[SmartCat]

Originally Posted by locusjag

Is anyone else invested in Credit Risk Debt funds? The NAVs of 4 funds of mine have all tanked in recent days since the companies involved have defaulted (temporarily, I hope) on repayments to these funds. Other than the IL&FS scare in the market, I see my funds have all sold much of their exposure to Vedanta. I couldn't quite put a finger on what else is going wrong out there...any thoughts?

There is fear in the debt markets because of AAA rated IL&FS default. See, a fund manager looks at a security's credit rating (AAA, AA, A+) and buys it. But now, there is a trust deficit after the default. So some fund managers are jettisoning suspicious names from their portfolio and whatever price the debt markets offers. That's why you see NAV dropping in some funds.

Blame it on the terrible job done by rating agencies like CRISIL, ICRA etc who slap AAA or A1+ rating on debt securities without doing proper homework.

If you are worried, move to the following classes of funds:

For short term horizon, invest in Overnight funds. As the name suggests, your funds are borrowed by banks for only one day, before returning it back. Credit risk is almost nil. Such funds have historically returned 6 to 7% per annum
https://www.valueresearchonline.com/...=127&x=11&y=11

For medium term horizon, invest in Banking & PSU funds. Again, as the name suggests, your funds are primarily invested with PSUs and banks. Credit risk is very low and there will not be any IL&FS like surprises.
https://www.valueresearchonline.com/...c=susp%2Cclose

For long term horizon, invest in Government Securities funds. Credit risk is zero but the NAVs can be volatile. NAVs might swing between -10% to +30% per year.
https://www.valueresearchonline.com/...c=susp%2Cclose

[sgiitk]

@smartcat; ratings have to be taken with healthy dosage of skepticism. Remember in the global crash, how many AAA financial institutions crashed. I am almost of the view that ratings may be harmless adjuncts to the serious business of investments. Look at them but with a very healthy level of skepticism.

[Santoshbhat]

Originally Posted by smartcat

There is fear in the debt markets because of AAA rated IL&FS default. See, a fund manager looks at a security's credit rating (AAA, AA, A+) and buys it.

I believe IL & FS papers rating went straight from AAA to D . Since it is quasi Govt. entity, looks like it will get bailed out. But what if this happens to a pure private entity? What's the rating agency's accountability here? Given that investors rely on these ratings to put in their monies. Debt investors, unlike equity investors are very sensitive. These are really big shocks. Wonder how many more are in store for investors.

[SmartCat]

Originally Posted by sgiitk

@smartcat; ratings have to be taken with healthy dosage of skepticism. Remember in the global crash, how many AAA financial institutions crashed. I am almost of the view that ratings may be harmless adjuncts to the serious business of investments. Look at them but with a very healthy level of skepticism.

Originally Posted by Santoshbhat

I believe IL & FS papers rating went straight from AAA to D . Since it is quasi Govt. entity, looks like it will get bailed out. But what if this happens to a pure private entity? What's the rating agency's accountability here? Given that investors rely on these ratings to put in their monies. Debt investors, unlike equity investors are very sensitive. These are really big shocks. Wonder how many more are in store for investors.

There is a huge conflict of interest here - because rating agencies' fees are paid by companies that tap the debt markets. Naturally, their loyalties lie with their paymasters, and they go around slapping AA or AAA grades to every paper.

[DigitalOne]

Originally Posted by srikanthns

Should I shift from FI Bluechip?

Same boat. Started my MF investment journey from FT Bluechip and FT Prima, and have my highest investments in FT Bluechip. I have let the STP lapse in FT Bluechip. Will take a call on switching after a year.

I feel the "actively managed" large cap category has become a laggard itself after the re-categorization. It is better to switch to Nifty or Nifty Junior Index funds rather than active funds.

Originally Posted by smartcat

There is fear in the debt markets because of AAA rated IL&FS default.

