Fund or Fund house: What matters most?

1. www.fundsindia.com
FundsIndia on Mobile
F u n d s I n d i a
launched its first
mobile app for
Android phones
about two weeks ago. The app
has been received with much
enthusiasm by our investors and
scores of people are
downloading it each day. As
always, this app has been custom
developed for the FundsIndia
platform, keeping in mind our
customers' needs and usage
patterns.
The app still has ways to go. At
present, you can view your
portfolio and set up an SIP using
the app, apart from using the
calculators, SIP designer, and
accessing the blog. We plan to
add more features – investing
lump sum and making switches
happen, to begin with.
Having said that, ultimately,
this app is only another tool
to make your investment process
easier. At the end of the day, it is
human intelligence and decision-
making acumen that decides how
well your portfolio does.
Testament to that fact is at hand
even today – the most used
feature of our just launched app
is sending a request to speak with
an advisor!
Happy investing!
Srikanth Meenakshi
Fund or Fund House: What matters most?
Ratings, rankings, awards, recommendation lists and qualitative discussion
relating to mutual funds are almost always focused on individual funds. This
may make for interesting-to-follow kind of stuff, but does not often serve the
purpose of investors.
On the contrary, several one-off chart toppers tend to use the transient fact
to lure more investors into the fold and then slip away to longer periods of
indifferent performance. This hurts investors big time and happens due to
chasing of the toppers.
Often times, institutional investors (especially from overseas) ask mutual funds
for a composite performance over varying times periods. They do take a
look at performance of individual funds and assess fund managers.
Yet, they also wish to look at how a fund house is faring across its various
funds. This is an important aspect for individual investors as well.
Of course, fund houses will not provide them the information though they
willingly produce such numbers for institutional investors. Why is this aspect
important?
Often times, one or two funds from a mutual fund do well and the rest languish
in varying degree. Over long periods if this continues, it is a discomforting
situation for an investor.
It reflects a lack of cogency in the fund house’s views on the economy, markets and
what they mean for investment. It could reflect inconsistency in understanding
these trends. It could mean over-dependence on one fund manager.
More can be read into this but the short point is investors must learn to focus
on how a fund house fares across funds.
For starters, take a simple average of individual returns over different time
periods and compare fund houses. You do not need to do this every week or
month. At the end of every calendar year, ferret numbers to look at the
performance of fund houses over one, three, five and ten years.
If you do this every year, you will end up with interesting facets of fund and
fund house performance. You are almost always well off with mutual funds
that score over peers for performance across funds and over different time
periods.
S Vaidya Nathan
September 2014 I Volume 07 I 09
FundsIndia
Winner CNBC TV18 UTI Award 2013-14
National Online Advisory Services
Srikanth Meenakshi

2. How we choose our ‘Select’ Equity Funds
First, a disclaimer of sorts – while what we do is not
rocket science, it is not quite as simple as picking out a
pale blue shirt for office wear either.
We use a full database of mutual funds that provides
historical data for NAV, returns, and portfolios apart from
various derivative details such as risk ratios.
We rely on our past experience to figure out what
parameters to consider and what red flags to watch out
for. This essay, hence, is more of an exercise in
transparency than an effort to provide a ‘how-to’ manual
to investors.
With that caveat aside, here are the key factors we look
for:
Consistency scores
We are neither too excited by a fund moving into the top
5 nor are we disturbed when they move out. For us,
consistency scores.
We measure this by rolling the returns every single day
over three and five year periods (or longer, depending on
the fund’s track record) to see how consistently the fund
had been able to beat it benchmark; the number of
occasions it outperforms its benchmark and by what
margin, to name a few aspects we look at.
A fund that performs exceedingly well in a year and slips
in the next will be out in the open when we run this test.
This exercise will also throw a fund’s best and worst
performance over different time frames as it is rolled it
every single day.
This provides a good idea of how well a fund can
perform or how badly it can slip.
