Who are we?

Wealth First is an Independent Investment Advisory Firm directed by senior level partners. The Group’s philosophy is to provide personal senior level service to enable clients visualize and achieve their long term goals

Wealth First Group has gained broad experience, considerable industry knowledge and expertise working with leading financial intermediaries, large conglomerates and Investment banks.

The Senior Team’s capital markets experience aggregates 250+ years

Client Trust is the most important facet of our Business. As such, staying Independent and Client focused have been our primary objectives. More than 90% of our HNI clients are provided Investment advice on their entire Portfolio.

Term Insurance for Seniors – as Wealth transfer tool

Term (Life) Insurance as we know is a pure risk cover and is generally expensive for seniors. This is passé if we look at new Bajaj Special Protection Goal policy.

They introduced a new policy wherein seniors (up to 65 years) can get themselves insured till 99 years of age !

Premiums are also quite attractive in terms of cost benefit analysis. This policy proves to be good risk cover till senior age and works as wealth transfer eventually.

Please find illustration of premium paid and returns calculated in case of eventuality at various stages of life during the life of the policy.

Following table is illustration for policy of Rs. One Crore with a coverage up to 85 years, Premium payment for 10 years with different age groups and the returns there on

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Kindly feel free to contact us for any query or information on the same.

Need for Diversification – Overseas Investments.

Rationale for international exposure through funds:

  • Diversification: Different geographies have different risks. Also, the correlation in equity market movements are not perfect.

Intl 1

  • Hedge against the dollar: International exposure helps as a buffer to the long term trend of INR Depreciation.

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  • Resilience displayed by Developed markets: Performance comparison – panic fall from peak in 2020 due to Covid19 and recovery from bottom till date after various stability measures are announced.

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  • Capital outflow risk in emerging markets: In the recent equity market sell off, there has been an outflow of more than $90 Billion from emerging markets. Similar outflows were observed during panic situations in 2000, 2008, 2013, etc. These create pressure on asset classes, currencies and also, sovereign ratings of the emerging market economies.
  • Investment limit of $2,50,000 p.a. under LRS (Liberalized Remittance Scheme, governed by RBI) does not apply to domestically available international funds.
  • Low transaction costs and ease of execution to create international assets

Observations:

As a risk mitigation, some % of equity allocation (10% -15%) to international exposure especially developed markets is desirable. This is a long term investment proposition to be built through SIPs. Some of the schemes available are as follows:

PGIM India Global Equity Opportunities Fund

  • Fund of fund – fully invests into PGIM Jennison Global Equity Opps $ I Acc (since 17th October 2018) – active fund which is country and sector agnostic. No cash calls.
  • Number of stocks: 35 – 45, Average position size: 1.5% to 4%
  • Smallest company allowed in portfolio: Market cap $1 billion
  • Exit Load: 1% up to 365 days. AUM – Rs 69 Cr

US Index Funds: 

The US has 25% share in world GDP, 54% share in global listed market cap and a long track record. Many US companies are global leaders and the businesses have 40% revenue (approx.) from oversees.

Motilal Oswal S&P 500 index Fund:

  • Invests in top 500 US listed companies (80% of total market cap). (Exit Load: 1% up to 3 months)

Motilal Oswal Nasdaq 100 Fund:

  • Includes top 100 non-financial companies.
  • AUM – Rs 298 crore, Exit Load – NIL
  • Please note: while S&P 500 is a diversified index, this is focused on technology oriented companies (46% of index). Also, there is stock concentration – Top 2 stocks make about 22% of index.

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Indian Pharma – huge relief for investors

Material impact of the COVID – 19 pandemic and National lock-down has been catastrophic for Financial Markets. Sector wise / Industry Business impact though apparent can be better gauged once the lock down clears. Meanwhile we contrasted various sectors current valuations with past data. While many sectors have corrected sharply, with better suited macros and torn down competition from China for intermediates and APIs, Pharma sector valuations stand affirmative for Investment opportunity:

Pharma 1

Strengths v/s Weakness

Strengths:

  1. Some windfall gains expected due to export of Covid 19 related medicine and currency depreciation (ease in international regulatory issues, at least temporarily).
  2. No meaningful earnings impact due to Covid 19 disruption.
  3. Given the pandemic, Government policy focus and allocations are expected for the sector – structural long-term boost to the sector.

