How to analyse equity mutual funds through risk measures like Standard deviation,Alpha,Sharpe ratio,Beta,Sortino,Treynor,Fama.

To analyze equity mutual funds using risk measures, understand Standard Deviation, Beta, Sharpe Ratio, Alpha, Sortino Ratio, Treynor Ratio, and Fama (although Fama is more often associated with portfolio construction rather than individual fund analysis). These metrics help assess risk, volatility, and risk-adjusted returns.

1. Standard Deviation: 

Definition: Measures the variability or volatility of a fund's returns. 

Application: A higher standard deviation indicates greater risk, as the fund's returns fluctuate more significantly from the average. 

Interpretation: A low standard deviation suggests less volatility and potentially lower risk. 

2. Beta: 

Definition: Measures a fund's sensitivity to market movements, indicating how much its price tends to move relative to the overall market. 

Application: A beta of 1 means the fund's price moves in line with the market, a beta greater than 1 means it's more volatile, and a beta less than 1 means it's less volatile. 

Interpretation: A lower beta (below 1) suggests less sensitivity to market fluctuations and potentially lower risk. 

3. Sharpe Ratio: 

Definition: Measures risk-adjusted returns, showing how much return a fund generates for each unit of risk taken. 

Application: Compares a fund's excess return (return above the risk-free rate) to its total risk. 

Interpretation: A higher Sharpe ratio suggests better risk-adjusted returns, meaning the fund generates more returns for the level of risk it carries. 

4. Alpha: 

Definition: Measures a fund's performance relative to its benchmark, indicating the value a fund manager adds or subtracts from the fund's return. 

Application: Helps assess how well the fund manager is outperforming or underperforming the benchmark. 

Interpretation: A positive alpha indicates the fund outperformed the benchmark, while a negative alpha indicates underperformance. 

5. Sortino Ratio: 

Definition: Similar to the Sharpe ratio but focuses on downside risk (negative volatility), rather than total volatility. 

Application: Evaluates a fund's risk-adjusted returns by considering only the losses. Interpretation: A higher Sortino ratio suggests better risk-adjusted returns, especially when considering potential losses. 

6. Treynor Ratio: 

Definition: Measures risk-adjusted returns by comparing a fund's excess return over the risk-free rate to its beta. 

Application: Evaluates how well a fund compensates for the systematic risk (market risk) it carries. 

Interpretation: A higher Treynor ratio indicates better risk-adjusted performance, particularly for diversified portfolios. 

7. Fama (Often Associated with Portfolio Construction): 

Definition: Fama is not a specific metric for individual funds like the others, but rather a framework for understanding how to build diversified portfolios. 

Application: Focuses on balancing risk and return across different asset classes to create well-diversified portfolios. 

Interpretation: While not directly used to analyze individual funds, understanding Fama's principles helps in choosing suitable funds for a diversified portfolio. 

In summary, by analyzing these risk measures, investors can gain a comprehensive understanding of a fund's risk profile, performance, and potential for generating returns relative to the risk taken.

Best Regards,

Ritesh Sheth CWM®

(Chartered Wealth Manager)

Amfi registered Mutual fund distributor under 

ARN-0209 EUIN- E030691.

ARN Date of initial registration - 16-AUG-2002 Current validity of ARN up to - 01-Oct-2027.

Disclaimer:

Views are Personal!

Mutual fund Investments are subject to market risk please read the offer documents before investing.

The schemes/services/offers/products provided on this message do not constitute an offer to sell or buy of mutual fund for units/products to any person. It shall be the sole responsibility of the person to verify genuinely of such information whether the usage of this and/or availing the services/facilities/products is in conformity with personal understanding.

Exit strategy is a less discussed topic for mutual funds

While investing in Mutual Funds, Investors take various factors in consideration, like when to buy, what to buy, how much to buy etc. However, a less discussed topic is an exit strategy. 

Ideally, an investor should exit mutual fund investments on completion of financial goal apart from that, there are four other scenarios when an investor should exit MF investments.

In fact, for long-term investments, he/she should start exiting equity-linked MFs when the goal is still 2 to 3 years away and shifting the funds to safer investment options. 

But things don’t always happen, the way they should. The same is true for investments and hence, one needs a well-sounded exit strategy. 

Apart from what one should do in an ideal situation, four other scenarios when an investor should exit MF investments:

• When the mutual fund deviates from its stated mandate and takes undue risks that it is not supposed to take.
• The mutual fund is unable to deliver consistent fund performance over a full market cycle of under five years.
• When your asset allocation merits you to rebalance between asset classes.
• When you need money.

