investing

The Acid Test of your Stock Portfolio

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Can your stock portfolio pass this Acid Test?

“Do you advice on stocks?” This was Deepesh on the line.

“No Deepesh, not my forte. For me, it is simple. There are some really good fund managers out there who can do a better job. I rather let them manage my money.”

“Oh OK. You see, I am already doing a good job with my portfolio. I just need a second view on my current holdings.” Deepesh didn’t sound impressed with what I had told him.

“That’s great Deepesh. You are from very few people who have claimed that they have made money by investing in stocks. Let’s do a little thing, if you will.”

“Tell me.”

“Have you ever calculated how much money you have actually made on your stock investments – return on the investment?”

“Not really. But as I said I have made a decent money. I guess it should be close to 15% year on year.”

“Wow! That’s a great number. But let’s confirm it. Can you share your stock portfolio transaction details with me? I will do the maths for you.” I told Deepesh.

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Investing in Debt Funds – an insider’s perspective

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Investing in Debt Funds - An insider's perspective

I believe debt funds can play an important role in an investment portfolio. I just don’t know what and how. That’s where I reached out to Akhil Mittal, Senior Fund Manager – Fixed Income with Tata Mutual Fund. He is the expert and he was kind enough to share his views and help me learn more about debt funds.

Just to let you know, Akhil manages the following debt fund schemes at Tata MF.

  • Tata Dynamic Bond Fund
  • Tata Short Term Bond Fund
  • Tata Income Fund
  • Tata Income plus Fund
  • Tata Gilt Securities Fund
  • Tata Gilt Short Maturity Fund
  • Tata Gilt Mod Term Fund
  • Tata Floater Fund

He also manages debt portion of some hybrid funds (Tata Balanced Fund, Tata Young Citizens Fund, Tata Regular Savings Equity Fund, Tata Retirement Saving Fund – Moderate & Conservative Options, Tata MIP Plus Fund, Tata Young Citizens Fund and a few FMP’s for Tata Mutual Fund.

Here we go.

VK: Hi Akhil, this is going to be unlike any other conversation that you might have had before.

You are a debt fund manager, the specialist. I come to you as a layman to understand debt funds and how can I use them best. I have questions, which I want to ask you and get clarity about investing in debt funds. Can I?

AM: Sure, please go ahead.

VK: OK. Here’s the first and the obvious one. What role can a debt fund play in my portfolio, any investor’s portfolio?

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Mutual funds have a new CV

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Mutual Fund CV factsheet

Year ago, when I started out as a newbie investor, I called up my friend who was working with one of the largest and most respected mutual funds in town then. Of course, he knew a thing or two about mutual funds.

“Tell me which fund to invest in. I want to do some tax saving.”

He told me 1 ELSS or tax saving fund and I invested. That was the beginning of my relationship with mutual funds.

I didn’t care to understand any further about my prospective investment. A trusted friend had recommended them, that was enough. Why would I bother?

For a couple of years, I continued to rely on his advice until, I myself started to work with a financial advisory company.

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New Investor: Beware of Direct plans

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direct plans are not for new investors

“Are direct plans all that beneficial?” was a twitter headline I read this morning and I was stumped.

To me:

This summarises all that is wrong about the understanding about the direct plans of mutual funds.

The popular media and some advisors too has also not been able to hold its horses and has given out interpretations and views that show the direct plans in not so good light. So much so that it has been declared that new investors should not invest in direct plans.

Now, the investor is left utterly confused. In this post, I will try and bring out the facts and help you, the investor, to make the right decisions about direct plans.

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John Bogle’s 8 Rules to build your mutual fund portfolio

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John Bogles 8 rules to build a mutual fund portfolio

Who is John Bogle?

Back in 1975, the world’s first index mutual fund was started with the guiding principle of “trusteeship”. It sought to put the investor first and tilt the scales of investment rewards towards the investor. Not just that, this organisation has established the norms of running a trusteeship driven organisation.

The fund house, as would be a familiar name to you, is known as Vanguard. As of today, Vanguard is the largest no-load mutual fund in the world managing trillions of dollars for its unit holders.

I want to bring your focus on this man who built Vanguard, its founder John C. Bogle.

John Bogle has studied mutual funds in-depth since 1949, when he began his senior thesis at Princeton University before joining the industry in 1951. He was named as one of America’s four financial “giants of the twentieth century” by Fortune magazine.

He is a prolific author and has penned his wisdom on investing in books such as Common Sense on Mutual Funds – New Imperatives for the Intelligent Investor.

Mr Bogle is a hard-core believer in indexing or buying index funds. In his findings (supported by data), a broad market index fund will almost always beat an actively managed fund. This will primarily be a function of the costs that are loaded onto actively managed funds. He outlines his approach very logically in his book Common Sense on Mutual Funds.

However, for those who would still go the other way and choose actively managed funds, he has shared 8 rules to build a mutual fund portfolio. These rules are based on the same strategies that help index funds to succeed.

While the rules have been explained in great detail in his book Common Sense on Mutual Funds, in this post I bring to you the essence of these 8 rules.

While the context of these rules is in the US, I believe they would apply to any sensible investor building a portfolio to meet long-term financial goals.

All the 8 rules are listed below. To read a detailed explanation as also the India mutual fund context, you may want to download the full guide.

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You are financially literate, so what?

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financial literacy

Your financial behaviour can still be messed up.

The problem with financial literacy

According to Wikipedia, in a financial literacy survey:

In Australia, 67 per cent of respondents indicated that they understood the concept of compound interest, yet when they were asked to solve a problem using the concept only 28 per cent had a good level of understanding.

This quickly summarises all that is wrong with financial literacy.

You may get a new tool, but you may not know how to use it best. Imagine yourself holding a knife from the sharp side. 

Being financial literate is no guarantee that you would make the right money and investment decisions.

If that was the case, Chartered Accountants, MBAs (Finance) or commerce graduates would not be falling into all the obvious traps – buying ULIPs for investments, investing into real estate trying to become property moghuls, not realising the amount of interest they are paying on the loans.

Not to mention, you sent the concept of diversification limping down a one way street.

One of my clients aptly described his situation as, “The amount of interest I am paying, it feels like I am working for the bank.” Sigh!

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