Weakness:

  1. Reduced labor availability due to lock down.
  2. Raw material scarcity if Covid 19 resurfaces and leads to supply disruption.

Pharma (~ 13%) has substantially outperformed Nifty 50, (~ – 25.8%) since Jan 2020 and should continue to grow at a handsome rate given valuations & positive outlook for the sector.

Observations:

Most Fund Managers have reduced ‘underweight stance’ on the sector and are now equal or overweight. In a portfolio of diversified equity Mutual Funds, expect around 4% to 6% of pharma weight currently. Given the weak economic outlook and comfort for this sector (both valuation and business wise), one may look at an additional 5% (of equity allocation) exposure to pharma funds for the near term.

Funds to look at:

  1. Nippon India Pharma Fund – FM Shailesh Raj Bhan has been managing this fund for over 10 years and has delivered more consistent performance amongst peers. Current portfolio focus is on domestic oriented companies.
  2. DSP Healthcare Fund – FM Aditya Khemka – 13 years of experience of working in Pharma companies and also, as a pharma analyst add to comfort. This fund is aggressively positioned with higher exposure to mid / small pharma companies and some international companies as well.

Market Crash – Historic Perspective

Volatility in stock markets though worrying, is not new.

Over last 20 years, we have seen several drawdowns (fall from the peak) of similar nature of what we saw over last few days.  We thought of providing data from a historical perspective.

Historical data-points are supportive for long-term Investors.

Markets have given strong returns post sharp falls.

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Valuation Support (Historical measures)

Price to Earnings ratio and Price to Book ratio suggest valuations are cheap. This is a pure valuation-based measure and looks at historical valuation trends to create BUY/ SELL triggers.

The markets are currently very close to BUY Zone (8 – 10% away).

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Outlook

Markets are discounting negatives (i.e. Global recession, rapid spread of Corona). But once markets calm down, macros come into play. Investors may start looking at the following:

  • Advantage of the lower Oil prices for India (Lower current deficit, low inflation).
  • Benefit of lower trade deficit with China and some business getting diverted to India in the long-term.
  • Easy domestic liquidity and lower interest rates, locally and globally.
  • Risk-off sentiment will stabilize soon. When that happens, India is likely to emerge as an attractive long-term destination.

We would like to caution that increased volatility is expected for at least another month and we do not expect a sharp near-term bounce-back.

Is Investment in Commercial Property a Viable Option ?

Owning commercial space is assuming importance even among retail investors.  Investors look at acquiring commercial property by availing bank loans and letting out the property on long lease. One makes such investments with any eye on rental income taking care of EMIs and capital appreciation of the property leaving you with a handsome return on investment made.

However, one needs to validate if this strategy of acquiring commercial property by availing a loan, makes a viable Investment option.

Let us consider an example in the backdrop of the following:

An Investor bought ready-to-let Commercial property partly funded by bank loan.

EMI of the loan is adjusted against the monthly rent.

Let us quantify the strategy with some numbers:

Property Value

5.0 crores
Loan Amount 3.5 crores
Margin Money 1.5 Crores
Rate of Interest 10%
Assumed Rental Yield 6%
Annual Rental Income 30 lakhs
Average Annual Increase 5%
Capital Appreciation (annual) 3%
Loan Tenure 10 years

With the above assumptions, Return on Investment on Commercial Property is shown in the grid below:

Dates Yrs. Rental Income EMI Net Cash Flow
Apr-19 Initial Investment (1,50,00,000)
Mar-20 1 30,00,000 30,00,000
Mar-21 2 31,50,000 31,50,000
Mar-22 3 33,07,500 33,07,500
Mar-23 4 34,72,875 34,72,875
Mar-24 5 36,46,519 36,46,519
Mar-25 6 38,28,845 38,28,845
Mar-26 7 40,20,287 40,20,287
Mar-27 8 42,21,301 42,21,301
Mar-28 9 44,32,366 44,32,366
Mar-29 10 46,53,985 46,53,985
Mar-30 11 Sale Consideration 6,71,95,819
Mar-30 11 Bullet Payment (3,60,19,366)
XIRR: 6.87%

