Should you switch from EPF to NPS? Yes!

1. www.fundsindia.com
Should you switch from EPF to NPS? Yes!
The recent budget assumes significance as far as your long-term savings go
in the form of the National Pension System (NPS). To my mind, the
additional Rs. 50,000 of tax deduction allowed is just an add-on. What is of
real importance is the proposal to allow an employee to replace his / her
Employee Provident Fund (EPF) with the NPS. This is a landmark proposal,
as it is a step towards directing your hard-earned savings in more efficient
investment channels that hold potential to provide you with a meaningful
corpus when you retire.
The steady decline in EPF rates from 12 per cent in 2000-01 to 8.75 per cent
in 2013-14 is evidence to the declining rate regime we are in. Laden with high
debt, the Government can ill-afford to pay you high rates. This is why the
Government has, over the past few years, been encouraging market-linked
instruments as a part of retirement savings; but to no avail. It coaxed the
Pension Fund Regulatory and Development Authority (PFRDA) to increase
its exposure to equity-linked instruments, and reduce exposure to
gilts/bonds; however, it faced stiff resistance from various union segments.
It encouraged companies to offer the NPS to their employees, and also
provided additional tax benefits for the same. Save for a few, most corporate
firms shied away from this, given the administrative work involved. Now, in
what could be termed as empowering the stake holders, the Government has
provided the flexibility to choose between EPF and NPS to the employee.
We think NPS scores over EPF in terms of providing you with a superior,
contemporary, transparent retirement-saving cum accumulating tool,
notwithstanding its currently lack-lustre structure and administrative
weakness. We believe these can be gotten over once there are more takers,
and more private players come into the picture as service providers. The very
fact that NPS will allow you to invest in a superior-earning asset class, such
as equity, makes it a better product in relation to EPF. The fact that you
cannot take out your money, as you would with EPF, is a positive, as it will
ensure you have a decent kitty when you retire, and that you won’t spend it
all on other ‘incidental expenditure’ that life demands you to spend. Go for
it once the laws are in place; but do not confuse it with your mutual fund
investments. That is a different story and we will tell you why you cannot
mix your NPS with mutual funds another time soon.
Vidya Bala
Head – Mutual Fund Research
FundsIndia.com
April 2015 I Volume 05 I 04
Yet another innovation
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2. The real risk to your investments…
Yet, when we measure the swings in your fund
performance using metrics such as standard deviation, we
do attribute such volatility to risk. So, are we making a
mistake?
Not really, because in the short term, volatility hurts
portfolio returns. When the Buffetts and Mungers talk of
volatility not being synonymous with risk, the underlying
assumption is that you have a multi-decade view of the
equity asset class, and that you do not enhance the risk by
your own erroneous investment behaviour.
That essentially means that the problem is not with
volatility, or the seeming risk associated with it; it is with
the investor’s outlook and expectation of the equity
market.
Here are a few issues with the way we perceive equity
markets, and also in the way we invest:
Short-term outlook
The first and foremost problem is with our short-term
outlook. If you’re in the equity market for the short term,
yes, volatility counts simply because equities are far riskier
when you hold them for a few weeks, months, or even a
year. Just to illustrate, take the case of an outperforming
fund such as ICICI Pru Value Discovery.
Its volatility, when measured by standard deviation, is 11.3
per cent for any 3-year returns (based on daily rolling data
for the last 5 years). That means it can deviate from its
mean returns by 11.3 per cent - on the upside, as well as
the downside.
For the same fund, if you take the standard deviation of
its 1-year returns (again, seen on a daily rolling basis over
the last 5 years), it is as high as 36 per cent! That means
www.fundsindia.com
Vidya Bala
…Is your investment behaviour. That’s how I choose to interpret what Charlie Munger,
Vice-Chairman of Berkshire Hathaway, says of risk and volatility, in the company’s much
-anticipated annual newsletter to shareholders.
In his words, “If the investor fears price volatility, erroneously viewing it as a measure of risk, he may,
ironically, end up doing some very risky things.”
its returns can swing 36 per cent, higher or lower, from
the average returns. So, you can lose a third of your
returns as a result of such volatility!
Clearly, the longer the period, lower the standard deviation
to a point where volatility is no longer a factor that can
damage your portfolio, and is something that normalises
with time. This is what Charlie Munger suggests when he
says volatility is not synonymous with risk.
