Friday, April 3, 2015

My View On Income Funds

This is my first blog post of this new financial year, or rather, 2015 itself. In this post, I would like to share my views on Income Funds. Of late, I have been speaking to many of my peers and experts in the industry understanding their strategies and views on markets. Almost everyone is bullish on long term duration funds which I am not comfortable with.

There have already been two rate cuts this quarter – one in January and one in March. Both these rate cuts came in as surprises as they were not announced during the scheduled monetary policy reviews.

These rate cuts have mainly been on the backdrop of an easing inflation scenario.

CPI Inflation increases, WPI Inflation drops further

As per the latest data, the WPI inflation fell to -2.06% in Feb 2015 compared to -0.39% in the previous month. The Consumer Price Index (CPI) came in at 5.37% in Feb 2015, compared to 5.19% in the previous month. While one index declined, the other rose. I believe that this is mainly because of the different baskets of goods they track.

Data Source: RBI,

However, the RBI continues to focus on the CPI and as per the agreement signed by the RBI and the Government of India last month, the RBI will aim at an inflation target of 6% in January 2016 and 4% in 2016-17 and the following years.

An update on Income Funds

Over the last one year, the 10-year GSec yield has fallen from over 9% to 7.79%.

As per data on 10th March 2015, medium term funds have delivered 11.84% returns and long term & dynamic funds have delivered 15.88% returns over the last one year. Assuming 30% income tax on gains, these translate to post-tax returns of 8.29% and 11.12% respectively. The yields are much higher than the post-tax yields on fixed deposits (FD) offered by reputed institutions.

Let us now have a look at how consistently these funds have performed.

 Data source: Data as on 10th March 2015. Green colour denotes top quartile performance and red colour denotes bottom quartile performance.

As we can see from both these charts, we can hardly find consistent performers across time periods. Funds that have delivered top quartile returns in the long term have delivered only average or bottom quartile returns in the short term. Similarly, funds that have delivered top quartile returns in the short term have delivered only average or bottom quartile returns in the long term. In short, these income funds have failed to deliver consistent returns across time periods.

I attribute this lack of consistency largely to the inability of fund houses to effectively manage duration as yields change dynamically. This lack of consistency adds a lot of confusion in investment decision making process, especially while the direction of interest rates is uncertain.

My Take

The RBI has already cut 50 bps in the repo rate during Q4 FY15 in response to a sharp decline in CPI inflation from above 8% levels seen in last year.

I now believe that the RBI will be looking at more data before taking action on policy rates.

The recent unseasonal rains in various parts of India and the fuel price increase of 28th Feb 2015 could have an impact on food prices, thereby increasing inflation. 

Though the US Fed came out with a dovish statement regarding rate hikes in the recent FOMC meeting, the interest rates in the US are expected to rise late this year. Rate hikes in the US can result in outflow of funds from emerging markets – both equity and debt.  An outflow from debt markets can lead to a downward pressure in bond prices which could affect the interest rates.

Thus, though interest rates are expected to come down in the long run, the debt yields can be highly volatile in the short term.

Investors who have entered into income funds with a view of making absolute returns can book profits now. They can move to accrual based funds with a holding tenure of 3 years. I would prefer 3 year Fixed Maturity Plans (FMPs) and Hybrid funds with a capital protection oriented structure. These funds have a potential to deliver 1.5 – 2% more than fixed deposits (post taxes).

Please do share your views on the same.
Happy Investing.

Please Note:
Schemes from reputed AMCs which have sizable AUM alone are considered for this analysis.

Mutual Funds investments are subject to market risks. Please read the offer document carefully before investing. The views presented in this blog post are my personal views and not of my company. This post does not solicit the sale of any mutual fund scheme. 

Monday, October 20, 2014

[Review from the foodie in me]: Sam's Pizza

I've heard about this unlimited stuff at Sam's pizza for quite a long time. So, a friend of mine and myself decided to check it out today.

The vegetation buffet costs Rs.249 and the non-vegetarian buffet costs Rs.299. Taxes extra.

Since we both were vegetarians, we tried out the vegetation buffet. The spread was quite elaborate. Let me rate each of them on a scale of 1 to 5, 1 being poor and 5 being excellent.

They had two varieties of soups - Manchow soup & tomato soup. The soups were average. I tried both of them. Would give them a rating of 3.

