CAPITAL LETTER

Volume 3

Issue 10

October 10, 2011

A pretty sweet deal

Greetings from FundsInd ia!
The new direct tax code (DTC) is going through an interesting phase. It is supposed to go into effect
starting April 1, 2012, but it has not yet been passed by our parliament. So its status, as of now, is up
in the air.
This is a sort-of good news for mutual fund investors. The draft DTC took ELSS funds (tax-saving funds) from the list
of 80-c investment options and restricted it to long term deposits, insurance, PF and infrastructure investments. As
mutual fund investor around the country know well, ELSS funds are the best tax saving investment vehicle available
due to the twin benefits of
a. Lowest lock-in period of 3 years
b. Fullest participation in the diversified equity market promising good returns.
So, the tax-exempt invested money grows in a tax-free manner for three years (at least) and yields tax-free gains to the
investors. This was a pretty sweet deal that was under the axe in the new DTC.
But, that is for the next year to worry about. We know for sure that ELSS funds will be available this year as an taxexempt avenue of investment. At FundsIndia, we have put together recommended schemes for this year's ELSS investments. Please login to your account, and check out our pre-packaged portfolio to find our recommendations.
As you probably already know, the infrastructure bonds have also started coming out, and no surprise, they are available on our platform as well. Currently, we are carrying the bonds (20K separate tax benefit under 80-CCF) from IFCI.
Please check out both these options and start planning for your tax savings today. The day is not far off when your HR
department will start asking you for these statements!
Also, while you are at it, please check out our new SIP portfolio designer - it is available in the SIP setup page on top as
a "New" feature. We have put in quite a bit of thought into this feature, and would love to hear your feedback!
Happy Investing!

FundsIndia All Insurance Ranking FAIR

FAIR is designed for individuals
and families, to simplify their insurance buying decisions. It
helps you choose the insurance
plan that gets the most out of the money you
invest in it. In its first avatar, it ranks the
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Login to
http://www.pelicaninsuranceonline.com/
content/jsp/Insurance/FairRankingInsurance.jsp
to see how your policy ranks in our
FAIR rating!

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

IFCI Infrastructure Bonds

IFCI Infrastructure bonds, now available at FundsIndia.com
In 2010, the government introduced a new section 80CCF under the income tax act to provide for income tax
deductions for subscription in long-term Infrastructure Bonds. These bonds offer an additional window of tax
deduction of investments up to Rs. 20,000 for the financial year 2011-12. This deduction is over and above the
Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE. Infrastructure
bonds help in intermediating the retail investor's savings into infrastructure sector directly.

Why invest in IFCI Infrastructure Bonds?

Complete online application process - Apply in less than 10 minutes

IFCI Bonds offer an additional window of tax deduction of investments up to Rs.20,000 for the financial
year 2011-12

This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and
80CCD read with section 80CCF

How can you apply for it?

When you are ready, click on the link below

https://www.fundsindia.com/content/jsp/corporate/ifci_LP.do

Click on the BUY button and fill out the necessary details, including Demat account information.

You will be taken to a page where you can make online payment using netbanking for your investment

Please note that we support 26 banks for making online payments including ICICI, and Axis bank

Once you complete your payment, download the application form from the download section, sign and send us
back the form. If you have opted for physical mode send us the signed application form along with your supporting KYC documents. You are done making the investment.
Click here to start investing now! -

