Investing well, but are you saving enough?

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Investing well, but are you saving enough?
Most of you will be pleased when you look at the returns on your portfolio
in the FundsIndia dashboard. I am sure you have reason to rejoice, what with
many of the equity funds sporting high double digit returns. But are those
returns alone reason enough for you to rejoice? A 20 per cent annualised
return on X fund in which you had invested ` 1,000 every month through a
Systematic Investment Plan (SIP) two years ago will be over ` 29,000 today.
Good returns, no doubt. But what do you exactly do with ` 29,000?
Even if you continue for another five years, will it fulfil any medium-term
goal of yours? I doubt it. We come across far too many investors with SIP
values that are too low to make any meaningful contribution to goals, even
after 5-10 years. And then, there are a few of you who invest a random `
10,000 or ` 50,000, followed by nil savings.
While all of you can feel rightfully satisfied that you chose a contemporary,
superior wealth building option such as mutual funds, it will still not help
you if your savings are way below your capacity to save, and way below what
you need to save! When presented with the fact, most of you are either
uncomfortable or get defensive, saying that you cannot save more. I agree,
for those in the economically lower strata, saving is tough.
But I think most of those who have told us they cannot save 10-25 per cent
of their income are working professionals, in the middle, upper middle and
higher income bracket; and may I add, likely updating their gadgets regularly,
and placing a few orders every month on e-commerce sites. So, do you get
it? The problem is not with saving; the problem is with spending. What do
you do to stop this habit? Stop saving arbitrarily.
Know what you are saving for, and how much you need to save. Talk to our
advisors if you need. Once you do that, see what you can do to generate that
surplus every month by cutting back on at least 1-2 items on your expenses
list that you can at least postpone. If you cannot, make sure you increase
your investments (half yearly, or annual step up SIPs are ideal), even as your
pay grows. Use products such as tax-saving funds when your surplus is
limited, and you need to do both - save tax and build wealth. These small
tweaks can go a long way in improving how your portfolio value (and not just
returns) looks a few years from now.
Vidya Bala
Head – Mutual Fund Research
FundsIndia.com
May 2015 I Volume 05 I 05
Advisory Board for you
We are happy and
proud to announce
the launch of the
FundsIndia Advisory
Review Board (ARB), a mechanism
by which FundsIndia’s customers
can seek a second-opinion about
the advice they’ve received from a
FundsIndia advisor.
This service is available right away
to all FundsIndia investors, and is
free of cost.
The FundsIndia Advisory Review
Board will have three members -
the Head of the Advisory group in
FundsIndia, a representative from
the Mutual Fund Research team
and a person from the
management. The FundsIndia
ARB will meet regularly.
Any customer who would like an
advice they received to be reviewed
would simply have to write to
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feedback will be provided to the
investor concerned.
Our motto, from day one of
starting this company, has been
‘Enriching India, one investor at a
time’. We see the FundsIndia ARB
as reinforcing this commitment to
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Happy investing!
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Co-Founder & COO
FundsIndia.com

2. FundsIndia View: How many funds do you need?
The amount
While this is not the first thing to really influence your
decision, it is the most practical point to consider when
investing, especially by small, retail investors.
If you had ` 1,000 or ` 2,000 to invest every month, you
can’t possibly have an asset balanced, category allocated,
and style-diversified portfolio of funds. It leaves you with
an option of one or two funds at best.
When you have a single-fund portfolio, it is a good idea to
get these points right: one, the choice of asset class (debt
or equity fund) based on your time frame; two, if it is an
equity fund, do not hold a mid/small cap, theme or
international fund as the one fund you are going to invest
in. Often times, such a choice of equity funds is one
reason why many first-time investors get disenchanted
with mutual fund investing.
They would have chosen a risky fund to begin with, and
probably burnt their fingers in a declining market. If you
have a higher sum to invest - say ` 5,000 or above on a
monthly basis, then arises the question of asset allocation
and diversification.
