16

TIMES PERSONAL FINANCE

BEST
FUNDS
TO BUY

Equity: Large Cap

1 Year

3 Year

5 Year

5.44

23.02

16.14

ICICI Prudential Value Disc

Birla Sun Life Top 100 Fund

3.46

21.84

14.18

Franklin India High Growth Co

0.9

Reliance Top 200 Fund

-1.72

21.55

12.82

Birla Sun Life Advantage Fund

5.53

SBI Bluechip Fund

Equity: Mid Cap

Equity: Multi Cap

1 Year
5.29

THE TIMES OF INDIA, MUMBAI

MONDAY, JULY 11, 2016

3 Year

5 Year

32.84

19.75

Hybrid: Equity-Oriented
HDFC Balanced Fund

5.78

29.74

18.51

Tata Retirement Savings Fund

3.42

22.9

--

28.43

15.34

L&T India Prudence Fund

6.08

22.55

15.25

Equity: Tax Planning

1 Year

3 Year

5 Year

23.47

14.69

Debt: Income

Mirae Asset Emerging Bluechip

11.24

38.64

23.87

Reliance Tax Saver Fund

0.61

29.06

17.19

ICICI Pru Banking & PSU Debt

10.2

9.08

9.41

UTI Mid Cap Fund

6.61

38.57

21.6

Axis Long Term Equity Fund

1.32

27.81

19.55

Birla Sun Life Treasury Op

10.03

10.49

10.15

JP Morgan India Mid & Small

1.99

33.34

20.47

Birla Sun Life Tax Relief 96

4.7

26.24

15.5

DHFL Pramerica Medium Term

9.72

--

--

33

return in
past three
years

The three-year
returns of ICICI
Prudential Value
Discovery are the
highest in its
category.

Figures are % returns. 3-year and 5-year returns are annualised.

Can you invest on your own?

Managing your money may seem easy but not everyone has the necessary skills
also assess your ability to invest prudently and handle debt.
You also need to assess your requirements. If all you need is basic
investment guidance, go to a robo advisory firm that will suggest a clutch
of funds for a small fee of `1,000-2,000.
Or you could go down to your bank
where a wealth manager will roll out
investment advice for free. But there is
an invisible cost of such free advice.
You might want to invest in a mutual
fund but could end up with a low-yield
insurance plan or a pension plan.
A 360 degree plan that encompasses
all aspects of your financial life will
cost more, but will yield infinitely better results than an unbundled approach
that places investments into unconnected silos. A full-fledged financial
planner will assess your risk profile,
cash flows, insurance needs, and even
your vacation plans (see graphic) when
preparing a financial road map for you.

Babar Zaidi

ower charges, suitable investments and insulation from missellingthere are many reasons
why individuals should invest in
financial products without an
intermediary. The spread of online facilities and the availability of research
data have made do-it-yourself investing
easier and more rewarding in recent
years. The best example of this is online
term insurance plans that are 30-40%
cheaper than regular policies. A 30-yearold man will pay `18,000 a year for a cover
of `1 crore if he buys offline. But the same
life insurance cover can be bought online
for about `12,000 a year.
Mutual funds too can be bought directly. Direct plans have lower charges
than regular plans because they dont
have to pay distributors commission.
Lower charges mean higher returns for
investors. If the regular plan of a fund
generates 10% returns, the direct plan of
the same fund will yield 10.5-10.75%. An
SIP of `10,000 in the regular fund will
accumulate `Rs 76.6 lakh in 20 years. The
same investment in the direct plan will
grow to `81.8 lakh. The additional `5 lakh
is the savings on the commission paid to
the distributor. This is why many investors have switched to direct plans. Since
their launch in January 2013, direct plans
have garnered almost 37% of the total
industry AUM of `13,53,158 crore.
Understandably, distributors are
miffed with Sebi for introducing direct
plans. They contend that lower costs do
not mean that direct plans are better or
that the investor does not need guidance.
The regulator seems to believe that the
cheaper product is always better than the
slightly costlier one, says Delhi-based
fund distributor Tamanna Varma.
Indeed, direct plans may be cheaper
but they are not meant for everyone.
Bengaluru-based marketing professional
Avinash Chandnani travels a lot and
hardly gets the time to study his investments. I prefer to invest through a broker who fills me in on the funds I need to
buy, he says. Delhi-based Balbir Kaur is
investing in mutual funds for her sons
education but has no clue about the various schemes. She relies heavily on the
distributor to choose the scheme for her.
At the other end of the awareness
spectrum are informed investors who
know which scheme suits them best.
These investors have switched to direct
plans to gain from the lower charges of
these schemes. Direct plans of equity
funds alone account for `49,527 crore.
At the same time, not all the investments in direct plans is smart money.
Some laggards have also seen inflows in
the past three years. HDFC Large Cap
Fund has consistently underperformed
the category over the past three years but
its direct plan has an AUM of `27 crore.
Similarly, Sundaram Growth Fund and
Sundaram Select Focus are chronic underperformers, but their direct plans
have a combined AUM of `10 crore.
These amounts are minuscule compared to the total AUM of direct plans,
but they underline the importance of
choosing the right fund. Investors in the
direct plan of HDFC Large Cap Fund
could have earned much better returns
from other equity schemes from the same
fund house. HDFC Equity Fund has given
20.5% compounded returns in the past
three years. HDFC Large Cap churned

