Citi Wealth Insights – Podcast

(AMFI Registered Mutual Fund Distributor)

Current Podcast

22nd October 2021

Statistical measures for Portfolio Valuation – Sharpe ratio

Today’s episode is on Sharpe ratio that helps in measuring risk adjusted return of a fund

03 : 37

Statistical measures for Portfolio Valuation – Sharpe ratio

Raghuveer Sampath: Hello, I am Raghuveer Sampath, and I welcome you to this week’s episode of Citi Wealth Insights Podcast.

Sonali Dahiya: Hi and I am Sonali Dahiya. Raghu - Let’s assume there are two mutual funds belonging to the same category and both generate equal returns, how will you know which fund is better?

Raghuveer Sampath: Very pertinent question Sonali. Intuitively as an investor I may be indifferent to both as the returns are the same and they belong to the same category.

Sonali Dahiya: Great - let me take this one step ahead – what if I were to tell you that the fund analysis suggests that for the same level of return - the risk taken by both these funds is different.

Raghuveer Sampath: This is interesting! Is there a ratio or any other metric that helps an investor to compare these two funds on a risk adjusted return basis?

Sonali Dahiya: Absolutely and today we are discussing one such portfolio risk measure called the Sharpe ratio. Do you know that this measure was named after William F Sharpe, a Nobel laureate and professor of finance, emeritus at Stanford University?

Raghuveer Sampath: I see! So, as I understand Sharpe ratio expresses the relationship between the performance of a scheme and its volatility. Is that right?

Sonali Dahiya: Yes, and mathematically it is expressed as “returns generated by a scheme over a risk-free rate divided by standard deviation”. Now we may want to know what a risk-free rate is.

Raghuveer Sampath: A risk-free rate may be defined as the interest rate that an investor can expect to earn on an investment that carries zero risk. Generally, interest rates offered by government securities like treasury bills are considered as risk-free rates.

Sonali Dahiya: A standard deviation indicates how much do the fund returns vary as compared to its average return. Simply speaking, it indicates volatility of the fund. Higher standard deviation indicates higher volatility and hence, higher risk.

Raghuveer Sampath: Let’s take an example of two funds - Fund A and Fund B - generating the same return of say 10 % over the risk free rate. Now, assume that the standard deviation of fund A is 2 and Fund B is 2.5. So how will you calculate the Sharpe Ratio?

Sonali Dahiya: Very simple - Sharpe ratio of Fund A is 5 i.e., 10 divided by 2 and Fund B is 4 i.e. 10 divided by 2.5. So you see - while the Funds generate similar returns, Fund A has a higher Sharpe ratio. So what does this mean?

Raghuveer Sampath: Generally, greater the value of Sharpe ratio, the better is the risk adjusted return of the fund. Usually, any Sharpe ratio greater than 1 may be considered good by investors and less than 1 may be considered poor.

Sonali Dahiya: However, while considering Sharpe ratio of funds within a peer group, a ratio of 1 may be inadequate if the competitors within the peer group have a Sharpe ratio above 1.

Raghuveer Sampath: Thus, a Sharpe ratio may help an investor to choose funds as per their risk appetite and expected returns. Sharpe Ratio can be calculated on a monthly or a yearly basis.

Sonali Dahiya: There are other volatility measures as well such as Alpha, Beta, up capture ratio, etc. that help in measuring risk or volatility of a fund. While this is not an exhaustive list of ratios to measure the risk or volatility - they may help the investor to make an informed choice and it is best not to base investment decision on any one ratio in isolation.

Raghuveer Sampath: Well said! We hope you enjoyed today’s short capsule on the Sharpe ratio. While this brings us to the end of this podcast, we want to stay connected with you through the week - so do visit us on the Citi Wealth Insights page for more. We will be back next week – Same time same day with more such information. Until next time, goodbye and have a great week ahead.

Previous Podcast - Replays

02 : 57

Labor Dynamics and Consumption Trends

Today’s episode highlights the implications for consumption from emerging labor market trends.

04 : 18

Arbitrage Funds

Today’s episode highlights the concept of Arbitrage and how Arbitrage funds work.

Arbitrage Funds

Raghu: Hello, I am Raghuveer Sampath and I welcome you to this week’s Podcast.

Ratna: Hi, and I am Ratna Rathore.

Raghu: Ratna, I can see a box of mangoes and a pen and a paper next to you. I understand you will relish those mangoes but why the pen and the paper? Trying to count calories?

Ratna: Oh! Raghu, my sister has sent me these mangoes and she lives just 2 hours away. As for the pen and paper I came across something interesting while relishing these mangoes and decided to put together a plan.

