[anandhsub]

Originally Posted by pradkumar

Let me compare some funds:

IDFC Government Securities Fund
Modified Duration: 8.19
Avg. Maturity: 13.06
Yield to Maturity: 7.13

IDFC Government Securities Fund - Constant Maturity Plan - Direct Plan
Modified Duration: 7.30
Avg. Maturity: 11.17
Yield to Maturity: 7.06

Pradeep

The numbers seem off to me. Not sure what date the value research data was taken but for the Govt Securities fund the modified duration is closer to 5.71 and for the Constant Maturity fund it is 6.60.

[SmartCat]

Originally Posted by pradkumar

Is it because the average maturity of IDFC Government Securities Fund is higher at 13.06 compared to 11.17 of the latter?

I think there is a calculation mistake in "average maturity" of the normal IDFC govt securities fund. If you look at its portfolio, it has only 2 securities and they mature in 2027 and 2028. That's just 7 and 8 years from now.

Originally Posted by poloman

But all what it is doing is to create a vicious cycle. Most people are not well versed with market mechanisms. Most such people will look for redemptions now putting even more pressure on the fund houses. So some of the damages will be irreversible.

It is impossible for Govt or regulators to save citizens from themselves on money matters, beyond a point. They will eventually figure out new (and old) ways of losing money. Some examples:

- Investing in cryptocurrencies
- Investing in 15% yield corporate deposits or co-operative banks when commercial banks are offering 5% interest
- Investing in stocks based on SMS stock tips (paisa stocks)
- Investing in Ponzi schemes
- Lending money to "friends"
- Investing in half-baked business ideas
- Investing in residential sites 50 kms from a large city at "just" Rs. 300 per sq ft, when its actual value is not even Rs. 30 per sq ft
- Investing in real estate without properly checking papers.
- Investing Rs. 1 Cr on an apartment after looking at a shiny brochure, without bothering to check the financial strength or reputation of the builder. And not getting delivery even after 5 or 10 years.

I can go on and on.

[graaja]

Thank you @SmartCat for all the information regarding Gilt funds. I did not have any knowledge on Gilt funds and had no exposure to them. Now I am planning to reshuffle my portfolio to include some gilt funds. I already have a 50-50 split between equity and debt. Of the 50% in debt category, I have 6% in cash and 44% in corporate bond funds. What would be an optimum range in % I should plan for the gilt funds in this 50% share of debt/cash? Would 3 different gilt funds be a good diversification?

Originally Posted by SmartCat

Normal Gilt funds and Constant Maturity Gilt funds both hold govt securities - not more percent or less percent. But normal gilt funds hold short term gsecs too. If the fund manager of normal gilt fund believes that interest rates are going to rise, he can protect the fund's NAV by moving funds from long duration gsecs to short duration gsecs. That option is not available for the fund manager of constant maturity gsec fund.

At the end of the day, normal gsecs are less volatile than constant maturity gsecs. They are not THAT sensitive to rise (or fall) in interest rates. On the flipside, normal gilt fund will not offer huge returns like constant maturity gilt fund during global economic crisis. I prefer sacrificing little bit of returns for lower volatility (up and down movement of NAV).

I have a question about Normal Gilt funds and Constant Maturity Gilt funds. You had mentioned that normal gilt funds are less volatile than constant maturity gilt funds and provide a little less return for this reduced volatility. I was comparing IDFC Government Securities funds of constant maturity and normal. The normal has a StdDev of 4.1% and constant maturity has 3.78%. I am not good with these terms. But in the ValueResearch web page, it is mentioned that the higher the StdDev, the higher the volatility. Can you give some clarity on this?

I have another question regarding portfolio management. You had talked about the method of adjusting the equity-debt proportion by adjusting the SIP amount. What if I don't have SIPs, but still want to keep the ratio of the corpus? This can be done by switching in and out of equity and debt funds, right? How often should one do such a re-balancing?

