In recent years India’s mutual fund industry has grown at an annualised rate of 12.5%. MFs are a part of every individual’s portfolio. Due to digitisation in the industry, it has now become easier to access to the investments made by the investor. This information comes in form of an MF statement. Let us see how to read one.
An MF statement is like our bank account statement, which gives you a complete summary of your investments.It includes the following:
Personal details – An MF statement will have your personal details such as name, address, PAN, email ID, mobile number and nominee/investor details. If there is an additional MF account holder it will show all details of the other holders as well.
Investment details – In this statement you will find the name of the investment scheme, the category whether a growth or dividend plan, number of units you hold, NAV, current value, cost of investment and dividend earned.
NAV – Net Asset Value (NAV) denotes the performance of a particular scheme of a MF. NAV is the market value of the securities held by the scheme.
Bank account and broker details – The statement will also have your bank account details. This is the account in which the money will go on redemption of the mutual fund. It will also have details of the broker or advisor from whom you have purchased the MF.
Consolidated Account Statement
Consolidated Account Statement (CAS) is a single/combined account statement which gives details of financial transactions made by an investor during a month across all MFs and also other securities held in dematerialised (demat) mode. CAS is generated on a monthly basis in respect of the PANs common to the RTAs and depositories.
It carries information of your sales, purchases and other transactions in mutual funds. This also allows you to track the MF performance without hunting on your old files.
How is CAS created/ calculated?
Depositories like NSDL or CDSL dispatche or generate CAS to investors, in respect of the PANs that are common across RTAs and depositories. The AMCs compute CAS on the basis of transactions and holdings of an investor’s demat account held by NSDL and CDSL. A demat account holds all the shares that you buy in dematerialised or electronic form. Just like your bank account holds cash, a demat account holds the certificates of your financial instruments such as shares, bonds, government securities, mutual funds and exchange traded funds (ETFs).
In respect of MF folios where there is no common PAN between the RTAs and the depositories, the CAS only contains mutual fund transactions.
Contents of a MF statement
A CAS includes following information about an MF and AMCs:
Purchases made by you and transaction-related information like merging or switching of funds, payment of bonus and dividends. Information regarding reinvestment options or New Fund Offer (NFO)Kinds of investment – whether lump sum or a Systematic Investment Plan, Systematic Withdrawal Plan or Systematic Transfer PlanClosing and opening share unit portfolio balanceMode of holding unitsISIN and UCC for each scheme and portfolio
The (ISIN) International Securities Identification Number is a 12-character alphanumeric code used for trading and settlement purpose. It also identifies equity, debt or other securities.Importance of CAS
- a. It helps to understand the ‘health’ of the company
- b. Reduces additional paperwork
- c. Keeps investors informed
Buy low sell high through Smart SIPs, dynamic funds
Investing is all about making profits. Investors need to buy low and sell high. The purpose of this idea is defeated during times when stock markets are expensive and high. Since the amount of Systematic Investment Plan (SIP) in a mutual fund is fixed, the mutual fund SIP keeps on buying high. As a result, your average investment cost may rise higher with each passing month that the market inches up. This problem of ‘buying high’ can be addressed in two ways. One is ‘Smart SIP’, which dynamically adjusts to market conditions every month. So, if equities are expensive, only a small portion of SIP is invested in equity funds and the rest goes into debt/fixed income schemes. The second way is by investing in a dynamic asset allocation fund, where the proportion invested in equity, equity-linked derivatives, and debt is managed actively so that investment in equity is more when prices are low but investment in equity is reduced if the market gets expensive. Dynamic asset allocation funds are offered by fund-houses. Smart SIPs are offered by fund distributors and brokerages. Which one should you choose? DNA Money helps you take an informed decision.
SIPs turning smart
Fund distributors and brokerages have tied up with specific mutual fund companies for their own version of Smart SIPs. These SIP variants, with a minimum monthly amount of Rs 5,000, aim to do the same thing – buy less of equity fund units when markets are high. Invest the rest in debt. When markets fall, buy more equity fund units. In this way, chances of getting better returns are enhanced.
