Latest news with #LKWIndia.
New Indian Express
2 days ago
- Business
- New Indian Express
Risks, Rewards and Large & Mid-Cap Funds
I once met a later investment life-cycle stage couple who wanted to invest one-third of their portfolio in equity mutual funds. They informed me that thus far they had always invested directly in shares and inspite of following every 'Rule' of Investing they had read of in 'best-selling' investment books, had ended up losing more often than gaining. They told me that they bought only blue-chip stocks. On studying their portfolio, I found that for them blue-chip meant familiar 'brand-names'. Now some of these worthies fell in the small-cap category as defined by SEBI. I felt that ideally, someone in the investment life-cycle stage of wealth consolidation they were would have been better served by building their equity portfolio component around the category of Large and Mid-Cap Funds. These funds were introduced as a separate category of Equity Funds by SEBI in October 2017. As opposed to a pure large cap fund or a mid cap fund, these funds have the leeway to diversify their investments across a single fund. A Large and Mid Cap Fund, by definition is a type of equity fund that invests at least 35%of its AUM in large cap stocks and another 35%in mid cap stocks with leeway to invest more thereafter in either category as well as in debt and money market instruments. As it is a pure equity fund, one must have a long term investment horizon while investing in this category, since like all pure equity funds, its risk multiplies if targeted for short term investments. Like other Equity funds, this category too is taxed at the rate of 12.5% for Long Term Capital Gains (LTCG) made on the sale of units priced at over R1.25 lakh, and 20% for Short Term Capital Gains (STCG) if the units are sold within the time period of 1 year from the date of allotment These funds which effectively invest in the top 250 listed companies in terms of market capitalisation have the combined features of Large Cap and Mid Cap Funds which offer relatively better stability, balance of risk and potential for reasonable returns in the long term. With a comparatively more limited universe of stocks to select from as compared to Flexi-cap or Multi-Cap funds that have the mandate to invest across market capitalisations, the onus remains on beating the benchmark index. That quite a few of them have managed to do so over multiple time frames suggests that there could be a case for Active over Passive funds in the Indian market, for longer than originally anticipated. In the meanwhile, the couple I mentioned at the start of this column woke up to the categorisation of funds by SEBI and how it can be used to determine their risk-reward ratio. Their investment journey would hopefully have been be a lot smoother and more profitable too, thereon. (Ashok Kumar heads LKW India. The views expressed here are his own)
New Indian Express
26-05-2025
- Business
- New Indian Express
Indices, Milestones and the Art of Staying invested
Numbers and milestones clearly matter to participants at the stock-market. This becomes self-evident whenever the BSE Sensex touches a new milestone number. Some months ago, it was 70,000 points and now, it is 80,000 points. Such milestones which are 'celebrated' by the financial media, especially our 'over the top' electronic media also invariably sparks a debate on whether a huge correction or even a crash is round the corner. If I look back at the journey of the BSE Sensex since the late 1980's, it stood at 510 points in January 1987 and then soared to a new high of 4285 points by January 1992 before dropping to 1991 points within a year in January 1993. The BSE Sensex then soared once again to 5887 points at the turn of the century in January 2000 before literally halving to 2924 points in January 2003. From a point where all seemed lost, we witnessed a huge secular bull run over the next five years that took the index to 20,873 points in January 2008. The index once again slipped sharply to 8674 points within a year in January 2009 before making a fresh outbreak in late 2013 to end up at another new high of 28,233 points in January 2016. At the turn of the decade, earlier this year in January 2020, the BSE Sensex was once again riding a new high at 42,273 points before the Covid pandemic brought it down to its knees at 25,638 points in March 2020. In just 18 months thereafter, the same index recently touched the 60,000 points mark, reflecting a breathtaking 30,000 plus points uptick in the short span of 18 months. The onward march to 70,000 points was followed by a dizzying uptick to around 85,000 points followed by FII selling and a bizarre tariff war that brought it down to 70,000 points before a sharp rebound again took it past the 80,000 points mark. Clearly, there is enough anecdotal evidence to suggest that there is immense merit in staying invested over really long-time frames. However, a lot depends on the life-cycle stage of the investor and their near-term goals and objectives. While staying put may be the optimal strategy for those with a longer-term horizon for their investment goals and objectives, the same may not be true for someone with nearer term investment goals and objectives. Similarly, one must also have the discipline to shut out loud external 'noises', in this case those who are perpetual doomsday predictors as well as those with irrational exuberance talking of Sensex levels of 200,000 points at a time when we are still to get past the 100,000 points mark. So, for all the opinions one hears and reads (including those of yours truly), one must remember, there is no single 'correct' strategy, at all given points in time. That is why investing is an art and not a science. (Ashok Kumar heads LKW India. The views expressed here are his own)
New Indian Express
12-05-2025
- Business
- New Indian Express
