Revisiting Nifty 50 v/s S&P 500 in backdrop of USD movement

Great to observe that Strategy to generate “Superior Dollar Returns – Alpha over S&P” has worked exactly as it was chalked out to be without hiccups. 25% overall returns in 8 months ….

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We are updating the statistics w.r.t previously stated strategy : https://wealthfirst.co.in/2018/11/20/alpha-over-sp-500-u-s/

 

 

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.

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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.

Should General Elections make you jittery as an investor?

Is it prudent to invest in Equity Markets during an election year?

This doubt is lingering in the minds of many an investor. It stems from the fact that markets largely turn volatile during such events and investors become jittery even when their investment horizon is long term.

It would be good to see some interesting aspects of market behavior using Nifty 50 index as proxy during previous elections which are illustrated below:

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Whenever a stable Government was formed by any party, markets gave handsome returns during the immediate one-year period post elections.

While market swings in the short term depend on the outcome of elections, markets in the long term take a cue from the macros like rate of growth, GDP, inflation etc. While there could be knee jerk reaction to poll results, markets generally recover quickly once they get the comfort of stability plank of the party in contention to form the Government.

One can observe that in last four general elections, investors benefited by investing in election year.

Even in the long term, markets (Nifty 50 index) delivered handsome returns from one election term to another.

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During the entire 5 years tenure, equity markets gave a compounded aggregate growth of 10.5% to over 16% beating most of the other asset classes.

 

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.

Financial Protection- Insurance as a Tool

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While we plan assiduously for wealth creation, seldom do we think of financial protection to the family in case of untimely death of the breadwinner. Somehow, we take it for granted that nothing untoward would happen to us and we are there forever for the family. While we pray nothing of this sort should happen, it is our responsibility to ensure adequate financial protection for the family in case we are not around.

Hence it is paramount that adequate insurance at the earliest is in place to avoid financial turbulence. There are multiple methods to find out how much insurance coverage is needed to cover oneself fully. We present below the need-based approach analysis.

Need-Based approach Analysis: This method would help us to arrive at a near accurate way of arriving at insurance requirements. The factors to be considered are:

  • Net Disposable Income
  • Inflation
  • Assets/Liabilities
  • Existing insurance cover
  • Financial goals.

Based on the above five factors we arrive upon actual cover requirement. It is always advisable to calculate insurance coverage requirements every 5 to 6 years.

We append below a case description for replacement of income in case of untimely death of the insured:

Case Description:

Mr. A’s current age is 30 and he would like to retire at the age of 60. His current income is 10 lacs and self-expenses percentage is 10%. He owns several assets, Fixed deposit of Rs.15 lacs, Self occupied house Rs. 25 lacs, Gold/Silver/Jewelry Rs. 10 lacs, PPF Rs. 8.5 lacs, Equity/MFs Rs. 5 lacs. His liabilities include a home loan of Rs. 13 lacs, Personal loan Rs. 4.5 lacs and Vehicle loan Rs. 2.5 lacs. He has to create a corpus for his daughter’s Higher Education and Marriage.

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Net Coverage Required is arrived at considering Present Value of future cash flows after adjusting for life style inflation. 

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It is evident from the above case that an additional coverage of Rs.2.33 crores is required to cover the financial goals and for the family to continue the present life style even in the absence of the insured.

InvITs – A high yielding Asset Class for long-term investors

Infrastructure Investment Trust (InvIT) is a collective investment vehicle that pools together funds from long-term investors to acquire income generating infrastructure assets from developers. It can be looked at as a portfolio of underlying operating Infrastructure Assets with a regular and stable stream of income and cash flows. These cash flows are passed on to the holding trust (InvIT) to be paid out to unit holders in the same manner as it accrued to the Trust.

IRB InvIT is one such Infrastructure Investment Trust set up by IRB Infrastructure Developers Limited. IRB InvIT owns a portfolio of 7 income generating Toll Road Assets in the states of Maharashtra, Gujarat, Tamil Nadu, Karnataka, Punjab and Rajasthan.

Being at a 28% discount to its reduced issue price of Rs. 97.50, IRB InvIT is an attractive proposition for long-term investors who look for periodical returns by way of interest/dividend.  

