11 October 2013

‘We have a differentiated, niche product pipeline’ :.Kiran Mazumdar-Shaw, CMD, Biocon: Business Line

Kiran Mazumdar-Shaw, CMD, Biocon
Kiran Mazumdar-Shaw, CMD, Biocon

Go for a basket, don’t rely on one scheme:: Business Line

Investing in multiple schemes allows creation of a balanced portfolio.
I am 35 and have been investing Rs 1,000 every month through the SIP (systematic investment plan) mode in HDFC Top 200 since June 2011. I have an investment horizon of 15 years. The fund’s performance has not been satisfactory. Should I switch to UTI Opportunities?
Sachin
You are quite right in noting that HDFC Top 200 has not been delivering well over the past couple of years. But please note that the fund has an excellent long-term track record, if you go by its performance over the last 10 years.
Given that you have a 15-year horizon, short-term underperformance should, ideally, not matter. But HDFC Top 200’s indifferent run has been continuing for nearly two years now. So stop further SIP investments in the fund, but do not sell it in a hurry.
You can start fresh investments in UTI Opportunities. Please note that over the long term you must build a portfolio with a basket of funds and not rely on a single scheme.
***
I am 31 and work for a public sector bank, drawing a salary of Rs 21,000. I have been investing Rs 1,000 each in SBI Contra fund and PPF respectively. I want to accumulate Rs 20 lakh in 20 years for the educational expenses of my two daughters. What are the investment options to reach my goal?
J. Mathan Kumar
It may be quite challenging for you to achieve the target of Rs 20 lakh, given your monthly level of investments.
SBI Contra has been underperforming for a few years now. Stop SIPs in the scheme and sell the units in rallies. Start fresh investments in a well-established, large-cap oriented fund such as Quantum Long Term Equity. Park Rs 1,000 in the scheme.
Now if your SIPs in the fund manage to deliver 12 per cent returns annually, at the end of 20 years you will be able to accumulate a corpus of around Rs 10 lakh. Your investments in PPF (assuming 8 per cent interest rates) will provide you with a little under Rs 6 lakh. So, there is likely to be a shortfall of Rs 4 lakh in your target. This can be bridged if you can invest more money once your surplus increases.
***

Should you prepay your student loan? ::Business Line

Individuals are increasingly taking a student loan to fund their higher education.
If you are one of them, you have a choice once you become gainfully employed — to either prepay your student loan or invest that additional money to create wealth to meet future life goals.
Your choice is primarily a function of your emotional well-being, and not just driven by factors such as tax benefits, prepayment penalty and interest savings.
Asset-loan linkage
For most of you, an education/student loan is your first borrowing, and certainly not the last. During your working life, you would borrow to buy a house or replace your car. There is a significant difference between your student loan and other loans.
Your student loan helps in improving your human capital, which is the present value of all your future income during your working life. The problem is that many of you take up jobs in sectors that may be unrelated to the specialisation that you mastered in your business school. You may have, for instance, specialised in finance but would have started your career in a technology company. You may eventually benefit from your finance specialisation. But the immediate linkage between the borrowing cost and the creation of the asset (human capital) may not be strong.
This is quite different from a home or car loan that you take during your working life. With such loans, you typically acquire physical assets, which could appreciate or depreciate in value over time. Importantly, the borrowing leads to realising immediate tangible benefits. And that is the reason why the decision whether to prepay your student loan should be treated differently from prepaying other loans.
Given the above factors, systematically prepaying your student loan leads to better emotional well-being and helps you in crafting a disciplined path to creating wealth. How?
Emotional well-being
Suppose you start your career with post-tax monthly salary of Rs 75,000 with a monthly student-loan payment of Rs 20,000. Further, suppose you choose to repay Rs 30,000 every month including prepayment of Rs 10,000.
Having managed your living expenses without Rs 30,000 every month, you can continue doing so even after you repay the loan! You can invest this amount in mutual funds thereafter to create wealth for future needs. Of course, you could alternatively repay Rs 20,000 and independently set up a systematic investment of Rs 10,000 every month. So, why is prepayment better?
The reason has to do with your emotional well-being. In the initial years of your career, you are busy gaining a foothold in your profession. A student loan may be a cause for concern, especially, if you work in an industry whose fortunes are cyclical. Why? Worst-case scenario, you could lose your job because of industry downturn and your investment portfolio could also lose value because of market decline! What will you do?
Now, you may ask about the possibility of both events happening at the same time. The likelihood of 2008 sub-prime-like crisis happening in the near-future may be small, but the anxiety that it could happen can have a debilitating effect on your emotional well-being. And remember, your emotional strength is important to take sound financial and professional decisions.
Conclusion
The emotional stress of unpaid student loan in the initial years of your career can be overwhelming. The penalty for prepaying the loan, if any, and the personal-tax benefit on regular interest payments, assuming tax laws remain the same, cannot be meaningfully compared to the emotional stress of carrying the loan. But before you decide to prepay your student loan, create adequate emergency fund to meet situations such as temporary loss of income and medical emergencies.