Raghu: That’s Interesting! What’s the Eureka moment you are having Ratna? Would you mind sharing it with me?

Ratna: For sure Raghu. And I will use this as an example to explain the concept of arbitrage! I was looking at the price tag on the mango box and it says 300 Rs. But in the local market it sells for 350 Rs. I was thinking whether I can ask my sister to send many boxes of mangoes to me and if I were to sell it in the local market, going by this price differential, I can make a neat profit of 50 Rs per box isn’t it?

Raghu: That’s right Ratna and if I may draw an analogy here- Arbitrage is an investment strategy that seeks to benefit from price differentials of an asset in different markets. There are specific mutual funds called Arbitrage funds which seek to generate such low risk returns by taking advantage of such price differentials.

Ratna: Raghu can you please explain how can there be a price differential for the same asset? Especially when the goods sold across the markets are no different from one another.

Raghu: There are instances where the price of an asset- say a particular equity share may differ across two stock exchanges.

Ratna: yes, I have observed seeing a minor difference in share quotes between NSE and BSE exchanges for a few stocks. I used to wonder whether somebody can make money by buying the same share in the exchange where it is quoted lower and sell the share in the other exchange where the price is quoted marginally higher.

Raghu: Exactly Ratna. But it may not be that easy as you should already have the delivery of the share to sell it in a particular exchange. Generally Arbitrage strategy is deployed in stocks by simultaneously purchasing and selling the same stock in cash and futures market. Cash market is also called spot market where securities are bought and sold for immediate delivery. In the futures market an investor enters into a contract to buy or sell a security at an agreed price at a future date.

Ratna: Let us take an example. Assume the stock price of company A trades at 100 Rs in cash market. The same stock may trade at 101 Rs in the Futures market.

Raghu: An Arbitrage trader will buy the stocks in the cash market for say 100 Rs and simultaneously he will enter into a sell contract in the futures market for 101 Rs for the same stock. On the expiry date of the contract, the cash and futures price will cover and hence the position will be neutralized.

Ratna: Which means the trader may benefit from a relatively risk free profit of Rupee 1 by simultaneously buying and selling the same stock in cash and futures market.

Raghu: Arbitrage funds deploy these strategies to generate relatively low risk returns by exploiting the price differentials between two markets. They also invest a part of their portfolio in debt instruments.

Ratna: Please remember, while this may appear like an easy strategy to make relatively low risk returns, such opportunities will not exist forever. When the market participants realize the price differential of an asset between two markets, everyone will try to exploit these differentials and the arbitrage opportunity may diminish.

Raghu: These opportunities can work to the advantage of an investor where there is volatility in the market. The more the price differential between cash and futures market, the more will be the returns for an Arbitrage investor. Volatility may lead to uncertainty among investors and it may cause the price differential between cash and futures market to be very wide and the investor may benefit from this.

Ratna: This is helpful Raghu. Rather than trading in Mangoes, let me think about Arbitrage funds.

Raghu: This brings us to the end our Podcast. We will be back same day, next week with more such information and market insights. Till then stay connected with us by visiting the Citi wealth insights page. Good Bye and have a great week ahead.

02 : 38

Statistical measures for portfolio evaluation – Up capture and Down capture ratio.

Today’s episode is on up-market capture & down-market capture ratios that may be used in evaluating a mutual fund’s performance.

The A & B of measuring risk – Alpha & Beta ratios.

Ratna: Hello, I am Ratna Rathore and along with my co-host Sonali Dahiya, I welcome you to this week’s edition of our Citi Wealth Insights Podcast.

Sonali: Each time market moves up or down investor interest gets piqued isn’t it? How do we gauge the impact of such upward or downward movement of market in your mutual fund portfolios?

Ratna: Sonali if you ask me, in such a situation I would look for 2 ratios – would you like to know which ones?

Sonali: For sure Ratna and not only I - but so would our listeners.

Ratna: Great let’s get started then. These ratios are called capture ratios. They measure how a fund manager manages the fund during different market conditions.

Sonali: Simply put, Up-market capture ratio measures a fund manager’s performance relative to the market when the market is going up, i.e. during a bullish trend. Down-market capture ratio measures a fund manager’s performance relative to the market when the market is going down, i.e. during a bearish trend.

Ratna: That’s right Sonali. So if the upmarket capture ratio of a fund is say 110%, it implies that the fund has captured the upside when the benchmark index was up and has also outperformed the index by 10%.

Sonali: Correct Ratna and similarly if the Down-market capture ratio of a fund is 110%, it means the fund has not only fallen but it has fallen 10% more than the benchmark.