I have been scorched by the IL&FS default. Four of my debt funds figure in the affected list

https://www.valueresearchonline.com/....asp?str=46062

[ghodlur]

Hi Experts,

One of my office colleagues requested me to post this query on the forum. My friends wants to invest 90K in mutual funds every month. The goal is wealth accumulation for 3-5 yrs. He wants to know if he can invest 50:50 in equity and debt. He has shortlisted the following funds.

Equity funds are given below. Start SIPs of 15K in each.

1.Axis Bluechip fund direct Plan

2.Kotak Standard Multicap fund direct plan

3.L&T Midcap fund direct Plan

Debt funds are given below. Start SIPs of 15K in each

4.Aditya Birla Sunlife Savings Fund direct Plan

5.L&T Ultra short term fund direct plan

6.Kotak savings fund direct plan.

Does the above feel right? Any different funds or fund ratio he should think of. I had suggested him to limit the no of MF's to max 4 (1 pure large cap, I multicap, 1 midcap, 1 pure debt fund). His age is 40, He has invested in Mutual funds and ULIPS with exposure to stocks too

Kindly suggest..

[SmartCat]

Originally Posted by ghodlur

One of my office colleagues requested me to post this query on the forum. My friends wants to invest 90K in mutual funds every month. The goal is wealth accumulation for 3-5 yrs. He wants to know if he can invest 50:50 in equity and debt. He has shortlisted the following funds.

Does the above feel right? Any different funds or fund ratio he should think of. I had suggested him to limit the no of MF's to max 4 (1 pure large cap, I multicap, 1 midcap, 1 pure debt fund). His age is 40, He has invested in Mutual funds and ULIPS with exposure to stocks too

Looks good. That is the way to go -> 50% in debt funds and 50% in equity. His idea of investing in 3 + 3 = 6 funds sounds like a good plan too. The schemes selected are pretty good.

[ghodlur]

Originally Posted by smartcat

Looks good. That is the way to go -> 50% in debt funds and 50% in equity. His idea of investing in 3 + 3 = 6 funds sounds like a good plan too. The schemes selected are pretty good.

Thanks for the quick response.

Adding 6 more MF's in a portfolio which already has 10 MF's, wouldn't it lead to a clutter? He is now having SIP in 4 MF's already. Keeping a track of 6 more could be confusing and time consuming too. Alternatively I had suggested him to invest in 3 MF's with 30K each, would that be a bad move?

My friend reviewed the MF's on Valueresearchonline and came up with the above options.

[SmartCat]

Originally Posted by ghodlur

Adding 6 more MF's in a portfolio which already has 10 MF's, wouldn't it lead to a clutter? He is now having SIP in 4 MF's already. Keeping a track of 6 more could be confusing and time consuming too. Alternatively I had suggested him to invest in 3 MF's with 30K each, would that be a bad move? My friend reviewed the MF's on Valueresearchonline and came up with the above options.

Yikes, he already has 10 other equity MFs? Then doing a SIP in existing 4 or 5 star rated funds might be a better idea.

Also, ask him to classify his current investments into debt and equity. EQUITY category would include stocks, ULIPs and equity MFs. DEBT category would include cash in savings account, Fixed deposits, EPF, PPF, money back insurance and debt MFs. If it the value in "equity category" is too high compared to value in "debt category", then maybe it makes sense to pour incremental SIP amount exclusively into debt mutual funds -> especially Gilt funds, banking funds or overnight funds.

Most investors maintain 90% debt/10% equity (conservative investors) OR 90% equity/10% debt (aggressive investors). One needs to maintain the right balance (50:50) between the two asset classes.

[DigitalOne]

Any opinions on the NSE NV20 index based ETFs? Currently, there are two ETFs one from ICICI and other from Reliance MF.

This index and related ETFs seems to be a good low cost substitute to the scores of "actively-managed" large cap funds.

[SmartCat]

Originally Posted by DigitalOne

Any opinions on the NSE NV20 index based ETFs? Currently, there are two ETFs one from ICICI and other from Reliance MF. This index and related ETFs seems to be a good low cost substitute to the scores of "actively-managed" large cap funds.

