Citi Wealth Insights – Podcast
(AMFI Registered Mutual Fund Distributor)
(AMFI Registered Mutual Fund Distributor)
Raghu: Hello and Welcome to this week’s podcast. My Name is Raghuveer Sampath
Ratna: Hello and I am Ratna Rathore, talking to you today about funds investing in a mix of equities and debt, giving investor the best of both worlds
Raghu: In general investors are familiar with Equity funds and Debt funds. Do you know Ratna there is another category of funds called Hybrid funds?
Ratna: Yes Raghu, we have heard about Hybrid funds and it would be interesting to know more about them.
Raghu: As the name suggests, Hybrid funds are those mutual funds which invest in a minimum of two different asset classes – namely, Equity, Debt, Cash, Gold etc. SEBI has classified Hybrid funds in to 6 types based on the predominant asset class they invest in and the style of managing them.
Conservative Hybrid funds are those which invest 75 to 90% of their portfolio in debt instruments and the remaining in Equity instruments.
Ratna: The Aggressive Hybrid funds can invest 65% to 80% of their corpus in Equity instruments and the remaining in Debt.
Another category called the Dynamic Asset Allocation fund or Balanced Advantage fund invest in equity and Debt and is managed dynamically. They generally follow an asset allocation model for allocating between Equity and Debt based on market conditions.
Raghu: Hybrid funds category also include Multi asset, Arbitrage and Equity savings funds. To understand them better let’s explore each briefly: A Multi Asset Allocation fund is required to invest in at least three asset classes with a minimum allocation of 10% in each asset class. For example we may have a Multi Asset allocation fund that invests in Equity, Debt and aCommodity say, Gold.
Ratna: Arbitrage funds have a potential to generate returns by adopting Arbitrage strategy of simultaneously buying and selling securities in different markets to take advantage of the price differential.
Raghu: Lastly Equity Savings funds are funds that should invest minimum 65% of its assets in Equity and Equity related securities like Equity derivatives and they should invest at least 10% of their total portfolio in to Debt instruments.
Ratna: To sum it up, generally speaking through a balanced portfolio of a Hybrid fund aims to achieve diversification and capital appreciation in the long run. Always remember that the choice of a Hybrid fund depends on your risk preference and investment objective.
Raghu: That brings us to the end of our podcast and we do hope you have benefitted from this understanding of a Hybrid fund. We want to stay connected with you through the week so please visit us on the Citi Wealth Insights page for more such information and market insights. See you next week!
The Podcast highlights the different categories of equity mutual funds.
Raghu: Whether you are an investor at the start of your financial journey or have been investing for a while, a refresher of fundamentals of investing is always a good idea. So today I, Raghuveer Sampath and my co-host Ratna Rathore will discuss several equity mutual fund categories, available to you, as an investor.
Ratna: That’s right. We will try and explain different categories of equity mutual funds, something the capital market regulator, SEBI has actually already done.
Raghu: SEBI issued a circular in October 2017, rationalizing different Equity mutual funds available in the market in order to help investors associate an equity fund with its underlying scheme objectives. SEBI’s effort has also brought uniformity in the attributes of similar mutual fund schemes offered by different mutual fund companies.
Ratna: That’s good to know Raghu. So how many categories of Equity funds actually exist in the market?
Raghu: Well, there are 11 different categories of Equity mutual funds as per SEBI’S categorization norms. The classification is based on market capitalization, investment strategies and tax benefits. In today’s episode we will cover 5 types of equity mutual funds as per the market cap.
Ratna: Please do look out for upcoming episodes on the remaining 6 types of equity mutual funds basis investment style and tax benefits in the coming weeks So let’s begin with understanding large cap funds – which should invest at least 80% of total assets in equity and equity related securities of large cap companies. These companies are blue chip companies, which belong to the top 100 rankings of the stock exchange as per their market capitalization.
Raghu: The next type of equity funds are midcap funds which should invest at least 65% of total assets in equity of mid cap companies. These are usually companies with a market capitalization ranging from 500 Crores to 10,000 crores, they are ranked from the 101st to 250th in a stock exchange as per market cap. This is followed by Small Cap Funds that should invest at least 65% of total assets in the equity of Small cap companies as defined by SEBI. SEBI defines small-cap companies as those that fall below the 250th rank in a stock exchange as per their market capitalization.