In such cases, here are the exit strategies an investor should follow:

When the mutual fund deviates from its stated mandate and takes undue risks

A classic example for this would be Franklin Templeton. The company had to wind up 6 of its mutual funds in debt category in April last year simply because it took more risk than its stated mandate. 

The AMC took exposure in bonds with high credit risk to generate high return. As much as this strategy might work wonders for longer term investments, the company took this risk for short-term debt funds. 

Though these funds were able to provide high returns before the pandemic based on this strategy, in the post-COVID era, as redemption requests increased and the bonds became illiquid, unable to manage the pressure, the AMC had to wind up its funds. 

The mutual fund is unable to deliver consistent fund performance.

A fund can be called as an underperformer if it has delivered say 5% or 6% in 2-3 years. “It may be that the market too delivered the same. Not your fund’s fault. 

Also, if a fund has been steadily behind the benchmark for 3 or more quarters by 3-6 percentage points or more, it is again an underperformer.

Then, you need to see if this has to do with the theme/strategy itself. For example, a value fund might not be performing well in the Nifty 50 but, the situation might be as such that other value funds are also at the same level. In that case, compare it with similar funds to know if your fund is a poor one among the other underdogs. “It is a different call if you choose to exit a strategy. That is more about your portfolio requirement and less to do with the performance of the fund."

What should be the exit strategy for the above-mentioned cases.

If your fund has been underperforming or shifted from its stated mandate, you should first stop the SIP. And, start the same in similar funds in your portfolio or choose a better one. 

“If you simply stop with the above, it is likely that over a period, you will be left with an unwieldy portfolio."

When your asset allocation merits you to rebalance between asset classes. 

For an effective investment plan, one needs to rebalance his/her portfolio periodically. It is done by selling/exiting investments in overpriced asset classes and investing in underpriced ones. Rebalancing portfolio helps the investor to generate higher return and at the same time de-risk the assets.

How to decide which funds to sell?

When you are rebalancing and you have multiple funds from the same category or style, exit the funds that are performing average first, if there are no funds that are underperforming. 

Reinvest in funds that you like/favour in your portfolio and if there are none, the nearest fund in terms of risk profile. 

For example, if you had a large and midcap fund and you would rather exit it to consolidate, you can well consider investing in a multicap fund. It may be marginally less aggressive but there’s no point adding a new fund since your aim is to consolidate. Else, split it between a multicap fund and midcap fund that you already hold.

When you need money.

No matter how prepared you are for the rainy days, there can be emergency situations when you might need to sell your mutual fund investments from the long-term portfolio.

How to decide which funds to sell?

Under such circumstances, the funds in the underperforming and performing average categories should be your first choice.

Many of you use the argument that you will book profit in the performing fund first. But you need to remember that MFs are not stocks. A stock that has gone up becomes expensive. A mutual fund that has returned well, may continue to return well as it rejigs its portfolio to find newer opportunities. Track record of consistent performance is more important. The exception to this is sector/theme funds.

However, there is no one correct answer to when one should exit a mutual fund, it depends on various factors.

 “It's a function of investor time horizon, risk appetite and the purpose of investment." 

An Investor Education & Awareness Initiative

          Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

What Cause the Market to Go up and Down

It is difficult to identify specific factors that influence the market as a whole. The stock market is a complex, interrelated system of large and small investors making uncoordinated decisions about a huge variety of investments.

The market, so to speak, could be construed as sort of an ecosystem, one organised by the "invisible hand". Each market participant acts and plays freely using their individual ideas and by following their own personal interests. "The market" is shorthand for the collective values of individuals and companies.

There are basic economic principles that can help explain any up and down market movements, and with experience and data, there are more specific indicators market experts have identified as being significant.

The Basics: Supply and Demand

In a market economy, any price movement can be explained by a temporary difference between what providers are supplying and what consumers are demanding. This is why economists say that markets tend towards equilibrium, where supply equals demand. This is how it works with stocks; supply is the amount of shares people want to sell, and demand is the amount of shares people want to purchase.

If there is a greater number of buyers than sellers (more demand), the buyers bid up the prices of the stocks to entice sellers to be willing to sell or produce more. Conversely, a larger number of sellers bids down the price of stocks hoping to entice buyers to purchase.

Individually, security instruments like stocks and bonds are dependent on the performance of the issuing entity (business or government) and the likelihood the entity will be valued more highly in the future (stocks) or be able to repay its debts (bonds).

Widely Accepted Market Indicators

This begs a new question: What creates more buyers or more sellers?