“For the great majority of investors, who can – and should – invest
with a multi-decade horizon, quotational declines are unimportant.
Their focus should remain fixed on attaining significant gains in
purchasing power over their investing lifetime.”
Timing the market
For many Indian investors, investing is a one-off, sporadic
activity, and is not seen as an ongoing one that is done
over time. This, combined with the short-term outlook
means the risk of timing the market. Hence, as Charlie
Munger puts it, by their own behaviour, investors make
equity investing far riskier than it is.
An investment done in the peak of 2008, for instance,
would have hardly delivered even 3-5 years hence, thanks
Azim Premji has a simple motto — work hard and work harder. Jokes apart, if there is one thing I
used to lose sleep over it had to do with him calling up in the morning and giving me a earful with
regard to anything that concerned integrity and ethics in company matters.
Suresh Senapaty, Wipro’s outgoing CFO
Charlie Munger and Warren Buffett, the brains behind Berkshire
Hathaway.

3. to ill-timing the market. The same investment spread over
time – say through Systematic Investment Plans (SIPs) -
would have delivered decent returns, in fact, taking
advantage of the same volatility that seemingly drags
returns lower.
A long-term view, combined with investments made over
time, would be the best recipe to largely neutralise
volatility in your portfolio.
Lack of diversification
The stress of seeing your portfolio swing wildly can be
largely mitigated when you diversify your portfolio across
asset classes, across categories, and across styles of
investing. Ever wondered why most of us fail to diversify?
It stems from the wish to chase returns.
Running behind an asset class that delivered superlative
returns, or filling a portfolio with a theme that recently
outperformed (and perhaps lost steam), are a few of the
reasons why volatility hits your portfolio. Many investors
who went overweight on gold at its peak in 2012 would
have taken a hit in the next few years. This holds for gilts
too in the same period.
Diversifying helps reduce volatility and removes the need
to time asset classes, or fund classes, at different points in
time.
In Charlie Munger’s words:
“Investors, of course, can, by their own behaviour, make stock
ownership highly risky. And many do. Active trading, attempts to
‘time’ market movements, inadequate diversification.... can destroy
the decent returns that a life-long owner of equities would otherwise
enjoy.”
The lesson is simple: change your outlook – change the
way you view equities as an asset class, diversify, buy over
time, and forget what market forecasters say. Charlie
Munger ends his note this year with this quote from
Shakespeare: “The fault, dear Brutus, is not in our stars, but in
ourselves.”
Vidya Bala
Head – Mutual Fund Research
FundsIndia.com
A Financial Check List for Women
Women today earn an income that is equal, if not more,
than their male counterparts. But that isn’t the real
achievement. The real achievement is when women don’t
just make money; they also manage it efficiently. Here is
a simple financial checklist for you that will help you
kick-start and manage your finances effectively.
# 1 Your spending plan: Chart out a spending plan
every month. When you do that, don’t write down your
expenses first. Instead, start your plan by listing out how
much you would save and invest during that particular
month. The wisest way to use your money is in the
following order – earn, save, and then, spend. Once you
decide how much you will save, then list out all your
expenses for the month. This will help you identify any
unwanted expenses, and then, you can divert it to your
savings budget. Remember, at least 20 per cent of your
income must be invested every month.
# 2 A contingency plan: Set aside a minimum of 6
months’ expenses money as a contingency fund. You can
use this at the time of any emergency, such as say a sudden
loss of job, or hospitalisation. You can maintain this
money in a liquid fund.
# 3 A plan for your liabilities: Taking a loan is inevitable
these days. But you must remember this: your liability can
make life difficult for you IF you do not know to control
it. Make sure your Easy Monthly Installments (EMI)
outgo does not exceed 50 per cent of your income. The
interest on your credit card may range from 36 per cent to
42 per cent.
# 4. A plan for your children: The cost of education
keeps increasing every year. That’s why you need to have
a sound investment plan in place to meet your children’s
education needs. It might be difficult to arrange the
money at the last minute.