Basic Features:

  1. Listed on BSE and NSE with a Face Value of Rs.102 in May 2017, yielding 10.5% IRR.
  2. Initially acquired 6 projects with concession period extending up to Sept 2037.
  3. Expectation of 9.5-10% growth (5.5% traffic growth and 4-4.5% price growth).
  4. Each Project SPV distributes at least 90% of its net cash flows to the InvIT.
  5. Within the regulatory framework, InvITs are classified as equity. They are traded in the equity cash segment on the stock exchanges.
  6. Though classified as an equity, InvITs are more of a yield product and should be compared with debt or fixed income products.

Events after Listing:

  1. Currently the investment trust holds 7 toll road concessions costing around Rs.7500 Cr, with another addition proposed in FY 20 costing Rs.1500 Cr. with concession period extending up till 2041
  2. The first six highway projects were funded by equity while the seventh was funded entirely with debt sourced at 8.15%.
  3. Presently the InvIT is priced around Rs.70 declining over 28% since listing. (Reduced Issue Price 97.50)
  4. Liquidity constraint is one of the major contributors for decline in price.
  5. Top 2 projects contributing around 60% of total revenue have concession periods until Jan 2022, cash flow projections beyond that is uncertain.
  6. The toll revenue for Q1 FY19 of Jaipur Deoli and Pathankot Amritsar Project is affected due to lower mining traffic which may continue for Q2 as well.
  7. Conservative estimate for growth poised around 8-8.5%.
  8. New issuance of InvIT by L&T at a higher yield (priced @12% IRR. Canada Pension Plan Investment Board (CPPIB) has subscribed to 30% of the units).
  9. Distribution guidance for FY19 is 12.3%.

Outlook:

  1. The product is virtually perpetual in nature, with concession period extending up till 2041 (considering new addition in FY 20).
  2. Highly suitable for “Patient Capital”. Overseas investors still in the game, whereas short term investors have already stepped out, or are assumed to exit soon.
  3. Considering current price, the product appears suitable for very long-term investors.
  4. Current yield expectation of 13-15%, subject to traffic growth expectation over time appears to be rewarding.

 

What is in it for long-term Investors: 

For the last six quarters, InvIT has distributed income by way of interest. Going forward if growth assumptions are met, investors can expect dividend payment along with interest income. There is a possibility of capital appreciation if interest rates decline. Presently InvITs are available at a discount of 28% (Minimum lot in secondary market is 5000 units).

 

Distribution until now: (per Unit)

For FY 2018:

1st Distribution:             Rs. 1.55   (Rs. 1.05 as interest and Rs. 0.50 as Capital Reduction)

2nd Distribution:            Rs. 3.00   (Rs. 2.20 as interest and Rs. 0.80 as Capital Reduction)

3rd Distribution:            Rs. 3.00   (Rs. 2.20 as interest and Rs. 0.80 as Capital Reduction)

4th Distribution:            Rs. 3.00   (Rs. 2.20 as interest and Rs. 0.80 as Capital Reduction)

 

For FY 2019:

1st Distribution:             Rs. 3.05  (Rs. 2.25 as interest and Rs. 0.80 as Capital Reduction)

2nd Distribution:            Rs. 3.00 (Rs. 2.20 as interest and Rs. 0.80 as Capital Reduction)

 

Taxation

Interest Income:

Residents –  As per tax slab (withholding tax of 10%)

NRIs – As per tax slab (withholding Tax at 5% for NRIs – benefits under DTAA, shall be available)

Dividend:  

Tax Free in the hands of investor.

Capital Gains on sale of units:

Short Term Capital Gains: 15%

Long Term Capital Gains: Nil (If held for more than 3 years)

Capital Reduction:

To be shown as the adjustment to the investments value.

Superior Dollar Returns/Alpha over S&P 500 (U.S)

NIFTY (Popular Indian equity index) has delivered huge alpha (dollar terms) over S&P 500 (U.S) every time rupee depreciated beyond certain level.

In last 10 years, there were three occasions wherein rupee depreciated against dollar beyond 15% in a span of less than a year due to various reasons.

