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

Greetings from FundsIndia!

As many of you know, last month saw us conducting our first ever investor get-together in Chennai. We held it in a small hall in the centre of the city on the evening of Saturday, July 27th. The event was free to attend, and folks who turned up got a free gift—a FundsIndia coffee mug. You can read a brief report about the event here.

Quite purposefully, we held it as a low-key affair. Although many mutual fund companies had expressed an interest in participating, we wanted to do our first event by ourselves to get a sense of what our inves-tors expected from such events.

The event was a good success by any measure. We had about 100-120 investors come in and the speeches by Aarati Krishnan (The Hindu Business Line) and Pattabhi Ram (Chartered Accountant, educator and speaker) were well received. Aarati spoke about bal-ancing risk in mutual fund portfolios, with specific reference to the markets today. Pattabhi spoke about investor behavior – how peo-ple tend to think about money and investing, and the fallacies that contribute to our financial decision-making.

The speeches were followed by a panel discussion featuring Vidya Bala (our head of MF research), Rajaraman (a financial advisor), Pattabhi and myself. It was more of a Question/Answer session where we took turns to answer questions from the folks in the au-dience.

Not surprisingly, the topics of the questions revolved around the situation in the debt markets. Inves-tors had a palpable sense of anxiety about what is in store for their debt mutual fund investments, and understandably so. Vidya and Rajaraman answered the questions, largely echoing the thoughts ex-pressed in Vidya’s wonderful blog entry on the topic. Thanks to a couple of investor questions, I got the opportunity to explain our Smart Solutions service in further detail and clarify doubts.

People who attended had pretty nice things to say about the event in particular and FundsIndia in general. It was quite gratifying to hear, and this encourages us to conduct more such events in cities around the country. We’ll keep you posted!

Happy Investing!

07—Aug—2013

Volume 6, Issue 08

Inside this issue:

Jab We Met—Sr ikanth Meenakshi

1

The Month Ahead - Equity Recommen-dations - B.Krishna Kumar

2

When To Invest In F ixed Maturity P lans? —Vidya Bala

4

F inancial Planning Educat ion Ser ies

6

Why Equit ies Are St i l l The Best In-vestment Oppor-tun ity—Parag Parikh

7

Jab We Met

Srikanth Meenakshi

*Please note: Comprehensive financial planning is a fee based service

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

If the month of June was bad for the stock markets, July was worse. The benchmark indices took a knock, courtesy the slide in the Rupee

and the measures taken by the Reserve Bank of India to curb liquidity in a bid to stem the Rupee slide. The Reserve Bank of India sounded

a bit dovish in its latest policy meet held on July 30.

But, there are no signs of the Rupee reversing its weakening trend against the Dollar. The Rupee remains stubborn around the 61 to the US

Dollar. The consumer price inflation is getting from bad to worse while the international crude oil price remains above the $105 / barrel

mark.

These factors do not bode well from a current account deficit front. Fundamentally, there is little to cheer for the stock markets. We are

also headed into the general elections and there could be more policy inaction and / or announcement of populist measures which may not

be positive from a macro economic perspective.

Hence, investors need to tread with caution and avoid big ticket exposures to economy-related sectors. We remain cautious on the Nifty

and the Sensex and advise long-term investors to use the SIP route to buy index funds or ETFs in a staggered fashion.

Technically, the Nifty is range-bound in the 5,400-6,100 range. As we head closer to the lower end of the range, aggressive traders may

consider long positions mainly because the risk is manageable/ affordable.

Sector wise, we are positive on FMCG and IT. Though both these sectors have been outperformers, there is nothing else to choose beyond

these sectors. Banking would be in trouble unless the economy recovers and interest rates soften. So is the case with the Infra sector.

From the daily chart of the Nifty featured below, it is evident that the progress of higher tops and higher bottoms is still intact. This is a

sign that the underlying trend is bullish. However, the overall market sentiment has turned sour as individual stocks have taken a big

knock and the frontline indices do not quite capture the pain in small and mid cap stocks.

The medium-term term trend turns bearish on a fall below

5,477. We would maintain the stance that the trend is bullish

until this low is breached. However, the fundamentals are still

not supportive, which means that we could see the recent trend

of volatile action within a broad range to persist.

