Thank You
All India - Fixed Income Category
PROVIDING SOLUTIONS – AXIS MUTUAL FUND
At the time of launch of their first NFO, AXIS MF had promised that besides the normal vanilla products, they will come out with schemes which will provide solutions to the investors and ensure that they participate in the right asset class at the right time.
Towards fulfilling that promise, one of the schemes they launched last year was AXIS TRIPLE ADVANTAGE SCHEME:
Build wealth no matter what is happening in the economy
There are obviously no guarantees but you can maximise your chances of making money by investing in a diverse range of assets. By balancing your investments across multiple asset classes you tend to reduce risk of losing money to economic shocks (like the recent global financial crisis). Empirical studies have shown that between 1995 and 2010, if you had invested equally in stocks, bonds and gold, only once would you have lost money i.e. in 1995.
Axis Triple Advantage Fund helps you take advantage of diversification by investing in a mix of equity, fixed income and gold in the following proportions.
- Equity and Equity related instruments : 30-40%
- Debt and Money Market Instruments : 30-40%
- Gold Exchange Traded Funds : 20-30%
This not only helps avoid monetary surprises but also provides opportunity for wealth growth. With Axis Triple Advantage Fund, if you have planned for something, chances are you should be able to get it.
By launching this scheme, they have fulfilled their promise of optimising returns from all the 3 asset classes as is evident from their last one year performance which was 9.3% p.a. as on August 23’2011. This scheme has outperformed all the following asset classes launched over last one year (as on August 23’2011):
- Outperformed the best one year FMP launched in August 2010 (7.6%)
- Outperformed the Crisil MIP Blended Fund Index over last 1 year (3.3%)
- Outperformed the best FD rates of SBI (6.8%)
- Outperformed the Crisil Composite Bond Fund Index (5.9%)
- Outperformed the S&P CNX Nifty (-10.7%)
Going forward as well this scheme & all the 3 a021sset classes will do very well due to following factors:
- Gold is likely to do well due to current US and Euro Zone market turmoil’s,
- Interest rates are peaking off and likely to cool off in next 3-6 months time & hence ideal time to invest with high accruals and capital gains possibility &
- Indian equity markets have already taken a huge beating based on both domestic & global factors, giving good opportunities to Fund Managers in the equity markets
AXIS HYBRID SCHEME:
This is one more innovative idea from the stable of AXIS MF towards fulfilling their promise of providing solutions to the investor thru asset allocation strategy.
It is a 3 year close ended scheme with 81% allocation to debt securities on lines with 3 year FMP. With current interest rate scenario, Rs.81 invested in debt will become Rs.104-Rs.105 by the end of 3 years; thereby protecting the principal sum.
19% will be used to buy 3 years NIFTY CALL OPTION.
The advantage of investing in exchange traded options is that they restrict the maximum loss from equity to the premium paid for the purchase of the option. The hybrid fund is advantageous as it is able to recover all or part of the cost of the premium from the coupon received from the fixed income allocation. This strategy allows the portfolio to participate in equity upside while limiting downside risk.
By paying Rs.19 as premium, the scheme can participate to the extent of 90-95% in equity (unlike schemes which invest 80% in debt & 20% in direct equity & can only participate to the extent of 20% for any equity upside).
Assuming NIFTY remains at the same level or lower over the next 3 years, the scheme will not exercise the option & hence the investor loses the entire Rs.19 paid as premium. However, due to the debt scenario as explained above, the investors will get their principal back with some upside.
On the other hand , if say NIFTY goes up by 50% over the next 3 years, same will be reflected in the performance of the scheme as this 50% upside will be on 90% of the portfolio; thereby generating returns both from debt & by participating in the upside of equity to the extent of 90-95% of the portfolio.
Hence, an investor should consider this as an alternative to Equity allocation & not carve out of debt allocation. With current low equity markets, there is all likelihood of generating decent returns over next 3 years by participating in equity upside thru the call option strategy without risking the principal amount.
They have already launched 2 series of this scheme & their 3rd series NFO is open for subscription till September 30’2011.
HERD MENTALITY
Most of the times advise on an asset class comes when the story is already over or behind us. Invariably an investment call on an asset class comes based only on returns chart. However, what people fail to understand is that when an asset class gives superlative returns, one needs to have a relook at this asset class before investing in the same.
A similar story unfolded in an asset class called Monthly Income Plans (MIPs). When markets corrected from a high of 20827 SENSEX levels reached sometime on January 07’2008 to a low of 8325 reached on March 2’2009; then bounced back from these levels back to around 21,004 levels on November 01’2010, this asset class performed extremely well during this bounce back period. Based purely on returns figure in that year, most advisors started recommending this asset class sometime in November-December 2010 after seeing handsome returns in this asset class. This is evident from the industry corpus growth in MIPs.
Also, as one can logically conclude, MIP as an asset class would have taken a beating during the equity meltdown phase from January 2008 to March 2009; would have performed very well from March 2009 to November 2010 & the once again corrected from then to now.