Should you invest in Small Cap Funds
Small Cap Equity Funds have been in the eye of a storm ever since a prominent fund manager expressed his opinion on this category at the prevalent valuations. Several others were of a contrary opinion and the electronic media had a field day flogging this debate longer than needed. So, what exactly are these Small Cap Equity Funds? They are those funds that must mandatorily invest at least 65% of their assets in equity stocks of Small-Cap companies, as per SEBI's categorisation of funds. Small-Cap companies are defined to include all companies whose market cap is lower than that of the 250 largest companies (in terms of market capitalisation) listed in the Indian stock market. A popular theory among many wealth managers is that it is better to avoid Small Cap Equity Funds, or at best, allocate a relatively smaller portion of the portfolio to them to steer clear of a bad hit in the event of a vertical fall in the market which in turn could adversely impact the overall performance of one's portfolio. While there might be merit in the above belief, one must always remember that Investing is an Art and not a Science and hence cannot be bound by rules and formulae. Simply put, the above rule of avoiding or not investing in small-cap equity funds cannot be applied in the same measure to two individuals at opposite ends of the Investment Life-Cycle stage or to a person with a drive to maximize their investment returns coupled with a high-risk appetite. At the early Investment Life-Cycle stage, for example, and with all other factors being equal, the risk appetite of an investor is likely to be higher than that of another individual closing in on retirement towards the end of their Investment Life Cycle. Like with all other investment vehicles where the underlying asset class is Equity, one must give small-cap equity funds the luxury of time to perform. While there may be times when it provides handsome short-term gains too, serious investors intent on wealth creation have more often than not, thrived by staying invested for longer time frames that include at least one economic cycle. This is even more so because, unlike the large and mid-cap companies, small-cap companies are lesser known and less researched, with relatively lesser-known management too. As far as its taxation is concerned, based on the underlying asset, it qualifies for Equity taxation. It is taxed at the rate of 12.5% for Long Term Capital Gains (LTCG) made on the sale of units priced at over Rs.1.25 lakh, and 20% for Short Term Capital Gains (STCG) if the units are sold within the time frame of 1 year from the date of allotment of units. And thus, while Small-Cap equity funds may not merit an across-the-board blanket ban for investors, those including it in their portfolios must do so after calibrating its risks. (Ashok Kumar heads LKW India. The views expressed here are his own)
New Indian Express
28-04-2025
- Business
- New Indian Express
Caveat Emptor – Financial Educator or Predator ?
In most of my B-School classes, my students would be asked to maintain a simulated real-time portfolio. One of the key lessons they self-learnt in the process by the end of the year is that wealth creation is a process and not akin to striking the lottery jackpot overnight, the possibility of which too is one in a million to put it figuratively. I have read several news stories in the pink papers of market operators in the guise of market educationists duping their 'student subscribers' via a chat room where they are ostensibly educated on the technique of getting 1000%returns. I honestly do not feel too sympathetic about these gullible subscribers. If they were greedy and naïve enough at the same time to believe that such returns are possible or that there is some technique to do it repeatedly, good old Warren Buffet, the revered Oracle of Omaha might have been unheard of. Friends, professional acquaintances and even patrons at times forward opinions of self-appointed market experts on mobile phone groups and at times even 'research' reports from 'reputed' brokerage houses suggesting the possibility of raking in abnormal returns. This, to my mind, is the most basic of mistakes investors make, led on by those preying on their naivety and greed. A directive in the past by the regulator was to ask certain entities registered with it to affix its logo, address and even a line on investments being subject to market risk in all its market communications. Well, I may have been cynical but I felt even then that unless the intent was something else altogether the majority of the predators mentioned above would be unregistered fly-by-night operators who shed old and assume new identities rapidly. Hence, further regulating the already regulated and also largely compliant, while these operators continue to remain unregulated and unfettered simply because they prey on the greed of investors, is akin to missing the woods for the trees. Without getting into the relative impossibility of monitoring the proliferation of blatantly loaded messages by such fly-by-night operators, it would suffice to say that this is a menace that shows no sign of abating. While the Securities Exchange Board of India (SEBI) maintains surveillance to flush out and punish such 'educators', it remains a cumbersome task. As is inevitable on the world wide web, such predators invariably seem a step ahead. On our part, we repeatedly remind anyone who bothers to ask, that if only the art of investing was so easy that one could act on such pearls of wisdom (of which there is no dearth, courtesy of the hyperactive social media) and profit, then everyone ought to be doubling their wealth monthly. Alas, that must remain a pipe dream. Hence, all we can do is once again remind investors of the Latin phrase, Caveat Emptor- Let the Buyer Beware. (Ashok Kumar heads LKW India. The views expressed here are his own)