Our BUY recommendation on ITC and TCS worked out well and

both stocks hit our target. This month, we discuss the outlook

for Hero MotoCorp and United Spirits.

We are bullish on both these stocks and expect reasonable re-

turns from a short-term perspective. Hero MotoCorp is a com-

pany that needs little introduction to the investment fraternity.

The company is the largest producer of motorcycles in the world

and its brands – Splendor and Passion are quite popular in In-

dia.

From the daily chart of the company featured below, it is

evident that the stock is in a short-term correction. The fall

provides an opportunity to buy the stock with a stop loss at

Rs.1,550 for a target of Rs.1,950.

Investors may buy the stock at or below Rs.1,670, for an

initial target of Rs.1,950. Long term investors may get op-

portunities to exit at higher levels. Such investors may use a

trailing stop loss to coast along with the overall uptrend.

Continued on Page 3 . . .

Page 2 Volume 6, Issue 08

The Month Ahead - Equity Recommendations

B. Krishna Kumar

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

As far as United Spirits is concerned, the stock is in a medium-term uptrend. From the daily chart of United Spirits displayed below, it is

clear that the stock is in a downward correction. The recent fall has pushed the stock to an area of support at Rs.2,300-2,350.

Investors may buy United Spirits with a stop loss at

Rs.2,000 and target of Rs.2,900. Investors may buy the

stock on declines, in a staggered fashion, so that the aver-

age cost of acquisition gets evened out.

A breakout past Rs.2,950 would be a sign of strength and

the stock could then rally to the major resistance at

Rs.3,250.

Mr. B. Krishna Kumar also hosts a weekly webinar that discusses the mar-

ket outlook for the following week.

Just click on the link below and click on the ‘FOLLOW’ button to register:

http://new.livestream.com/accounts/4749821?query=fundsindia&cat=account

Page 3 Volume 6, Issue 08

Tailor-made investment solutions that stay

with you UNTIL you achieve your life goals!

FundsIndia Smart Solutions

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

The recent turmoil in the debt market has shown that it is not just the equity markets that require portfolio review. While not

much changes for long-term wealth builders and those who hold debt funds as part of their long-term asset allocation, inves-

tors taking tactical calls will do well to keep their eyes open – both for risks and opportunities.

For an investor spooked by the debt market, low-risk opportunities such as Fixed maturity Plans (FMP) could prove to be good

choices now.

A number of fund houses have launched fixed maturity plans (FMP) to make the best of the high yields prevalent in the debt

market today. What exactly are FMPs and when should one invest in them?

FMPs are close-ended debt schemes with a fixed maturity horizon. That means they are open for investment for a few days dur-

ing launch and then closed until maturity, which may be just a month away or as long as five years.

FMPs invest in money market instruments, bonds and government securities. Their fixed tenure often makes them comparable

to fixed deposits.

Lower rate risk

However, unlike fixed deposits, FMPs do not guarantee returns. Still, they are considered low risk, especially when compared

with open-end debt funds, for a few reasons.

First, FMPs choose instruments in such a way that the tenure of the underlying investment coincides with that of the FMP. For

instance a 1-year FMP will invest in debt instruments that also have the same maturity.

By doing so, the fund will ensure that it gets the interest income (called accrual) on these instruments when the FMP matures.

This strategy ensures that returns are positive if held to maturity, unlike open-end funds that may slip in to negative returns

once a while. This way, the investments are not affected by the varying prices of the instruments in the debt market, till they

mature.

Two, as FMPs are locked in (although they have an exit option through the stock exchange route, they are thinly traded and

hence, not liquid), it does not face pressure of redemption and hence, it does have to churn its portfolio to meet exits. This also

provides stability to FMPs.

Tax efficient

On the return front too, FMPs held for over one year can deliver superior post-tax returns, when compared with fixed deposits,

as a result of indexation benefit. Unlike fixed deposits, FMPs (and all debt funds) enjoy capital gain indexation benefit if held

for more than a year. Interest on fixed deposits, on the other hand, will be taxed at your regular income slab rate.

