Mutual funds are popular in equity & debt.
But, there are other categories that can play a vital role in portfolio!
Attended an insightful Twitter spaces:
hosted by @iRadhikaGupta & @avasthiniranjan
with @invest_mutual @roopa17venkat & @itsdeepakjain
A 🧵 on key learnings:
But, there are other categories that can play a vital role in portfolio!
Attended an insightful Twitter spaces:
hosted by @iRadhikaGupta & @avasthiniranjan
with @invest_mutual @roopa17venkat & @itsdeepakjain
A 🧵 on key learnings:
An important reminder in this rising market:
"When markets are at All Time High,
Wisdom should also be at an All Time High!"
Return is one part of an investment.
The other part is managing & mitigating risk!
"When markets are at All Time High,
Wisdom should also be at an All Time High!"
Return is one part of an investment.
The other part is managing & mitigating risk!
What are Hybrid funds?
Hybrid funds are a combination of equity & debt in varying proportions.
Some of the hybrid funds:
~ Equity savings fund
~ Balanced advantage fund (BAF)
~ Arbitrage funds
Hybrid funds range from conservative hybrid fund to aggressive hybrid funds.
Hybrid funds are a combination of equity & debt in varying proportions.
Some of the hybrid funds:
~ Equity savings fund
~ Balanced advantage fund (BAF)
~ Arbitrage funds
Hybrid funds range from conservative hybrid fund to aggressive hybrid funds.
Why hybrid mutual funds?
To provide meaningful returns, without giving the jolt of deep portfolio draw downs during a market crash.
Hybrid funds help you avoid panic during a market crash
(e.g. Mar-2020) & helps you stay invested during all market cycles!
To provide meaningful returns, without giving the jolt of deep portfolio draw downs during a market crash.
Hybrid funds help you avoid panic during a market crash
(e.g. Mar-2020) & helps you stay invested during all market cycles!
Risk is misunderstood!
It's not about returns.
It's about understanding the unexpected and diversifying the portfolio.
As humans we are biased & our risk apetite varies as per the mood & sentiment in the market.
Risk comes from our own actions & expectations.
It's not about returns.
It's about understanding the unexpected and diversifying the portfolio.
As humans we are biased & our risk apetite varies as per the mood & sentiment in the market.
Risk comes from our own actions & expectations.
Major risks in hybrid funds
~ Ignoring the time horizon:
Time horizon to generate returns should match the investor's time horizon.
~ Wrong expectations of returns
Returns vary as per different market cycles.
Past returns can never be the only benchmark!
~ Ignoring the time horizon:
Time horizon to generate returns should match the investor's time horizon.
~ Wrong expectations of returns
Returns vary as per different market cycles.
Past returns can never be the only benchmark!
Return expectation from hybrid funds
Expect returns that are sustainable for a longer time frame.
Huge returns in the year preceding to bull market, cannot be sustained in a falling market.
Expect returns that are sustainable for a longer time frame.
Huge returns in the year preceding to bull market, cannot be sustained in a falling market.
Here's an overlooked metric in mutual fund investing
Discrete return or rolling return.
Absolute returns, are misleading.
For hybrid funds, focus on rolling returns over a 1 to 3 year horizon.
Check the worst returns in this time period!
Discrete return or rolling return.
Absolute returns, are misleading.
For hybrid funds, focus on rolling returns over a 1 to 3 year horizon.
Check the worst returns in this time period!
How to evaluate a hybrid fund?
Hybrid fund are a mix of equity & debt.
Understand what’s happening in the equity & fixed income portfolio.
In equity, understand the stock selection strategy. Large Cap, Small Cap, Emerging
In debt, understand credit rating of underlying
Hybrid fund are a mix of equity & debt.
Understand what’s happening in the equity & fixed income portfolio.
In equity, understand the stock selection strategy. Large Cap, Small Cap, Emerging
In debt, understand credit rating of underlying
Pointers while choosing a hybrid fund from various categories?
~ Look at risk of each category
~ The duration for each category
~ Understand how much volatile can it be
~ Check the probable draw downs
~ See how it fits in your portfolio.
~ Look at risk of each category
~ The duration for each category
~ Understand how much volatile can it be
~ Check the probable draw downs
~ See how it fits in your portfolio.
Should we SIP in Hybrid funds or invest lumpsum?
Both SIP & lumpsum investments work well.
The important aspect is the time frame.
Invest with a longer perspective of more than 3 yrs.
Both SIP & lumpsum investments work well.
The important aspect is the time frame.
Invest with a longer perspective of more than 3 yrs.
What are Equity savings fund (ESAF):
~ Portolio: 1/3rd in equity, 1/3rd fixed income & 1/3rd in arbitrage.
~ Returns: Little more than FD.
~ Advantage: Tax treatment is of equity!
Investors can park surplus cash with a time horizon of 1-3 year & to transfer to some other fund.
~ Portolio: 1/3rd in equity, 1/3rd fixed income & 1/3rd in arbitrage.
~ Returns: Little more than FD.
~ Advantage: Tax treatment is of equity!
Investors can park surplus cash with a time horizon of 1-3 year & to transfer to some other fund.
What is purpose of Balanced Advantage Fund (BAF)?
Asset allocation!
~ Re-allocates portfolio as per market conditions.
Investor trying to do on their own would face expenses & taxation!
~ Negates the effect of emotions
Investor's emotions won’t allow to re-balance accurately
Asset allocation!
~ Re-allocates portfolio as per market conditions.
Investor trying to do on their own would face expenses & taxation!
~ Negates the effect of emotions
Investor's emotions won’t allow to re-balance accurately
What is one major risk in the BAF?
Not understanding risk of the underlying the model.
