Investors

Rely on rolling returns, not point to point data

Financial, Investments, Personal Finance, Press / By /

“FD can give better returns over a 10 year period than stock markets”. That was the shocking statement that triggered this article in Business Standard more so because is true 5% of the time (95% of the time stock markets beat fixed deposits over 10 years). Clients often struggle to embrace rolling returns, which offer a clearer picture than misleading point-to-point comparisons. Mark Twain’s words on ‘lies, damned lies, and statistics’ resonate when cherry-picking exceptional periods like the rare 10 year period where FDs beat the stock market—ignoring that 95% of the time, stocks outperform FDs. Investors reading this please remember this when your advisor is asking you to exit a fund which has given good point to point returns but has poor rolling returns compared to its benchmark and peers.

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Sebi´s new product: MF´s efficiency, PMS´ control

Investments, Mutual Fund, Press / By /

The New Product (earlier called New Asset Class) approved by SEBI Board, is excellent for investors comfortable with high risk investments. It will also allow Long short strategies and is designed to wean investors away from unregulated products. Whilst the New Product will do that, the operational ease and tax benefits of the MF structure will most probably also result in the New Product eating into the existing Rs. 2 lakh crore PMS market. If the fund manager is offering a choice to the investor between the two , there is no doubt the investor will choose the New Product.

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Evaluate funds on rolling returns over long term

Investments, Mutual Fund, Personal Finance, Press / By /

Momentum funds have become the flavour of the season with their outsized “extra” returns over the already high returns provided by the market over the last one year. Harsh’s article in the Business Standard highlighting how they are not the absolute certainty they are made out to be. There is a need to take a conscious decision on the tradeoffs involved while evaluating investments in such factor funds.

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Retail investors vs algos: Like lambs to slaughter

Personal Finance, Press / By /

Harsh had worked out a half baked doubling stake strategy to try and win a game of chance called “Lucky 7” popular in the 1980s. F&O traders try to make money by using similiar half baked strategies or algorithms promoted by brokers interested in boosting trading volumes. As a result 93% of such traders lose the money (a whopping Rs. 1,83,000 crores in last 3 years) that is mopped up by 1% of them who use well researched and thought through algorithms executed in nano seconds. Harsh’s article in Business Standard why investors who ignore SEBIs warnings, do so at their own peril.

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Perils of keeping surplus money in bank accounts

Financial, Press / By /

Back in the 1970’s the Soviet bureaucrats worked out a clever ploy to deny permission to a US citizen seeking to marry a Soviet citizen. They asked him to provide proof that he was not “already married”. Getting a document certifying a negative fact is impossible. An Indian bank account holder, victim of cyber fraud, faced a somewhat similar predicament when he was required to prove that he had not received any OTP sms or email from the bank. Harsh’s article in the business standard on how the issue was resolved and what lessons can be learnt so that citizens facing similiar issues have an easier time.

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Simplifying nominations can boost financialisation

Financial, Governments, Investments, Personal Finance, Press / By /

Indian securities market regulator SEBI has recently sought public comments on a consultation paper that seeks to comprehensively revamp the entire process of transferring assets to the nominees on the death of the investor. It seeks to remove hurdles and standardise the process so that the transfer to nominees can happen in a few weeks (the dream is the transfer happening in a few days of applying and God willing even that will happen eventually as the system stabilises). The paper also deals with providing access to the investor themselves in case of their incapacitation (unfortunately many such cases are coming up as longevity of Indians increase due to advances in medical science) . This is a giant step towards making Investments in Indian securities market convenient and easy and will aid in spurring the ongoing process of financialisation of household investment assets.

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Unified death reporting is the need of the hour

Governments, Press / By /

A loved one has passed away. You are the nominee in all the mutual funds and shares owned by the deceased. You dread the multiple trips and the time to be spent and efforts required to follow different rules at each of the 7 MFs in which the loved one had investments & the 2 Depository participants where the shares were held. Now Imagine this. You submit the death certificate and the PAN of the deceased at one of the MFs. Within a week all the 7 MFs and both the DPs reach out to you proactively on their own with the details of the standard forms and steps required to get the assets transmitted to your name. If that sounds like Fantasy – it will be true starting on January 1, 2024 – many thanks to a path breaking circular issued by SEBI. No comparable mechanism exists anywhere else in the world Thanks to the white paper – written by Pramod Rao (in his personal capacity) – foreword by Mr K V Kamath – inputs & published by ARIA. Read Harsh’s article in Business Standard for more..

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Appeal to ‘slow mind’ to wean investors off F&O

Financial, Governments, Investments, Press / By /

Can you solve this puzzle : A bat and a ball together cost ₹ 1,100.
The bat costs ₹ 1,000 more than the ball.
How much does the ball cost?

If your answer was ₹ 100, that´s incorrect.
The right answer is ₹ 50.
Nobel Laureate and behavioural economist Daniel Kahneman cites this example in his book, Thinking Fast and Slow, to introduce the concept of the ´fast mind´ (which provides intuitive answers without conscious deliberation), and the ´slow mind´ (which is supposed to deliberate and endorse or reject the fast mind´s intuitive answers).
The fast mind´s immediate answers can be frequently wrong.
The slow mind is lazy and prone to biases.
Yet, with the right training, the slow mind can be tutored to amend the fast mind´s intuitive answers.
So what does this interesting puzzle have to do with weaning Individual Indian investors away from speculating in Futures & Options ? Read Harsh’s article in Business standard to know more..

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Index fund or ETFs? Compare total cost

Financial, Investments / By /

Harsh’s article in Business Standard on how a fixation on expense ratio has led to a preference for exchange traded funds over comparable index funds among some investors. In the case of ETFs the NAV is only of guidance value and the market price paid by investors buying the ETF is higher than the NAV and the investors selling the ETF is lower than the NAV. The difference between market price and the NAV imposes an additional cost. Besides, there is brokerage fee, which amplifies an ETF´s tracking error
Hence the tracking error based on market price is way higher than the tracking error of comparable index funds. The incipient movement towards Fund of Index funds across asset categories has been the inadvertent victim of the hastily introduced tax amendment targeting debt funds in the last budget. Hopefully we should see this corrected in the next full budget and index based FoFs will play a pivotal part in passive investing in the future.

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