The economy has been through so much of ups and downs in the stock market in 2018 that it has become difficult to predict the market in 2019
Investing comes with risks which makes everyone a bit afraid …… including myself. And the market moving up and down does not help at all. But then we at MSL Corporate Advisory, know there are different ways to minimize risk and reap rewards. We wanted to share one such reliable option with all of you
While nobody can track the market at any moment. But there is always a long run trend that can be predicted with high probability by stock market experts.
In such unpredictable times, it would be best to go ahead with Mutual Funds for playing safe in the equity and debt market. One could opt for Equity Oriented or Debt Oriented Funds depending upon the investment objective. Expert Fund Managers in the market can keep an eye on your investments and make timely decisions of investing your money at right time in the right stock and also timely exit.
But, once you study the performance of various Mutual Funds in all categories, be it ELSS or Balanced or Sectoral – you will realize there is hardly any fund that has provided outstanding results. However, when we go through the previous years’ data, it will be easier to identify the out-performers. It goes without saying that the returns will also depend on the time of entry and exit in the specific Mutual Fund.
Also, last one year’s performance cannot be set as a parameter to make the decision of purchase. Then, the question is which parameters would help in deciding the right type of fund to be selected in 2019. Since, most of us rush on last days of Financial Year for Tax related investments – it becomes imperative to go through the following funds quickly – for tax planning in Financial Year 2018-19.
Do watch out for future blogs for further understanding of the parameters for selection of Mutual Funds.
MSL Corporate Advisory does not receive any compensation from any of these funds and are not affiliated with them in any way.
For the purpose of Tax Planning (Sec 80C), a short summary of 8 Mutual Fund Schemes have been given below:
- IDFC Tax Advantage (ELSS) Fund (G)
- HDFC Tax Saver Fund (G)
- Franklin India Taxshield (G)
- Reliance Tax Saver (ELSS) Fund (G)
- Kotak Tax Saver (G)
- DSP Tax Saver Fund (G)
- Invesco India Tax Plan (G)
- Aditya Birla SL Tax Relief 96 (G)
All the above mentioned Mutual Funds have performed well in the long run duration of 5 years. We are not giving ranking to any of those funds, because all of them are not very distant to each other in terms of returns and volatility.
The range of returns in 14% to 18% (Compounded annually for 5 years). The lowest being for HDFC Tax Saver and Highest for Aditya Birla SL Tax Relief 96. But again it will change depending on individual investor’s timing of entry and exit.
We can study them based on following volatility ratios.
Beta shows the volatility with respect to Market Index. A Beta of more than 1 means the fund will be more volatile than the market and Beta of less than 1 means it will be less volatile than the market. All the given 8 tax planning Mutual Funds have Beta in the range of 0.8 to 1.06. Aditya Birla Tax Relief vaving lowest and Reliance Tax Saver having highest.
Sharpe Ratio measure the performance of returns as compared to the risk taken. All the mentioned funds are in the negative zone having the range of -0.11 to -0.04. Thus providing any ranking based on those values is futile.
Alpha Value measures the difference between the funds actual returns and expected returns (market benchmark performance). In the current study of 8 mutual funds, there is a range of -0.10 to -0.02. Considering this range, it is highly insignificant if any ranking is given to those mutual funds
Volatility Value is the extent to which a fund’s net asset value typically fluctuates. With all these being equal, a highly volatile fund has more risk than one with low volatility. (Do remember – Higher the Risk – Higher the returns). The given funds are having volatility in the range of 0.76 to 1.07. Again, there cannot be much scope for comparison. Risk averse people can go for Mutual funds with volatility of less than 0.8. But, that would leave you with very much less options of mutual fund investment with tax benefits.
Concluding Note: As per MSL Team, the investment in Tax Saver Mutual Funds has very limited options. The given 8 Mutual Fund Schemes are competitive in all aspects related to Risk and Returns. Thus, the investor who is in look out of Mutual Fund Investment in this month of March 2019 for last minute tax planning (which most of us procrastinate till March last week) – can go for any of these. Considering the past growth, investor can stay invested in these for next 5 years to reap good returns (above 15% – considering the tax benefit, it should be somewhere around 18% plus). By Income Tax rules, the investor is supposed to stay invested for minimum 3 years to avail tax benefit. So 5 years would be a reasonable horizon to look for. Do let us know for your concerns and comments
MSL Corporate Advisory Team