10 THINGS TO EXPECT FROM

A FINANCIAL PLANNER
A good financial planner will:
Do a thorough risk profiling
to know your ability and
willingness to take risks and
accordingly establish an
asset allocation strategy.

Ensure that you have

adequate life, health and
asset insurance.

Draw up a list of goals with

timelines and chalk out an
investment plan to achieve
them.

Update you if there are any

changes in rules that could
impact your existing or future
investments.

Give you enough time to

make decisions.

Recommend investments
with your interests in mind
and explain risks and
features of the recommended
products in detail.

Manage your tax filing and

other tax related issues.
Recommend a strategy to
manage your debts and other
liabilities.

Diversify your investments

across asset classes and not
make frequent or tactical
changes in the plan.

out only 10.79%.

Of course, this does not imply that
mutual fund distributors can help you
take the right decisions. If they did, the
AUM of underperforming funds would
have g radually shifted to better
schemes. But an estimated `7,500 crore
is languishing in chronically underperforming equity funds. Why didnt
the distributors who sold these funds
alert investors when the schemes were
underperfor ming and get them to
switch to better funds?

Are you
fit to be
a DIY
investor?
Take this test
to find out if you
can manage
your money on
your own.

Recommend estate planning

to distribute your assets
among heirs.

Do you need an adviser?

The big question is, should you invest
on your own or pay somebody for guidance? The answer will depend on your
knowledge of money matters and your
financial situation. As we mentioned
earlier, DIY investing can be very rewarding. But it also requires a lot of
time, effort and discipline. Take the test
below to know whether you are in a position to manage your money yourself.
The questions not only test your knowledge of financial products and rules but

How much of your income do you

save every month?

1
A

Up to 25%
10-20%

Less than 10%

No savings after expenses

How much is the average balance
in your savings bank account?

2
A

Less than `1 lakh

`1-2 lakh

`2-3 lakh

Over `3 lakh

Have a vague idea but never checked

Have no idea of portfolios asset mix

Utilise your contingency fund

Liquidate some assets

Use your credit cards

Take a loan
Do you know the asset allocation
of your portfolio?

Yes, and rebalance every year to

maintain it

Yes, but have not fixed an asset mix

Have set financial goals and started

saving

Started saving but not defined goals

Have defined goals but not started

saving

Have not set goals nor started saving

A
B

Fully understand each product I have

bought
Except a few, I understand most
products

Can understand only a few investments

Financial matters too complex for

me
How much is your life
insurance cover?