Confidence in the stability of future investments plays a significant role in whether markets go up or down. Investors are more likely to purchase stocks if they are convinced their shares will increase in value in the future. If, however, there is a reason to believe that shares will perform poorly, there are often more investors looking to sell than to buy.

Events that affect investor confidence include:

• ·       Wars or other conflicts
• ·       Concerns over inflation or deflation
• ·       Government fiscal and monetary policy
• ·       Technological changes
• ·       Natural disasters/extreme weather fluctuations
• ·       Regulation or deregulation
• ·       Changes in the trust of whole industries such as the financial industry
• ·       Changes in the trust in the legal system

For example, It took Sensex just 17 months to add 31,000 points from a March 2020 low of sub-26,000 level to hit 61000 level for the first time ever on Tuesday. This is against 31 years (since its inception in 1986) the index took to touch the 31,000 mark for the first time in May 2017. This move is attributed to the COVID-19 pandemic, which created a lot of uncertainty about the future. Therefore, the market had many more sellers than buyers.

Interest rates are also believed to play a major role in the valuation of any stock or bond. There are several reasons for this, and there is some debate about which is most important. First, interest rates affect how much investors, banks, businesses, and governments are willing to borrow, therefore affecting how much money is spent in the economy. Additionally, rising interest rates make certain "safer" investments a more attractive alternative to stocks.

Bottom Line

While using your instincts and intuition when investing, it’s easy to let your emotions get the best of you. Keep in mind that even with careful research, investing always carries some inherent risk. It’s a good idea to diversify your portfolio as much as possible, so that you’re spreading out your risk over multiple investments. An easy way to do this is by primarily Mutual fund Schemes instead of individual stocks.

Mutual Funds are great ways to build wealth with relatively low maintenance and low barriers to entry. If you also want to invest in individual stocks, it’s always a good idea to do your research and become well-informed about a stock’s past and potential performance before buying anything.

Ultimately, though the stock market may have its ups and downs in the short term, investing in equity funds of mutual funds is a great way to build wealth in the long term. Be sure that you’re investing smartly with a strategy that suits your financial goals, and keep your focus on your long-term goals (such as saving for retirement) to avoid making hasty decisions based on short-term panic or the fear of missing out.

You Can Contact me on any of your Investment and Insurance Requirements.

Ritesh Sheth Call on: 9930444099 email : riteshdsheth@gmail.com 

DISCLAIMER:

An Investor Education & Awareness Initiative.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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What are Dynamic Asset Allocation or Balanced Advantage Funds?

Dynamic Asset Allocation or Balanced Advantage Funds are hybrid funds, which are free to manage their exposure to equity and debt instruments without any caps or minimum exposure limits from the SEBI. These funds change their exposure to equity and debt instruments as per the changing equity valuations with the help of their in-house proprietary models. These models help their funds to eliminate human biases during investment decision making. They also maintain exposure to equity derivatives to implement hedging strategies and benefit from equity tax treatment during overvalued equity market conditions.

Advantages of Balanced Advantage Funds 

You can manage market volatility and aim to limit your losses when markets correct 

1. The strategy focuses on buying and selling assets based on valuations; for instance it may sell assets with high valuations and purchase assets that may be fairly valued depending on the schemes investment strategy. 
2. By investing across asset classes your portfolio risk is diversified. 
3. Performing asset classes can make up for the returns of underperforming ones.

Why invest in Dynamic Asset Allocation or Balanced Advantage Funds?

• Aims to deliver long-term returns closer to equity funds but with significant lower volatility
• Combines the features of potential capital appreciation, capital preservation and volatility control
• Aims to generate capital gains primarily through dynamic management of equity allocation as per varying market conditions
• Aims to provide stability and regular income through exposure to fixed income instruments
• Portfolio rebalancing decisions are usually based on a well-defined and time tested models without any biases
• Offers higher tax efficiency than asset allocation implemented by the investor himself.

  Who should invest in Dynamic Asset Allocation Funds?

  • Investors seeking to create long term wealth with lower volatility
  • Those seeking exposure to equity and debt asset classes with a dynamic asset allocation
  • Those wishing to participate in equity markets with a relatively conservative approach
  • Fresh mutual fund investors seeking to gain equity market exposure with lower volatility
  • Intermediate investors looking for an automated solution during over-valued or confusing market conditions.
  • Experienced investors seeking an automated asset allocation model from the fund house itself. 