Although the dividends are taxed at the fund’s end at 28.32% (as dividend distribution tax), the growth option in an FMP pro-

vides leeway to index cost and, sometimes, enjoy nil capital gains tax in periods of high inflation (as the indexation will be done

in line with inflation).

The way FMPs are structured also makes the indexation benefit more attractive. Often times during the end of a financial year,

the tenure of an FMP would be a year and a few days or 2-3 years and a few days. For example, an FMP launched in end March

2013 for 380 days will mature in April 2014. But for indexation the investment will be considered to be made for 2 years – that

is from FY 2012-13 to FY 2014-15, thus providing higher indexation of cost.

You may note that FMPs of less than one year will be taxed at your income tax rate. Hence, if you are in the high tax bracket,

short-term FMPs may not make for great post-tax products for you.

Continued on Page 5 . . .

Page 4 Volume 6, Issue 08

When To Invest In Fixed Maturity Plans?

Vidya Bala — Head, Mutual Fund Research at FundsIndia

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

Is it a good time to invest?

FMPs suffer from one key limitation - reinvestment risk. This limitation is true of deposits as well. Reinvestment risk is nothing

but the possibility of not getting the same returns in other investment avenues after the FMP matures. This is where open-end

debt funds score over FMPs as the former can be held as long as one needs to.

FMPs are ideal if you believe you do not need the money for a fixed term and actually have a goal for that investment at the end

of the tenure. For instance, if you have plan to buy a car a year down the line and wish to save some money for down payment, a

1-year FMP can be a good option.

You should also know at what point in a rate cycle FMPs will fit you best. Typically, FMPs can be good options in a rising inter-

est rate cycle when compared with open-ended debt funds. In such a scenario, FMPs will lock into reasonably high rates but

open-ended debt funds may see a temporary fall in their price as yields climb up.

Also, if an investor goes for a FMP-tenure of less than 2 years when rates are climbing, chances are, when the FMP matures,

they will likely be in a falling rate territory and money can right away be invested in open-end debt funds.

Looking for returns

SEBI stopped the practice of fund houses declaring the indicative yields of FMPs. That means, you will not know the likely re-

turn that the product will deliver. Still, you may try to get an idea through other means.

The key here is to look at the nature of instruments that the FMP promises to invest into. If an investor or his/her advisor can

check for the yields on such instruments at that point in time, it will give them a rough idea on what returns to expect.

The yields of the underlying instruments (such as CDs, commercial papers, bonds) at the time of offer is either mentioned in

the offer document or can be checked in public websites.

For instance, 1- year FMP can fetch anywhere between 9-10 per cent currently (depending on the proportion of investment in

CDs and commercial papers), as most of them seek to invest in certificates of deposits and commercial papers.

You will also do well to know if the FMP promises to invest in top-rated instruments and whether it takes any credit risk by go-

ing for instruments with mediocre credit rating.

In 2008, for instance, some FMPs had invested in debt instruments of real estate companies. With the real estate sector going

into a liquidity crunch, the risk of defaulting appeared high.

Look for FMPs with about a year’s tenure over the next few weeks in https://www.fundsindia.com/content/jsp/admin/

gSpcSchmLst.do?prcsMd=nfo&show=more . Note that FMPs are often open for a day or a couple of days and do not reopen for

investments. Hence, you will do well to keep tab of new offers, if you wish to invest.

Vidya Bala is the Head of Mutual Fund Research at FundsIndia. A chartered accountant by training, she was earlier with the Hindu

Business Line’s research bureau, tracking mutual funds, stock markets and sectors for eight years. She writes for our monthly newsletter

on topics including mutual fund, personal finance and equity markets. Vidya Bala can be reached at vidyabala@fundsindia.com

Page 5 Volume 6, Issue 08

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

Need Analysis method

In this issue of FundsIndia’s ‘Capital Letter’, we will discuss how you should plan your insurance cover using the ‘Need Analysis

Method’.

In this method, one has to first identify the liabilities in his/her life. Based on this information, they will find out an insurance gap.