Ratna: You may be thinking - Is there a category that can invest across market capitalization? And the answer to that is yes. Let me explain. Multi cap funds is a category of those funds which should invest 25% each in large cap, Midcap and Small cap companies. This updated allocation was mandated by SEBI on 11th Sep 2020. Further a new category of Flexi cap funds was introduced on 6th Nov last year with the flexibility of investing across the market capitalization with 65% allocation required in equity instruments, but without a minimum percentage requirement in one specific market cap segment.
Raghu: The last category of fund defined in terms of Market capitalization is the Large-Midcap fund. This fund should invest at least 35% of its assets each in large cap companies and Midcap companies respectively.
Ratna: Thank you and this is quite helpful. But I do have one last question - How do I know which category does an equity mutual fund belong to?
Raghu: Very simple - This information is available to all investors in the mutual fund fact sheet which not only mentions the scheme category but also provides other important information such as the investment objective, Assets under management, Fund manager details, Portfolio details, Load structure etc., among others.
Ratna: We hope that this short capsule on categorization of equity mutual funds was useful. We will be back next week with more such information. So till Next Week – stay tuned with us and visit us on Citi Wealth Insights – your platform to learn and engage. Have a good week!
The Podcast highlights how inflation is measured and its constituents.
Ratna: Hi, I am Ratna Rathore, along with my co-host Sonali Dahiya welcome you to this week’s podcast.
Sonali: we are talking about a topic that almost always takes the center of attention – Inflation! We do have a couple of episodes coming up on this interest evoking topic; so let’s get started with the first episode of this series.
Ratna: In Today’s episode we touch upon one aspect of Inflation i.e. understanding its constituents and how it is measured but before that Sonali – can you define for our listeners – What is Inflation?
Sonali: Sure - A Price for a commodity is its power to command money in exchange for itself for example, the price you and I pay for say a kilo of a vegetable or a cup of coffee or perhaps a litre of a petrol. Inflation occurs when prices rise on a sustained basis there by decreasing the purchasing power of your money.
Ratna: This increase in price may also happen across a sector or an industry and ultimately a country’s entire economy! Broadly speaking inflation may also indicate a decrease in the purchasing power of country’s currency and vice versa.
Sonali: So how is inflation measured? Inflation is measured by the consumer price index and the wholesale price index. Broadly CPI measures changes in prices of essential commodities at the consumer level and the WPI measures changes in prices of goods sold and traded in bulk by wholesale businesses to other businesses.
Ratna: India’s retail inflation, measured by the Consumer Price Index or CPI, eased to 4.29 per cent in the month of April. Citi Analysts expect the average headline CPI to be at approximately 5% in FY22 with risks to the view tilted to the upside.
Sonali: That’s Interesting – and who measures these numbers and what all is included?
Ratna: Well these indices are brought out by different ministries of the Government with the Consumer Price Index calculated on a monthly basis by Ministry of Statistics and Programme Implementation and the WPI numbers are released by the Economic Advisor in the Ministry of Commerce and Industry.
Sonali: for measuring the CPI, the maximum weightage is accorded for Food and beverages, followed by Housing, Fuel and lighting, clothing and footwear and other goods and services. For WPI – the maximum weightage is accorded for manufactured products, followed by primary articles and fuel and power.
Ratna: The RBI currently uses CPI or retail inflation as a key measure of inflation to set the monetary and credit policy. The CPI data has come within the central bank’s upper margin of 6% for five consecutive months since December 2020.
Sonali: What does this margin mean Ratna?
Ratna: Well Sonali, one of the objectives of RBIs monetary policy is to achieve price stability while keeping in mind the objective of growth in the economy. The government of India, in consultation with the Reserve Bank of India sets an inflation target once every 5 years. As per the current inflation target, RBI is required to target the CPI at 4% with an upper limit of 6% and a lower limit of 2%. This target is set till March 2026.
Sonali: I see! So with this backdrop of difference in composition of both indices and its constituents - we will take a bit more about the relevance of Inflation for the monetary Policy in our upcoming episode under this series.