Ratna: Generally speaking while choosing a fund, it is better to go for a fund whose up-market capture ratio is more than 100% and Down-market capture ratio is lower than 100%. But tell me Sonali Is it really that simple?

Sonali: Well Ratna for a more effective analysis, an investor may look at capture ratios of different time periods like say 1 year 3 year or 5 year to understand if the fund manager is outperforming the market consistently. These ratios are expressed as percentages.

Ratna: Thank you Sonali. I do hope this short capsule on capture ratios may help our listeners understand outperformance or underperformance of the fund during a market rally or a slump.

Sonali: You are welcome Ratna. Always remember that no one ratio should be considered in isolation while analyzing a fund performance.

Ratna: This brings us to the end of the podcast. We will be back next week same time, same day. Stay connected with us by visiting Citi wealth insights page for more such information and market insights. Thank you for listening and have a good week ahead!

Index Funds

In Today’s Podcast we talk about Index Funds and their importance for Investors.

Index Funds

Ratna: Hello, I am Ratna Rathore and I welcome to this week’s edition of our Citi Wealth Insights Podcast.

Sonali: Hi and I am Sonali Dahiya. Ratna, have you thought whether the returns generated by a fund justifies the risk that the fund may assume?

Ratna: Sonali, It will be interesting to analyse fund’s performance using certain simple techniques to measure portfolio risk. In our episode today, we will discuss about two such basic measures of mutual fund risk analysis.

Sonali: The 2 very common ratios are the Alpha and Beta and let’s find out in how they help in measuring portfolio risk.

Ratna: Alpha indicates how well the fund has performed with respect to its benchmark index. Let us take an example here. Let us say Fund A has delivered a return of 15% and its benchmark index has delivered a return of 10%. The Alpha of the fund will be 15% minus 10% which is 5. This means that Fund A has delivered 5% more than the benchmark index. A positive Alpha indicates the fund has performed better than its benchmark.

Sonali: Similarly, a negative Alpha indicates the fund’s under performance in relation to its benchmark. An Alpha of Zero indicates the fund has delivered the similar returns as the benchmark.

Ratna: Sonali, is there an indicator that describes the volatility of a fund’s performance against its benchmark?

Sonali: Yes Ratna and let’s zoom in on Beta to answer the question for you! Beta measures the volatility of a fund against its benchmark index. Basically, Beta shows whether the fund moves up or down faster than the benchmark index. Beta values can be 1, less than 1 or greater than 1.

Ratna: I get it! For example, A beta of 0.9 indicates that if the benchmark index increases or declines by 1 percentage point, the value of the fund will increase or decline by 0.9 percentage point. If a fund’s beta is say 1.4, then the fund will move up or down by 40% more than the market index.

Sonali: You are right so if the Beta value of a fund is 1, then the value of the fund increases or decreases by the same amount as its benchmark. Now that we know what alpha and beta are, can you summarise the utility of these ratios for an investor?

Ratna: Sure Sonali - Just remember that alpha is the excess return on an investment after you adjust for market volatility and Beta measures volatility relative to its benchmark .So essentially they are both risk ratios which an investor may use to compare different Funds. One last question for you Sonali – as an investor where can I find the details of these 2 ratios?

Sonali: One can easily find these details on the official website of the fund house to track the fund’s performance Ratna. But please remember that alpha and beta are historical numbers and although it is a useful measure to track a fund’s past performance, but it can’t exactly indicate the fund’s future performance.

Ratna: This brings us to the end of our podcast. We hope you found this short capsule on these risk ratios useful. We will be back with more next week – Same day, same time. Till then stay tuned in by visiting Citi wealth insights page for more such information and market insights. Have a good week ahead!

03 : 38

The A & B of measuring risk – Alpha & Beta ratios

The Podcast is on Alpha and Beta ratios that helps in measuring a fund’s risk.

The A & B of measuring risk – Alpha & Beta ratios.

Ratna: Hello, I am Ratna Rathore and I welcome to this week’s edition of our Citi Wealth Insights Podcast.

Sonali: Hi and I am Sonali Dahiya. Ratna, have you thought whether the returns generated by a fund justifies the risk that the fund may assume?

Ratna: Sonali, It will be interesting to analyse fund’s performance using certain simple techniques to measure portfolio risk. In our episode today, we will discuss about two such basic measures of mutual fund risk analysis.

Sonali: The 2 very common ratios are the Alpha and Beta and let’s find out in how they help in measuring portfolio risk.