Returns commensurate to risk
While whether a fund scores in terms of consistency is a
litmus test, for most peer comparisons, risk-adjusted
return measures such as Sharpe Ratio, Treynor Ratio and
volatility measures such as standard deviation and beta
become vital to assess performance.
You may see a fund scoring in terms of point-to-point
returns but when measured against a unit of risk it may
score low. That means, it does not deliver sufficient
returns that compensates for the risk it undertakes.
Similarly, standard deviation suggests whether a fund’s
performance is too volatile and how much it deviates
from its mean returns.
www.fundsindia.com
Housing loans as a percentage of GDP in our country has remained quite low at around 9 per cent.
Further, the housing shortage in the urban areas was estimated, as of 2012, at 18.78 million units
and at more than 40 million units in rural areas.
R. Gandhi, Deputy Governor, Reserve Bank of India
Vidya Bala
We often receive queries from our investors on how we choose equity funds for our ‘Select’ list
and why a particular fund, that has a ‘five-star’ rating or has high one-year returns did not make
the cut. In this month’s article, let’s see how we sift and sort hundreds of funds to arrive at the
handful that we present to you as ‘FundsIndia Select Funds’ – our own list of funds we deem
‘investment-worthy’. This is offered in several categories, equity funds (moderate risk), equity
funds (high risk), tax saving funds and thematic funds. Debt funds are covered, but we will discuss
them on another occasion.

3. Performance across market phases
It is one thing for a fund to shine in a bull market and
another when it goes into oblivion in a bear phase. And
if your goal was closing in during a bear phase, you
certainly don’t want the fund to destroy much of the
wealth you had created till then.
This is why checking performance across market phases
is a must, to know whether a fund is worthy enough for
a long-term portfolio.
The above three are few of the many quantitative metrics
that we look at, to choose a fund. Besides, factors such as
asset size, expense ratio and minimum period of track
record are considered.
A number of qualitative factors such as fund’s stated
mandate versus what it actually does, the fund manager’s
track record and the fund’s ability to stay invested in
equities, to name a few, also go into our choice of funds.
But then, all of the above is more like an ‘audit check’ to
assure oneself of the quality of the fund.
Beyond all this, the fund’s strategy in different markets,
its exposure to sectors and its stock specific calls and
moves – all ultimately decide the future prospects of a
fund. All this, of course, must be within its stated
mandate.
This is where, studying sector prospects, whether the fund
has taken a contrarian call, how its stock moves delivered,
matters. And often times, this decides whether a fund can
do well prospectively.
For instance, a fund such as HDFC Top 200 or Franklin
India Prima, which took exposure to cyclical sectors,
ahead of the upward move benefited when such sectors
came into the market radar. The call, which seemed an
uninspiring one in 2013, worked well later.
On the other hand, a fund such as Franklin India
Bluechip, that cannot go much beyond the blue chip
universe and also therefore missed out on some of the
cyclical rally (since a number of cyclical stocks are
emerging large-caps or mid-caps) cannot be written off
for poor performance, when the fund did what it could,
within its mandate.
These qualitative factors, start mattering more, especially
when you choose a fund for a specific, stated quality.
Even with all these tests, there does remain some
possibility of a fund not performing up to the mark.
All we try to do is keep that error in choice in your
portfolio to the minimum. Our regular reviews also help
weed out such funds.
www.fundsindia.com
One of the greatest dangers to the growth of developing countries is the middle income trap,
where crony capitalism creates oligarchies that slow down growth. If the debate during the
elections is any pointer, this is a very real concern of the public in India today. To avoid this
trap, and to strengthen the independent democracy our leaders won for us sixty seven years
ago, we have to improve public services, especially those targeted at the poor. A key mechanism
to improve these services is through financial inclusion.. Financial inclusion in my view is
about getting five things right: Product, Place, Price, Protection, and Profit. If we are to draw
in the poor, we need products that address their needs; a safe place to save, a reliable way to
send and receive money, a quick way to borrow in times of need or to escape the clutches of
the moneylender, easy-to-understand accident, life and health insurance, and an avenue to
engage in saving for old age.