Ratna: Till then stay connected with us by visiting the Citi Wealth Insights Page. We will be back same time same day next week. Have a good week!
The Podcast highlights a few factors that an investor may want to consider before choosing to invest in a mutual fund.
Raghu: Hello! I am Raghuveer Sampath.
Ratna: Hi, I am Ratna Rathore and we welcome you to this week’s Podcast.
Raghu: Ratna, let me begin by asking you a question - what comes to your mind when I say mutual funds?
Ratna: Well, I recall AMFI’s Mutual Funds Sahi Hai investor education campaign! And for the benefit of our listeners, a mutual fund is a pool of money managed by a professional fund manager. It is a trust that collects money from a number of investors who share a common investment objective.
Raghu: That’s right! Mutual funds invest across equity shares, corporate bonds, government securities, and money market instruments. Fees and expenses charged by the mutual fund to manage a scheme are regulated and are subject to limits specified by SEBI. Now let me ask you another question – how do I pick the right mutual fund?
Ratna: Well, it all begins with setting your financial goals. For example, is it capital growth, capital preservation or wealth transfer to the next generation? Please remember – Financial goals may vary from person to person. Some examples include purchasing a house, saving for children’s marriage, education or perhaps meeting post-retirement expenses.
Raghu: Great! The next important step for an investor is to identify his time horizon i.e. what is the period of investment - short term, medium term or long term?
Ratna: Another important factor to consider is your ability to tolerate the ups and downs of the market and other related risks i.e. assessing investor risk appetite.
Raghu: It is good to remember that past performance does not guarantee future performance of any mutual fund scheme. For more details on risk profiling, please do visit the Citi wealth insights page for our episode on power of profiling that was released on 3rd April, this year.
Ratna: True! And you may have heard this age old adage - higher the risk higher the return. So do study the specific risk factors associated with the scheme before taking a decision to invest. To sum it up, investment objective, time horizon, and risk appetite are a few factors to consider.
Raghu: This brings us to the end of today’s podcast and we hope you enjoyed the short capsule on factors to consider while investing in a mutual fund. We will be back same time same day next week. Stay tuned with us and visit us on Citi Wealth Insights – your platform to learn and engage. Have a great week ahead!
The Podcast highlights the performance of Gold and factors that determine its price.
Raghu: Hello! I am Raghuveer Sampath and along with my co-host Ratna Rathore, I welcome you to this week’s podcast.
Ratna: Let us take you back in time when Warren Buffet remarked that Gold has been a pretty good way of going long on fear - from time to time. But you really have to hope people become more afraid in a year or two than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn’t produce anything.
Raghu: Well that was Warren Buffet for you! In Today’s episode we unpack this yellow metal. Staging a comeback, Gold rebounded 4.5% in April to finish the month at US$1,768/oz - its highest monthly closing level since Jan this year and it’s first positive monthly return since December 2020.
Ratna: Gold outperformed major assets in 2020 on the back of strong investment demand for “safe-haven” assets. However as per Citi analysts, part of this safe haven demand may be unwinding alongside stronger growth expectations and resulting increases in the US real interest rates.
Raghu: Citi Analysts expect Gold prices to average 1,720$/oz in 2021 to about 1,570$/oz in 2022.
Raghu: Tell me Ratna, what are some of the key things we would like our listeners to know about this yellow metal?
Ratna: Well Raghu, do you know that one key factor that determines the price of Gold is the simple demand and supply of gold. An increased demand with a constrained supply may pull the prices of Gold higher and an oversupply with say a weak demand may push the prices lower.
Raghu: Broadly Speaking, Gold may also be considered as a hedge against Inflation increasing in value as the purchasing power of the currency declines. The case for gold as a long-term strategic holding may be improving among real assets generally, as central banks seem to be targeting a higher inflation rate to ease debt burden.
Ratna: Another important factor to remember is that Gold has an inverse relationship with Interest rates and therefore gold prices may drop, when rates rise.
Raghu: Currency fluctuations may impact Gold prices too. Gold is traded in Dollars in the international market and thus the conversion to rupee may impact price.