[SmartCat]

Originally Posted by graaja

Of the 50% in debt category, I have 6% in cash and 44% in corporate bond funds. What would be an optimum range in % I should plan for the gilt funds in this 50% share of debt/cash? Would 3 different gilt funds be a good diversification?

Corporate bond funds in India have offered the worst risk adjusted returns.

• High expense ratio. The fund house needs to have a credit risk team to check the financials and fundamentals of each corporate bond. In gilt funds, there is no need to check the credit risk because it is zero.
  
• Huge credit risk when there is global or local economic crisis.
  
• Returns are only 0.5% pa more than liquid funds. The yield to maturity of corporate bond funds is higher than liquid funds but high expense ratio and small defaults is eating into returns.
  
• Because of long dated nature of bonds, it is volatile like gilt funds. If interest rates rise, corporate bond fund NAV falls (just like in gilt funds)
  
• During economic crisis, FII money sometimes rushes out of corporate bond funds forcing fund manager to exit bonds at a loss.

So exit corporate bond funds. And if you have a large portfolio, move into a mix of debt funds.

• Overnight funds
• Banking & PSU debt funds (primarily invests in banks & quasi-govt bonds)
  
• Gilt funds (normal, not constant maturity)

When you invest equal amounts in each category, your debt portfolio will offer high returns with low credit risk and low volatility. I do not subscribe to generally accepted "stick to 2 funds" advice . Spread your risk across funds and fund managers.

I have a question about Normal Gilt funds and Constant Maturity Gilt funds. You had mentioned that normal gilt funds are less volatile than constant maturity gilt funds and provide a little less return for this reduced volatility. Can you give some clarity on this?

Something is wrong with data on Valueresearchonline for IDFC gilt fund. See previous post.

What if I don't have SIPs, but still want to keep the ratio of the corpus? This can be done by switching in and out of equity and debt funds, right? How often should one do such a re-balancing?

Exactly! You have to re-balance portfolio frequently. Re-balancing involves selling equities when it going up, and buying debt. And buying equities when markets are falling, with proceeds from selling debt funds. If somebody had adopted this strategy, they would be selling largecap funds slowly from 2014 to 2020. They would be selling mid and small cap funds slowly from 2012 to 2017. And they would be buying them now, when markets are crashing. They would be doing the exactly the opposite of what 99% of investors would be doing. You will be buying low and selling high.

This is only suitable for certain type of investors:

- Long investing experience and good investing discipline. Should have seen atleast one economic boom and bust cycle (Eg: 2008). Remember that you have to buy equities when NAVs are falling 10%, 20% or even 30% per month!
- For business owners and self-employed professionals (who do not have regular cash flows to do a SIP).
- Retired individuals with no heart symptoms ( ). One can generate regular income because this strategy requires one to book profits frequently.
- Free time and willingness to do money management. This strategy is not for lazy investors

Because markets crash so rapidly, I would recommend re-balancing atleast once in 3 months. Once in a month is even better but there will be tax implications and higher transaction costs. For further research on this topic, do a Google search for the keyword PORTFOLIO REBALANCING.

[DigitalOne]

Originally Posted by SmartCat

Corporate bond funds in India have offered the worst risk adjusted returns.

....
So exit corporate bond funds. And if you have a large portfolio, move into a mix of debt funds.
[list][*]Overnight funds [*] Banking & PSU debt funds (primarily invests in banks & quasi-govt bonds)

I second that. In this crisis, I feel equity funds may bounce back soon, based on stimulus boost "sentiment", but the real problems would come in corporate debt funds as defaults would mount.

[graaja]

Originally Posted by SmartCat

Corporate bond funds in India have offered the worst risk adjusted returns.
...
So exit corporate bond funds. And if you have a large portfolio, move into a mix of debt funds.
...
Exactly! You have to re-balance portfolio frequently. Re-balancing involves selling equities when it going up, and buying debt. And buying equities when markets are falling, with proceeds from selling debt funds.
...
Because markets crash so rapidly, I would recommend re-balancing atleast once in 3 months. Once in a month is even better but there will be tax implications and higher transaction costs. For further research on this topic, do a Google search for the keyword PORTFOLIO REBALANCING.