Dr Raghuram Rajan, Governor, Reserve Bank of India
Viewpoint
source: www.rbi.org.in
Health Insurance Top Up
Medical costs are skyrocketing by the day. To combat
these costs, most individuals opt for either a personal
insurance policy, or a group insurance policy that is
provided by their organizations. The average corporate or
individual insurance cover is, however, in the range of Rs
1 lakh – Rs 3 lakh. With the complexity of diseases and
the cost of treatment (a cardiac treatment could cost you
close to Rs. 5 lakh) increasing with every passing day, it is
best to take a ‘top up plan’ or a ‘super top up plan.’ A top
up cover means the additional cost on top of the
insurance threshold limit will be covered by the plan.
Read the full version by S Sridharan of FundsIndia, and more at
Market Place – FundsIndia, the official blog of FundsIndia.com at
http://www.fundsindia.com/blog.
Market Place FundsIndia Blog

4. 2014 vs 2007
I couldn’t help but to recall Ben Stein’s summer 2007
article, as pundits were this week dismissing that tiny little
Portugal could have any bearing on the juggernaut U.S.
economy and booming financial markets. And thinking
back to August ’07, Mr. Stein looked pretty smart for a
while, with stocks rallying back from that month’s selloff
to post all-time highs in mid-October. On the surface,
things did look pretty good – “This economy is extremely
strong. Profits are superb. The world economy is
exploding with growth.” Unappreciated back then was the
acute fragility inherent to massive quantities of mispriced
finance and speculative leverage. So flawed was market
faith that Washington would never tolerate a general
housing downturn.
From my perspective, 2014 and 2007 share troubling
similarities. Both periods feature overheated securities
markets, replete with the rapid issuance of securities at
inflated valuations. Both are characterized by investor
exuberance in the face of deteriorating fundamentals –
and in both cases central bank policymaking was
fundamental to heavily distorted market risk perceptions.
It’s no coincidence that today’s overheated backdrop –
record securities issuance and meager risk
premiums/record high prices – readily garner statistical
comparison to 2007…
Late-stage speculative Bubbles grow into wild animals.
There is always a fine line between manic speculative
blow-off excess and problematic cracks appearing in the
underlying Bubble. As was certainly the case in early-2000
and late-2007, deteriorating fundamental prospects and
resulting shorting (and hedging) provide combustible
tinder for squeezes and destabilizing market advances.
Moreover, upside market dislocations in the face of
dimming fundamental prospects create divergences and
latent fragilities.
Source: We present Edited extracts of Doug Noland’s blog Credit Bubble
Bulletin. The full version is available at www.prudentbear.com
www.fundsindia.com
Blog Pick
The legacy of the boom is too much debt. This debt overhang has to be reabsorbed if the basis for
a lasting, self-sustained and sound recovery is to be established. To expect credit to grow strongly
during the bust is both unrealistic and counterproductive.
Claudio Borio, Bank of International Settlements
Index 1 Year 5 Years 10 Years
CNX Nifty 50.5 10.9 17.3
S&P BSE Sensex 48.0 10.8 17.9
CNX Mid Cap 72.1 12.7 18.0
CNX Small Cap 94.7 10.5 18.1
CNX 100 52.4 11.4 17.5
CNX 500 57.1 10.5 16.7
CNX Bank 79.7 16.0 21.2
CNX Energy 35.1 1.5 12.0
CNX FMCG 23.0 24.2 24.4
CNX Infrastructure 64.0 -3.8 11.8
CNX IT 30.6 17.7 16.5
MSCI Emerging Markets 14.4 18.1 13.2
MSCI World 15.6 21.1 10.4
Returns (in per cent as of end August 2014) for less than one year is on an
absolute basis and for more than one year on a compounded annual basis.