Ratna: Generally speaking, traditionally people have preferred physical gold but there are other options available to investors as well. For example Gold ETF or Sovereign Gold Bonds or perhaps a Gold Mutual Fund. A Gold ETF is an exchange-traded fund that aims to track the domestic physical gold price. A Gold Mutual Fund invests in stocks of companies operating in gold and gold-related activities. And Sovereign gold bonds are government securities denominated in grams of gold issued by Reserve Bank on behalf of Government of India.
Raghu: Always remember that as an Investor you need to weigh your Time Horizon, risk appetite and goals before choosing to invest. This brings us to the end of today’s podcast and we hope you enjoyed this short capsule on Gold. We will be back same time next week. Stay tuned with us and visit us on Citi Wealth Insights – your platform to learn and engage. Have a great week!
The Podcast highlights the importance of staying invested in the market than timing the investments in to the same.
Sonali: Hello and Welcome to our Podcast. My Name Is Sonali Dahiya.
Rajesh: Hi I am Rajesh Singh. In general, subject to other risk factors, Investors are more likely to reach long term goals if they stay invested v/s taking short term decisions which may impact portfolio performance.
Sonali: In today’s Podcast, we discuss an interesting phenomena related to the benefits of staying invested v/s trying to time the market.
Rajesh: Let us begin by asking a simple question. How does one make money by investing in an asset?
Sonali: I would think by buying when the prices are low and selling when the price moves up?
Rajesh: Ok, that’s logical. But let me ask you another question - How do you know when prices are low and when prices are high to get it just right?
Sonali: That is something to think about.
Rajesh: Choosing when to invest, or ‘timing’ the market, is difficult and prone to error. If you consider NIFTY 50 index, it has compounded at the rate of 11% per annum from January 2000 to March 2021, as per publicly available data on the Index.
Sonali: There can be specific days during an entire month where the index may rise or fall by a significant size.
Rajesh: Basis the above data, portfolios that remained invested throughout the period gained more than the ones that missed out on the best days during the period.
Sonali: While it is not possible to clearly predict the duration in which the market will recover after a correction, historically, over sufficiently long periods markets have done better despite interim corrections. In some instances of trying of time the market, investors may have missed out on some of the best price points to enter. This clearly suggests that an investor may spend “time in the market” and not time the market.
Rajesh: This makes it very clear. Time in the market implies investing for the long term as an investor.
Sonali: Mr. Peter Lynch, one of the investing legends said - “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves”.
Rajesh: This brings us to the end of the podcast. We will be back next week with more such information and market insights. In the meanwhile do visit us on Citi Wealth Insights Page. Thank you and have a great week.
The Podcast highlights the role of PE ratio while evaluating a company’s performance.
Raghu: Hello and welcome to this week’s edition of our podcast. I am Raghuveer Sampath.
Ratna: Hi and I am Ratna Rathore Bringing you our second episode under the series “understanding financial ratios”. Previously in this series we discussed the return on equity ratio. Today we are talking about a financial ratio that is popular among investors and helps them compare the price of a company’s stock to the earnings the company generates.
Raghu: Yes, we are talking about the Price to Earnings or P/E ratio which is simply the price of a stock divided by its basic earnings per share. So in the formula, the "P" stands for price and the "E" stands for Earnings.
It is also referred to as “price multiple” or “earnings multiple”, because it indicates how much the investors are willing to pay for every rupee of earnings.
Ratna: Lets understand this with an example - a company with a PE multiple of 16, implies investors are willing to pay Rs.16 for every Rs.1 of current earnings Or to understand it differently, if a stock is selling at Rs.16 a share and earnings are Rs.1, the PE is 16.
Raghu: With the math out of the way how does this ratio help an investor? Generally, a high PE suggests that investors are expecting higher earnings growth in the future compared to companies with a lower PE.
But do remember a low P/E does not necessarily mean a stock is cheap, just as a high P/E doesn't mean a stock is expensive.
Ratna: A good Price to Earnings ratio is a relative term with many underlying factors, for example Market conditions, Industry or Peer average, nature of industry, historical P/E trends, etc. It is usually considered more useful to compare the PE ratios of one company to other companies in the same industry or sector, since each industry may have different growth prospects and business models.