Few Examples For Better Understanding 

Kotak Balanced Advantage 

• Uses a 2-factor model using Trend/Sentiment Data and Trailing NIFTY 50 P/E to make the most of ‘Buying Low and Selling High’ investment mantra
• The model measures the future of market conditions and removes behavioral & emotional biases from investing
• Other factors used for stock selection include fundamental attributes like P/B and market cap to GDP ratios

 Edelweiss Balanced Advantage Fund 

• Invests in equity & debt instruments on the basis of a predefined Asset Allocation Model called Procyclical Edelweiss Equity Health Indicator (EEHI) Model
• Actively participates in arbitrage opportunities to generate absolute alpha
• EEHI Model aims to capture the upside during the bull market and protect downside in bear markets
• EEHI Model is purely quantitative in nature built on two key pillars – Market Trend and Health of the Trend
• Equity portfolio of the fund comprises of high quality and consistently growing companies available at reasonable valuations
• Net equity exposure ranges from 30% to 80% of the fund portfolio
• Follows a growth-oriented multi-cap strategy
• Debt portfolio of the fund follows active duration management focused on accrual income
• Arbitrage strategy of the fund involves hedging, capture spreads & corporate actions 

 L&T Balanced Advantage Fund 

• Follows an active strategy to manage market volatility
• Increases the net equity allocation when the P/B & P/E multiples of the market is low and vice versa
• Sets its equity exposure based on an internal model
• Metrics used for deciding debt-equity allocation may also include interest rate cycle, dividend yield, earnings yield, market cap to GDP ratio, medium to long term outlook of the asset class, etc
• The stock selection process is supplemented with the proprietary G.E.M (Generation of Ideas, Evaluation of companies and Manufacturing and Monitoring of portfolios) investing process to invest in quality businesses having reasonable valuations and a strong management track record

 IDFC Dynamic Equity Fund 

• Uses a pre-defined model to indicate the range of active equity allocation based on P/E levels
• The range of equity allocation is reset once in a month based on the weighted P/E ratio of the Nifty 50 for the previous month-end
• Changes within the equity portfolio takes place dynamically on day to day basis
• Follows a multi-cap approach for the equity portfolio
• Prefers higher allocation to large caps during lower exposure to active equity
• Debt portfolio of the fund is actively managed focusing on high credit quality and following short-to-medium duration strategies for containing the duration risk

 DSP Dynamic Asset Allocation Fund 

• Core equity allocation is fixed on the basis of 2-factor asset allocation model using fundamental & technical analysis
• Equity allocation can range between 20% and 90% depending on the outcome of the asset allocation model with the rest of the corpus being allocated to debt and arbitrage instruments
• Combines P/B & P/E ratios of Nifty 50 TRI to determine the attractiveness of equity valuations
• Seeks to generate income through exposure to debt securities and by using arbitrage and other derivative strategies.

 Nippon India Balanced Advantage Fund 

• Uses an in-house proprietary Model following valuations & trend following to set the allocation for unhedged equity
• Aims to offer triple benefits of emotions-free asset allocation, lower downside risk through hedging and generation of long term alpha through active sector and stock selection
• Maintains a large cap oriented portfolio well-diversified across sectors
• Investment universe covers all listed large and midcap stocks having derivatives
• Uses a conservative approach for managing debt portfolio by focusing on shorter end of investment through a combination of liquid and short term fixed income securities
• Aims at realising ‘Alpha Potential’ in full market cycle through upside participation in rising markets and downside risk management in falling markets.

 Aditya Birla Sun Life Balanced Advantage Fund 

• Aims to buy in underpriced opportunities and sell out during overpriced situation
• Runs a well-tested P/E based model to determine its ‘Net Equity Exposure’
• Uses derivatives to reduce the net equity exposure during overvalued markets
• Uses fundamental research to select stocks with potential of adding alpha over a longer period of time
• Open to invest in opportunities available across the market capitalization
• Uses top-down approach to identify growth sectors and bottom-up approach to identify individual stocks.

 ICICI Prudential Balanced Advantage Fund 

• Invests primarily in equities and uses derivatives exposure to reduce the downside risk of the portfolio
• Uses an in-house asset allocation model based on long term historical mean Price to Book Value (P/BV) ratio
• Invest across market capitalisations for equity exposure
• Increases equity exposure during attractive valuations and reduces equity exposure expensive market valuations
• Invests in fixed income securities too to generate accrual income and capital appreciation

Invesco India Dynamic Equity Fund 

• Uses a pre-defined model to indicate the range of active equity allocation based on P/E levels
• The range of equity allocation is reset once in a month based on the weighted P/E ratio of the Nifty 50 for the previous month-end
• Changes within the equity portfolio takes place dynamically on day to day basis
• Follows a multi-cap approach for the equity portfolio
• Prefers higher allocation to large caps during lower exposure to active equity
• Debt portfolio of the fund is actively managed focusing on high credit quality and following short-to-medium duration strategies for containing the duration risk