https://www.fundsindia.com/content/jsp/corporate/ifci_LP.do

Deposits from Top rated Companies

Company Name

Rating

1 Year

2 Year

3 year

HDFC LIMITED

FAAAA

9.5%

9.65%

9.75%

ICICI HOME FINANCE COMPANY LIMITED

MAAA

8.25%

8.75%

8.75%

LIC HOUSING FINANACE LTD

FAAA

7.0%

7.4%

7.65%

MAHINDRA AND MAHINDRA

FAA

9.5%

10%

10.25%

SHRIRAM TRANSPORT FINANCE CO.LTD

TAA

9.25%

9.75%

10.75%

DHFL

AA+

10.25%

10.25%

10.25%

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

A Long Road Ahead

BY DHIRENDRA KUMAR

If you are above a certain age, then you would vividly remember particular dialog from
Sholay. Gabbar Singh is boasting to his henchman about how scared people are of him.
jab baccha rota hai, says, toh maa kehti hai ki beta so ja. So ja nahin toh Gabbar Singh aa
jayega. Theres a stock market equivalent of this line, whereby an investor warns another
one not to buy anything on the markets right now because FIIs might start selling (you can
imagine the actual line).
Over this last decade, the biggest change that has happened in conversations that investors have with each others and their brokers is the outsize role that the foreign institutional investor has taken on. All of us who analyse the markets have got a narrative about
how the markets have gone up because of the tremendous growth in the economy and in
Indian businesses. But thats not the way the markets work. Stock prices dont go up as an
automatic reward for growth.
First, someone with the ability and the willingness to invest has to notice that growth, take a call that the growth will
continue and then put down actual money. If enough investors do this in large enough volumes, then and only then
will the markets follow. Its important to note that temporal direction of the cause and effect here: investors have no
interestand rightly soin past growth. They invest in expectation of future growth. The past is important only as a
guide to the future.
In India, the role of leading the market, by the nose, as it were has been played by the FIIs for a long time now. Now,
Im not one of those who think that FII investment in India this is automatically a bad thingits not. By itself, its a
great thing. However, what is a bad thing is that there is no meaningful domestic long-term equity investment. This
effectively short-circuits the broader role that the equity markets should be playing.
The equity markets in a growing economy are a two-way contract. Businesses get access to capital and investors get
chance to get far better returns than they would get through fixed-income investing. Unfortunately, this contract
doesnt function in India. Lets look at the various ways in which investors long-term savings can reach the markets.
The traditional first answer is direct retail participation in buying stocks, preferably in IPOs. Unfortunately, IPO investing in India is entirely about punting on the first day price now. Those who invest in IPOs believe (and theyre
mostly correct) that IPOs will be priced and timed in such a way that theres no way of making money except to find a
greater fool on the first day. For the better part of two decades now, various tricks have been tried to entice the retail
investor to invest in IPOs. These tricks no longer work, something that is probably evidence of good sense on the part
of retail investors. Meanwhile, growing businesses that could genuinely have been part of a robust IPO markets go to
foreign PE funds and the like for equity.
Another major channel for long-term equity investments are of course mutual funds. Funds have sort of succeeded
but its the kind of success that, in the larger scale of things, is not meaningful.
Indias mutual funds manage equity investments that are currently worth Rs 2 lakh crore. This is the cumulative
amount total grown over the years. From an investment point of view, fresh inflows are nothing. In the last 24
months, net equity fund inflows have been Rs 1,430 crore. This sounds like a lot of money, but when you put it in
perspective, its a drop in the ocean.
However, this vision all but dead. The latest is that a parliamentary standing committee has said that NPS members
should get a guaranteed return that is at least as much as the EPFOs returns. Effectively, this means that the NPSs
journey to becoming yet another government-guaranteed fixed-income scheme is well on its way.
Its a depressing story. The basic cycle of the capital marketswhereby household savings get deployed in good businesses and the households get owner-like returnsis completely broken. On the one hand, business are starved of
equity capital and on the other the capital markets are the abode of short-term punters trying to manoeuvre some
profits out of the ebb and flow of short-term foreign money.
-Syndicated from Value Research Online
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

How to invest in turbulent times

P V SUBRAHMANYAM

The market has gone nowhere in the past 4 years. When your financial planner / relationship manager / advisor told
you that equities are for the long run he/she also said long run means more than one year, correct? Well you invested when the index was 20000 and after that the market has just gone down. First it went all the way to 9000 and
then it came up to 20000, but now is at 17000.

Far more importantly the shares that you bought and the mutual funds in which you invested have fallen by almost
40%.

