98 per cent, respectively. On the flip side, the worst hit Diwali was in the year 2007-08 (Samvat 2064) as Nifty 50 TRI, Nifty Mid-Cap 100 TRI and Nifty Small-Cap 100 TRI gave negative returns of 52.1 per cent, 52.9 per cent and 62 percent, respectively. To know what lies in store for Samvat 2078, we first need to check how the markets are valued presently and what asset allocation would make good sense. In order to do that, we would be referring to our Equity Sentiment Index© which is our proprietary asset allocation tool.
Building an emergency fund would help you to have money at your disposal during contingencies such as sudden medical treatment, temporary job loss, etc. Having an emergency fund in place would ensure that you don’t have to redeem money from the investments allocated to your financial goals. Having life and health insurance in place ensures that you and your loved ones are protected from any sudden financial burden which may be in the form of the death of a bread-earner or hospitalisation of a family member.
If you do not have adequate insurance covers in place, then there might be a scenario wherein you might have to divert savings from your financial goals to fund such requirements. Not just that, at times people do need to take personal loans. Investment planning ensures that you are in charge of your financial life and helps you understand where you are investing and for what purpose. This is anytime better than investing in a haphazard way where a person on television tells you to buy a stock with a specified target price or an unethical mutual fund distributor asks you to invest in a fund just because he is earning higher commission from it.
According to the Equity Sentiment Index, presently it is advisable to have 40 per cent in fixed income and 60 per cent in equity. At present valuations, equity is demanding more allocation and fixed income is demanding less allocation.
Moreover, while adopting this asset allocation make sure that you first assess your risk profile and select mutual funds accordingly. In order to make a great start of Samvat 2078, we have come with six mutual fund recommendations from selected categories. These mutual funds are hand-picked based on our back-tested proprietary fund selection methodology. Moreover, investing and managing them both tactically and strategically would help you create wealth over the long term while managing your risk.
We select funds based on both quantitative as well as qualitative basis. We use quantitative analysis for initial screening of funds and use qualitative analysis to hand-pick quality funds. While doing quantitative analysis, we screen stocks based on their assets under management (AUM), long-term performance, consistency of long-term performance, risk and near-term performance. Once we have carried out the screening, we look at an individual fund’s portfolio, its sectoral allocation, concentration, fund manager’s credibility and credit quality in case of debt funds.
UTI Nifty Index Fund - Direct Plan | Growth Option
• This fund has one of the lowest tracking errors, hence almost perfectly imitates the Nifty 50 index
• Falls in first quartile for having one of the lowest expense ratios in the category
PGIM India Midcap Opportunities Fund - Direct Plan | Growth Option
• This fund has emerged as best performing post the PGIM takeover of DHFL Pramerica Mutual Fund
• In the last 10 rolling quarters, the fund’s performance has always been in the top two quartiles
• Beside better returns, fund has even done better in managing the risk as this fund has one of the best Sharpe and Sortino ratio numbers
Kotak Small Cap Fund - Direct Plan | Growth Option
• The investment strategy of the fund in to invest in growth stocks that are available at a reason-able price.
• Low concentration risk, as it has diversified across 69 stocks such that the highest weightage of a single stock is not more than 5 per cent of the portfolio.
• In past 34 rolling quar-ters, it has never been in the fourth quartile in terms of performance. In past 10 rolling quarters, 70 per cent of the time it has been in first quartile
Axis Short Term Fund - Direct Plan | Growth Option
• 80 per cent of its assets are dedicated towards AAA rated papers and government securities
• Exposure to structured obligations not more than 1.27 per cent
• Exposure to long duration papers is not more than 10 per cent
Aditya Birla Sun Life Corporate Bond Fund - Direct Plan | Growth Option
•It is an actively managed portfolio that invests in high quality debt and money market instru-ments with high liquidity.
• High allocations to ‘AAA’ rated papers and government securities and is underweight on ‘AA’ rated papers
• This fund has one of the highest Sharpe ratio numbers and has generated one of the highest alphas in the category
ICICI Prudential Floating Interest Fund - Direct Plan | Growth Option
• It is anticipated that the interest rates are likely to surge in near future and floater funds stands to benefit from the same.
• 55 per cent of the assets is allocated to government securities, whereas 36.54 per cent of the overall portfolio is invested in GOI Securities Floating Rate Bond.
• This fund has one of the highest Sortino ratio and has generated one of the highest alphas in the category