IPRU Iinnssiigghhttss Issue 05,2020
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AN INVESTOR EDUCATION INITIATIVE BY IPRU IInnssiigghhttss Issue 05,2020 Setting sails for an investment journey Please visit us at www.iciciprumf.com Follow us on: https:/ / www.facebook.com/ iciciprumf https:/ / twitter.com/ iciciprumf Mutual Fund investments are subject to market risks, read all scheme related documents carefully. INDEX CEO Letter: Setting sails for a journey with debt funds 02 CIO Letter: Don’t stop SIPs! 03 Infograph: Who Doesn’t Love A Good Bargain? 04 Checklist : Investing in uncertain/ Covid times 06 Topic of the month : Achieving Financial Independence 07 Fundaclear: Make the most of your SIP with its features 08 TAX Corner: What is new for you in 09 Form 26AS Quiz : Are You Ready to Test 11 Storyboard: Don't panic amidst the 12 pandemic, invest more Parenting & Money: How to teach money 13 matters to kids Crossword 15 Travel: Precautions for domestic travel 16 in current times Recipe: Banana Cake/Bread with Choco chips 17 Fitness: Meditation for beginners 18 Book Review: Think and Grow Rich 19 by Napolean Hill Movie Review: AARYA – Impressive 20 Performance By Sushmita Sen Disclaimer 21 CEO Letter Setting sails for a journey with debt funds Mr. Nimesh Shah, MD & CEO, ICICI Prudential AMC Despite the recent developments in debt mutual fund universe, one cannot negate the importance of its presence as an asset class in a portfolio. It only emphasizes the need to assess the risk-reward trade-o in various debt schemes and try to match it to personal goals. To begin with, the case for investing in debt funds is strong given that it balances a portfolio against riskier asset classes such as equities. This is because debt funds invest in xed-interest generating securi- ties such as corporate bonds, government securities, treasury bills, commercial paper and other money market instruments. The xed interest rate for a pre-determined period of time makes debt fund inves- tors earn a steady interest income and capital appreciation. And, since the interest earned on these instruments is generally better than traditional investment options, it boosts overall returns of the inves- tor. That said, there are a plethora of schemes under debt funds that an investor can choose from. But ensure that one selects a fund which matches one’s goals and risk appetite. Hence, it pays for an investor to be aware of the key parameters to look for, in debt fund schemes. Risk-Return equation Typically, riskier securities yield higher return. So, it is important to match the debt fund chosen to one’s risk appetite. For instance, gilt funds invest in only government securities . These are very low credit risk since the government seldom defaults. However, credit risk funds as a category invests in weaker rated/ riskier papers. Interest rate is another factor which impacts debt funds’ returns. Typically, when interest rates fall, returns earned on debt funds are higher and vice versa. Investment horizon Debt schemes invest in securities of varying time horizons. Investors can consider liquid, short term or ultra-short category of debt funds if the investment is only for a short duration. These funds are more liquid in nature as they invest in debt instruments with a short maturity. Hence, the risk associated is also relatively lower. Diversication: Sectoral & Security Level Investors should be mindful of diversication both on issuer and sectoral level within a portfolio. Con- centration risk has the potential to jeopardise returns during challenging times. A well-diversied port- folio with stable credit spreads has the potential to weather market volatilities which may arise. To conclude, debt funds are eective investment vehicles to minimise risk in asset allocation, stabilise overall returns and provide liquidity. 02 IPRU Insights CIO Letter Don’t stop SIPs! Mr. S. Naren, ED & CIO, ICICI Prudential AMC The monthly SIP inows have not been impacted much inspite of severe market corrections and- subsequent market volatility amidst the Covid-19 uncertainty. While the inows in the equity funds dipped signicantly during June 2020, the SIP inows dipped 2% to clock Rs. 7,927 crores during the same month. The sustained SIP inows reect mature and disciplined investing behavior by the retail investors. However, the trend for SIPs getting discontinued increasing is not a healthy sign. The ratio of SIPs discontinued to the fresh SIPs registered was around 58% during the year 2019-20. However, this ratio has risen to 72% during April 2020 and had further risen to 81% in May 2020 (Source: Association of Mutual Funds in India - AMFI). There might be two signicant reasons for the number of SIPs discontinuing being higher than earlier – continued market volatility and disruptions in the regular cash ows for the investors. SIPs were conceived to eliminate the timing risk from the investments. This is because the investments continue to happen irrespective of whether markets are going up or down. When are markets