However, I have been recommending investment in equities thru strategy of Systematic Transfer Plan from Liquid to Equity. If one would have done this even from the peak of January 2008 & continued the same thru the volatile period of March 2009, then once again peaking in November 2010 & once again thru the downturn, returns in the said strategy v/s one time investment in either equity or MIP from January 2008 till May 31’2011 would have looked as follows:
|
STP of Rs.4 Lac per month for past 41 monthly instalments v/s one time Investment |
|||||
|
From January 01’2008 till May 30’2011- Templeton Bluechip Fund |
|||||
|
ONE TIME |
SENSEX |
STP |
TEMP MIP |
SIP |
|
|
Jan-08 |
1.64 Crs |
20300 |
1.64 Crs |
1.64 Crs |
1.64 Crs |
|
May-11 |
1.79 Crs |
18232 |
2.47 Crs |
1.90 Crs |
2.23 Crs |
|
Returns |
2.57% |
-3.10% |
12.71% |
4.73% |
18.21% |
Hence, as can be seen from above, certain asset classes become flavour of the season or a year or so & go out of flavour without giving adequate warning to the investors. As against that, strategies like SIPs or STPs can be an ongoing strategy which can act as flavours for all seasons & can bring a) discipline in investing b) create an average during volatile times of the market & c) try & achieve decent returns for all times to come without investor trying to outguess the markets.
With current equity market conditions, I strongly recommend investors to try and invest thru this strategy of STP instead of trying to time the markets. Additional return in this strategy is also partly attributable to the fact that your principal amount gets invested in Liquid Schemes (currently generating 8-9% p.a.) & slowly & steadily gets replaced with equity assets over a period of time
WHY GILTs?
I have been recommending investment in GILT schemes primarily on two counts viz. 1) technically, whenever 10 year benchmark yield has breached 8.50%, there has been resistance at this level & the yields have retraced below 8.50% levels & 2) sometime in the near future RBI will have, if not dovish at least a neutral monetary stance.
Clear indications have come from MoF, both from Finance Minister & from Chief Economic Advisor Mr Kaushik Basu by stating that Central Bank’s monetary tightening has only harmed growth without taming inflation.
Let us analyse the following data which is prior to RBI tightening the monetary stance (since March last year) & current state of affairs. This will also highlight the fact that RBI has failed to control inflation inspite of almost 11 rate hikes since last March & growth has been most affected; which is clear from July 2011 IIP numbers which have fallen to 3.3% from 6.6% achieved in June:
|
Prior to March 2010 |
Aug-11 |
|
| REPO |
4.75% |
8.00% |
| Inflation |
14% |
9.78% |
| IIP |
13.20% |
3.30% |
|
(July 2011) |
||
| 10 Year Benchmark |
7.90% |
|
Hence, as can be seen from above, inspite of several rate hikes (to tame in inflation), your headline inflation numbers have been stubbornly hovering way above RBI comfort zone of 6% or below (though it has come down from 14% to currently at 9.78% for August 2011) .
Going forward, with maybe one or two more rate hikes of not more than 50 bps, RBI will at some time in near future adopt a neutral stand on interest rates & then start concentrating on growth once again over the next 6-9 months time. This will be signalled either by cutting CRR, announcing OMOs, etc. In short it will have to start infusing liquidity & kick-start spending and creating environment for growth in the economy.
In most probability, RBI will have one more rate hike during their review on Friday, which in turn will have some upward tick on the 10 year benchmark yield from the current levels. One may wish to start investing in G Secs on that date & as mentioned time & again, create a weekly SIP till October end. After creating this average, one can wait for the right cues from both MoF & RBI which will then translate into yields easing off.
In this strategy, one will have to be nimble footed in terms of their exit as on any positive news, benchmark yields tend to ease off suddenly. This happened between July 29 (benchmark yield was 8.45%) & the same eased off to 8.25% on August 18’2011 giving rise to handsome gains to the portfolio.
In continuation to my note on 9th August 2011
In continuation to my note on 9th August 2011, please find below updated returns chart for the same.
|
GILT SIP from 29th July 2011 to 9th Sep 2011 – 1 Cr per week |
|||||
|
S. No. |
Mutual fund |
AMT INV |
CUR VAL |
+/- |
XIRR |
|
1 |
ICICI Prudential GFIP |
70,000,000 |
70,341,088 |
341,088 |
8.74% |
|
2 |
Kotak Gilt – Investment Regular Plan |
70,000,000 |
70,313,392 |
313,392 |
8.01% |
|
3 |
Birla Sun Life G Sec Fund – LT |
70,000,000 |
70,317,878 |
317,878 |
8.13% |
|
4 |
CURRENT 10 YEAR G SEC |
8.31 |
|||
|
5 |
AVEAREGE OF 10 YEAR G SEC |
8.32 |
|||
| * 10 year touched a high of 8.45% on 29 July 2011 | |||||