 Motilal Oswal Dynamic Fund 

• Makes equity allocation on the basis of Motilal Oswal Value Index (MOVI)
• MOVI is calculated on the basis of PE, PB and dividend yield ratios of Nifty 50 Index
• Equity exposure can range between 65% and 100% of the overall fund portfolio
• Prefers a focused portfolio with high conviction stocks based on the principle of ‘Buy Right: Sit Tight’
• Invests in equities across market-capitalization and sectors
• Exposure to equity derivatives can go up to 35% of the overall fund portfolio
• Derivatives exposure is made using arbitrage strategy and hedged position
• Debt exposure can go up to 35% of the overall fund portfolio.

An Investor Education & Awareness Initiative

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Hybrid Funds is it good to invest?

 Introduction to Best Hybrid Funds

Hybrid funds, as the name suggests, invest across both equity and debt securities to constitute a diversified portfolio. Investing in these funds is a better way of diversifying your portfolio rather than separately investing in several individual securities.

Hybrid funds are further classified into equity-oriented hybrid and debt-oriented hybrid funds depending on their equity exposure. If equity exposure is more than 65%, then it is said to an equity-oriented hybrid fund. If not, it is a debt-oriented fund.

Who Should Invest in Hybrid Funds?

Investing in hybrid funds is suitable for those who are willing to take some risk in exchange for the potential to earn much higher returns than debt funds. Anybody looking to diversify their portfolio should consider investing in these funds.

If you are not willing to assume higher levels of risk and are looking to gain exposure to a portfolio dominated by debt securities, then you may invest in debt-oriented hybrid funds. The exposure of these funds towards equity is on the lower side, generally less than 35%. These funds are relatively stable than equity funds and may provide higher returns than debt funds.

If you are looking to gain exposure to an equity-oriented portfolio having some exposure toward debt securities, then you may consider investing in hybrid funds. The debt exposure of these funds is restricted to under 35%. This gives you the benefit of diversification and the presence of debt securities mitigates market volatility to some extent.

Risks Associated With Hybrid Funds

Generally, hybrid funds are regarded as a higher level of risk as compared to a debt fund but lower as compared to an equity fund. The fund manager strives to balance the risk-reward ratio by modifying the composition of the fund’s portfolio by following the prevailing market trend.

Hybrid funds carry all the risks that come associated with both equity and debt securities. These funds carry credit risk, interest rate risk, market risk, liquidity risk, concentration risk and volatility risk. All hybrid fund investors automatically assume all these risks on gaining exposure to a hybrid fund.

Things to Consider Before Investing in a Hybrid Fund

You have to consider the following points before investing in a hybrid fund:

Risk profile You need to assess your risk profile and choose to invest in that hybrid fund whose risk levels are matching yours. Investment horizon If your investment horizon is shorter than five years, then you may consider investing in a debt-oriented hybrid fund. If it is longer than five years, then you may choose to invest in an equity-oriented hybrid fund. Equity-oriented portfolios require longer tenures to mitigate market volatility to a greater extent. The type of hybrid fund Since the rate of taxation of capital gains offered by hybrid funds depends on their type, you should essentially be aware of the type of hybrid fund you are choosing to invest in. This helps in planning your taxes better.

Advantages of Investing in Hybrid Funds

The following are some of the advantages of investing in hybrid funds:

• As these funds invest across both equity and debt securities, it naturally gives you the benefit of diversification.
• The fund manager modified the composition of the portfolio depending on the market conditions. He tries to reap the best out of both equity and debt segments.
• These funds are known to provide higher returns than a debt fund while carrying lower levels of risk.
• First-time equity investors may consider getting started by investing in a hybrid fund. This gives them a controlled exposure to equities.

 

Disclaimer:

The views are for personal use and for educational propose only. Ritesh Sheth & Family or Tejas Consultancy does not guarantee the accuracy, adequacy or completeness of any information in this emailer and is not responsible for any errors or omissions or for results obtained from the use of such information.

This BLOG is addressed to and intended for the investors of Ritesh Sheth & Tejas Consultancy only. You are advised to contact Ritesh Sheth & Tejas Consultancy to clarify any issue that you may have with regards to any information contained in this blog. Ritesh Sheth & Family or Tejas Consultancy does not have any liability to any person on account of the use of information provided herein and the said information is provided on a best effort basis. In case of investments in any of our schemes, please read the offer documents carefully before investing. 