Asset allocation
If you need to allocate across asset classes, then you may
need 2 or more funds, unless you think a balanced fund
would suffice. If you are investing in a portfolio with a
specific goal in mind, then ensure you have a proper asset
allocation based on the goal and time frame.
If you are clear that you have already allocated certain
sums outside of mutual funds for certain asset classes
such as debt or gold (say deposits or physical gold) for
the said goal, then this might be a less significant factor to
www.fundsindia.com
Vidya Bala
Well, my answer is ‘it depends’. Don’t be disappointed. If you knew the factors that determine
the number of funds you need to hold, you will likely have the answer yourself. So here’s what
you need to take into account before choosing the number of funds to hold in a portfolio.
consider. Otherwise, asset allocation helps capitalise on
returns across various asset classes, and also acts as a
hedge against risk.
Once you decide the proportion of equity, debt or gold to
hold, the next requirement would be to decide how many
funds to hold within each asset class.
Diversification
Now, this is the key. If you are an investor who does not
think you need a portfolio diversified across market cap
categories (large, mid and small cap stocks), or different
styles of investing, then holding one or two diversified
equity funds, and perhaps an income fund for debt may
suffice, provided you are a long-term investor.
Of course, when you have a concentrated portfolio, make
sure you get the funds reviewed at least annually, as the
risk profile of your portfolio would be high as a result of
taking fewer exposures.
But if you like to diversify across higher risk and lower
risk funds, and across fund houses and fund management
styles, then you will need more funds. Here are some
general tips that may help you in your choice:
Diversification across market-cap segments
• You don’t need ‘diversification’ across large caps. This
is because, given the restricted universe within which
large-cap funds can operate, you are unlikely to get
different sets of stocks, or markedly varying styles of
investing. Hence, unless you want a portfolio of only
large caps, holding one large-cap fund should do the
job for you.
• Diversified/multi-cap funds come in different forms
and shape. But largely, most of them have a large-cap
The RBI is also respected for its integrity. It is a matter of great pride for me today that when
someone enters our building to persuade us to change a regulation, they come armed not with
money, but with arguments about what is right.
Dr Raghuram Rajan, Governor, Reserve Bank of India

3. bias and seldom go overboard on mid-cap stocks.
Funds such as Mirae Asset India Opportunities or UTI
Opportunities are good examples. Hence, if the
amount you can spare to invest is not high, and you
have a moderate risk appetite, you can even skip a
large-cap fund and choose a diversified fund with a
good track record.
• You can specifically ask your advisor to provide you
with a relatively low-risk diversified fund if you are
skipping the large-cap category. This is one way to
ensure your portfolio remains compact.
• A mid-cap fund is a good addition if you are building
wealth for the long term, and if you can take some risk.
But in general, given that it is not too prudent to hold
over 30 per cent of your portfolio in mid-cap funds,
you may not be able to accommodate too many funds
within this segment.
• If you are going for just one fund, choose one that
invests in mid-caps, but not too much in small caps,
and has at least a fifth or more in large caps as well.
Just to illustrate, within FundsIndia’s Select Funds’ list,
funds such as HDFC Mid-Cap Opportunities, BNP
Paribas Mid Cap or Franklin India Prima will fit this
description well.
• If you are the aggressive kind and need funds that
explore lesser known stocks, then adding one more
such fund is fine, provided you have that much money
to spare. Again, to illustrate, funds such as Franklin
India Smaller Companies or UTI Mid Cap may fit this
description.
• While it is market-cap segments in equities, it is
portfolio maturity and credit risk in debt. Here, too
much diversification is not required, as most funds
follow the interest rate cycle and invest accordingly. As
a thumb rule, if your time frame is short, go for funds
with low portfolio maturities (short-term debt funds).
You don’t need too many funds in this category.