Equity Performance Snapshot
Must Read
When Fed Tightens
Charlie Minter and Marty Weiner of Comstock
Partners have an outstanding track record in analyzing
economic and market trends, and the implications for
investing. They may be considered too bearish but
they have got major calls right for more than 15 years
now. In their latest report titled `This is what happens
when the Fed tightens’, they write: For all the people
that believe the Fed is omnipotent, you have to keep
in mind that the Fed did not see the bubble that they
were causing in housing all through 2003, 2004, 2005,
2006, and 2007 when they lowered Fed Funds to 1%
in June of 2003 and kept it there for a year. They also
watched as banks and mortgage companies enticed
every American with a heartbeat to buy homes they
couldn’t afford….Please read them regularly at
www.comstockfunds.com.

5. Your age is important, too
All the basics that relate to investment bear a vital link to
your age. You may understand investment basics well, but
if you are not able to build your age into investment plan,
there is a high chance of suffering, especially at times you
can ill afford to do so. The age at which you start investing
for building a long-term corpus is very important.
Fund managers often exhort you to start young, as that
would give you three to four decades to save and build
wealth. There is much right in what they tell you, but what
is usually wrong is where they suggest you invest.
You go to the good investment textbooks, and they will
usually tell, ‘home’ first (of course with sizeable loans that
could be paid comfortably with your salary). There is
much merit in this focus and keep the home central to
your plans when you start saving and investing for the
long term.
Over the past decade, it has become fashionable to exhort
the young to take risks and go for riskier asset classes such
as equity and commodity in a big way when they start the
process. You are told of opportunities galore, and also
informed that even if things go wrong, you have many,
many years to fix and move on.
When you start to invest, go for a conservative approach
with focus on capital preservation and steady
accumulation (say via government saving schemes, fixed
deposits of quality companies and ultra-short term debt
funds). You can consider a small allocation to risker asset
classes that can be increased gradually and carefully. Let
your savings and portfolio value grow. It would take time,
given the conservative yet safe choices you have made.
Spend about a decade in this mode and then you can start
prudently hiking exposures to risker asset classes, as you
would have a good base. Similarly, five years before your
retirement age, back off almost completely from riskier
asset classes. You are at a stage where you cannot afford
risk or loss of capital.
Never forget you age when you make investment plans
and decisions.
16 Rules for Investment Success
Sir John Templeton, founder of the Templeton Group,
has distilled his years of experience.
# 1 If you begin with a prayer, you can think more
clearly and make fewer mistakes.
# 2 Outperforming the market is a difficult task.
# 3 Invest - don’t trade or speculate.
# 4 Buy value, not market trends or the economic
outlook.
# 5 When buying stocks, search for bargains among
quality stocks.
# 6 Buy low. So simple in concept. So difficult in
execution.
# 7 There’s no free lunch. Never invest on sentiment.
Never invest solely on a tip.
# 8 Do your homework or hire wise experts to help
you.
# 9 Diversify - by company, by industry.
# 10 Invest for maximum total real return.
# 11 Learn from your mistakes.
# 12 Aggressively monitor your investments. Remember,
no investment is forever.
# 13 An investor who has all the answers doesn’t even
understand all the questions.
# 14 Remain flexible and open-minded about types of
investment.
# 15 Don’t panic.
# 16 Don’t be fearful or negative too often.
Source: www.franklintempleton.com
Invest With A Plan 6
www.fundsindia.com
wisdom
Being slow and steady means that you're willing to exchange the opportunity of making a killing
for the assurance of never getting killed.
Carl Richards

6. www.fundsindia.com
Q If some funds deliver good returns in a year then why
not redeem it after one year, and again invest it in the
same fund or some other fund? This is what is
practiced in equity stocks.