They boast of having a spread of 26 salads. But trust me, the salads were excellent. I tried most of them. The macaroni cheese, Russian salad and American sweet corn salad were the best. They also had a good variety of vegetables and fruit salads. I would give them a rating of 4, or rather 4.5.

Next came the pizzas. We had the choice of Margareta and Paneer pizza. We tried both. Paneer pizza was average. The crust was hard. Margareta pizza was quite good. The crust was soft and the pizza was tangy. I would give the pizzas a rating of 3.

Now the dessert. It was vanila icecream with chocolate sauce. It was not unlimited. But not very tasty too. Could have been better. I would rate them as 3.

Coke was not included in the buffet. You have to buy it separately. So, that's some extra bucks from your pocket.

Now, let's talk about the service. Well, I would say it was good. Not excellent. But good. Nobody seems to know the regional language over there. So, if you don't know English, errr... Don't go there.

Finally, the pricing. Rs. 249 was ok. But, they add service charges and VAT which comes to another 20% approx. For the level of service and the quality of food, I don't think they deserve this much service charge.

Overall, I would rate it 3 on 5.

Happy eating.
Eat Well & Be Merry...!!

Thursday, October 2, 2014

[My Experiments with the Kitchen]: Saabudana Kichidi

Saabudana Kichidi...!! Hmmm... This has been one of my favourite dishes right from my childhood. My mum used to make it really well. She had learnt how to make it from my aunt in Mumbai. Only after quite a few years, I knew that it's a Maharashtrian delicacy.
Last evening, I tried making the Saabudana Kichidi for the first time. Let me attempt to explain how I prepared it.

Saabudana - soaked in water for 4 hours
Peanuts - Roasted, skin removed and grounded
Refined oil
Green chilies - 2
Red chili powder

In a pan, heat a tablespoon of oil. Add a teaspoon of jeera and mustard. Once the mustard starts crackling, add the green chilies and saute them till the raw smell of the chilies fade away.

Now add the roasted groundnuts and fry them moderately. Then, add the sabudhana and mix it well with the groundnuts. Add salt, little bit of red chili powder and half a teaspoon of sugar. Cook for about 7 minutes till the bottom most layer of the kichidi becomes crispy and starts sticking with the pan.

Serve it hot with curd.
Please do try it out and post your comments.

Saturday, July 26, 2014

How Ads Misguided Us for Ages

I had been thinking for over a month on what shall I write on my blog. I'm sure I've not run out of topics but I just couldn't find time to spot one.

I've been gathering my thoughts on this one for quite some years and I thought I'll pen them down now.

Right from our childhood, we've been seeing zillions of advertisements. Moat of them pertain to the consumer products. Toothpaste, shampoo, soaps, detergents and what not...!!

Let's now talk about toothpaste ads. We've constantly seen them advertising their toothpastes as ones containing calcium, and by bruising with that toothpaste, your teeth become stronger because of the calcium. We hear similar stories about shampoos. They call it protein shampoo.

Basically, we don't eat either the toothpaste or the shampoo. So, how does the calcium or the protein get into our body and strengthen the teeth and hair? Everyone knows that milk contains a lot of calcium. Going by that theory, we must be brushing our teeth with milk to get the calcium into our body. But it doesn't make sense. Does it? The salt in the toothpaste still makes some sense now.

So, we've been seeing this for ages. I have a strong feeling that all these are false claims and that the regulator is totally oblivious to them. If some expert reads my blog and proves my hypothesis right, then I think these kinds of ads are some of the biggest frauds. They've totally misguided the naïve consumer.

If any of you guys happen to read this blog post, please do share your thoughts.


Thursday, May 8, 2014

The Funny Story of a Sales Review Meeting

I heard a really funny story from one of my friends who is a senior sales manager at a large private bank. The story describes the monthly sales review (which happens in almost all companies) in a very funny way. And, if you are a salesman, you'll definitely understand what this story tries to say.

It goes like this...

The sales team of a company had six hens. It was the start of a month and the sales manager called all the six hens for a meeting. The purpose was to give targets for the month and discuss the so called strategies. The target was that each hen had to lay 30 eggs by the end of the month. He also said that last month's performance was really poor and they have to achieve their targets this month. He also said that those who fail to achieve their targets would be sacked with immediate effect.

