Greed thrills but kills!

I remember the period when a 200 rupee stock in Money Matters went up to 400 in a couple of months. The 400 rupee stock went up by another 200 in less than couple of months. Along with the stock price, the volumes also shot up. This shows the interest in the stock. This indicates the greed taking on the fundamentals.

Just one issue, the stock falls from 700 to 100 in less than 40 days – a fall of 86%. Most of them have not got an exit. This reminds all of us – Greed thrills but kills!

M100 Midcap ETF from Motilal Oswal AMC. Any good?

Finally!!! Someone is introducing a midcap ETF in the market place. I have been waiting for it a long time. It provides great value for certain type of investors but for the others, its existence does not matter. I see this faltering in short term but could do well in 5-7 years as markets expand.

I was amazed to see some of the reasons why one should invest which are totally and utterly incorrect. First, let me hightlight who will get benefited with M100.

1. Any investor who is looking for liquidity in the midcap space will and should invest in M100 ETF
2. Anyone who is indifferent to midcap stocks but wants a piece of it could invest

Now the reasons which should NOT make you invest.

M50 ETF is successful:
How do you define success? Is it the size or the performance? For me it is performance with a reasonable size. Motilal M50 has managed to generate over Rs 300 crores in assets which is commendable. However, its performance does not seem convincing so far. Due to the recent correction, it has managed to catch up with Nifty Index but still lags it. At one stage, it was underperforming Nifty by about 4%which is significantly huge.

Five months is short period to form an opinion about the instrument but I hope it does well and provides an alternative to investors seeking alpha at lower cost. The performance of the ETF vs Nifty is shown below:
Better returns than Nifty:
There is a wide spread perception that more risk means more returns. Hence, Midcap index outperforms large cap index at all times. This is incorrect. If one carries more risk, the expectation of return is higher. Whether that would generate more returns is still questionable. Thanks to 2007-08 market crisis, the performance of CNX Midcap lags that of Nifty for three and five year horizons. It is also the case with one year and six months horizon as well. The following table shows the same.
There seems to be a crisis every decade. There seems atleast one period of lack of confidence every year. Hence putting all eggs in one basket is not a good idea.

Most midcaps under perform CNX Midcap index:
I read that one should invest in M100 midcap ETF because most midcaps underperform the midcap index. This is true. But what we are missing is that the top five midcap funds that manage nearly 75% of the midcap AUM have consistently beaten the CNX Midcap index. This outperformance is huge. If I were a long term investor, I would rather invest in these funds than in the ETF. It needs to be seen if the ETF does as well as the index. After all there are 20 stocks that have daily traded three month average value of less than 5 crores. Illiquidity could be a major issue for the success of the fund.
The key takeaway is that the long term investors are better off investing in midcap funds rather than the ETF. The additional expense of 1-1.5% is offset by the outperformance of the funds. This will be the case until the information asymmetry exists between various stakeholders.

Which ELSS to invest in, in this fiscal?

For those who have invested in ELSS schemes at the end of 2007, it should have been a wash out for your investments. That is because the Nifty index is there exactly where it was three years back. Does it mean ELSS investments are bad? The answer is no. The last three years period is an aberration where the market lost half its value in one year, regained most of it in the next before adding further gains in the next. If one is a long term investor, the returns could be handsome. Remember, this is the penultimate year of a chance to invest in equities for tax saving purpose before the Direct Tax Code comes into existence from April 01,2012.

This piece talks about the good ELSS funds one could consider to invest in. It goes on to identify those that should be avoided. Due to their consistency of returns (with appropriate risk), there are five funds that stand out. Since its launch four years back, Fidelity Tax Advantage Fund has been doing well. It has managed to beat the index in all four years. It comes at the top of the list. Closely following Fidelity Tax Advantage Fund in its consistency of performance is Canara Robeco Taxsaver. The two funds from the HDFC stable have done well over the last three years and hence their ascent to the top five. ICICI Taxplan had lost its way for a while but has come back strongly over the last two years.