A Yes, in years of extraordinary performance, when
your portfolio return is very high (over 100 per cent
returns), or you have already achieved your goal, it
makes sense to book profits and move to safer
options (if you are nearing your goal), especially if
you are holding a high risk fund like a mid-cap or
thematic fund.
In other circumstances, our view is as follows:
• Funds are a portfolio of stocks, in which the fund manager is doing the job of profit-booking and reinvesting
in opportunities that look good. Hence, the idea of investing in a fund is to ensure that an expert does the
job of exiting and entering the right stocks with right opportunities.
• If an investor believes that he/she would be able to do that better, then they should be directly into equities
and not funds?. Why? Because it is a lot tougher to know the prospects of a portfolio of 40-50 stocks and
know which fund will do better. You may be better off picking a stock or two directly.
• Of the funds that gave 120 per cent returns this year - would you have entered them when their NAV had
severely fallen? Note that their 120 percent return comes after the fund was badly beaten down before that.
Do you think an investor would be able to identify a fund that may still hold good prospects although it has
a very poor track record at that point? On most occasions, it has been proved that a topper in one year does
not sustain performance in the next.
• Assuming that you do not take risks with the seemingly top funds and instead go with the same steady funds,
what is the benefit from exiting and entering? The returns are not going to vary. This will make a difference
only if capital gains from equity funds are taxed some day. Today, capital gains from equity funds held for
more than one year are exempt from tax.
• How will you time your entry and exit? Which is a 'good time' or 'good return' to exit? In years such as 2008,
would you have exited and re-entered when your fund lost as much as 55 per cent or would you have
anticipated timing entry on March 2009 lows?
• Also, theoretically, you may be able to exit and re-enter. Would you re-enter the very next day? What if it took
a few days or weeks to reinvest and you lost key days?. Please see the link below from Franklin Templeton
(an old one but relevant) on how much you miss by not staying in the market in the best days, even if such
days are few. http://www.franklintempletonindia.com/downloadsServlet?docid=h65amj5h
• End of the day it is about 'time in the market' and not timing the market, simply because timing is a lot more
difficult and even experts have struggled to do so. It is to make our lives easier in these aspects that mutual
funds act as a good vehicle for long-term investment. If one wishes to time the market, the optimal way to
do so would be through SIPs, especially if the tenure is 5 years or longer. This will afford multiple entry points
at least.
Q & A
I think the biggest challenge on compliance in India is that some unacceptable practices are
sometimes a way of life here. At the end of the day, paying a traffic policeman a small sum of
money when you don’t wear a seatbelt is illegal.
Steven Grubb, Global Compliance Director, Diageo

7. Technical View
Tata Motors
The stock in on a long-term uptrend and we expect 8-
10% returns from a short-term perspective. The breakout
in the Tata Motors stock past previous highs indicates that
the upside momentum is still strong. Any price weakness
may be used to buy the stock for short-term gains. As
long as the stock trades above the stop loss level of
Rs.480, we would expect the stock to rally to the target
of Rs.575-580.
Colgate Palmolive
Investors may use any weakness to accumulate the stock.
After a sharp rally, Colgate stock has been in a correction
since July 25. The decline was arrested at the crucial
support zone of Rs.1, 439-1,475 and the stock has since
staged a sharp recovery. This is a sign that the buyers are
interested in this stock at lower levels. Buy Colgate at the
current levels as well as on a weakness for an initial target
at Rs 1,650 and a secondary target of Rs.1, 750.
This column is targeted at investors who are registered customers with FundsIndia for trading and investing in equity as well as prospective
investors who wish to open an equity account with FundsIndia. B Krishna Kumar hosts a weekly webinar that discusses the market outlook
for the following week. You can follow him on Livestream. If you wish to receive reminders for his webinars, go to
https://www4.gotomeeting.com/register/131985103
Disclaimer for Think FundsIndia: Mutual Fund Investments are subject to market risks. Please read the offer documents available at the website of each mutual fund carefully
before investing. Past performance does not indicate or guarantee future performance. There is risk of capital loss and uncertainty of dividend distribution. Think FundsIndia,
a monthly publication of Wealth India Financial Services, is for information purposes only. Think FundsIndia is not and should not be construed as a prospectus, scheme
information document or offer document Information in this document has been obtained from sources that are credible and reliable.