Raghu: There are two basic types of PE Ratios. One is called trailing P/E and the other is forward P/E. Trailing P/E uses reported earnings from the latest year, while forward P/E uses an analyst's forecast of next year's earnings.
As with all ratios, it's important to look at the P/E over time to assess the trend of a company's stock value. And of course, any ratio should not be looked at in isolation while taking an investment decision.
Ratna: Investor should also keep in mind that the P/E ratio does not account for the size of debt availed by a company. Further, forward P/E is always an estimate and depends upon the analyst’s outlook for the company’s future earnings growth.
Raghu: This brings us to the end of this podcast. We will be back with more next week. Till then Stay tuned with us by visiting Citi wealth insights for more such information and market insights. See you next week.
The Podcast highlights the core risks in a debt mutual fund
Rajesh: Hello and Welcome to our Podcast for this Week. I am Rajesh Singh.
Sonali: Hi, I am Sonali Dahiya, throwing the spotlight on a topic which investors may not pay attention to while making an investment decision.
Rajesh: To be specific, today we are discussing the risks associated with investing in debt mutual funds.
Sonali: But Rajesh, Most investors may think investing in debt funds is a safe option and there are no risks involved. What are the types of risks a debt fund carry?
Rajesh: Debt mutual funds invest in debt instruments like Government and corporate bonds, Money market securities like Treasury bill, commercial papers and other corporate debt. But that does not mean that debt funds are devoid of risks.
Sonali: As an investor choosing to invest in them,
You should be aware of risks like Credit Risk, Interest Rate Risk, liquidity risk, concentration risk and re-investment risk while investing in the debt fund.
The two main types of risks out of these are Credit risk and the Interest rate risk.
What is a credit risk you may want to know? Let’s discuss further:
Rajesh: This risk is also called risk of default. In other words, this refers to a situation where the issuer of the debt instrument is unable to pay either the principal or the interest or both when it is due.
Credit rating agencies such as CRISIL, ICRA and CARE assign credit ratings on debt security based on the issuer’s ability to repay their debt obligations. Higher the credit risk of a debt portfolio, higher is the expectation of the returns. SEBI has also mandated rating-wise investment thresholds for different categories of debt mutual funds. Therefore apart from choosing a suitable category, one may also check the credit quality of the debt fund portfolio before investing as per their risk appetite
Sonali: Let’s also discuss the interest rate risk.
The price of a debt security in the market goes up or down with respect to the interest rate movements. There is an inverse relationship between interest rates and price of a debt security. When Interest rate in the market goes up, the price of debt security comes down and vice versa. Let us explain with a simple example:
Rajesh: Let’s say a debt security is issued at a face value of 100 Rs and offers 9% coupon rate with a maturity of 5 years. The cash flows for an investor in this investment will be 9 Rs every year for 5 years and 100 Rs principal repayment at the end of the 5th year.
Now after one year of holding period, let’s assume the interest rates in the markets have gone up to 10% for similar debt securities. If the investor decides to sell his debt instrument that offers him 9% coupon rate when the market interest rates have gone up to 10%, he cannot expect to sell at his face value of 100 Rs. Instead he will be selling at a value less than 100 Rs.
Sonali: Do you see the impact? When the market interest rates went up, the price of the debt security came down. This is commonly referred to as interest rate risk.
Rajesh: Having known this basic relationship between interest rates and price of debt securities, it would be worthwhile to note two important things. They are:
1. Tenure of the debt security and the impact of interest rates.
2. Impact of Interest rate movements on a portfolio of debt fund which normally comprises of different debt securities.
Sonali: Longer the tenure of the debt security more sensitive that security will be with respect to interest rate movements. In other words, if interest rates go up, the debt security with the longer tenure will have maximum price decline and vice versa.
Rajesh: Similarly in a debt fund which comprises of multiple debt securities, the impact of interest rate movement can be measured by an indicator provided in fact sheets called “Modified Duration”. Higher the Modified duration, the more sensitive the bond prices will be for a given level of change in interest rates.
Sonali: We hope this podcast enhanced your understanding on risks associated with investing in a debt fund. Stay connected with us by visiting the Citi Wealth Insights page for market updates. We will be back – same time – Same day – Next week. Until Then good bye!