Ratna: Alpha indicates how well the fund has performed with respect to its benchmark index. Let us take an example here. Let us say Fund A has delivered a return of 15% and its benchmark index has delivered a return of 10%. The Alpha of the fund will be 15% minus 10% which is 5. This means that Fund A has delivered 5% more than the benchmark index. A positive Alpha indicates the fund has performed better than its benchmark.

Sonali: Similarly, a negative Alpha indicates the fund’s under performance in relation to its benchmark. An Alpha of Zero indicates the fund has delivered the similar returns as the benchmark.

Ratna: Sonali, is there an indicator that describes the volatility of a fund’s performance against its benchmark?

Sonali: Yes Ratna and let’s zoom in on Beta to answer the question for you! Beta measures the volatility of a fund against its benchmark index. Basically, Beta shows whether the fund moves up or down faster than the benchmark index. Beta values can be 1, less than 1 or greater than 1.

Ratna: I get it! For example, A beta of 0.9 indicates that if the benchmark index increases or declines by 1 percentage point, the value of the fund will increase or decline by 0.9 percentage point. If a fund’s beta is say 1.4, then the fund will move up or down by 40% more than the market index.

Sonali: You are right so if the Beta value of a fund is 1, then the value of the fund increases or decreases by the same amount as its benchmark. Now that we know what alpha and beta are, can you summarise the utility of these ratios for an investor?

Ratna: Sure Sonali - Just remember that alpha is the excess return on an investment after you adjust for market volatility and Beta measures volatility relative to its benchmark .So essentially they are both risk ratios which an investor may use to compare different Funds. One last question for you Sonali – as an investor where can I find the details of these 2 ratios?

Sonali: One can easily find these details on the official website of the fund house to track the fund’s performance Ratna. But please remember that alpha and beta are historical numbers and although it is a useful measure to track a fund’s past performance, but it can’t exactly indicate the fund’s future performance.

Ratna: This brings us to the end of our podcast. We hope you found this short capsule on these risk ratios useful. We will be back with more next week – Same day, same time. Till then stay tuned in by visiting Citi wealth insights page for more such information and market insights. Have a good week ahead!

03 : 29

Instruments of Monetary Policy – Repo and Reverse Repo

The Podcast highlights the instruments of monetary policy – Repo rate and Reverse repo rate

Instruments of Monetary Policy – Repo and Reverse Repo

Ratna: Hello My name is Ratna Rathore.

Sonali: Hi I am Sonali Dahiya and we welcome you to this week’s podcast.

Ratna: Sonali, I need to ask you a question before we get started? May I?

Sonali: Sure, go ahead Ratna.

Ratna: In the RBI’S August Monetary Policy that was announced on 6th August the Policy rates i.e., Repo and Reverse Repo have been left unchanged. How does this impact me as an investor?

Sonali: Good question. Let me begin by first telling you that Central Banks play a vital role in the economic growth of the country and in maintaining price stability. They are also responsible for securing monetary stability in the financial system.

Ratna: That’s good to know. The central bank provides funds to the banking system and charges interest. Broadly speaking Changes in interest rates may affect saving and investment decisions of households and firms.

Sonali: In this episode we explore the impact of Repo and Reverse Repo rate on the economy. Ratna, would you like to start with explaining what are these two rates?

Ratna: Sure. Repo Rate is the rate at which our central bank i.e. the RBI lends money to commercial banks for the short term.

Sonali: A Repo transaction is a collateralized short term borrowing availed by commercial banks by selling debt securities to RBI with an agreement to repurchase those securities at a predetermined date and rate.

Ratna: The cash thus availed by the commercial banks can be used to meet temporary liquidity requirements.

Sonali: So to take an example - If the repo rate is increased, the cost of monetary accommodation availed by commercial banks may go up and hence the commercial banks may borrow less from the RBI.

Ratna: This in turn may result in lesser money being lent to the public at large by the commercial banks.

Sonali: Lesser money supply in the economy may help in controlling inflation. So, if RBI wants to reduce Inflation in the economy, Repo rate may be one of the tools.

Ratna: On the other hand a reduction in Repo rate may ensure cheaper loans as commercial banks will have to pay lesser interest to Reserve Bank of India for the money lent to them.

Sonali: Reverse repo is the mirror image of a repo transaction. It is the rate at which the central bank of a country (RBI in the case of India) borrows money from commercial banks.

Ratna: So basically, a repo transaction injects liquidity into the banking system, whereas the Reverse repo absorbs liquidity from the Indian banking system.

Sonali: Ratna, are there other tools and mechanisms available with RBI to achieve its objectives of economic growth and price stability?

Ratna: yes Sonali, The RBI has several tools at its disposal and we will discuss those in subsequent episodes

Sonali: One last question Ratna- how often do we get to know about RBI’s decisions regarding benchmark rates?