• If you are looking for long-term investing in debt, the
simplest option to avoid crowding is to choose a fund
that will invest across instruments (gilt, corporate
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bonds, commercial papers, deposits), and also vary its
portfolio maturity based on the interest rate cycle. 1-2
funds should suffice.
• Funds that will take exposure to credit, and specifically
have corporate bonds as a theme, are only for risk
takers. View these as equivalent to holding theme
funds in equity.
Same funds for different purposes
All that we are talking of here is the number of funds for
a single portfolio that is built towards a specific goal. You
may have three funds for your child’s education and four
funds for your retirement. Treat each portfolio as a unit.
In this, no harm in having the same funds earmarked for
different goals. After all, if a fund performs well, it is only
good to have them for your goals, albeit different ones.
Vidya Bala
Head – Mutual Fund Research
FundsIndia.com
Index 1 Year 5 Years 10 Years
CNX Nifty 22.7 9.4 15.8
S&P BSE Sensex 21.2 9.2 16
CNX Mid Cap 42.1 9.7 16
CNX Small Cap 36.8 7.9 14.2
CNX 100 25.1 9.7 15.9
CNX 500 28.3 9.3 14.9
CNX Bank 41.8 13.3 19.2
CNX Energy -0.4 -1.1 9.4
CNX FMCG 12.4 21.6 21
CNX Infrastructure 18.8 -1.5 9.1
CNX IT 19.9 13.3 15.9
MSCI Emerging Markets 4.8 0.7 7.1
MSCI World 6.3 8.4 4.8
Returns (in per cent as of April 29, 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

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Avoid these emotional biases while investing
Investing where the valuations are lower has been a far better strategy historically. We believe that
investing in the various bad and ugly places in the world is going to wind up far more rewarding than
the admittedly good-looking U.S.
Ben Inker, co-head of GMO's Asset Allocation team
Familiarity bias
Familiarity bias has a strong influence on what you buy.
The main problem is that when you buy the familiar, you
underestimate the amount of risk in the investment.
Because you underestimate the risk, you do not take the
purposeful steps of reducing risk such as diversifying your
investments. Therefore, you end up taking more risk than
desired.
For instance, while investing in a mutual fund, you may
feel comfortable with a mutual fund company that is a
part of a large industrial group, or a big banking
institution.
But in reality, factors such as fund management process,
fund manager experience, fund objective, and fund
expenses determine the future performance of the fund.
Familiarity bias may restrict your investments with a few
mutual fund companies. This may lead to
less-than-desirable diversification of the portfolio.
You may also end up owning funds just because there are
new funds launched by companies you are familiar with.
Just because a new fund is launched by your favourite
mutual fund, you should not invest in that scheme.
You should assess the fund logically and understand the
pros and cons of the scheme’s objective. In addition, you
should also check whether that particular scheme matches
your investment objective.
Recency bias
We recently received a query from an investor – “Why
should I invest for the long term (more than five years)
when I receive more than 50 per cent returns in one
year?” Over the last one year, many mid- and small-cap
While most of you would like to be rational ‘wealth maximizers’, in reality, emotion and
psychology influence your investment decisions. This causes you to behave in an unpredictable
and irrational manner. Most of your investment decisions are based on your own gut or instinct,
rather than on logic.
By understanding these behavioural biases and knowing how they interfere with your goals, you
may be able to improve your portfolio returns. Here are a few of the behavioural biases investors
are typically prone to.
funds have generated more than 50 per cent returns.
Every mutual fund company highlights the following line
just below their performance numbers: ‘Past performance
may or may not be sustained in the future’.
Many of you still believe that you will get the same returns
as the previous year, and are disappointed when you don’t.
Recent performance will not be an indicator for future
long-term performance. Over the long term, high degree
of variations may be evened out, and you may get 12-15
per cent annualised returns in an equity fund.
Moreover, high return comes with high risk. Hence, you
should not be carried away by the recent performance of
the fund, especially when it is purely driven by a mass
market rally.