S Sridharan,
Head Financial Planning,
FundsIndia.com
Read more of this article, and get more insights on all
matters financial at the FundsIndia Marketplace – the
official blog of FundsIndia by clicking here.
www.fundsindia.com
Market Place

5. www.fundsindia.com
A portfolio crafted to ride the India growth story
Why invest now
Post the new political regime, there has been a spate of
reforms announced from mid-2014 that have caused the
markets to gain. These reforms received a structure and
shape by way of fund allocation and legal framework only
after the recent budget.
India’s macro-economic indicators are improving over the
past one year. Lower inflation and improving deficit
situation, aided by lower crude and stable currency, are a
few of the improving macro-economic factors. Similarly,
petrol and diesel prices’ deregulation helped the
Government reign in fiscal deficit.
The environment for growth became conducive since the
Reserve Bank of India (RBI) started cutting rates (two
rate cuts of 25 basis points have so far been done; more
rate cuts to come).
This prompted us to build a portfolio that will gain from
an economic revival and easing rate cut scenario. Those
who are keen to benefit from India’s growth revival
should consider the New India Portfolio for long-term
wealth creation.
Our picks for New India Portfolio
We analysed hundreds of funds to identify a small set that
are best positioned to take advantage of the revival story.
In the process, we did not lose sight of the core of our
fund selection philosophy – consistency and stability.
This is reflected in our choice of funds for the New India
Portfolio as well. This is not a portfolio meant to deliver
flashy returns. You may, therefore, not find all top notch
funds alone in the portfolio. Stability, together with
portfolios tuned towards reviving sectors and themes, will
We all know that the new Indian Government has launched a whole set of reform initiatives.
Thanks to these, the country's economy is poised to grow on a fast track mode over the next
few years.
But how can you, as an investor, take advantage of this situation and invest smartly? We have
analysed hundreds of funds to identify a small set that are best positioned to take advantage of
the revival story, so that they deliver great returns to you. We are calling it the 'New India
Portfolio' and it is available for you to invest and benefit from the India story.
Parameter Nov Nov Mar
2012 2013 2015
Wholesale Price Index (WPI - %) 7.2 7.5 -2.06
Consumer Price Index (CPI - %) 9.9 11.6 5.37
Current Account Deficit (%- GDP0 4.7 1.7 -1.3*
Fiscal Deficit (as % of GDP) 4.9 4.6 4.1*
Oil Prices ($/bbl) 110 112 55
G-Sec Yield (%) 8.22 8.74 7.75
Credit Growth (%) 14 14 10.8
GDP growth - (% Old) 4.6 5.2 5.3
GDP growth - (% Rebased) -- 7.5 7.8
Index of Industrial Production (%) 1.01 1.3 2.6
Source: Bloomberg; *As per Union Budget; GDP - Gross Domestic Product
distinguish this 4-fund portfolio from regular fund
portfolios.
A diversified fund
A diversified fund with premium blue-chip companies,
and a general bias for large caps can provide stability to
the portfolio. Such a fund is necessary in any core
portfolio, and we have chosen one that scales high on a
risk-adjusted basis and has low volatility. This fund has a
consistent track record of more than 5 years.
A mid-cap fund
A contrarian mid-cap fund will help you capture potential
in quality mid-sized companies that usually out-perform
broad markets. Mid-sized companies that benefit from
higher capacity utilisation, or de-leverage in an easing
N Sathyamoorthy
I Macro-Economic Indicators

6. www.fundsindia.com
interest rate also benefit from operating and financial
leverage.
These companies, albeit risky, are well placed to gain in a
prolonged rally. We have tried to mitigate the risks from a
typical mid-cap fund by choosing a fund that is less
volatile, even as its portfolio is well placed to capture the
upside from economic reforms. This fund has a consistent
track record of more than 5 years.
A diversified theme fund
We chose a fund that will invest in multi-themes
(infrastructure, resources, finance, social development,
and agriculture) that are meant to act as building blocks
for the economy.
This fund can be expected to benefit well from a revival
in cyclical sectors. Cyclical sectors such as manufacturing,
infrastructure, banking, auto, and so on, are the ones that
prop the Gross Domestic Product (GDP) growth in any
economic revival. This was seen in the 1992-97 rally, as
well as the 2003-2007 rally.
A long-term debt fund
To ride the interest rate rally (when rates decline), and to
provide meaningful asset allocation, we added an income
fund that is well placed now to gain from falling rates
(price rally when rates fall).