What is the difference between a large cap equity fund and an equity focused fund? Which one is a better option for investment?

What is the difference between a large cap equity fund and an equity focused fund? Which one is a better option for investment? 

Large-cap Funds:

These are equity funds that invest a minimum of 80% in large-cap companies.

These funds invest primarily in larger & more established companies.

These are in the lowest-risk category amongst equity funds as larger companies tend to have less volatile earnings and stock price volatility than smaller companies.

Large-cap equity funds are suitable for Conservative Investors who wish to invest in equity but are not comfortable with the higher stock price volatility associated with smaller companies.

Equity Focused Funds:

Focused funds take more concentrated exposures in stocks, as compared to the diversified approach more common to mutual funds. Focused funds typically follow a multi-cap approach.

These funds offer higher risk-return than diversified funds.

This fund category essentially includes the top ideas of the fund management team and can outperform or underperform more diversified funds based on how well the investment teams call pans out in the markets.

Focused funds are suitable for Aggressive Investors seeking higher returns on their portfolios, who are comfortable with the potential higher volatility of more concentrated portfolios.

The best investment option depends on your investment profile and financial goals. One must evaluate their risk appetite before investing. The return that an investor can expect from his investments is therefore typically dependent on the level of risk that the investor is willing to assume and the investment horizon.

 

Disclaimer:

The views are for personal use and for educational propose only. Ritesh Sheth & Family or Tejas Consultancy does not guarantee the accuracy, adequacy or completeness of any information in this emailer and is not responsible for any errors or omissions or for results obtained from the use of such information.

This BLOG is addressed to and intended for the investors of Ritesh Sheth & Tejas Consultancy only. You are advised to contact Ritesh Sheth & Tejas Consultancy to clarify any issue that you may have with regards to any information contained in this blog. Ritesh Sheth & Family or Tejas Consultancy does not have any liability to any person on account of the use of information provided herein and the said information is provided on a best effort basis. In case of investments in any of our schemes, please read the offer documents carefully before investing. 

Why ELSS is a better tax-saving option than traditional instruments?

Equity-linked saving schemes (ELSS) qualify for a deduction under Section 80C. You can claim a deduction of up to ₹1.5 lakh against investments made in ELSS during the financial year. Some experts also believe ELSS is a better option than traditional instruments such as public provident fund and National Savings Certificate as they have a potential to deliver better returns.

However, returns are not guaranteed and are market-linked but they have the ability to deliver inflation beating returns if one stays put for a long term. “Since we already have EPF deductions, it adds a good balance. And more importantly it teaches us how to be good equity investors, stay for long term," said Shweta Jain, chief executive officer and founder, Investment.

ELSS returns are, however, not guaranteed and are market-linked but they have the ability to deliver inflation beating returns if one stays put for a long term.

Apart from these, there are other reasons which make ELSS a better choice for tax savings.

Shortest lock-in: ELSS has the shortest lock-in of 3 years when compared to other tax saving instruments. This gives comfort to people that they may have the option to withdraw the money in case of an emergency. However, it is advisable that one satys invested in ELSS for long-term. “ELSS can deliver better returns but one should stay invested for more than just 3 years, need to stay invested for longer and definitely see better returns, also these are good habit forming decisions, so definitely one should opt," said Jain.

SIP option available: ELSS helps in building the discipline of investing in equities as one can invest systematically through SIP plus the lock-in ensures that the person stays put for long-term and doesn’t withdraw due to market movements.

As the financial year is coming to an end, many of you may be looking for investing in tax-saving options. However, it is always advisable to invest in equities in a staggered manner to get the benefit of rupee-cost averaging. So, may be you can start with your investments in ELSS now and continue it for next year in a staggered manner.

 

Disclaimer:

The views are for personal use and for educational propose only. Ritesh Sheth & Family or Tejas Consultancy does not guarantee the accuracy, adequacy or completeness of any information in this emailer and is not responsible for any errors or omissions or for results obtained from the use of such information.

This BLOG is addressed to and intended for the investors of Ritesh Sheth & Tejas Consultancy only. You are advised to contact Ritesh Sheth & Tejas Consultancy to clarify any issue that you may have with regards to any information contained in this blog. Ritesh Sheth & Family or Tejas Consultancy does not have any liability to any person on account of the use of information provided herein and the said information is provided on a best effort basis. In case of investments in any of our schemes, please read the offer documents carefully before investing. 

IS IT A GOOD TIME TO INVEST IN EQUITY?