Publisher: Wealth India Financial Services Editor: Srikanth Meenakshi
www.fundsindia.com
Nifty
The Nifty scaled lifetime highs in August nudging the
psychologically significant 8,000-mark. As anticipated last
month, the Nifty edged lower to the support zone at
7,450-7,500, and then resumed its uptrend. From a
technical perspective, there is no reason to be bearish on
the Nifty as it has encouraging been making a series of
higher highs and higher lows. The slowdown in the upside
momentum is however is a cause of concern and reflects
lack of conviction in the bullish camp. A decline below
the immediate support at 7,850 would mark the onset of
a short-term downward correction that can be used to
buy sound large-cap stocks.
B Krishna Kumar

8. 1 Which organisation regulates the insurance industry in
India?
2 Name the first fund launched in India to focus on
micro-cap stocks?
3 Who is the author of Against The Gods: The
Remarkable Story of Risk?
4 What is the maximum allocation that can be done to a
single stock in a diversified equity fund in India?
5 Name the person in the image? She
heads one of the key organisations
related to financial markets. She has
played a major role in helping India
develop high quality trading and
settlement systems.
Answers can be emailed to quiz@fundsindia.com. The
first three to send in all correct answers will be entitled to
a must-have book on investment. Answers for August 2014
Quiz: Answers for August 2014 Quiz: 1 Ashish Chauhan 2
Mastergain 1991 3 10-Year Government Security (G-Sec) Yield
4 Michael Panzer 5 Arvind Mayaram. There are no winners for
the August 2014 quiz.
FundsIndia Select Funds
Equity (Moderate Risk): Preferred picks are:
Axis Equity Fund Birla Sunlife Top 100
BNP Paribas Equity Franklin Bluechip
HDFC Top 200 ICICI Pru Dynamic Plan
ICICI Pru Focused Equity Tata Dividend Yield
UTI Equity Fund UTI Opportunities Fund
These are funds that seek to generate inflation - beating
returns and limit downside risks. The recommended
holding period is at least five years
What is FundsIndia Select Funds: This is a listing of
mutual funds that we think are most investment worthy
for a regular investor. We review this list on a quarterly
basis.
Do note, however, that past performance is not a
guarantee of future results. Please consider your specific
investment requirements before designing a portfolio that
suits your needs.
For a complete list of preferred funds, please check
out our website http://www.fundsindia.com/select-
funds.
www.fundsindia.com
Quiz
Introduction of second level authentication: To
further enhance the security of your account, we have
enabled a second level of authentication on your account.
Investors will be required to enter their date of birth or
PAN in addition to their password at the time of login at
www.fundsindia.com.
Launch of mobile app: As indicated in the last
newsletter, we have launched a mobile app for Android
phones. We are working on the next version that will allow
purchase of funds and will be rolling it out in September.
@fundsindia.com in August
Recommended Book
To invest, call 0 7667 166 166
About us: FundsIndia.com is India's leading online investment platform offering investors access, in one convenient
online location, to a wide range of options such as mutual funds, equities, corporate deposits, bonds, the National
Pension System, loans, insurance and 24 Karat gold, to name a few. FundsIndia also offers a host of value-added services
such as SIP, Alert SIP, Flexi SIP, trigger-based investing, and more that further enrich your investment experience!
"We believe in a concept of relative value. In 2007, we found significant value in consumer, pharmaceutical
and technology sectors," says Sankaran Naren, CIO, ICICI Pru. Read more Market Place, the FundsIndia Blog
at http://www.fundsindia.com/blog