The fund seeks to play the credit spread, which is the
difference between the government bond (called gilt) and
corporate bond rates. It also takes higher exposure in
government securities, if the interest environment is
conducive. This fund takes exposure to medium- to
long-maturity government securities, and AAA-rated
bonds, and is well placed to gain from a rally.
How the portfolio fared
Back testing analysis seeks to estimate the performance
of a strategy if it had been employed during a past period.
You may be aware about the individual performance of
the underlying funds; but the weighted average
performance of the underlying funds can bring to light
its ability to contain volatility and generate superior returns
overall. The portfolio generated 18 per cent compounded
annual returns in the past five years as compared to 11 per
cent returns from the blended index.
Is it for you?
If you are looking for a high-risk-high-return
predominantly equity portfolio with some debt, and are
willing to hold it for at least five years, then you could
consider the New India Portfolio for long term wealth
creation. On a risk-reward basis, this portfolio is positioned
above large and mid-cap funds, but below thematic and
sector funds.
The New India Portfolio could be more volatile than a
pure large-cap portfolio, but well positioned to deliver
better returns in the long run. This portfolio is more
suitable for existing investors who look for a slightly
aggressive portfolio to supplement their existing portfolio.
Suitability: This is a high-risk portfolio and investors are
advised to get it reviewed with their advisors every 6
months. As always, our advisors would be able to give you
the in-house view on these funds, and whether any
changes are needed in the strategy.
N Sathyamoorthy
Analyst, Mutual Fund Research
FundsIndia.com
54% 45% 36% 29%
18% 11%
1 Year 3 Years 5 Years
New India Portfolio Blended index
Back Testing: Performance Chart
Returns over one year are annualized (as of 24/03/2015)
Leadership talent is always in shortage. I don’t think you would ever hear a leader say, ‘I have surplus
leadership talent’. In fact, we will see the reverse. You will see companies that have been able to
attract leaders are the companies that grow.
Noshir Kaka, Managing Director, India, of McKinsey & Company
Product positioning - New India Portfolio

7. www.fundsindia.com
Axis Bank
Since the beginning of the year, Axis Bank has remained
volatile, building strong support at Rs 525 levels, while the
resistance is at Rs 580 and Rs 620. There is a strong
consolidation building up in the Rs 525 to Rs 580 price
band. The latest 100-day Simple Moving Average is at Rs
530. A breakout above Rs 580 will lead to a medium-term
upward trend, with the target at Rs 650 and stop loss at Rs
480.
This column is targeted at investors who are registered customers of
FundsIndia for trading and investing in equity as well as prospective
investors who wish to open an equity account with FundsIndia.
The Sensex continues to remain weak after it broke the
crucial level of 28,600. It witnessed volatile trading and
negative bias in March. The index was trading in a broad
range of 27,250 to 30,024 for the month. The strong
support is placed at 27,250 and 26,800 levels, while
immediate resistance is at 28,200 and 29,000 levels. The
short-term trend is bearish, and the downward trend will
continue as long as the index trades below the 28,200
levels. The Sensex can scale lower to 26,800 levels if the
downtrend continues. The trend will turn positive only if
the index closes above the 28,200 levels.
Perumal Raja
Technical Analyst (Equity Research Desk)
FundsIndia.com
Sun Pharma
Sun Pharma, which was trading in a tight band of Rs 800
to Rs 950 for the past 5 months, has broken out and
moved to a high of Rs 1,070. Support is at Rs 950 and Rs
880, while strong resistance is at Rs 1,080 and Rs 1,150.
The stock can be accumulated on declines. The latest
20-day Exponential Moving Average is at Rs. 1,005. The
immediate target is Rs. 1,180, with its stop loss at Rs 850.
Technical View Sensex
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 Pvt. Ltd., 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 in the opinion of the Editor.
Publisher: Wealth India Financial Services Pvt Ltd. Editor: Srikanth Meenakshi

8. www.fundsindia.com
Q
I read your article about investing in real estate versus
equities. The article is good, but it misses a very critical
point. It only talks about upside. What about downside?
The advantage of real estate is that the downside is
protected. Yes, it might be illiquid for some time, but the
principal is protected. On the other hand, in equities, yes,
you gain; but I’ve also experienced equities in which you
lose a substantial principle component, which you never
recover.