The question is a loaded one, and legitimate too. But given the stock market’s erratic behavior, there is no right answer. And if you wait for one, you will end up sitting out the market.

• Is there ever a good time to invest in the market?

Of course. When it hits rock bottom. Invest huge amounts and then wait for the market to rise. This is timing the market in its purest form, something that is extremely difficult to do. Let me tell you why.

You need to be convinced that the market has touched rock bottom. No one can successfully call out the bottom or peak in advance.

You need immense conviction and confidence to invest when scene is dismal.

You must have tremendous patience to ride it out. The wait could sometimes be years. Then again, those who invested in March 2020 found that the wait could be a few months. Unpredictable.

• Stocks: Is there a right time to invest?

In 2020, infotech and pharma stocks had a massive bull market, while banking and finance stocks had a bear market. So, was it the right time to buy? The answer is, depends on what you want to buy.

You wouldn’t buy a car without knowing its value. You would not buy a house without knowing what it is worth in terms of location and area and other factors. Why would you buy shares in a company without knowing its Fair Value Estimate (FVE)?

The FVE helps you determine whether the market price of a stock is high or low compared with its fundamental value. Calculating the FVE involves looking at a company’s financial statements and annual reports, its business and competitive advantage, predicting future cash flows, assessing the management structure and corporate governance. Based on that research, a value is calculated that estimates the value of the company and what one share of stock should sell for if no emotions or headlines or hype from talking heads were involved.

So you need to look at the stocks you want to buy and see where they stand with respect to the current stock market price. That will help you determine whether or not you should buy. Don’t just blindly look at the Nifty or Sensex and wonder if it is time to buy.

• Equity Funds: Is there a right time to invest?

The best way to invest in a diversified equity fund over the long term is via an SIP.

1. The need for convenience. It is very practical. You may not have huge amounts to invest, but you can invest at least Rs 5,000 every month. And once you select the fund and the amount, it is a hands-off approach. You could do an SIP every fortnight or every month or every quarter. The money from your bank account will automatically be debited to buy units of the fund. You decide the amount, the fund, and the periodicity of the investment.

2. The need for consistency. To be a consistent investor, you must do away with constant human intervention. Or else, during market downturns, you may be tempted not to invest at all. Or, when the market scales new highs, you could get carried away by the euphoria. The hands-off approach is convenient and prevents you from over thinking.

3. The need to exploit market upheavals. It capitalizes the erratic movements of the market. The stock market never moves in a linear fashion. This capitalizes on the market’s erratic movements; you get to buy more units when the market falls. And you are always invested, not sitting on the sidelines.

However, this is only in the case of diversified equity funds. When it comes to sector funds, you need to time your entry and exit.

 

Disclaimer:

The views are for personal use and for educational propose only. Ritesh Sheth & Family or Tejas Consultancy does not guarantee the accuracy, adequacy or completeness of any information in this emailer and is not responsible for any errors or omissions or for results obtained from the use of such information.

This BLOG is addressed to and intended for the investors of Ritesh Sheth & Tejas Consultancy only. You are advised to contact Ritesh Sheth & Tejas Consultancy to clarify any issue that you may have with regards to any information contained in this blog. Ritesh Sheth & Family or Tejas Consultancy does not have any liability to any person on account of the use of information provided herein and the said information is provided on a best effort basis. In case of investments in any of our schemes, please read the offer documents carefully before investing. 

Lump sum vs. SIP is a meaningless comparison

              Lump sum vs. SIP

‘Which is better? Another school of thought believes in creating a lump sum and waiting for market dips instead of a SIP. The trouble with this approach is that, one may have to wait for months and months for an investment opportunity to show up. The bigger problem is how the opportunity is defined.

Lump Sum vs SIP: Why This Comparison Misses the Point
“Should I invest via SIP or lump sum?”

This is one of the most common questions I hear in meetings, workshops, and emails, whatsapp.

The problem is not the question. The problem is the misunderstanding behind it.

A SIP is not a risk-elimination tool. It is a cash-flow solution. If you already have a lump sum that you can invest for 10 years or more, the rational choice is to deploy it as early as possible. Delaying deployment only increases opportunity cost. Spreading it over long periods does not meaningfully reduce risk.

A SIP only averages the next installment, not your entire portfolio.
After one year of a ₹10,000 monthly SIP, ₹1.2 lakh is already fully exposed to market volatility.
After five years, ₹6 lakh behaves exactly like a lump sum investment. At that point, there is no “averaging benefit” left.