Observations:

  1. Return on investment works out to 6.87% per annum.
  2. Risk-return is not very attractive if one considers expenses like property taxes, periodical maintenance of the property etc.,
  3. Non occupancy of the property for prolonged periods may further lower the returns.
  4. On the flip side, capital appreciation of the property beyond historic average may leave one with some handsome gains.

While such opportunities seem lucrative, one need to weigh the options with abundant caution

Gold as an Asset Class (Revisited)

Gold is a favorite asset class among investors. But its subdued performance during the last seven years was a dampener on investor enthusiasm. It returned a meagre 2.9% annually during 2011-2018.

 In our blog Gold at Discount, we talked about the advantages of Sovereign Gold Bonds over Physical gold. That was in September 2018 and SGBs were quoting at a discount of 10% that time. The discount started shrinking once gold started its upward rally in April 2019.

From Rs. 3100 in April, Gold touched a high of Rs.3984 during September 2019, rewarding investors with a 25% return.  Yellow metal has seen this spike on account of:

  1. US-China Trade War
  2. It’s safe haven status
  3. Rupee weakening against USD

 

On a year on year basis, physical gold rallied by over 24% (Gold MCX data).

(Period in consideration: 1st Oct 2018 to 30th Sept 2019)

During the same period, instruments proxy to physical gold yielded the following:

Product Return
SGB Nov 24 Maturity (Highest Traded Bond) 36.2%
Gold ETFs (Average of 12 ETFs) 25.9%
Gold Index Funds (Average of 11 Funds) 21.9%

Way Forward

Even today, exposure to Gold assets via SGBs (bonds nearing 5 years of redemption lock in) can be considered on account of the following:

  1. Definite Alpha over ETFs to the extent 3% (2.5% annual interest + 0.5% brokerage savings).
  2. Bonds can be redeemed after five years from issuance date on the dates when interest is payable.
  3. Capital gains on redemption is fully exempt from tax.

If the horizon is for a short term, investors should look at ETFs as SGBs are thinly traded and pricing may  be a disadvantage.

 

For interested investors wanting an insight into “Do equity markets tip off correct entry and exit point in Gold” kindly write back to us at mailto:wealthfirstfinservllp@gmail.com

 

Common Myths!! Owning a House or Staying on Rent

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Common Myths!!!!!!

Myth 1: Buying house on loan leads to tax saving:

People do not consider tax benefits under HRA when comparing savings on deductions u/s Section 24 on home loan interest. Higher Salaried person does not get any additional benefit under Section 80C

Myth 2: House is an Asset!! 

Asset is one which puts money into one’s pocket. Whereas a house with loan always drains cash from pocket.

Myth 3: Own House gives Stability:

 In this dynamic global scenario, opportunities emerge instantly across geographies.

Own house is more of a liability in case one needs to shift one’s place/job. Rental properties are generally available as per choice of location/budget.

For more detail please click on the below link :

https://wealthfirst.co.in/2019/02/04/should-you-buy-a-house-or-stay-on-rent/

 

Should you buy a house or stay on rent?

 

 

renting-or-buying

What makes a better sense? To own a house or stay on rent?

While owning a house is an emotional aspect to most Indians, we looked at this issue purely from a financial angle.

Case Study:

Let us take a case study to understand the pros and cons of owning a property vs staying on rent.

Following assumptions were made in arriving at the conclusions:

  • A is aged 35.
  • Income: Rs.1,85,000 per month
  • Expenses: Rs.85,000/- per month
  • Current Savings: Rs.35,00,000
  • Annual growth in Income: 8%
  • Annual Inflation: 6%.
  • Cost of House: Rs. 1 Crore.
  • Housing loan: Rs. 75 Lacs at 9% for 25 Years.
  • Rental Expense: Rs.25,000/- per month
  • Annual increase in Rent: 3%
  • Annual Appreciation of Property: 5%
  • Property tax and Repairs: 0.50% of property value

Observations:

If Mr. A opts to buy a house (Utilizing current savings of 35 Lacs).