Any individual having a family normally tends to have more liabilities. This may be because the individual has a home loan, car loan,

or a personal loan. Other liabilities could include the expenses towards supporting your wife and kids like your children’s education,

their marriage etc. If all liabilities are covered by accumulated assets, then there is no need for an insurance policy.

HLV(Humal Life Value) = All Liabilities

Insurance Gap = HLV – Assets Accumulated – Insurance already taken

For example, if your HLV works out to be Rs. 100,00,000 and the investments in various asset classes (more than one property and

financial assets) is Rs.100,00,000, then your asset accumulation is backing your HLV and there is no more insurance required.

HUMAN LIFE VALUE CALCULATION

According to the illustration given in the table

(left), the monthly expenses required to maintain

the family is Rs. 25,000. The age of the spouse is

38 and her life expectancy is 85. The family

needs are to be met till the life expectancy of the

spouse, i.e., 85 years. The individual has two

children and the expenses towards the children’s

education and marriage are considered to be

Rs.20,00,000 and Rs.10,00,000 respectively for

each child. The children’s ongoing expenses are

considered at Rs.5000 per month for each child.

He also has a home loan liability of

Rs.20,00,000.

In the above case, the HLV (Human Life Value)

works out to be close to Rs. 2.5 Crs, where he

already has insurance coverage to the tune of

Rs.500,000. His accumulated assets are worth Rs.40,00,000. The insurance gap identified in the above illustration is Rs. 1.9 Crs.

Mr. S. Sridharan is the Head of Financial Planning with FundsIndia. You can reach Mr. Sridharan at sridharan@fundsindia.com

Page 6 Volume 6, Issue 08

Calculating Your Insurance Needs

S.Shridharan —Head - Financial Planning

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

Since the last five years, the stock markets have been flat and have provided no opportunity for investors to have any returns. It is but natu-

ral for investors to be shunning equities at present. With the volatility and the depressed conditions, investors are preferring to keep their

money in cash or in absolutely safe fixed income securities. The charm of gold which existed last year has also faded. Real estate is also not

as one would call a secured investment either. How do you turn it into a pile of cash to meet your retirement needs?

Investors are suffering from Loss Aversion and are fleeing to the safety of fixed income securities. They are averse to any loss that may arise

by buying equities. The pain of a loss is three times more than the pleasure of an equal amount of gain. Pain over time becomes terrifying

and pleasure over time becomes boring. Hence this aversion to equities.

Here is where we need to do some practical thinking and see what history tells us. We did some research and this is what we have found.

See the chart below.

From 1979, when the BSE

Sensex came into being, till

March 2013, we have calculated

the returns from equities, from

fixed income securities like

bonds and also from keeping

cash in savings bank. The calcu-

lation of returns from equities is

without reinvested dividends.

Inflation is from the IMF data.

Taxes are assumed at 30%.

Thirty four years of data throws

up some startling facts. After

inflation and taxes, stocks have

returned 5.29%. Had you been

an investor in bonds or kept

cash in banks, you had a nega-

tive return of .42% and 4.22%

respectively, after inflation and

taxes. This is the data over a

fairly long period and no fluke.

So if you are looking at your retirement you just cannot miss out on equities if you want to hedge yourself against inflation. I am not asking

you to open a trading account and blindly take the plunge. Go easy, invest in a good, well managed fund. Think long term. This is not the

time to be loss averse. It is time to be greedy rather than fearful. No one knows how long the depressed conditions will last but I know one

thing: nothing is permanent. Want to time the markets? Sure, go ahead and go for Systematic Investment Plans.

(Parag Parikh, Why Equities are still the best investment opportunity?, AUGUST 5, 2013)

Article can be viewed online here—http://amc.ppfas.com/knowledge-center/parags-views/equities-the-best-investment-

opportunity/index.php?

Page 7 Volume 6, Issue 08

Wealth India Financial Services Pvt. Ltd., H.M. Centre, Second Floor,

29, Nungambakkam High Road, Nungambakkam,

Chennai - 600 034

Phone: 044-4344 3100 Email: contact@fundsindia.com

Why Equities Are Still The Best Investment Opportunity?

By Parag Parikh | AUGUST 5, 2013