For instance, FundsIndia’s ‘SmartSIP’ in association with Franklin Templeton AMC invests in an equity fund and a debt fund, from the Franklin India stable, every month. By default, the equity fund’s allocation would be 70% and the debt fund would receive 30%. However, allocation to the equity fund and the debt fund will dynamically change every month based on both market fundamentals and momentum factors. In this way, there is no disturbance to the investor’s monthly savings. There is also no need to increase the SIP amount or reduce it. Money from SIP installments is deployed in the equity and debt markets after taking into account the current market variables such as valuations, momentum, market sentiments etc.
Wadiwala Securities also has a ‘Smart SIP’. It uses PE (Price to Earnings) ratio of index as the indicator of market valuation. When market/index are quoting at more than 19-20 times its earnings, the Smart SIP puts new money of investors into debt. Money invested in debt is waiting to be switched to equities. When market valuations are extremely high, it will switch the complete investment from equity to debt. This money will be moved back to equity when valuations turn attractive. The broking house’s website shows that this Smart SIP facility uses funds from HDFC MF.
According to Srikanth Meenakshi, co-founder and COO, FundsIndia.com, the primary advantage is that SmartSIP has the potential to return higher. “In our back-test analysis over the past 10 years, SmartSIP has given up to 2.6% higher CAGR than a regular 70:30 (equity:debt) SIP. On an average, the outperformance has been 1.6% CAGR,” he says.
From the customer’s perspective, this behaves exactly like a regular SIP – a fixed amount of money gets debited from the bank account and gets invested in a portfolio of funds. “There is no new learning or understanding required from the customer to get going with SmartSIP. All decisions regarding monthly allocation are made by experts taking into account the situation in the equity market. The monthly allocation is transparently disclosed to the investor prior to every SIP installment, including the reasoning that went into deciding the allocation,” says Meenakshi.
Dynamic Asset Allocation or Balanced Advantage Funds invest in a mix of equity, equity-related instruments and fixed income securities without any upper cap or lower limit on their exposure to such asset classes. “These funds are free to dynamically change their exposure to various asset classes from 0-100% of their total portfolio on the basis of their in-house quantitative models, which typically have underlying valuations as the variable,” says Naveen Kukreja – CEO& Co-founder, Paisabazaar.com.
These funds can also hedge their equity exposure through positions in equity derivatives to reduce the risk to their equity portfolio and qualify as equity funds for taxation purposes.
So, if you invest in a dynamic asset allocation fund, you don’t need to worry about two funds – one equity fund and a debt fund. Also, dynamic asset allocation funds are different from other hybrid funds. Other asset allocation funds like balanced funds, monthly income plans, etc, come with a pre-set percentage range of allocation for various asset classes. “These funds too can change their portfolio asset allocation depending on various market factors, but only within their pre-set asset allocation ranges determined by the Sebi’s fund categorisation regulations,” points out Kukreja.
Smart SIP vs dynamic funds
While Smart SIPs and Dynamic Asset Allocation funds aim to do the same thing, there are some differences. “The allocation of investors’ money is fully disclosed every month in a transparent manner with SmartSIP. Not so the case with dynamic funds,” says Meenakshi.
The second difference is that in case of dynamic funds, the asset allocation and investment decisions are taken by the MF management team. “In case of these SIP variants, the asset allocation decision appears to be taken by the MF distributor or brokers’ team. They rely on some in-house model to decide how much of equity and how much of debt every month. Of course, once it is decided how much goes into equity and how much goes into debt, the money will be invested in schemes with good fund managers,” says Rajesh Sharma, an investment expert.
The third difference is that though dynamic asset allocation funds are free to dynamically change their exposure to various asset classes from 0-100%, the funds rarely go for 0% equity. Technically, Smart SIPs can go much higher or much lower depending on market conditions, giving them the real power to be dynamic.