  • Capital appreciation of House after 10 Years (assuming a growth of 5% per annum) amounts to Rs. 1.62 Cr.
  • Home loan outstanding at 10th year is 62 Lacs. So, the property value after ten years is Rs. 1 crore, which is back at present value!
  • With investments made from savings after considering the EMI outgo, Mr. A would accumulate around Rs. 37 Lacs over 10 Years.
  • Net worth of Mr. A after 10 years (including House value) would be around Rs. 1.37 Crores.

If Mr. A opts to rent a house.

  • A can make Investments out of his current surplus and monthly savings. His net surplus is Rs. 41 Lacs at the end of first year after considering for rental outgo.
  • Assuming investments to appreciate by 10% annually, Mr. A’s net worth after 10 years under this option would be around Rs. 2.01 Crore

Renting Option is beneficial – Net worth higher by around 50% – 2.01 Crs., vs 1.37 Crs when you own a home

Mr. A can avail tax deductions u/s 24 on home loan interest. This additional benefit of Rs.1.02 Lacs for a 10-year period is not very material compared to Rs.64 lacs in savings if he opts to stay on rent.

Note: If you require the detailed workings on the above , please email us @wealthfirstfinservllp@gmail.com

Disclaimer: The information, analysis and opinion contained herein pertain only to Market price action for the specified period. The same, (1) do not constitute investment advice offered by the issuer, (2) is solely provided for informational purpose and therefore is not an offer to buy or sell securities, (3) is not warranted to be correct, complete or accurate, (4) may not be copied or redistributed, (5) This report is an intentional literature, intended for information purposes only. The issuer shall not be responsible for any trading decisions, damages or other losses resulting from, or related to this information, data analysis and opinion or their use in any way.

Tax Savings – ELSS vs PPF

Individuals and HUFs can claim deduction up to Rs. 1,50,000 from their gross total income for certain investments/payments made in schemes specified under Section 80C of Income Tax Act, 1961.

Some of the popular schemes under section 80C are:

  • Public Provident Fund (PPF)
  • Employees’ Provident Fund (EPF)
  • National Savings Certificates (NSC)
  • Life Insurance Policy (LIP)
  • 5 year Bank Deposit schemes (Bank FD)
  • Post office Savings Scheme
  • Sukanya Samriddhi Yojana (SSY)
  • National Pension System (NPS)
  • Equity Linked Savings Scheme (ELSS)

Among these, PPF is a preferred tax saving scheme. From the perspective of liquidity and return on investment, we compared Equity Linked Savings Scheme with PPF as ELSS is being preferred by new generation investors.

Performance of ELSS Vs PPF:

ELSS: Equity Linked Savings Schemes (ELSS) are floated by Mutual Funds. At least 80% of the total assets are invested in equity and equity-related instruments.

Capture

ELSS 2

Across all time periods i.e. 3, 5, and 15 Years – ELSS had outperformed PPF historically.

Worst and Best Case Scenarios:

ELSS 3

Observation:

  • It can be seen from the above data that even the worst performing ELSS had given  better returns than PPF.
  • Post tax returns of ELSS still outperformed PPF returns.
  • ELSS has the lowest lock in period of 3 years as compared to PPF 15 Years.

 

Disclaimer: The information, analysis and opinion contained herein pertain only to Market price action for the specified period. The same, (1) do not constitute investment advice offered by the issuer, (2) is solely provided for informational purpose and therefore is not an offer to buy or sell securities, (3) is not warranted to be correct, complete or accurate, (4) may not be copied or redistributed, (5) This report is an intentional literature, intended for information purposes only. The issuer shall not be responsible for any trading decisions, damages or other losses resulting from, or related to this information, data analysis and opinion or their use in any way.