Different Types and Kinds of Mutual Funds

The mutual fund industry of India is continuously evolving. Along the way, several industry bodies are also investing towards investor education. Yet, according to a report by Boston Analytics, less than 10% of our households consider mutual funds as an investment avenue. It is still considered as a high-risk option.
In fact, a basic inquiry about the types of mutual funds reveals that these are perhaps one of the most flexible, comprehensive and hassle free modes of investments that can accommodate various types of investor needs.
Various types of mutual funds categories are designed to allow investors to choose a scheme based on the risk they are willing to take, the investable amount, their goals, the investment term, etc.
Let us have a look at some important mutual fund schemes under the following three categories based on maturity period of investment:

I. Open-Ended - This scheme allows investors to buy or sell units at any point in time. This does not have a fixed maturity date.

1. Debt/ Income - In a debt/income scheme, a major part of the investable fund are channelized towards debentures, government securities, and other debt instruments. Although capital appreciation is low (compared to the equity mutual funds), this is a relatively low risk-low return investment avenue which is ideal for investors seeing a steady income.

2. Money Market/ Liquid - This is ideal for investors looking to utilize their surplus funds in short term instruments while awaiting better options. These schemes invest in short-term debt instruments and seek to provide reasonable returns for the investors.

3. Equity/ Growth - Equities are a popular mutual fund category amongst retail investors. Although it could be a high-risk investment in the short term, investors can expect capital appreciation in the long run. If you are at your prime earning stage and looking for long-term benefits, growth schemes could be an ideal investment.

3.i. Index Scheme - Index schemes is a widely popular concept in the west. These follow a passive investment strategy where your investments replicate the movements of benchmark indices like Nifty, Sensex, etc.

3.ii. Sectoral Scheme - Sectoral funds are invested in a specific sector like infrastructure, IT, pharmaceuticals, etc. or segments of the capital market like large caps, mid caps, etc. This scheme provides a relatively high risk-high return opportunity within the equity space.

3.iii. Tax Saving - As the name suggests, this scheme offers tax benefits to its investors. The funds are invested in equities thereby offering long-term growth opportunities. Tax saving mutual funds (called Equity Linked Savings Schemes) has a 3-year lock-in period.

4. Balanced - This scheme allows investors to enjoy growth and income at regular intervals. Funds are invested in both equities and fixed income securities; the proportion is pre-determined and disclosed in the scheme related offer document. These are ideal for the cautiously aggressive investors.

II. Closed-Ended - In India, this type of scheme has a stipulated maturity period and investors can invest only during the initial launch period known as the NFO (New Fund Offer) period.

1. Capital Protection - The primary objective of this scheme is to safeguard the principal amount while trying to deliver reasonable returns. These invest in high-quality fixed income securities with marginal exposure to equities and mature along with the maturity period of the scheme.

2. Fixed Maturity Plans (FMPs) - FMPs, as the name suggests, are mutual fund schemes with a defined maturity period. These schemes normally comprise of debt instruments which mature in line with the maturity of the scheme, thereby earning through the interest component (also called coupons) of the securities in the portfolio. FMPs are normally passively managed, i.e. there is no active trading of debt instruments in the portfolio. The expenses which are charged to the scheme, are hence, generally lower than actively managed schemes.

III. Interval - Operating as a combination of open and closed ended schemes, it allows investors to trade units at pre-defined intervals.

Which scheme should I invest in?

When it comes to selecting a scheme to invest in, one should look for customized advice. Your best bet are the schemes that provide the right combination of growth, stability and income, keeping your risk appetite in mind.

Standard Chartered sharply cuts India current account gap target

Standard Chartered sharply cuts its forecast on India's current account deficit for 2013/14 to $45 billion, or 2.5 per cent of GDP, from its August expectation of $71.8 billion, or 4.0 per cent of GDP, on likely subdued oil imports and robust exports in the second half of the current fiscal year that started in April.

India's balance of payments now expected to be a surplus $20.6 billion in 2013/14 versus a previous forecast of a deficit $6.8 billion, Standard Chartered said in a note on Thursday.

"Policies to address the C/A deficit seem to have worked and investors will now have one less macro challenge to worry about in India," Standard Chartered economists wrote in the note.