Ratna: The RBI announces benchmark rates every two months. A 6-member Monetary Policy Committee (MPC) headed by the RBI governor meets every two months for 2-3 days just as they did recently in the first week of August and the decision of the MPC is announced at the end of the meeting.

Sonali: This has been super helpful Ratna. And with this, we come to the end of our podcast. We hope you found this overview of key policy rates to be relevant and useful.

Ratna: Stay tuned and visit us on Citi Wealth Insights to stay updated on global & local market trends. We will be back next week with more insights, have a good week!

03 : 23

Understanding Financial Ratios - EPS

The Podcast highlights the importance of Earnings Per Share in evaluating a company’s performance.

Understanding Financial Ratios - EPS

Raghu: Hello and Welcome to this week’s edition of our podcast. I am Raghuveer Sampath continuing our series on Understanding Financial Ratios. Joining me is my co - host Rajesh Singh.

Rajesh: Thanks Raghu - Previously under this series we have discussed the Price to earnings ratio and the Return on equity ratio. Today we are talking about another profitability metric that investors may use to evaluate a company, Called EPS or Earning per Share. Let us start with a basic question. Who are the ultimate owners of a company?

Raghu: In simple terms, Equity shareholders may be defined as owners of a company.

Rajesh: Ok, how does the owner of a company evaluate whether the company is earning adequate profits to justify his ownership?

Raghu: One of the ways to determine the profitability of a company is by calculating the EPS of the company. EPS or Earnings per share indicates how much profit a company makes for each share of its stock.

Rajesh: EPS is arrived at by dividing the profits after tax by the number of outstanding shares. For example, consider two companies – Company A and Company B. Company A made a profit after tax of 1000 crores and company B made a PAT of 750 crores.

Raghu: If company A has 100 crore shares outstanding, the EPS will be 10 Rs. per share (i.e. 1000 crores divided by 100 crores). Also if company B has the same 100 crores shares outstanding, its EPS will be 7.5 Rs. per share (i.e. 750 crores divided by 100 crores).

Rajesh: Generally speaking, –if both company A and B are in the same industry, Company A generates more profits for the shareholders than Company B owing to its higher EPS number.

Raghu: A high EPS number may indicate that the company may have enough profits that may either be distributed as dividends or used for re-investment. A Consistently growing EPS may mean that as an owner of the company you are getting a share of the company’s growing profits consistently.

Rajesh: Where does an investor find the EPS number of a company?

Raghu: The statement of profits and loss which forms part of a company’s annual reports provides the EPS generated by a company for a specific period. There could be instances where EPS can get augmented due to certain corporate actions.

Rajesh: For example, if the company opts for buy back of shares, the number of shares outstanding will come down and hence the EPS figure may go up. So it may always be prudent not to consider these ratios in isolation.

Raghu: Generally speaking – these financial ratios may be effective to compare a company's financial ratio with companies in the same sector or industry.

Rajesh: As mentioned in the beginning of our podcast, we had covered ROE or Return on equity ratio in our previous episode dated 30th April 2021 and Price to earnings ratio in episode dated 14th May 2021. You will find these episodes on the Citi Wealth Insight Podcast page.

Raghu: While this is not an exhaustive list of financial ratios, we believe an understanding of some of these ratios may help an investor to evaluate a company. With this we come to an end of this week’s Podcast. As always we want to stay connected with you so do visit us on the Citi Wealth Insights page for more such information. We will be back with a new episode next week. Till then, good bye and take care.

03 : 48

Categories of Debt mutual funds – Part 2

The Podcast highlights the various categories of debt mutual funds based on type of investment.

Categories of Debt mutual funds – Part 2

Raghu: Hello and welcome to our Podcast. I am Raghuveer Sampath. In our previous podcast on categories of debt mutual funds, we discussed various categories of debt funds based on their maturity profiles. Today, along with my co-hosts’ Ratna, Sonali and Rajesh, we will discuss debt fund categories based on the type of debt securities they invest in.

Ratna: By knowing the type of debt securities the debt funds invest in, the investor can gauge the risk involved in the portfolio and manage his or her expectation from the debt fund investments accordingly.

Rajesh: In its circular released in October 2017, SEBI defines the debt fund categories basis the type of securities they invest in. So, let’s begin with describing a Money market Fund.

Sonali: As the name implies, Money market debt funds invest in Money market instruments with maturity of 1 year. You may ask, what are these Money market instruments? Some examples of money market instruments include, Treasury bills, Commercial papers, Certificate of deposits, Repurchase agreements etc.

