Dalelorenzo's GDI Blog
6Jul/210

Dividends from mutual funds were never dividends

At the beginning of this financial year, Sebi changed one of the oldest slice of nomenclature in Indian mutual funds--there is no such thing as dividend any more. What used to be called dividend is now simply announced distribution and what used to be called dividend programs of mutual fund intrigues are now called' Income Distribution cum Capital Withdrawal’ means. That’s a mouthful so these will be called IDCW, which is also a mouthful but good-for-nothing can be done about that, or should be done, because the term is accurate.It’s accurate because in any real sense of the word, there were never any bonus paid in mutual funds. It was always an semblance. What was called bonu was always exactly what the brand-new list says: Income Distribution cum Capital Withdrawal. However, it’s quite clear that a good deal of investors are still having some problems understanding what this whole business is all about and believe( are being misinformed) into thinking that the payout is actually a gain and simply the figure has been changed. The world is the opposite. It was never a dividend and the epithet have already had been changed to the correct one.Once upon a experience( signifying till two months before ), dividends in mutual funds were well-understood to be a sales-boosting ploy. Not by investors, clearly, who were the target of this joke but by store salespeople and distributors. When stores came out with dividends, salespeople goes to show that off to potential investors as evidence of it being a good money. Over the years, Sebi cracked down on the source and accounting of the money that was distributed as dividend but the quality affirmation idea was still quietly promoted while making a sales pitch.Let’s is aware that the dividend/ IDCW is. Let’s say you own a thousand legions in a fund with an NAV of Rs 20. Your investment is worth Rs 20,000. The fund announces a dividend/ IDCW of 20 %. That’s 20% of face value, which is Rs 10, or a payout amount per unit of Rs 2. For your thousand divisions, you’ll get Rs 2,000. However, this amount will come straight from the value of your investment. On the record date, the NAV of the fund will drop by Rs 2 to Rs 18. This means that along with receiving Rs 2,000 as bonu/ IDCW, your investment will be worth Rs 2,000 less. There is no bonanza. You have gained nothing. Financially, it’s accurately as if you have withdrawn that coin from the fund. So going a mutual fund dividend/ IDCW is a zero-sum game. Dividends/ IDCW have no impact on the return you are getting from your investment. There are no exceptions to this and there is no additional benefit at all. This payout time intends taking some of the money that was already yours and affording it to you. Unless you need the income, there is no sense in picking the gain option in an equity store. In fact, even if you need the income, it is better to collect non-dividend( swelling) alternative and withdraw according to your own needs and schedule rather than according to the mutual fund’s own logic.It’s unfortunate that this belief is so deep and it has lasted for so long. This renaming should have been done years, perhaps decades back. Certainly, the need for this renaming has been discussed publicly for a long time. Even now, it’s quite clear that it will be some years before the call dividend is finally forgotten. Nonetheless , now that the formal renaming is done, at least knowledgeable mutual fund investors should move out of the gain misconception .( The columnist is CEO, Value Research)

Read more: economictimes.indiatimes.com

16Jun/210

AMFI CEO on new players entering MF space

There is scope to do more to ensure a level playing field for mutual funds so that these can become a viable savings option for more beings, N.S. Venkatesh CEO, Association of Mutual Funds in India( AMFI) tells Sanket Dhanorkar of ET Wealth.As a self-regulatory organisation, what capacity is AMFI playing to prevent mishaps and maintain investor rely? AMFI has always played an active role -- whether it is to help the industry whenever any new regulations or guidelines are inserted or to ensure best traditions. We obstruct liaising with the regulator and government on behalf of the industry. If some accidents appeared along the way, we have been the first to step in and gape closely at that occurrence and ensure these don’t recur. If it requires better risk management practices, for instance, we devote our inputs and guide the AMCs to situate it together. Sebi has always involved AMFI in such discussions. We believe we are contributing to the industry growth in an orderly manner while keeping the investor at the forefront. We are aware that the trust of investors is paramount for the industry to grow at a rapid pace.What is your take on the concept of' skin in the game’ in mutual funds? The mutual fund industry has already had this is in place for a long time. AMCs have been investing their own money in their monies. So fund administrators previously had their surface in the game for many years. It is not as if this is a brand-new notion for the industry. But there are certain nuances in what the regulator has prescribed so we are examining the finer phases in the circular. Otherwise, the industry is well prepared to meet the requirements. The manufacture has always been compliant on the regulatory front.MFs today have emerged as a competitive savings alternative. Do you feel more parity is still needed with other options in terms of regulations or taxes? We have been locking with the regulator as well as the finance ministry about accompanying a level playing field between mutual funds and other commodities like Ulips. We have checked some efforts in this direction already in this year’s Budget, with taxation introduced on high-value Ulips. This proceeds some channel in bringing parity with MFs, but we feel more can be done in this regard. Sebi has always saved the investor’s interests at the forefront and regulatory changes in MFs over its first year have revolved around this. Whether it is in terms of disclosures, overhead fractions, risk traditions etc, the regulator has been very proactive. Compared to that, the insurance regulator needs to catch up. More regulations can be introduced in this area to prevent instances of misselling, for instance.Mutual funds have been attracting first time investors but many have also shown preference for direct equities. How is the industry addressing this gap? We have observed that mutual fund investments are generally wished for the longer term. Direct equities are for more short-term opportunities in the form of trading. Mutual funds have been stood as a vehicle for wealth creation at a very low cost. This is well understood by knowledgeable investors. That is why MFs continue to attract inflows and the industry has recorded the most prominent ever assets under administration last-place month. We continue to see new folios being opened every month. We have added around 20 lakh new investors into the MF fold over the past months. Both mutual fund and direct equity financings are co-existing. Those with medium-long term time horizon remain invested in MFs.How do you end the rising trend of overflows to passive stores? This an encouraging trend. Even globally, the passive segment has grown at a fast time. In India, it still a fraction of the total asset management pie. But it has been proving good friction in recent years. Passive investing is for those who instead not bet on active conduct but instead put money on the index and deliver returns in line with world markets. Since these have much lower costs, it is a good option for those who are particular about impeding expenses low-spirited. This doesn’t take anything away from the active management space. The expansion of the passive segment is not solely triggered by underperformance in active funds. It is simply a mindset of the investor if he wants to bet on the indicator or look for index-beating returns. Some are more comfortable investing in a wider basket of stocks instead of selectively picking from active funds. Some of the passive moves are also owing to the money coming from EPFO and pension funds. There still remains enough scope for active fund managers to create alpha. Both policies are coexisting. But over a long period, as more investors enter the mutual fund fold, the passive space is the beginning indicating a faster tempo of growth.What do you expect several new participates with diverse backgrounds to bring to the table? New entrants are welcome as it promotes a competitive being within the industry. These musicians "ve brought" a diverse situated of notions. For instance, a distributor clothe opening the resource management cavity is in touch with the last mile of investors. It will perhaps have a better understanding of the investors’ penchants and thought process and "ve brought" commodities catering to their specific needs. Other entrants will adapt newer engineerings that will bring down cost of operations which could be passed on to the investor. So enter of actors with different backgrounds is eventually helpful for potential investors.