A
First, it is not true that property prices do not decline.
Check out the Residex Index of the National Housing
Bank and you will see that in many a large city, prices are
still negative since the inception of the index in 2007.
Let me narrate my own experience in real estate and
stocks.
I invested in a duplex house (suburban location in
Chennai) in 2011 for Rs. 30 lakh (Rs. 25 lakh of home
loan). Had I invested the down payment and made 10 per
cent returns in options such as mutual funds, I would have
made close to Rs. 2 lakh of return. That is hardly what I
have got as return on my property.
This is because just a couple of months ago, a similar new
duplex house in the same locality was sold for Rs. 32 lakh.
Had I invested the down payment, the registration
expenses, and the brokerage cost in the investment option
I have indicated, I would have made higher returns.
Now after including the cost of my loan and interest, I
am actually sitting on losses. If I sell my property now, I
would end up with more losses.
Where is the principal protection? I should hold this
property for the next 10-15 years to get 8-10 per cent
compounded annual returns. That is the reality. Most of
us do not look at the cost of borrowing when we check
our returns.
Now for equity. I had invested in the stock of Reliance
Power in 2008. Even though I understand equity
www.fundsindia.com
Q & A
Index 1 Year 5 Years 10 Years
CNX Nifty 26.7 10 15.6
S&P BSE Sensex 25.1 9.7 15.9
CNX Mid-Cap 51.7 11 16.2
CNX Small-Cap 53.5 9.1 14.9
CNX 100 29.3 10.4 15.7
CNX 500 33.8 10.1 14.9
CNX Bank 43.7 14.2 18
CNX Energy -1.8 -1.9 8.9
CNX FMCG 9.2 22 22
CNX Infrastructure 23.2 -1 9.5
CNX IT 30.3 15.4 15.7
MSCI Emerging -2.1 -0.7 6.1
Markets Index
MSCI World Index 4.5 7.9 4.3
Returns (in per cent as of March 30, 2015) for less than one year is on an
absolute basis and for more than one year on a compounded annual basis
Equity Performance Snapshot
valuations, and that the Initial Public Offering (IPO) was
expensive, I invested my money and lost my capital. The
fault was mine; not that of the equity market.
I should have taken sufficient time to analyse the stock
before investing in it. Before investing in a property, we
compare and evaluate expected rent and the growth
prospects of the property. Despite all that, it remains
close to a gamble! We do not, however, do some basic
homework while investing in stock markets and get easily
swayed by market sentiments, or by what others say.
If you invest in a quality stock and have the patience to
hold on to it, you seldom lose. For instance, if you had
invested in Infosys in 2000, you would have lost 75 per
cent of your capital in the very next year. But had you
held on to it, you would have built your wealth! This is
true of so many blue-chip stocks.
N Sathyamoorthy
Analyst, Mutual Fund Research
FundsIndia.com
Dearth of formal vocational education, high school dropout rates, inadequate skill training capacity,
negative perception towards skilling, and lack of industry ready skills even in professional courses,
are major causes of poor skill levels in India.
S. S. Mundra, Deputy Governor, Reserve Bank of India

9. 1 Name the investment management company owned
and managed by Warrant Buffett and Charlie Munger.
2 Who is at the helm of equity investments at UTI
Mutual Fund? He is one of the most highly regarded
fund managers in India.
3 Apple replaced which stock in the Dow Jones
Industrial Average recently?
4 Who is the author of `Seven Habits of Effective
People’?
5 Name the person in the image. He
has been responsible for the
development and growth of one of
India’s highly rated financial
services group.
Answers may be sent to quiz@fundsindia.com.
Answers for March 2015 Investment Quiz: 1 Finance Bill 2 R
K Shanmukhan Chetty 3 Prudential 4 Gillian Tett 5 Ravi
Mohan
Winner March 2015 Quiz: Mr. Prabakaran Kuppusamy
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• As indicated last month, we have simplified the process
of paying for your investments by introducing a new
payment option – your NACH mandate. This eliminates
the need to log in to your internet banking account to
complete your transaction.
• We have also rolled out a new version of our mobile
app that allows users to invest in new fixed deposits,
and purchase 24 Karat Gold through the Reliance My
Gold Plan (RMGP).