Doing dynamic asset allocation on your own
What are the problems if someone does the job of dynamically changing asset allocation on their own? It would require constant observation of changing market trends and valuations and appropriate changes to the investment portfolio. As this requires knowledge and skill-sets that most individual investors may lack, poor market interpretation and wrong decisions may increase the risk of loss and missed opportunities.
Frequent portfolio rebalancing may also increase your investment cost through exit loads and short-term capital gains tax. Thus, dynamic asset allocation funds save individual investors from the complicated task of asset allocation and help reduce the cost associated with the frequent rebalancing of the portfolio,” says Kukreja.
SPREAD YOUR RISKS
- By default FundsIndia’s SmartSIP invests 70% in equity fund and 30% in debt fund
- Dynamic asset allocation funds change their exposure to various classes from 0-100% based on quantitative models
- R Wadiwala’s Smart SIP puts new money into debt when market/index are quoting at more than 19-20 times it earnings
Use SIP variants to build wealth in tactical manner
The popularity of Systematic Investment Plan or SIP has seen a tremendous uptick in recent period with about 2.49 crore active SIP-accounts coupled with total inflow of Rs 7,985 crore during October 2018. The mutual fund industry has clocked a staggering inflow in recent times, with total Asset Under Management (AUM) of Rs 22.23 lakh crore as on October 2018.
The attainment of maturity and understating among investors about MF and its tools has also seen a paradigm shift in its offering, which goes beyond regular SIP. A different variant within SIPs have also helped to increase efficiency to build wealth with much convenience.
However, given the dynamics in investing as well as in stock markets, there is a need to go beyond regular SIP. Few fund houses are providing proprietary models of investing similar to SIP. Following are variants of SIP which are relatively more effective than regular mode:
This is one of the basic variants of SIP, which is helpful for those who expect to have surplus cash flow in future. As incomes of investors go up, savings portion also goes up in an equal portion, which can be used for SIP top-up. This helps to build substantial wealth in the long run, as compared to constant fixed amount. Suppose one starts a SIP of Rs 1,000 and commits to top-up every year by Rs 1,000 over 25 years, then by the end of the tenure it will accumulate about Rs 54.78 lakh, against Rs 27.57 lakh in a normal fixed SIP.
One missing element in normal SIP is that there is no value averaging, as a fixed sum is debited periodically irrespective of movement in Net Asset Value or any chosen variable. But in a value SIP, the amount deducted will vary on the basis of an underlying variable. It can be NAV movement or Price/Equity of the underlying benchmark.
For instance, if investment starts with Rs 1,000 every month and appreciates to Rs 1,500 by month end, than in next month it will deduct only Rs 500 as there is surplus which will be diverted to debt scheme or kept in same scheme. Similarly, when it depreciates to Rs 900, it will invest Rs 1,100 next month. By doing this, it helps the investor to earn extra alpha of 1-3% over a period of time.
Another suitable variant of SIP for investors with surplus cash is staggered SIP, which can be done on any random period depending on availability of cash or foreseen opportunity in market. It typically follows a lumpsum approach, which is invested on periodic basis like SIP with variation in amount. However, investor should remain active as it is typically lumpsum investment where technically investor does additional purchase in existing investment. This helps to exploit the opportunity arising in market or scheme at any given period, which maximises returns and averages the cost of purchase.
MF tools such as SIPs and the variants have helped many retail investors to build meaningful wealth in a tactical manner with more efficiency than a traditional mode of investment. It has made availabile choices for investors depending on their needs. But it also demands a basic attention of investors to understand these variants and accordingly follow the one that suits their requirement.
To keep emotions of fear and greed away from investment, SIP has emerged as a boon for investors, particularly for those with limited understanding of markets. Investors can give standing instructions to debit money from their bank account irrespective of those emotions. The investible amount can be as low as Rs 500 per month, which provides greater reach across demographic along with discipline of regular investment.
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