If the amount to be invested is less than Rs. 10,000, it is advisable to go with the top two. However, as the quantum of corpus increases, it is advisable to spread into all these five funds.

There are three funds which are a strict No No! They are Tata Tax Saving Fund, Principal Personal Taxsaver and Principal Tax Savings Fund. It is a shame that the two funds from Principal basket having done so well in the past have failed to deliver miserably in the last three years. A real pity for Rs. 1000 crores of AUM under them which could have been better off else where.

There are three funds that look promising – Axis Tax Saver, Quantam Tax Saving Fund and JP Morgan Tax Advantage Fund. Infact, Axis Tax Saver which was launched on 31st Dec 2009 happens to be the best performing tax saver fund of the year. It is to be seen if these funds sustain their performance and attract more inflows. While Axis Tax Saver Fund has Rs 50 Cr as AUM, the rest two have less than Rs 3 Cr which is a cause of concern.

Among the other bigger tax saving schemes, SBI Magnum Tax Gain Scheme – 93 and Sundaram Tax saver have been showing lack luster performance. However, Reliance Tax Saver has been better than average and hard core Reliance mutual fund investors may go for it.
Happy Investing! Happy Tax saving!

How wealthy are you?

I take liberty to publish an impressive article by by Alan Hosking, Publisher of HR Future magazine. Its a must read for every one.

In this, oh so materialistic, world we live in, we’re inclined to think of wealth in terms of one thing only – money. Sure, it’s probably the form of wealth that most people recognise the easiest and want the most. But is it, really?
Let’s test your concept of wealth … Which would you rather have – R2,000,000 and an aggressive cancer with six months to live, or no money but the option of a long healthy life? It’s a bit of a no-brainer.

I want to suggest that there are at least seven types of wealth. When you consider them, you might find that you’re wealthier than you realise!

1 Physical wealth. The first form of wealth is your physical health (and with this I include your mental health). If you can’t get out of bed, it’s not much fun having millions and not being able to enjoy them. If you want to become truly wealthy, go for physical wealth first as that will give you the means to start acquiring other forms of wealth.

2 Relational wealth. We weren’t meant to live in the forests alone. That’s why we’re lonely when we are disconnected from family, friends and society. Again, money means very little when you have no-one special to share it with. I know people who are fabulously wealthy but who are miserably unhappy because their relationships with parents, partners, children, siblings or friends have disintegrated. Strive to build up your relational wealth and you will never be lonely.

3 Spiritual wealth. This refers to your values and the development of your spirit – the essence of who you are - through prayer, meditation or contemplation. Many people focus on external (material) wealth and never discover internal wealth. They consequently never discover who they really are and die in poverty in that regard. When you find yourself, you find the wealth that was put into you for success in this life.

4 “Meaning” wealth. This wealth is built by discovering and developing your reason for being on the planet. This is the only way your life will truly have any meaning. At the end of your life, if you feel your life has had no purpose, you will feel deep regret that your life has been of no value.

5 “Memories” wealth. As we get older, we are able to build this wealth. Everybody has memories, but not everybody has happy memories – of their childhood, of their partners, of their children, of their careers. This is one wealth you cannot build at the end of your life. You have to build it now by creating the memories you want to carry with you for the rest of your life. When you live for others now, you will build a wealth of happy memories that will make you a wealthy person as you age.

6 “Opportunities” wealth. Some get given many opportunities, some get very few opportunities, and some create their own opportunities. Some take the few opportunities they get and turn them into something wonderful. Many get given opportunities which they fail to recognise and never seize them. It’s up to you what you do with the many or few opportunities life gives you. The way to build “Opportunities” wealth is to learn to recognise opportunities that come your way, no matter how small they may be, then use them to create magic.

7 Financial wealth. This wealth is the easiest to spot, but not necessarily the easiest to acquire. There is no get rich scheme that is really sustainable. Set yourself financial goals, then work toward achieving them and you will be able to build wealth in this area.

As you build your career and your life, don’t chase financial wealth only. Make sure you build wealth in the other six areas I mentioned and you will truly be a wealthy person!