Read more: economictimes.indiatimes.com

30Mar/210

Do you know why you invest the way you do? Check out my WHYs

In his best-selling book Start with Why, Simon Sinek writes about how people won’t truly buy a make, assistance, motion, or meaning until they understand the WHY behind it. This got me thinking about investing, and if I rightfully understood and am in tune with the WHY behind it.Do all of us indeed think deeply about the purpose behind the financing decisions that we make at any time? I decided to test this out and tried to put down the WHYs behind my financing decisions and my description of asset classes.While writing this, some of these WHYs made me by surprise and some constituted me actually guess before fully defining them. I hope it concludes you think, re-assess or become more aware of different aspects of investing and personal finance.Why do I go for Financial Planning? To achieve destinations like retirement, children’s education, buying a car, a vacation and assemble other business goals with least quantity of stress.Why equity? It’s a simple thought; proprietors earn more than employees.Why diversification? Not all owners will succeed.Why mutual funds? Most investors is not have the time, learning, exertion, or liking towards various asset castes and for investing.Why active stores? Because mutual fund administrators with its own experience, insight and strong teams have the potential to beat the market.Why passive funds? Because despite accusing costs in actively organized mutual funds, there is no guarantee that mutual fund directors will be able to beat the market.Why largecap assets and stores? They are relatively stable companies, suffered handling, can better manage economic downturns, have better access to capital and human resources development.( Relative to midcaps& smallcaps) Why Midcaps& Smallcaps? They offer better upside possibles, and a few cases of them is likely to be future largecaps.Why flexi-cap monies? This category has all three largecaps, midcaps, and smallcaps in one portfolio.Why international assets? Because, Indian stock market is less than 3 per cent of the entire world stock market.Why patience? Because from the crest of 1992 to 2003 the equity busines devoted no return for 11 years.Why long term? Maths. Because in the magic formula of compounding, go is exponential.Why fixed income? In 2008, when the equity market corrected more than 50 per cent of the children, the fixed income resources played as shock absorber.Why a core fixed income portfolio of' AAA’ certificates? Because the credit risk is low and the portfolio is well diversified with high quality borrowers.Why money market funds? To organize short-term needs.Why gold? When parties lose faith in fiat currency, the yellowed metal does well.Why real estate properties? It dedicates inflation-beating returns on a long-term basis along with added benefit of safety and security.Why emergency fund? Because the world is uncertain.Why life insurance? Because death is certain, but the timing is uncertain.Why health insurance now? No insurance company will readily give you insurance when you are fall ill.Why SIP? Because we are lazy and don’t have the self-discipline to invest every month.Why retirement saving? Because life is long and children are not our retirement fund.Why resource rationing? Because it helps deal with all economic situations and can ensure peace of mind.Why spend? Because, it causes joy and satisfaction.Why save? For incessant delight and satisfaction in the future.Why go for a business consultant? Very few people have the emotional knowledge to succeed finances on their own.Why no cryptocurrency? Because it is highly volatile, and doesn’t have the backing of the government guarantee, doesn’t have a track record or biography like amber, there is an operational risk of regarding it, and there is a risk of permanent uppercase erosion.Albert Einstein famously said, “If you can’t explain it to a six-year-old, you don’t understand it yourself”. And this can only happen if one began with a WHY? I hope this exercise of construe my WHYs has given you some perspective about your own WHYs. The WHY can also help weed out the suggestions and speculations that may not suit one’s risk appetite, values and goals and helps in having clarity and build conviction on a business decision.Financial stress is the biggest stress in most people’s lives. So next time you save, invest, or scheme a foreign tour, start it with a WHY ?( Amit Grover is AVP, training at DSP Mutual Fund. Views are his own)

Read more: economictimes.indiatimes.com