The meeting got over and the hens left the meeting room with a puzzled look on their faces. They had no clue about how to achieve their targets. And gradually, each hen went in its direction to start laying their eggs.

Before they could realise, the month ended and the manager called all the six hens for a review meeting.

The review went like this.

The manager, though not happy seeing the numbers (which was always the case), was not disappointed either. There was definitely an increase in the overall productivity of the team.

He then started reviewing individual performances. Two hens over-achieved their targets by laying 35 & 32 eggs respectively. The manager was really pleased with their performances. The third hen just achieved the target of 30 eggs. Out of the remaining three hens, two of them missed the target by a small margin. They could lay only 28 eggs each. The manager could still accept it. But he was really shocked to look at the last one's numbers. It had laid only 2 eggs. The manager got extremely angry and started shouting at that hen. He asked the hen as to why its performance was extremely poor when the other hens could deliver good numbers.

This was the hen's reply. "Sir, I tried. Gave my best. But still, I could lay only 2 eggs. I am a cock, Sir."


Tuesday, April 15, 2014

[My Experiments with the Kitchen]: Daal Kichidi

Daal kichidi is basically a Maharashtrian dish, which I first tasted in Pune. It was actually introduced to me by one of my friends when I had been to Pune to visit him. I liked it so much that I started having it atleast twice a week.

Ok. I also learnt how to prepare it. I actually learnt it from a very close friend who is an amazing cook. (By the way, she is in China now).
Now let me try to explain how I prepared Daal Kichidi.

Ingredients (To serve 2 people):
1 cup Rice (Either normal or basmati)
1 cup Toor Daal
2 Onions
2 Tomatoes
1 Tablespoon Ghee
Turmeric powder
Black pepper powder
Red chilli powder
Curry leaves

How to prepare:

First soak the rice and daal in water for about half an hour. In the mean while, cut the onions and tomatoes.
Now take a pressure cooker, add 1 tablespoon of ghee and heat it. Now add a small spoon of mustard and jeera. Once you hear the mustard crackling, add the curry leaves, onions and tomatoes. Saute them till they become golden brown in colour.

Now add a small pinch of turmeric powder, black pepper powder and red chilli powder (Quantity as per your requirement). Add little water and cook for about 3 minutes.

Now add the soaked rice and daal to it and mix properly. Add water now. Make sure that you add enough water so that the kichidi doesn't become dry and sticky. Now add salt to taste.
Mix it properly and close the pressure cooker with its lid. Cook well till you get about 7 whistles from the cooker.
Serve the hot daal kichidi with onions, curd and pickle.

Hope you enjoy the daal kichidi.
Thanks to my friend Sharanya for sharing the recipe.

Wednesday, April 9, 2014

Follow Every Colour in your Rainbow

I took up my current job in 2009 after rejecting an offer from a huge IT company. It took me about 4 years to reach the starting salary that the IT company offered.

It was indeed difficult for me to manage with the salary I used to draw. Many times, survival and sustenance itself became a huge question mark. It was a hand to mouth existence. But why did I go through all this pain and hardship? One word. "Passion". Yes. I took up this job to pursue my passion, which is Investment Analysis. In 2009, when the economy was in doldrums, it was really difficult to get a job in the finance industry. That too when you are a fresher and from a totally different industry, forget it. You'll be the first one to get rejected. But when I got this opportunity, I grabbed it with both my hands. The pay was just peanuts, but it didn't matter to me. I had the thirst to pursue my passion. And I knew it would payoff in the long run.

So, as I mentioned before, it took me four long years to even reach the starting salary which the IT company offered me. In September 2013, I got transferred to Mumbai, which is the financial capital of the country. Within four months, I got an interview call from a huge international private bank (a company which anyone would crave to work for). I had about 3-4 rounds of interviews. At the end, they didn't offer me the role I was originally interviewed for. They offered me a role which I was not interested in. But the remuneration they offered was awesome. Double my current salary. I had to reject the offer just because the job profile was not what I wanted.

I am gonna get married in about 4 months from now. This is the stage of life when I need money the most. But my heart didn't allow me to accept the offer. There is only one reason for that. Passion.

I just want to follow every colour in my rainbow and never compromise on pursuing my passion, how much ever big is the price I have to pay for it.