For instance, as illustrated in the chart below, even though
the recent performance of Fund A is better than Fund B,
Fund B has better long-term performance when
compared to Fund A.
You should choose the fund with a better long-term
performance for stable returns.
N Sathyamoorthy
75%
35%
9%
18%
1-Year Return 10Years CAGR
Fund A Fund B
Fund Performance

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The minute you get away from the fundamentals – whether it’s proper technique, work ethic, or
mental preparation – the bottom can fall out of your game.
Michael Jordan, Legendary basketball player
Profit bias
A few of you may have the tendency to book profits
frequently from your investments. Profit booking may be,
to an extent, beneficial for stock investing; but the same
isn’t applicable for investments in mutual funds.
Don’t forget that a fund manager does the job of exiting
over valued stocks and reshuffling the portfolio, whenever
it is necessary.
Frequent profit booking could lead to sub-optimal
portfolio returns, deterring long-term wealth creation.
Time in the market is more important than timing the
markets.
When you monitor your long-term portfolio daily or
weekly, then most likely, you will be tempted to book
profits. Review your portfolio yearly and change the funds
or allocation (re-balancing), if necessary.
If the performance meets your expectation, then you
should stick to your plan, and stay focused on your
long-term goals.
Negativity bias
In general, most of us are conservative, and we want
spectacular returns with zero risk from our investments.
The fundamental investment principle is that potential
return rises with an increase in risk.
Taking on a bit of risk is the price of achieving potential
returns. Therefore, if you want to generate returns, you
cannot cut out all risk.
The goal instead should be to find an appropriate balance
- one that generates some profit, but still allows you to
sleep peacefully at night.
All investments carry some amount of risk. Even
Government guaranteed fixed return investments carry
inflation risk.
Risk aversion is a major roadblock for creating long-term
wealth. For instance, past memories of the 2008 market
crash prevented many from entering the equity market
during the last few years.
Many of you may miss a rally out of fear that the market
may crash from the highs. For instance, just by postponing
your investment decisions, you may have lost between 35
per cent to 50 per cent returns on your portfolio in 2014.
Negativity bias pushes you to place more weight on the
bad news than on the good.
You might call this risk management; but this bias can
cause the effects of risk to hold you from moving towards
the rightful reward that such risk may have delivered.
Choice paralysis
More choices have some distinct advantages and
disadvantages. It is good to have multiple choices so you
can weigh them all, and choose what fits you best.
The sad truth, however, is that too many choices can lead
to decision paralysis, accentuated by information overload
- the order of the day now. It will also delay your
decision-making.
While investing in mutual funds, you may look for star
ratings and rankings from various online portals to
narrow down your choices.
But still, you may find it difficult to short list suitable
funds from the dozens of 5-star-rated funds, or from the
top-ranked funds.
You should then seek the counsel of an investment
advisor who understands your life goals, and who will let
you know your risk capacity, rather than merely judging
your risk tolerance. This may well change the choice of
funds you go for.
Investing beyond biases
Emotional biases stem from impulse, intuition, and
feelings, and may result in personal and unreasoned
decisions.
Now that you can identify a few of the biases, it's time to
apply that knowledge to your own investing, and if need
be, take corrective action. Once you do this, you will have
every right to expect your portfolio to deliver well.
N Sathyamoorthy
Analyst, Mutual Fund Research
FundsIndia.com

7. www.fundsindia.com
Bharti Airtel
For the past six months, Bharti Airtel has remained range
bound (` 320 - ` 340) and needs to clear the upper price
band for a fresh upward trend to emerge. The price
breakout will lead to further upside, with its immediate
target being ` 480 in the medium term. A failure to clear
either of the price bands could lead to sideways action in
the short term. Crucial support level is at ` 375 and Rs
340 (stop loss), and resistance is at ` 420 and ` 450.
