Sunday, January 20, 2019

Should I stop my SIP ...what you suggest

My Sip is running at loss and I am heading for redemption or stopping it from continuing any further. This is one of the most common things became thought by an investor. Notional loss and over expectation creates the miss-selling concepts in every financial product. Practically there is no wrong product but there are only wrong words behind pitching the product or explaining the same while the sales are closed. Every investor has just two ambitions and classified under two categories broadly 1) Investor who want something above the Fixed Deposit rate of interest to grow the wealth and 2) those who just invest to make short term gains. I am not going to discuss asset allocation or risk profiling or objective of investments. I am here to enlighten in-depth reason beyond these financial jargons.

Every financial advisor is in the race to beat the Fixed Deposit rate of return. Well, one must know and understand that every investment asset class and process has different destinations and not the same one. This question of should I continue my SIP rises only when an investment has been made blindly based on short term illusion of gains from the market.

Products are never wrong only the presentation and adaptability of the product creates the mis-selling. Rather I would say that wrong understanding about the product leads to the problem where an investor thinks about stopping his SIP.

SIP is one of the most efficient ways of creating long term wealth provided proper risk analysis and understanding of the risk was clear to the investor. It’s the responsibility of the investor to think and decide about these two aspects.
Post demonetization there has been a stupendous growth in the stock market and hence investments have also increased. Every investor started doing SIP and increased their SIP inflows. But many of the investors thought or rather understood that through SIP one will make a substantial gain in the short term.  The reason for doing SIP was more to make short term profits disguised under the name of doing Lumsum investments and splitting the risk.  The euphoria of the market attracts investors to do investments but one must analyze what type of returns one is looking ahead and the broader vision of investing.

During 2017-18 the industry mopped up close to Rs.67,190 crore as against Rs.43,921 crore in FY 2016-17 through SIPs, the massive growth of 53%. This 53% jump was based on short term focused return mindset. The monthly inflows in mutual funds through SIPs reached an all-time high at Rs.7,100 crore in March 2018. In April 2017, the industry received Rs.2,784 crore through SIPs.

Now when the investor did not get the return as expected from SIP in short term then bell of stopping SIP will ring in his mind. In terms of SIP accounts, the industry had 2.11 crore active SIP accounts in March 2018 compared to 1.35 crore in the corresponding period last year. This significant jump speaks that how many investors came up into investing post demonetization and why an investor today is under dilemma.  

The main thing which was ignored or did not come out does you really need the SIP and what type of returns you are looking over from the current market levels. If you as an investor have done SIP with the mind of making short term gains then it’s a wrong approach.  SIP goes through various phases of the market and then it makes wealth building tool. At the same time re-balancing of SIP, investment is an important aspect.

This type of question comes in the mind when an investment has been done with the objective of short term gains and not on the proper analysis of the requirement of investments. SIP cannot meet all type of investment objective. Yes, the truth is loud and clear. In many places, llump suminvestments over the period of time frame can fetch a good return based on the investment objective. SIP has replaced the Lumsum objective and hence expectation of short term gains from SIP has increased. From 2016 November to February 2018 an investor should have made significant returns on the lump sum investments. Provide the same investments have been redeemed and the profits have been booked. In the same time, an SIP has different investment pattern.

 Before you start any SIP you should ask your self
·        Do I need to start this new SIP?
·        Does this SIP meet my objective of return in the long term?
·        Do am I investing based on short term Euphoria?
·        Can I continue this SIP commitment and for how long?
·        Did I do rebalancing of my previous SIP investments?]

There is saying look before you leap. Look before you commit any investment.   Now coming to the conclsuion ,if the SIP commitment seems to be trouble then stop it and take a short term pause. If you are okay with the SIP commitment then continue it with  objective. 

Wednesday, January 2, 2019

Indian Economy Growth Outlook in CY-2019 Series 1

The Indian economy is standing at mixed doors despite GDP growth above 7.2%. These articles are for depicting the picture of the various probabilities of upcoming Indian GDP growth driven on various angles.  These articles will try to bring forth the various angles of the growth outlook of the Indian economy in CY-2019. Keeping the same in mind we have divided the article into parts so that confusion is not created and batter picture of understanding of Indian economic growth outlook could be drawn.

The economic consumption of the Indian economy has been only being carried out by the government in CY2018 and also in the last 3 years. The private sector investments have been lackluster. Much of the blame can be passed to the NPA resolution process and also to the global economy. But govt investments will slow down significantly in the coming days as the election comes into the picture and even after a new government is being formed. The reason being that the government kitty of funding will dry down at a later stage. The private sector needs to brace up for growth strategies based on long-term economic factors. The growth of the Indian GDP of 7.6% in H1FY19 on the back of consumption (both private as well as government) and investments (mainly from the government).

It’s being expected that in FY-20 there will be hiccups of private investments but corporate India has improved its balance sheets. The recent NBFC and Banks problem reacted to liquidity and reluctance of banks for credit growth will create the short term jitters.  On the other hand, corporate Indian has reduced its debt levels and equity to debt ratio has improved. The balance sheet of Indian corporates has also shown a marked improvement with debt to equity reaching its lowest level in the last six years. Secondly, the cash flow position of private companies also improved as cash flow generation has been above average in the last three years. This is the key area of improvement which will give Indian economy the fuel of Growth in the coming years.

Recapitalization of the banking industry is only to feed the NPA and write off assets and managing the books. The capital is not being deployed for economic growth factors.   This is the problem which Indian economy will face in Fy-20 going ahead. Liquidity crisis will keep chasing unless the Indian private industry turns out to be a fair player. But any boom and bust of NBFC segment will spook liquidity crisis and panic within the community which will place brakes on the consumption and demand in CY-2019.

Gross fixed capital formation (GFCF) is showing signs of improvement moving above the trend line for the first time in the last five years. GFCF’s pace of growth accelerated further at 11.3% YoY in H1FY19 taking the investment rate to 32% from 31.4% in FY18.

According to the RBI, a survey indicates that overall industrial utilization has moved upwards to 76.2% in Q2FY19, thus reaching above the long-term average of 75% after 21 quarters. Existing capacity utilization growth of industries has grown but it does not testify that additional capacity is getting at a slower pace.

 Further, a collation government would spook more problems for the govt capex and hence private have to come up in the front stage for growth. Cash reserve companies would be the king in these circumstances and hence more focus should be on them.

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