STPs work the same way. They do not reduce market risk. They merely soften investor anxiety. In practice, STPs outperform lump sums only about 25–35% of the time and are primarily psychological tools. Waiting for market dips sounds smart, but markets do not run on calendars or comfort. Most investors end up waiting far longer than intended and miss the compounding window.

The real rule is simple: • Lump sum available + long time horizon → invest early
• No lump sum → SIP makes sense
• Short horizon → equity is the wrong asset
Clarity beats complexity. Discipline beats timing.

For a goal-based discussion on how to invest based on your time horizon and risk profile, feel free to connect.

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Ritesh Sheth CWM®
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What is Alpha, Beta And Correlation (ABC) of a mutual fund Schemes

Whether you’ve managed your investments well into traditional PPF,NSC,Fixed Deposits or just got a Few Mutual Fund's a couple of years ago, it’s always wise to get back to the basics and refresh yourself on some of the most critical components of successful investing. In particular for Mutual Funds, As per my understanding  there are three metrics you must be mindful of to win at investing in Mutual Funds. Unfortunately even many of the pros forget what I call the ABCs of Mutual Fund investing (at their own peril), so refocus your Mutual Fund investment strategy in this volatile market with these simple yet profound reminders:

(A) Alpha - Investopedia defines Alpha as: “A measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund’s alpha.”

My plain English definition: Alpha tells you if the investment manager is worth what you pay him. Alpha tells you how well a mutual fund or similar investment performs compared to the stated benchmark it’s trying to beat. 

If a funds benchmark is the Nifty index and the index returned 20% while the fund returned 22%, then the fund will have a positive Alpha (obviously positive Alpha is good, negative Alpha is bad). Compare the Alpha over longer time periods in order to understand what value the manager brings to the table versus the index he is trying to beat.

(B) Beta - Investopedia defines Beta as: “A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is used in the capital asset pricing model (CAPM), a model that calculates the expected return of an asset based on its beta and expected market returns. Beta is calculated using regression analysis, and you can think of beta as the tendency of a security’s returns to respond to swings in the market.

My plain English definition: Beta is an expression of how volatile an investment is compared to the overall market. A beta of 1 indicates that the investment will move with the market. A beta of less than 1 means that the investment will be less volatile than the market. For example, if a Fund’s beta is 1.3, then theoretically it’s 30% more volatile than the broad market.

(C) Correlation - Investopedia defines correlation as: “…what is known as the correlation coefficient, which ranges between -1 and +1. Perfect positive correlation (a correlation co-efficient of +1) implies that as one security moves, either up or down, the other security will move in lockstep, in the same direction. Alternatively, perfect negative correlation means that if one security moves in either direction the security that is perfectly negatively correlated will move in the opposite direction. If the correlation is 0, the movements of the securities are said to have no correlation; they are completely random.”

My plain English definition: Correlation simply describes how two things are similar or dissimilar to each other. Specifically, how two investments move in relation to each other, how tightly they are linked or opposed. Correlation between historically dissimilar investments (think stocks and bonds) is never static, it’s not uncommon for the correlation of investments to change, especially during volatile or crashing markets. 

In fact, seemingly the only thing that goes up in a down market is in fact correlation. I use correlation measurements in advanced portfolio management to better manage risk. 

To me, higher correlation theoretically means higher risk to the bottom line. The higher the correlation of your investments the higher of the “doubling-down” effect you get, in other word's you have a greater opportunity for gains or financial ruin. One particular ripe investment class for high correlation are mutual funds because both bond funds AND Equity funds trade on the market, thu's your bond funds become more correlated with Equity funds during volatile markets.

Many investors tend to focus exclusively on investment return, with little concern for investment risk. Risk measures we have just discussed can provide some balance to the risk-return equation. 

As useful as these measurements are, keep in mind that when considering a stock, bond or mutual fund investment, volatility risk is just one of the factors you should be considering that can affect the quality of an investment.

Ritesh.Sheth CWM^®

CHARTERED WEALTH MANAGER

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Disclaimer:This blog is addressed to and intended for the investors of Ritesh Sheth & Tejas Consultancy only. You are advised to contact Ritesh Sheth & Tejas Consultancy to clarify any issue that you may have with regards to any information contained in this emailer. The views are personal. Ritesh Sheth & Family or Tejas Consultancy does not guarantee the accuracy, adequacy or completeness of any information in this blog and is not responsible for any errors or omissions or for results obtained from the use of such information. Investopedia definitions are used for educational purpose. Ritesh Sheth & Family or Tejas Consultancy does not have any liability to any person on account of the use of information provided herein and the said information is provided on a best effort basis only for educating investor. In case of investments in any of our schemes, please read the offer documents carefully before investing.