7
A

More than five times my annual

income

About 1-2
times my
annual income

Less than
my annual
income

No life insurance cover

Keep asking questions

Putting your money to work is crucial. Ask around and
explore all your options to make the right choices
Uma Shashikant

young couple met me last

week. They have decent jobs,
are optimistic about the future and keen to learn. They
have managed to make a home
together, as well as deal with their extended families rather well, but when the
conversation turned to money, they became uncomfortable. They had a large
sum sitting in the bank, but didnt know
how to invest it. They were new to the
world of investing, and were reluctant to
ask stupid questions.
Any teacher will tell you that there
are no stupid questions. But many otherwise well-informed people do not feel
comfortable seeking clarifications about
money. They assume that everyone
knows exactly what to do when it comes
to investing, and they are among the minority who seem lost and stupid. While
fighting this reticence, their hard-earned
money is either not invested or invested
poorly without a plan. Let us consider
the questions many are reluctant to ask.

First, how much should be invested?

Money has three simple uses in a household. First, take care of routine expenses;
second, cover unexpected expenses;
third, provide for large future aspirational expenses. The first one needs a
regular income, the second needs insurance and an easily accessible emergency
fund, and the third calls for investment
in growth assets. Divide your income
into these three piescash, income and
growth. If your money is lying idle, you
are sacrificing the long-term uses of your
wealth for the current comfort of seeing
a fat balance in the bank account. Invest
surpluses regularly and routinely.
Second, what if the money invested
is needed for something else? You can
always provide for those needs by defining them in advance. Insurance is a
cheaper precaution to take for unexpected events related to life and health. For
emergencies that cannot be covered by
insurance, you can earmark some money
and ensure that it is accessible. Investment products with lock-ins, penalties
for withdrawal and restrictions on access
are so yesterday. If you have to use such
products to get a tax benefit, do not go
overboard and bind yourself to unaffordable payments. Keep investment commitments flexible till you manage to build a
sizeable amount of wealth. Do not commit to very high insurance premiums,

GIVE
YOURSELF
POINTS ON THE
FOLLOWING BASIS
A 4 POINTS
B 3 POINTS
C 2 POINTS
D 1 POINT

Over `5 lakh cover for self and family

`2-3 lakh cover for self and family

Group cover from employer

No health insurance cover

No, I have never been denied a loan

Lender asked for some clarifications

Lender refused at first but later

agreed

Yes, lender has refused to

give me a loan

THIS WEEK

THE STOCKS YOU

SHOULD PICK NOW
Invest in the right companies to ride
the themes influencing the market
at present

YOUR DIY SCORESHEET

Then add up the score to know
where you stand.
OVER 30 POINTS: DIY STAR

24-30 POINTS: GETTING THERE

You have a fair idea of financial products. With a little
more research and reading up, you can manage your
investments yourself.

Your knowledge of investments and finance is not

very deep. It will be better if you seek guidance from
experts instead of managing your money yourself

LESS THAN 15 POINTS: SEEK HELP

You are obviously not in a position to manage your
money yourself. A qualified expert can put your
finances back on track. You will gain much more than
the fees he will charge.

SAVE RETIREMENT
KITTY FOR YOURSELF

COVER STORY
Now on
Android
& iPad

The author is Chairperson, Centre for

Investment Education and Learning

16-23 POINTS: NEED GUIDANCE

Have you ever been

denied a loan?