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 Nifty continues to remain weak after it slipped below
the crucial support level of 8,510. It witnessed volatile
sessions with a negative bias in the month of April. At
present, the index faces stiff resistance around the 8,510
and 8,620 levels. Strong support is placed at the 8,270 and
8,060 levels. The short-term trend is bearish and going
forward, we expect the downward trend to continue
towards a target level of 8,200, followed by 8,060 in May.
The trend will turn positive only if the index closes above
8,620 levels.
Perumal Raja
Technical Analyst (Equity Research Desk)
FundsIndia.com
Coal India
The current leg of upward trend in Coal India emerged at
` 340. The stock has, since then, been maintaining a
strong trend that faced resistance at the ` 398 levels. The
immediate support is at ` 360 and ` 345. A breakout
above its previous high of ` 400 is expected to trigger a
strong upside momentum, with the target at ` 450 in the
medium term. The latest 50-day Exponential Moving
Average is at ` 358. Stop loss is at ` 335.
Technical View Nifty
Disclaimer: Mutual fund investments are subject to market risks. Please read the scheme information and other related documents before
investing. Past performance is not indicative of future returns. Please consider your specific investment requirements before choosing a fund,
or designing a portfolio that suits your needs. Wealth India Financial Services Pvt. Ltd. (with ARN code 69583) makes no warranties or
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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, offer document or recommendation. 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

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Q
What is the difference between your fund recommendations and your Select Funds list? Would it be safe to assume
that recommendations are placed a notch higher than your list?
A
Our Select Funds list is a staple list of investment-worthy funds. It has funds chosen across time categories, and we
have segregated it based on either risk (for equity funds), or time frame (for debt). If you would like to make your own
selection, you can use it as a filtered list to choose your own funds within each category.
Outside of this list, there could still be many other funds that may have fallen short in our filtration criteria, or could
not be accommodated because we need a cap on the number of funds we offer in this list. So while we cover the Select
Funds list in our weekly recommendations, aside of that, we try to cover funds that were close enough to make it to
the list.
These could also include prospective additions to our Select Funds list. We also use our weekly recommendations to
cover certain funds with a specific risk profile that are suitable only for some investors. They will not be a part of our
Select Funds list as they are not funds we would recommend to everybody. Besides, sometimes we simply review (not
recommend) a few interesting theme / international funds / funds with unique strategies.
Please note that our Select Funds list is the one to dip into at all times. If you are unable to choose from our list, our
advisors will help you choose the right ones within that. With our weekly recommendations, if you understand the
fund’s risk profile, and if it fits your overall portfolio, you may then choose to invest in it.
Vidya Bala
Head - Mutual Fund Research
FundsIndia.com
Q & A

9. 1 What is NPS?
2 What is the maximum limit of a company’s equity that
can be owned by a mutual fund company across all
its funds?
3 Who is the author of Extreme Money: The Masters
of the Universe and the Cult of Risk?
4 Which was the first hybrid insurance cum investment
scheme in India?
5 Name the person in the image. He
floated a mutual fund in India that
had to be closed down due to
mismanagement and legal
strictures.
Answers may be sent to quiz@fundsindia.com.
Answers for April 2015 Investment Quiz: 1 Berkshire
Hathaway 2 Anoop Bhaskar 3 AT & T 4 Steven Covey 5
Deepak Parekh
Winner for April 2015 Investment Quiz: Reena Benjamin
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Investment QuizFundsIndia Select Funds
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Equity (High risk)
These are funds with the potential to generate high returns,
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Growth Option. The recommended holding period is five
years, accompanied by an active review of performance.
BNP Paribas Mid-Cap IDFC Premier Equity
Franklin India High Growth Mirae Asset Emerging
Franklin Prima Reliance Equity
Franklin Smaller Companies Religare Mid & Small
HDFC Mid-Cap SBI Magnum Mid Cap
ICICI Pru Value Discovery UTI Mid Cap
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.
Please click here for the full listing of our Select Funds.
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FundsIndia’s ‘Select Funds’ list is reviewed on a quarterly basis. In the latest review in April, there were no changes
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