Your advisor has started some other business, and is now not taking your calls. Your wife is screaming at you for putting HER money into direct equity and she is not able to withdraw it for her sisters wedding. She had promised
her dad she would pay Rs. 100,000 for the same, but the shares are worth only Rs. 62,000! You are at your wits end.

What is to be done?
Just go back in time. Rewind to Diwali 2005. All the bulls including die-hard bulls said the market would have done
great if it ended Diwali of 2006 at the same index as Diwali 2005. No expert was willing to brave even a 9000 call.
What actually happened? Just go back to your older files, and refresh. The market made these bulls look ordinary.
January, February, March. the markets cross 11,000 then April sees 12,000. Then, we celebrated. We made 12,000
stickers and stuck it all over the place. We made T-shirts, mugs and celebrated 12,000.
We assumed that the market is a place where there is no downward risk!
Let us rewind even further, say 1993 to 1999. The year 1993 was perhaps the worst year in the equity market and was
a virtual bloodbath. Markets lost 46% in the financial year ending March, 1993. The returns for the years from 1993
to 1999 are as follows:
-46, +65, -13, 3, 0, 15, and -3.

An arithmetic mean is 3 of these numbers is 3. So we assume that if you had put Rs 10,000 in 1993, you would have
got back 10,300 in the year 1999, correct?
Well let us see what would have actually happened:
1993 you would have got -46 and your corpus would have reached Rs. 5400.

1999 you would have got

Year

Increase / decrease in value

Value of Sensex

1994

65

8910

1995

-13

7984

1996

7984

1997

7984

1998

15

9181

-3% and your corpus would have reached

8906

Over the years this is what would have happened to your Rs. 10,000 now include 2% amc chargesand that would
be even worse
Well it would have been worth Rs. 8906, and not 10,300.
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

The year 2000 was a good year and gave a return of 33% so yes you would have RECOVERED your capital. In the
national savings certificate it would have doubled.

The key takeaway, The market will do what the market will do. You have to do what you have to do.

Markets will be volatile. You will see a sensex of 15,000, 18000, 20000 and even perhaps 25,000 in a 12-month period. As a rule everybody loves a bull market. So the FM, the SEBI Chairman and everyone else will look worried and
will try to talk up the market.

Keep in mind for 3 years we have believed that markets cannot come down, and interest rates cannot go up. That
might be about to change. We believed that a 2-day fall would be followed by a rise. We believed that the market is
fairly valued at 3000, 5000, 8000, 10000 and 12000. We may rethink. We believed that you could go to the terminal
in the morning and come back richer at the end of the day with Rs 5,000 or Rs 50,000 simply by buying. The bigger
you bet, the greater was the gain. We may rethink on that. We believed that we could build our own portfolio and
save the asset management charges that mutual funds charged. We may rethink on that.

The lessons are very simple.

1. Asset prices fluctuate and they are inversely related to the interest rates. Markets are but an asset class.
If it goes up, it will come down.
2. Individual investors will come, conquer, panic and leave. FIIs will do similar things. You need to act
sane. Nothing changes in the economic situation. The solution lies in having an investor mindset
rather than a trader mindset.
3. If you have money for the long run (I mean 4-5 years at least) you should be in the market. If you need
to pay your EMI by selling shares, you should be praying in a temple.
4. If you have an advisor who says 1 year is long term, get another adviser. If your CA says 1 year is long
term he means the Income tax act, not the equity markets.
5. If you think you understand arithmetic mean, please go back and learn geometric mean, harmonic
mean, standard deviation, median and mode.
6. Equity markets have returned about 22% over long periods of time with reinvestment of dividend,
but please note all calculations ignore taxes and fund management costs. If you include that the final
result is not so rosy.
7. It can take the market say 10 years to touch the previous high. In markets like Japan, it only made new
lows!
8.

Be patient do a SIP in a good big fund from a good fund house. If you are worried about fund manager risk, just put it in an index.

- Syndicated from Subramoney.com

http://www.subramoney.com/2011/10/how-to-invest-in-turbulent-times/

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Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.