The Podcast highlights the role of ROE ratio while evaluating company’s performance.
Raghu: Hello and welcome to this week’s edition of our podcast. I am Raghuveer Sampath.
Ratna: and I am Ratna Rathore bringing you our series on understanding financial ratios. Financial ratios are important tools that may allow investors to use data from financial statements and convert them into concise and actionable information.
Raghu: Each fiscal quarter many of the large listed companies announce their latest financial accounts. And what better than to use Financial ratios as one of the quantitative tools to assess the health of a company.
Ratna: In general, financial ratios can be broken down into 5 categories: Profitability Ratios, Liquidity Ratios, Activity Ratios, Debt or Leverage Ratios and Market ratios. These ratios are created using a company’s financial statements and could be used as one of the tools to evaluate the fundamentals of a business that you, as an investor may be interested in.
In this episode, we discuss one such profitability ratio called ROE or Return on Equity Ratio.
Raghu: Simply put, this ratio measures how efficiently a company is using its equity to generate profit. It is calculated as PAT or profit after tax divided by shareholder equity. Let me explain this with a simple example: A firm with a ROE of 10% means that the Company generates a profit of Rs.10 for every Rs.100 of equity that it owns. This ratio usually indicates how profitable the company is.
Ratna: As an investor, it is very important for you to remember that a company cannot be evaluated or analyzed using one ratio in isolation. Additional factors should also be considered. While there are many financial ratios, we shall cover a few basic ones in our series.
Raghu : This brings us to the end of our podcast but it’s not a good bye! We want to stay connected with you through the week - so do visit us on the Citi Wealth Insights page for more market updates and analysis – We are going to be back next week – same time – same day with more such information – So Until next time, goodbye and have a great week
An overview of Mutual fund penetration in India
Ratna : Hello and welcome to this week’s edition of our podcast. I am Ratna Rathore.
Sonali : I am Sonali Dahiya, and today we reflect upon the growth of Mutual Funds in India.
Did you know that as per RBI and AMFI data, currently only 2.1 crore people, which is less than 2% of India’s population, invest in mutual funds?
Ratna : That’s right and comparing this to about 86.5 crore bank debit cards held by Indian savers, clearly points to low levels of penetration, leaving open a pool of untapped investors to explore.
For Mutual Funds in India, the asset-under-management to GDP ratio stands at 11% currently, against a global average of 63%. Citi analysts see significant scope for AUM growth for Indian mutual funds, driven by higher participation and increased share in household financial savings.
Sonali : Systematic Investment Plan has been a great product innovation. The flows have remained steady despite market volatility thereby supporting overall equity flows and reflecting increased investor awareness
It may be interesting to note that out of a total Mutual Fund AUM size of 32 lakh crores as of February 2021 the largest allocation is towards equity, closely followed by debt oriented funds. Hybrid and Liquid funds together form about 20% of the total AUM of the Indian Mutual Fund industry as of February 2021.
Ratna : Citi analysts believe that mutual fund AUMs may grow at an annualized rate of 15 to17% over the next 10 years, given the seamless investing experience offered by this channel.
AMFI and mutual fund companies have made significant investment in investor education over the years. Investors have also benefited from tighter regulations, while competition has caused expense ratios to decline over the past few years.
Sonali : Domestic mutual funds have seen continued net outflows from equity-oriented funds every month since July 2020. However, we note that gross inflows in equity have been relatively stable, indicating that interest in mutual funds is not declining.
Ratna : On this note we say goodbye only to be back with more such information – same time – same day – next week. Don’t forget to visit our Citi wealth insights page for market updates and analysis. Have a great week
Source: Citi Research
Benefits of Systematic Investment Plan- A Simple way to disciplined investing
Raghu: Hello and welcome to this week’s edition of our Podcast.
I am Raghuveer Sampath and with me is Ratna Rathore and we will be your Co-Hosts today.
We are here to talk to you about Systematic Investment Plans, or SIPs. We are sure you’ve heard and read a lot about them. So let’s de-mystify S-I-Ps for you - what are they, and why is everyone talking about them?