Thanks a lot, SmartCat for the detailed information. Your point about corporate funds having high expense ratio, and the risk of defauls in this slowdown makes total sense. I will rebalance my portfolio from corporate debt funds into the three catetories of funds you have listed.

Will do this periodic re-balancing. Will start with the 3 month strategy and increase the frequency as I get a better understanding of how exit loads, taxation etc. work.

On a related note, I have been using MFUtility the past few months to invest in direct funds. One shortcome of MFUtility is the daily limit of 10L imposed on online transactions. Is there any other way to make bigger investments above the daily limit through MFUtility?

[SmartCat]

Originally Posted by graaja

On a related note, I have been using MFUtility the past few months to invest in direct funds. One shortcome of MFUtility is the daily limit of 10L imposed on online transactions. If I were to rebalance portfolios regularly, I am going to be limited by this. Is there any other way I can make bigger investments above the daily limit through MFUtility?

All my old mutual funds are at ICICIDirect.com, where I pay commission to them. All my new purchases (Direct) are at http://coin.zerodha.com. Coin platform is run by Zerodha, the largest brokerage in India.

Neither ICICIDirect nor Zerodha Coin has this Rs. 10L per day limit.

[graaja]

Originally Posted by SmartCat

Neither ICICIDirect nor Zerodha Coin has this Rs. 10L per day limit.

I think I misunderstood my situation. The 10L limit is actually imposed by my bank, SBI. MFUtility allowed to place an order above 10L. I guess I need to check with the bank about this.

[earthian]

Originally Posted by graaja

On a related note, I have been using MFUtility the past few months to invest in direct funds. One shortcome of MFUtility is the daily limit of 10L imposed on online transactions. Is there any other way to make bigger investments above the daily limit through MFUtility?

I use MFU and yes, the limits are actually what the banks allow you to transfer per day from all avenues, from your account-except to your own accounts.

Most banks have such limits and they do increase it if you need it, depending upon the status of your account. My bank has increased my transfer limits.

[JMaruru]

Originally Posted by SmartCat

All my new purchases (Direct) are at http://coin.zerodha.com. Coin platform is run by Zerodha, the largest brokerage in India.

What's the advantage of 'Coin Platform' over 'MF Utilities'?

Are there any costs involved, per transaction OR per period?

[graaja]

Originally Posted by earthian

Most banks have such limits and they do increase it if you need it, depending upon the status of your account. My bank has increased my transfer limits.

Thank you for this information. I will pay a visit to my bank and talk to them about increasing the daily transaction limit.

[Saanil]

Originally Posted by graaja

Thank you for this information. I will pay a visit to my bank and talk to them about increasing the daily transaction limit.

I do not think you need to visit the bank for this. I have increased my transaction limit via netbanking for my HDFC account. The limit was increased within 5 minutes.

[graaja]

Originally Posted by Saanil

I do not think you need to visit the bank for this. I have increased my transaction limit via netbanking for my HDFC account. The limit was increased within 5 minutes.

My account is with SBI. They do not have any way to increase the daily transaction limit online. I am not even sure if they will allow this even after a personal visit to bank.

[earthian]

Originally Posted by Saanil

I do not think you need to visit the bank for this. I have increased my transaction limit via netbanking for my HDFC account. The limit was increased within 5 minutes.

If you want to increase it more than Rs 10 lacs/day then you need to talk to your RM or apply in person. I did not know that you could increase it beyond Rs 10 lacs via net banking.

[carboy]

What kind of debt fund is Aditya Birla Sun Life Regular Savings Fund? How much is the risk here? Have there been any writedowns in this? I have some money in this. Should I redeem or carry on?