Raghu: Now we are curious to know, whether there exists a category of debt funds that invest in debt securities issued by the Government of India?

Ratna: Yes Raghu, we have two specific categories of debt funds that invest in debt securities issued by the Government of India – These are commonly referred to as Gilts. These invest at least 80% of their assets in government securities and generally do not carry risk of default. But they may carry Interest rate risk depending upon the maturity profile of the Gilt scheme.

Rajesh: Have you heard of Floating rate funds? This category of debt funds invests in debt securities having variable interest rates. This means the interest rate paid by a debt security goes up when the market interest rates go up and comes down when the market interest rate comes down.

Raghu: Correct Rajesh and these are called floating rate debt instruments that invest at least 65% of their assets in such floating rate instruments.

Sonali: Let me also add Raghu that in the debt market, there are Banks, Corporates, PSU entities that issue debt securities. And there are funds which specifically invest in these types of debt securities, namely corporate bond fund.

Raghu: Yes, Sonali, we have corporate bond funds which invest 80% of its total assets in the highest rated corporate bonds. These highest rated corporate bonds generally refer to corporate bonds with a credit rating of AA+ and above.

Ratna: While we discussed debt funds that invest in highest rated corporate bonds, is there a debt fund that invests in debt securities below the highest rating Sonali?

Sonali: Yes Ratna, these are credit risk funds which invest a minimum of 65% of their assets in corporate bonds with a credit rating of AA- and below.

Rajesh: The last category is Banking and PSU debt fund, whose portfolio comprises debt instruments issued by Banks, Public sector undertakings and Public financial institutions. Minimum 80% of the total assets of these debt funds will be invested in such securities.

Ratna: This brings us to the end of this episode as well as the series on categorization of debt mutual funds. To recap, debt funds aim to generate returns for investors by investing their money in avenues like bonds and other fixed-income securities. We do hope this short series gave you a glimpse of various categories of debt funds and its associated attributes.

Raghu: We want to stay connected with you through the week and visit us on the Citi wealth insights page for more market updates and insights. We will be back same day same time next week.

Till then goodbye and have a great week ahead.

04 : 21

Categories of debt mutual funds – Part 1

The Podcast provides an introduction to the
various categories of debt mutual funds

Categories of debt mutual funds – Part 1

Raghuveer Sampath: If you are planning to invest in debt mutual funds, you may come across a wide range of categories to choose from. How will you decide? So Today I, Raghuveer Sampath along with my co-hosts’ Sonali Dahiya, Rajesh Singh and Ratna Rathore will discuss the various categories of debt mutual funds.

Sonali Dahiya: As always, before deciding to invest it’s important to know your investment goal, risk taking capacity and time horizon and therefore knowing the types of debt funds may help.

Rajesh Singh: The Indian capital market regulator SEBI has defined the different categories of debt mutual funds through its circular released in October 2017.

Ratna Rathore: The circular rationalized types of Debt funds available to investors by associating a Debt fund with its underlying scheme characteristics. SEBI’s effort has also brought uniformity to the attributes of similar mutual fund schemes offered by different mutual fund companies.

Raghuveer Sampath: That’s good to know Ratna - can we break it down further for our listeners - Like how do debt funds generate income?

Ratna Rathore: Sure Raghu. Debt funds invest in fixed-income securities, government and corporate bonds, treasury bills, commercial paper, certificates of deposit and other money market instruments. There are 16 different categories of Debt funds as per SEBI’S categorization norms.

Sonali Dahiya: This classification is based on two aspects, namely maturity of the portfolio and type of debt securities the fund invests in. In today’s episode we will cover 9 different categories of funds based on portfolio maturity.

Rajesh Singh: That sounds like a plan Sonali but what about the other classification based on type of debt securities?

Sonali Dahiya: Those will be covered as well Rajesh in the upcoming episodes. Do look out for our next podcast on the type of debt mutual fund basis the type of securities the fund invests in.

Rajesh Singh: As you may know, there is an inverse relationship between bond prices and interest rates. A debt instrument with a longer duration is more sensitive to changes in interest rates as compared to a debt instrument with a shorter duration. This may allow an investor to take an informed decision while investing in debt funds.

Raghuveer Sampath: Thanks Rajesh and now let us proceed to define debt funds based on the Macaulay duration. In the simplest of terms-Macaulay Duration is the time taken for an investor to get back his invested money in a debt instrument by way of periodic interest and principal repayments. Let’s begin with understanding overnight and liquid funds

Ratna: – Overnight funds as the name suggests, invest in overnight debt securities having a maturity of 1 day and may carry near zero interest rate risk and minimum credit risk. Liquid funds invest in debt securities with maturity of up to 91 days and remain an option to park surplus cash for the short term.