Ratna: A Systematic Investment Plan is a method of investing that allows you to invest the same amount of money in a mutual fund at specific time intervals – this means, that you can invest 1000 rupees every month, or every week, for a duration of your choosing.
You might ask, what are some of the benefits associated with this form of investing?
Well, to begin with, you may not need a lot to get started with. Most SIPs have a minimum investment amount of 1000 rupees.
Secondly, it helps you invest in a disciplined way. SIPs not only allow you to invest a certain amount of money every week or month, but allow you to set aside money for your future in an easy way.
Raghu: Thirdly, SIPs also help you average out the price at which you buy units of the mutual fund. Most mutual funds have a daily price called a Net Asset Value (or NAV), which goes up or down depending on the market movement. This method of investment allows you to buy more units of the fund when the NAV is low (for the same amount of money invested), and less units when the NAV is higher. Therefore, SIPs help average the cost price and this is known as Rupee Cost Averaging.
Ratna: Lastly, and perhaps most importantly, is the power of compounding. Compounding is the principle of earning interest on interest and in case of SIPs, it means that you earn returns not on just the amount initially invested, but also on the potential returns made on that investment. Compounding can work wonders over long durations!
Raghu: These were the benefits of SIPs in a nutshell. It is, of course, very important to understand the amount of risk you are willing to take before investing in any mutual fund.
This brings us to the end of this podcast, which may have helped you understand SIPs and the benefits of investing in them better. We will be back next week. In the meantime, do visit the Citi Wealth Insights page for more market updates and analysis. Until next time, goodbye and have a great week.
What is Asset Allocation and why is it important?
Raghuveer Sampath: Hello and welcome to this week’s edition of our podcast.
I am Raghuveer Sampath and with me is Ratna Rathore and we are your Co-hosts today!
Ratna Rathore: It’s always a good time to revisit some basics of investing and today we are doing just that.
Though extremely basic, very few practice this diligently despite knowing the concept.
The concept I am referring to is Asset Allocation.
Raghuveer Sampath: Simply put, Asset allocation refers to investing your money in different categories of assets – namely, equity, bonds, commodities and cash equivalents.
You may ask - Why is this important?
Many a times, as investors we have this dilemma.
Equity is intended for growth and bonds for generating stable income. So which one should one invest in? Should you go for growth over stability or be satisfied with stability with lesser growth, in the value of the investment? What is the right answer? The answer is “Asset Allocation”.
Ratna Rathore: The underlying principle at play is - that over long term, different asset classes perform differently in varying market and economic conditions. So Asset allocation is about creating a portfolio of assets which are less correlated or non-correlated with each other. This may help to create the necessary diversification in the portfolio which may help in reducing the overall risk in terms of variability of returns. As an Investor, you may have heard that never put all your eggs (In this case referring to investments) in one basket (referring to one asset class). This is the central theory on which the concept of diversification rests.
Raghuveer Sampath: It is also important to note that allocation in a particular asset class is aligned to the risk profile of the investor.
Asset Allocation is not just a one-time exercise. Investors may benefit by a regular review and rebalancing exercise of their portfolios as a key to maintaining risk levels over a period of time, as per their risk profile.
Ratna Rathore: In conclusion, the simple practice of asset allocation plays an important role in planning one’s financial goals.
Raghuveer Sampath: This brings us to the end of our Podcast. But It is not a goodbye. We want to stay connected with you through the week. So do visit us on the Citi Wealth Insights page for more market updates and analysis. We are going to be back next week, same time, same day with more such information. So until next time good bye and have a great week.
Risk profiling helps find suitable investment options with respect to the investor’s risk appetite.
Raghu: Hello and welcome to this week’s podcast. I am Raghuveer Sampath.
Ratna: Hello and my name is Ratna Rathore and today we are going to have a look at an important step in the investment journey for an investor.
Raghu: That’s right and that step begins with assessing a client’s risk profile. Simply put it is an evaluation of an individual's willingness and the ability to take risks. A risk profile is important for determining proper investment asset allocation for a portfolio.
Ratna: Raghu, this makes a lot of sense to me - since I have heard multiple times that risk and returns go hand in hand, but assessing this seems quite complicated.