are falling, the investors gain by getting more units per SIP installment, helping them to benet from relatively reasonable valuations. It also helps them to average their cost of investments and gain once the markets recover and rise further. If the investors are leaving their investment journey mid-way due to the Covid-19 uncertainty, it is indeed a failure of SIPs as an investing strategy itself. - While it is natural for the investors to stay cautious, staying on the sidelines of the equity markets may derail the overall investment journey towards the achievement of nancial goals. SIPs allow the investors to consistently accumulate regular amounts in the mutual fund schemes of their choice. Such investments not only get accumulated but also grow over time. Further, the equities may be volatile over the short-term but have been great wealth creators over the long term. Just like an ECG graph reects the health of the human heart, such short-term market movements reect that the equity markets are indeed healthy. Investors must realize that such short-term volatility is inherent to the equity markets. As such, one may not be able to eliminate it in entirety but can certainly take steps to mitigate such risks from the investments. SIP investing is indeed one of such steps. - When the markets are falling lower, the fear of losing in further market corrections may stop the- investors from investing more. Similarly, when the markets are rising, one may be inclined to book some prots, which may cause them to miss future market rallies. With SIPs, one can also eliminate emotional biases from the investing journey, as such investments into equity markets are automatic. So, instead of fearing the markets and stopping your SIP investments, it can be your tool to stagger the investments across a period and continue to gain from the long term wealth creation potential of equity markets. 03 IPRU Insights Infograph WHO DOESN’T LOVE A GOOD BARGAIN? VALUE INVESTING IS JUST LIKE A GOOD BARGAIN FOR YOUR INVESTMENT PORTFOLIO, AND SHOULD BE EXPLORED SALE = PRICE - DISCOUNT = VALUE DISCOVER LONG TERM BENEFITS OF VALUE INVESTING BUYING STOCKS OF GOOD COMPANIES FINDING GOOD BUYS IN AT A DISCOUNT TO THEIR TRUE VALUE DIFFICULT MARKET SITUATIONS Benefits of VALUE INVESTING Invest for your Disciplined and Portfolio long term goals structured investing diversification 04 IPRU Insights Infograph BRINGING VALUE INVESTING ALIVE: KNOW THE FUNDAMENTALS AND FUTURE POTENTIAL Know what feels right For e.g., You’d research about the builder, locality, future development within the area, when buying a house. The same approach holds hood here. UNDERSTAND THE VALUE Learning the prospect of growth and development IDENTIFY THE OPPORTUNITY EARLY AND AIM FOR GAINS Be there at the right time at the right opportunity AIM TO ENHANCE YOUR PORTFOLIO RETURNS THROUGH VALUE INVESTING 1 3 VALUE INVESTING COMPLEMENT AIMS TO MAKE THE YOUR OVERALL 2 MOST OF UNCERTAIN INVESTMENT MARKET STRATEGY CONDITIONS MUTUAL FUNDS HAVE SCHEMES THAT ARE STRUCTURED TO FOLLOW THE VALUE INVESTING PHILOSOPHY 05 IPRU Insights Checklist Investing in uncertain/ Covid times As the times continue to stay uncertain, it is important that the investors continue to stay glued to the fundamental investment principles. Here are three quick rules to be revisited for investing during these uncertain Covid times. Remember equity is not the only investment option Not a single asset class is conssistently performing in the markets. The investment portfolio should be diversified across asset classes. One can choose debt mutual funds to add stability to the portfolio. Asset Allocation is key to investing in equities One must implement dynamic asset allocation when it comes to investing in equities. Such strategy helps to invest more when the valuations are low and book profits when the valuations are higher. One can also consider investing into asset allocation funds. Avoid Recency Bias Recency bias refers to getting influenced with the recent per- formance. One must not be biased to discontinue/ pause SIPs based on the recent underperformance of investment portfolio. Instead, one must stay focused on the long term financial goals. 06 IPRU Insights Topic of the month AchievingGoal Financialplanning and Independenceits importance Achieving financial independence at an early stage is often the most common aspiration amongst the investors of today. Here are the key investing principles to achieve financial independence: Start Early Invest Consistently Allows more time for investments to grow and Small drops of water make an ocean. Regular enables investors to reap the benets of investments allow investors to accumulate healthy compounding. With extended investment horizons, corpus over time. It also adds a sense of discipline one can take aggressive investment decisions and into nancial plans. gain from potential of higher returns. Step-up periodically Dynamic Asset Allocation Investors may avail to top-up their SIPs to step up It is important to stay diversied.