VPF, home EMI or gold instalment plans,

assuming that these are discipline products that will compel you to save.
Third, is it better to invest in a safe
low return product than a risky product
whose return is not known? Investing
choices are similar to choices you make
about your food. If you chose a bland
bowl of porridge, you may be making a
safe choice, but may lose out on variety,
nutrition and long-term health. You can
assemble a varied set of investments that
will work for you, which is also a better
strategy to manage risks. Begin small
and build over time, but always choose a
diverse set of products. Too much of your
wealth in property, gold, PF or the equity
shares of the company you work for,
might turn out to be risky.
Fourth, will money lose value if it is
invested? Actually it loses value when
not invested. Many of us take a hoarders
view of wealth and assume that accumulated money is an asset. We fail to take
inflation into account. While we love the
common argument about how things are
becoming expensive with time, we fail to
see that our finances have to keep up. If
inflation is 6%, in a year, what costs `100
today will cost `106, and `100 set aside
today, will be worth just `94. While we
worry about rising costs, we should also
fight inflation as an investor by actively
preventing our money from losing value.
When we invest, we put our money to use
and if we choose well, we can fight inflation quite efficiently.
Fifth, how can you be sure that the
money will be safe? Do the usual diligence checks that we carry out for any
product we buy. Invest only in trusted
names that have track records that you
can check. Many investors assume that
a promise of return refers to the safety
of investment. Safety in the modern financial world comes from the process,
not the product. Our money is safe only
when the entity we give it to is trustworthy. How our money is used by that entity determines our returns. Learning to
invest is finding out who is using our
money in the market, for what purposes
and how.
Sixth, what if the markets crash and
we lose the money? If you have a regular
job, this is not at risk. If you are able to
meet your expenses and have some money
in the bank afterwards, you are doing fine.
When you invest, you are deploying your
surplus so that it can grow in value over
time. There is no investment avenue that
will ensure that money grows at a steady
and fixed rate, just as there is no tree that
will grow a single leaf each day. The ups
and downs of investing are like the seasons of spring and fall, and if the roots are
fine, your tree will be fine. You will be doing yourself a favour if you refrain from
checking the value of your investments
and feeling rich or poor by turn. Over the
long term, everything averages out.
To begin investing, it is important to
be able to clearly make the three-way
split between cash, income and growth.
Proportions are not too important as long
as the split is well aligned with your current situation. With time you will find
that your savings, and therefore your
growth portfolios, are appreciating in
value, and there will be enough to provide for your aspirations. Putting money
to work is what really matters.

Congratulations, you have it in you to manage money

on your own. By cutting out the intermediaries, you
can save big on commissions and insulate yourself
against mis-selling.

How much is your health

insurance cover?

Do you understand the

investments you have made?

BROUGHT TO YOU BY

STAY UPDATED
WITH THE SIMPLE WAYS
OF MAKING MONEY.

Which of these statements is true

for you?

In an emergency,
you will:

Where DIY can go wrong

The problem with DIY investing is that
many people dont even know where
they go wrong. Bengaluru-based businessman Rahul Sharma fell for a simple math trick when he bought a term
plan of `50 lakh with a return of premium option. He will pay `33,000 every
year and get back roughly `10 lakh after
the policy ends in 30 years. Thats the
best part of the policy. It will return the
entire sum that I will pay over 30
years, he says. A regular term plan of
`50 lakh would have cost Sharma `17,000
per year. If he invested the remaining
`16,000 in the PPF to earn a modest 8%,
he would accumulate `18 lakh in 30
years. A financial adviser is a safeguard against ones cognitive biases,
says financial planner Hansi Mehrotra.
Greed and fear often make investors
lose sight of their plans. The Sensex
tanked almost 1,000 points after the
Brexit vote and closed the day with a
604 point loss. While individuals may
panic in such situations, financial planners can have a calming influence on
the investor. A financial adviser is like
a sherpa who guides investors through
the ups and downs and gets them
across safely, says Sanjiv Singhal,
Founder, ScripBox.
Discipline is the other hurdle that
DIY investors can encounter. Studies
have shown that annual rebalancing
of the portfolio can yield better retur ns than any other investment
strategy. Investors are required to
take difficult decisions when they rebalance, but they often avoid doing so.
Its here that the unemotional approach of a financial planner is particularly useful.
DIY is common in tax matters too,
with the majority of taxpayers opting
for the free filing of their tax returns.
However, taxpayers who file free may
be paying a heavy price for this service.
Tax filing portal Taxspanner studied
returns of assessees and found that
68% of taxpayers pay more tax than
their peers. These individuals could
save thousands of rupees by taking
advantage of the various exemptions
and deductions available to them. For
a small fee, a tax expert can guide them
through the process and reduce the tax
amount they pay significantly, says
Sudhir Kaushik, Co-founder and CFO
of Taxspanner.

Source: Value Research

Most Indian parents spend the

money to fund goals of kids

FOOD WASTAGE CAN

COST YOU `80 LAKH
Indians waste as much food as
the whole of UK consumes

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