Raghu: Actually, it’s quite straightforward. Let me explain… a client’s risk profile could be assessed through their response to a questionnaire which captures information like the client’s age, investment horizon, risk tolerance, and investment objective.
Basis the information collected, an investor rating, say for example, on a numerical scale of 1 to 6 is determined with 1 representing most conservative to 6 representing most aggressive. Basis the client’s risk profile, a list of products which may also be risk rated on a similar numerical scale – can be shared with the client for their consideration.
Ratna: Wow! That’s a great way to ensure that only products which are within or equal to the client’s investor rating are offered to the client.
And it’s good to remember that all investment products have a risk and maturity profile - if the same is not matched suitably, it might lead to potential risk in the portfolio including an imbalance in the overall asset allocation.
Raghu: It is also important to re-asses an investor’s risk tolerance either periodically or earlier in case of any significant changes to the underlying attributes determining the risk profile of a client. Clients senior in age are encouraged to re-asses their risk appetite and investment objectives every year.
Ratna: That’s a useful way of putting the client’s interest first. To have a balanced combination of risk and return, every investor must analyze their risk-bearing ability, investment goal, and time duration within which they would like to achieve it.
Infact, we may draw an analogy to having a valid driving license before you begin driving. Regular risk profiling may play the role of a valid license to help safeguard against undue risks.
Raghu: Well put and with this, we come to the end of our podcast. As you reflect on the benefits of risk profiling, we will be back next week with more such information. Stay tuned and visit us on Citi Wealth Insights – your platform to learn and engage. Have a good week!
We believe this is an important time for investors as the focus turns to The New Economic Cycle and The New Opportunities
Raghu: Hello and welcome to our very first Podcast. I am Raghuveer Sampath.
Ratna: and I am Ratna Rathore turning the spotlight on the changing landscape and transforming trends.
Raghu: The year 2020 has seen its fair share of major events - from the onset of the pandemic to the concluded US Presidential elections. We believe this is an important time for an investor. As per the Citi annual outlook 2021, analysts have expressed greater confidence that economic activity could brighten this year.
In the long term, trends namely – Rise of Asia, Increasing Longevity, and Digital Disruption could play a pivotal role in transforming the world around us. These trends are powerful long-term forces that might revolutionize the way we live and do business globally.
Ratna: And what better than to start our Podcast Series talking to you about these trends that can endure throughout an economic cycle, potentially offering resilient growth opportunity to portfolios. The age of hyper-connectivity addresses the next stage of the digital revolution especially in the field of education with the adoption of education technology in the post-pandemic world.
The past 2 decades have witnessed some new entrants to the world markets, such as cloud services, warehouse robotics and smart phones, that have clearly redefined industries. Today we focus on one such positive disruption in the field of education i.e. Edu tech or educational technology.
Raghu: Did you know that the largest driver of growth in Edtech spend is estimated to come from kindergarten to the 12th grade. This is followed by universities and professional learning.
As per a Citi GPS report published last year, Edtech market is expected to double in the next five years. The report talks about a survey conducted in eight of the most important education markets around the world, namely Australia, Brazil, Canada, China, India, UK, US and South Africa suggesting that Emerging markets are more eager to increase Edtech budgets than the developed markets.
So what will an acceleration in Edtech growth actually mean for the education market?
Ratna: Broadly, adoption of Edtech may help reach under-served populations in emerging markets such as India. In several emerging or developing markets, the focus until now, at the primary and secondary level, has really been on improving enrollments. However, policy makers are now more interested in how to improve outcomes as well.
Raghu: Another important implication is that online learning is expected to double to around $360 billion by 2024, implying an average growth rate of 17% over the next 5 years.
And lastly, the survey suggests that ~50% of study hours will now be digitized.
Ratna: For society at large, the benefits of greater adoption of Edtech may lead to better outcomes, lowered cost and may also help in increased access – which may have meaningful impact on economic growth, especially in less advanced economies, and also at a global level.
Raghu: This brings us to the end of our podcast but it’s not a good bye! We want to stay connected with you through the week - so do visit us on the Citi Wealth Insights page for more market updates and analysis – We are going to be back next week – same time – same day with more such information – So until next time, goodbye and have a great week.