Understand:
~ Management of equity part; since we don't want high volatility.
~ Management of debt part; since we don't want credit risk.
Overall strategy should match one's risk profile.
Not understanding risk of the underlying the model.
Understand:
~ Management of equity part; since we don't want high volatility.
~ Management of debt part; since we don't want credit risk.
Overall strategy should match one's risk profile.
Different types of BAF models:
~ P/E (Price to equity) based
Debt component increased with P/E rise
~ P/B (Price to book) based
Debt component is increased with P/B rise
~ Momentum based
Equity and debt are balanced as per market trend.
Every fund house have their own models.
~ P/E (Price to equity) based
Debt component increased with P/E rise
~ P/B (Price to book) based
Debt component is increased with P/B rise
~ Momentum based
Equity and debt are balanced as per market trend.
Every fund house have their own models.
BAF for Retirees!
Retirees require monthly income generating annuity products
A BAF with a SWP (Systematic Withdrawal Plan) is ideal solution.
Compared to annuity via insurance, BAF provide asuperior tax benefits.
Only capital gains would be taxed & at applicable slab rate.
Retirees require monthly income generating annuity products
A BAF with a SWP (Systematic Withdrawal Plan) is ideal solution.
Compared to annuity via insurance, BAF provide asuperior tax benefits.
Only capital gains would be taxed & at applicable slab rate.
An interesting fact!
Biggest hybrid fund in which majority Indians invest, with a time frame of 30-40 years is:
Provident fund (PF)!
The return expectation is 8-9%.
With this time frame, returns of a BAF or some hybrid fund would certainly exceed that of PF.
Biggest hybrid fund in which majority Indians invest, with a time frame of 30-40 years is:
Provident fund (PF)!
The return expectation is 8-9%.
With this time frame, returns of a BAF or some hybrid fund would certainly exceed that of PF.
At what stage one should look at investing in Global funds?
~ Learn equity invest in domestic market.
~ Evolve as an investor.
Reason:
When international market go down, it's difficult to understand what went wrong, due to unfamiliarity. So you panic more.
~ Learn equity invest in domestic market.
~ Evolve as an investor.
Reason:
When international market go down, it's difficult to understand what went wrong, due to unfamiliarity. So you panic more.
Here's the right reasons to invest in international fund:
~ To access companies that you can't in domestic markets.
e.g. Google, Alphabet, Peloton etc.
~ To Diversify
However, avoid exotic & thematic international funds, since they are driven by narratives!
~ To access companies that you can't in domestic markets.
e.g. Google, Alphabet, Peloton etc.
~ To Diversify
However, avoid exotic & thematic international funds, since they are driven by narratives!
FOMO about global investing!
~ Buzz about international funds driven by social media
~ Regular new fund launches by multiple fund houses
~ US markets have rallied in the past 1 year
Key Risk:
Investors think they missed out & over-allocate without understanding the product!
~ Buzz about international funds driven by social media
~ Regular new fund launches by multiple fund houses
~ US markets have rallied in the past 1 year
Key Risk:
Investors think they missed out & over-allocate without understanding the product!
Arbitrage funds:
Its neither a long term equity nor a liquid fund.
~ Its fixed income product having equity tax treatment.
~ Typically have 65:35 equity:debt ratio.
~ Time period: 3 months to 2 yrs.
~ Ideal to park surplus cash
Can avoid, if you are in lower tax slab.
Its neither a long term equity nor a liquid fund.
~ Its fixed income product having equity tax treatment.
~ Typically have 65:35 equity:debt ratio.
~ Time period: 3 months to 2 yrs.
~ Ideal to park surplus cash
Can avoid, if you are in lower tax slab.
Gilt Funds:
They invest in government securities
~ Time horizon: Medium to Long Term
~ Have credit risk & interest rate risk.
They invest in government securities
~ Time horizon: Medium to Long Term
~ Have credit risk & interest rate risk.
What to look for in a gilt fund?
~ The type of gilt fund
~ How it is managed & the process of the fund manager
~ The interest rate cycle.
~ The volatility of the fund, when there is sharp rise in interest rates
~ The expected return & your return expectation
~ The type of gilt fund
~ How it is managed & the process of the fund manager
~ The interest rate cycle.
~ The volatility of the fund, when there is sharp rise in interest rates
~ The expected return & your return expectation
Facts about gilt funds:
~ Are very volatile for a short time period
~ Ideal duration: atleast 2-3 yrs
~ Have no credit risk, but have interest risk.
~ Avoid lump sum investment when interest rate cycle is down.
~ It's difficult to predict rise of interest rates
~ Are very volatile for a short time period
~ Ideal duration: atleast 2-3 yrs
~ Have no credit risk, but have interest risk.
~ Avoid lump sum investment when interest rate cycle is down.
~ It's difficult to predict rise of interest rates
Target maturity funds!
They invest in debt instruments or bonds that have a fixed maturity period.
~ Money would be returned on fixed date.
~ The yield i.e return is known before investing
They invest in debt instruments or bonds that have a fixed maturity period.
~ Money would be returned on fixed date.
~ The yield i.e return is known before investing
Simplest strategy to select a Target maturity fund
Match the duration of your investment with that of the target maturity fund.
Ignore any volatility during the period.
Match the duration of your investment with that of the target maturity fund.
Ignore any volatility during the period.
If you have found this thread valuable & informative,
for the benefit of all,
do re-tweet the first tweet in this thread 👇👇
for the benefit of all,
do re-tweet the first tweet in this thread 👇👇
https://twitter.com/Finalysis20/status/1439491899329372165?s=19
• • •
Missing some Tweet in this thread? You can try to
force a refresh