The stock picking philosophy is very sound - low PE, high dividend yield and high ROE. It roughly follows the guidelines laid out by a value investor called Joel Greenblatt
https://en.wikipedia.org/wiki/Joel_Greenblatt

Remember that this ETF manager will probably never invest in "hot sectors" of the year. So in a roaring bull market, this fund will grow at a much slower pace than other mutual funds. But over a longer time frame, this ETF is likely to be a top quartile performer primarily because of its proven investment philosophy

[blorebuddy]

Originally Posted by roby_dk

I think it is better to get interest on full amount from day one. I want to build a high risk and aggressive portfolio with the lumpsum investments. ELSS Sip will be average risk investment for longer time period at least 20-25 years. Small and multiple chunks of 1-2 lakh is a good option to be invested in high risk small/mid/large cap funds.

Originally Posted by blorebuddy

@roby_dk
Here are my views on this
1) There is no interest to gain from day 1. MF investment performance is directly based on the underlying stocks. So there is no guarantee that you are going to gain from day 1.
2) It's always recommended to do SIP rather than lump sum because it minimizes the risk of seeing negative returns and also averages out as market does not move unidirectional on daily/monthly basis. Also this is especially true for mid and small cap which has lot more volatility

Market has corrected more than 10% since we had these conversation. No one could have predicted this movement. Most of the MF NAVs also taken a hit. This is the reason why we should be investing using SIP mode than lump sum mode. If you have invested a lump sum amount one month back, you will be seeing x% of losses in your invested amount.

[Miyata]

In your assessment of MFs, do you people also look at the fund managers? Earlier I used to look at Prashant Jain and Rajeev Thakkar - but over time have been developing a feeling that the fund managers may not be swaying things around so much.

I am not yet too heavy into direct stocks - have just a few that I could count on my fingers! But it appears, for the direct stocks, it might help to understand the business owners a bit better, apart from the financial statements, of course. Meaning, for instance, a visionary like N.Murthy, Tata, or Premji would inspire confidence but someone on the flashy side of life might come across more as a warning sign! I am thinking Mallya could be one such example. Would love to know what others think of this.


All of my investments are mostly towards very long term (>10-15 years). At the the moment, I sit down to evaluate my portfolio every 6-8 months and find not much need for tinkering about. My knowledge only gets refreshed and updated with that frequency.

[huntrz]

Originally Posted by Miyata

In your assessment of MFs, do you people also look at the fund managers? Earlier I used to look at Prashant Jain and Rajeev Thakkar - but over time have been developing a feeling that the fund managers may not be swaying things around so much.

I am not yet too heavy into direct stocks - have just a few that I could count on my fingers! But it appears, for the direct stocks, it might help to understand the business owners a bit better, apart from the financial statements, of course. Meaning, for instance, a visionary like N.Murthy, Tata, or Premji would inspire confidence but someone on the flashy side of life might come across more as a warning sign! I am thinking Mallya could be one such example. Would love to know what others think of this.


All of my investments are mostly towards very long term (>10-15 years). At the the moment, I sit down to evaluate my portfolio every 6-8 months and find not much need for tinkering about. My knowledge only gets refreshed and updated with that frequency.

Bigger fund houses usually appoint 2 managers for their larger funds. This is further backed by a research team. They also have the scale to retain/attract best managers thereby maintaining the category lead in the long run. Where as smaller fund houses dependent on a star fund manager may show significant drop in performance once the fund manager leaves. SBI had one such star fund manager Sanjay Sinha. Many SBI funds performance declined once he left for L&T. Certain calls are fund manager specific like cyclical picks etc.

[Miyata]

Originally Posted by huntrz

Bigger fund houses usually appoint 2 managers... Where as smaller fund houses dependent on a star fund manager may show significant drop in performance once the fund manager leaves. SBI had one such star fund manager Sanjay Sinha. Many SBI funds performance declined once he left for L&T. Certain calls are fund manager specific like cyclical picks etc.

Thanks Huntrz for the information. It's now become part of my notes/bookkeeping on MF assessment.