It is interesting to note that, NIFTY long trade initiated at the point (INR depreciated in excess of 15% against USD) has delivered up to 230% alpha over S&P 500 (U.s) in next one year.

Blog 1

In the last few months (Since February 2018), INR has depreciated against USD in excess of 15%.

Based solely on past observations, an Investor can look at Indian markets for alpha over US Indices during these periods.

Blog 2

 

Gold at Discount !!!!

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Indians treat Gold not just as an asset class but a symbol of prosperity. For ages it has been the traditional form of investment in India.

What if such a commodity can be bought at 10% discount? Current prices of Sovereign Gold Bonds (SGB) offer such an opportunity and these are listed on NSE. Unlike other forms of holding gold, SGBs offer an interest at 2.5% per annum.

(SGB maturing in Nov 24 (SGBNOV24) is available at 2756 per one gram against market price of 3080 as of prices quoted on 26th Sep

SGB route is a great form of exposure to gold compared with having Physical Gold or investment in Gold funds.

Gold is considered a natural hedge against inflation and a better bet in times of market volatility. One should allocate at least 5% to 10% of their investments in gold to bring down the volatility of their overall portfolio.

Advantages of Sovereign Gold Bonds over Physical Gold/Gold ETFs

  • SGBs offer 2.5% annual interest while physical gold is an idle asset and ETFs do not offer any interest.
  • SGBs can be held in De-materialized form or as a Certificate of Holding, hence no risk of theft and no wear and tear.
  • They can be redeemed at 999 purity while purity of gold ornaments/bars/coins is always suspect
  • Cost of holding is very cheap compared to physical gold which requires paying locker rents for safe keeping
  • Ornaments/Coins/Bars come with a making charge hence cost is much higher than actual value of gold, whereas SGBs come at market value.
  • SGBs are exempt from capital gains if held till maturity, whereas physical gold and ETFs attract long term capital gains.

 

SGB Scheme Features

Features
Sr no. Item Details
1 Issuer RBI
2 Eligibility Resident Indians – Individuals, HUF’s, Trusts, Universities & Charitable Institutions.
3 Tenor 8 Years (Exit option from 5th year)
4 Minimum Investment 1 Gram of Gold
5 Maximum Investment Individuals & HUF – 4 Kg & Trusts – 20 Kg per fiscal year
6 Interest Rate Fixed rate of 2.50% per annum, payable semi-annually on the amount of initial investment.

SGBs at a Discount

Presently, Sovereign Gold Bonds are trading at a discount to physical gold. This is purely because of liquidity. But if one is planning to hold the bonds till maturity one can expect to get a discount of around 10% to 12% on various maturities. This gives a great opportunity for investors who are planning investment in gold assets. They can reap the twin benefits of earning interest on their investments and tax exemption on capital gains. Many of us have the tendency of buying gold for a future event like child’s marriage. The jewelry so purchased may not be in vogue when the children grow up. Exchange of gold for newer designs incurs cost and loss of value. Investing in SGBs makes sense as full market value can be realized at the time of redemption.  

Likely Winners!!!!!!!

Winners

Steering your investments through equity markets at current market scenario in the backdrop of spiked volatility, stretched valuations and pre-election uncertainty, exposes your portfolio to higher risks. Trying to time the market at this juncture might set up more adverse bets. Since September 2017, we have experienced market peak towards January end and subsequent corrections of over 10% by March end. Encasing this market movement, we filtered scrips from Nifty 100 & BSE 200 Indices which outperformed market in both the scenarios. The filtered scrips were further validated across last 2 years performance vis-à-vis Indices. To encase the pre-election uncertainty, we filtered sectors which outperformed the Indices in past pre-election period i.e. 1 year prior to the outcomes of elections. We have identified 6 scrips in the Nifty 100 Index and 11 scrips in the BSE 200 Index which might outperform the Indices for the period of 1 year from now. The following table highlights the Scrips.

Table

To view the detailed report kindly click the below link:

Reports@wealthfirstfinserv

Disclaimer: The information, analysis and opinion contained herein pertain only to stock price action for the specified period. The information, analysis and opinion contained, (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.