Rajesh Singh: Ultra short duration, Low Duration and short duration funds have a Macaulay duration of 3 months to 6 months, 6 months to 12 months, and 1 year to 3 years respectively.

Raghuveer Sampath: As we move up the duration bucket there are medium duration and medium to long duration funds. They will have duration between 3 to 4 years and 4 to 7 years respectively. Lastly, we also have Long duration funds having a duration of greater than 7 years.

Sonali Dahiya: You may be thinking - Is there a category that can invest across duration? Yes and these are called Dynamic debt funds. These funds may help in navigating fluctuating interest rates in the economy.

Rajesh Singh: Thank you, this is quite helpful. But I do have one last question - How do I know which category does a debt mutual fund belong to?

Ratna Rathore: 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.

Raghuveer Sampath: We hope this short capsule on categorization of debt mutual funds was useful. We will be back next week with more such information. Till next week – stay tuned and visit us on Citi Wealth Insights – your platform to learn and engage. Have a good week!

03 : 01

The “New Economy” changes in India

The Podcast discusses how internet and
E-commerce IPOs are giving investors more options to participate in the “New Economy”.

The “New Economy” changes in India

Raghu: Hi I am Raghuveer Sampath and along with my Co-host Ratna Rathore, I welcome you to this week’s Podcast.

Ratna: There is a lot of buzz around many companies going public in 2021.What is all this buzz about Raghu?

Raghu: As per the Citi Research report released last week, Citi analysts believe that with the first large listing in Indian Internet & e-commerce space and with multiple such listings lined up, investors may get more choices to play the “new economy” in India. But what exactly is this “new economy”?

Ratna: Investopedia defines new economy as new high-growth industries that are on the cutting edge of technology and are believed to be the driving force of economic growth and productivity. Raghu, for the benefit of our listeners, would you like to explain what is an IPO?

Raghu: Sure. When a private company decides to offer its shares to the public through stock issuance – it is known as an IPO or Initial Public Offering. Companies deciding to adopt the IPO route must register with SEBI. There are approximately 30 companies that are expected to launch their IPOs in 2021.

Ratna: Citi analysts believe that upcoming internet & e-commerce IPOs with the first large listing witnessed on 24th July at 13bn+ market cap & the many more listings lined up may give investors options to get exposure to the “new economy” in India.

Raghu: They believe the opportunity is huge. Do you Know Ratna that this space was 12% of the market cap in the US and 20% in China at end of CY2020

Ratna: So Raghu, What are the implications for India as a market as well as for the Investors in this “New Economy” play?

Raghu: To begin with, given a strong list of IPOs lined up, Citi analysts expect that these listings will support the growing relevance and the market cap of the sector. Citi analysts estimate the Internet market in India to be 600$ bn+. By the end of 2030 they expect a large footprint in the public markets as well

Ratna: Citi analysts also believe that this will shore up options for investors to take exposure to the “new economy”. Given India’s vibrant IT services sector although with limited real options in technology, this may open more options to tech investors in India to choose from.

Raghu: Additionally, the opportunity of tapping into multiple listings, new economy plays may raise India's weight in the MSCI EM index. Although, Citi analysts highlight that some composition changes could be net negative for some of the currently highly weighted stocks.

Ratna: Clearly Raghu: With larger adaptation of technology and deepening digitization in the Post Covid World - The New Economy comprising new, high growth industries maybe something to lookout for.

Raghu: That’s right Ratna and with this we come to the end of this podcast. We will be back next week – same day, same time. Do visit us on the Citi Wealth Insights Page for more such Insights and Information. Have a good week ahead.

03 : 04

Going beyond the shores: International Funds

The Podcast is on international funds and their growing importance in portfolio diversification.

Going beyond the shores: International Funds

Raghu: Hello, I am Raghuveer Sampath.

Sonali: Hi, I am Sonali Dahiya and we welcome you to this week’s podcast. Today we will discuss about international markets and the investment opportunities in foreign companies which are not listed in India. Raghu, do you know that there are international funds available for Indian investors to invest in?

Raghu: Yes, indeed! International funds are mutual funds that collect corpus from the domestic market and invest in securities of foreign companies listed in foreign markets. These funds may either invest directly in global markets or they may go through the fund of funds route, where they invest in an existing global fund. I have a question to you Sonali, is investing in International funds the same as investing in any other equity mutual fund? Who regulates these funds?

Sonali: Yes, it is the same as investing in any equity mutual fund and international funds also follow the guidelines prescribed by SEBI. Also, let me ask you a question – how does the money actually get invested?

Raghu: It is the same as regular mutual funds - you invest in rupees and get units in the fund scheme. Each unit has a Net asset value or NAV. My next question to you what are some of the benefits of investing in international funds?

Sonali: The dynamics of every country and economy differ from each other. Generally, the Indian markets have low-correlation with some international markets and hence, investing in different avenues with little correlation may lead to risk optimization and diversification of portfolio.

Raghu: Well said! Additionally, Investing in international funds may enable an investor to get exposure to certain sectors or themes which may not be available in the Indian market.

Sonali: That brings me to the next question – Since international funds invest in foreign markets, how does the value of Indian Rupee impact such an investment?

Raghu: If the value of international investment rises, you may still see a lesser return in Rupee terms if the foreign currency goes down in value against the Indian Rupee. On the other hand, if the foreign currency gains in value against the Indian rupee, your investment returns in rupee terms may go up.

Sonali: Geographical diversification can help an investor by reducing excessive concentration in a single market. Let us understand this with an example. There have been instances where Indian Equity markets had underperformed while some international markets had done well.

Raghu: For instance, in the year 2019, Nifty 50 index returns delivered approximately 13% whereas the S&P 500 index in the US had delivered a return of 29%. So a geographically diversified portfolio with some international exposure would have benefitted in such an instance.

Sonali: That’s right Raghu and therefore, it’s good to know the importance of International funds in a portfolio.

Raghu: This brings us to the end of today’s podcast and we hope you enjoyed this short capsule on International Funds. We will be back next week - same day, same time. Stay tuned with us and visit us on the Citi Wealth Insights page – your platform to learn and engage. Have a great week ahead!

03 : 13

Consumption trends in FY 2022

The Podcast is regarding the key implications for consumption in the Financial Year 2022.

04 : 38

Fixed Deposits v/s Mutual funds

The Podcast compares the two popular methods of saving money: Fixed deposits and Mutual funds.

Fixed Deposits v/s Mutual funds

Raghu: Hello and welcome to this week’s edition of our podcast. I am Raghuveer Sampath along with my co-host Rajesh Singh. It is often remarked that when you don’t work, your savings will work for you. In our episode today we discuss two popular ways prevalent in India that people use to save their money.

Rajesh: That’s right - one is a term deposit or more popularly known as fixed deposit and the other, mutual funds! Fixed deposits are provided by Banks and some Non-Banking Financial Companies offering guaranteed returns over a period of time with the flexibility of choosing your tenure.

Raghu: The tenure may range from 7 days to 10 years. Some common examples are: recurring deposits, Cumulative or Annuity deposits, Reinvestment deposits, Cash Certificates, and so on.

Rajesh: As an Investor, you may decide the tenure or the time period that suits you. The interest offered depends on the tenure or maturity period of the FD. This rate of interest varies from one financial institution to another. Fixed deposits attract pre-closure penalty, which means if you choose to withdraw your money before the stipulated time period, you may have to pay a penalty.

Raghu: Some variant of fixed deposits like tax saver deposits have a lock-in period, which means you cannot exit the investment until the lock in period expires.

Rajesh: Banks also offer recurring deposits wherein you can give an auto-debit instruction to your savings account for a set amount to be booked as a fixed deposit every month.

Raghu: Also available are multi deposit products which are linked to savings accounts and may be automatically broken, partially depending on your liquidity need. A multi deposit functions exactly like a normal time deposit.

Rajesh: So, if the customer's linked savings account balance falls below zero at any point of time, a small portion of the multi-deposit will automatically break to ensure this is remediated in the savings account. The remainder of the deposit continues as is.

Raghu: The good part about fixed deposits is that the rate of interest does not fluctuate with the external market movements and the duration of investment or tenure and interest amount is predetermined.

Rajesh: Also, the Deposit Insurance and Credit Guarantee Corporation insures Principal and interest of a term deposit up to a maximum amount of Rs. 5 lakhs, subject to terms and conditions as defined by RBI.

Raghu: Now let’s talk about mutual funds. AMFI defines a mutual fund as a pool of money managed by a professional Fund Manager. The money pooled in by a large number of investors is invested by the Asset Management Companies into a portfolio of equities, bonds, money market instruments and other such securities.

Rajesh: As an investor in a mutual fund, you hold units of the mutual fund, and not the underlying stocks or bonds. The rate of return on your investment is linked to market movements. Mutual Fund schemes could be ‘open ended’- or close-ended’- and they could be actively managed or passively managed.

Raghu: You can learn more about active and passive funds and characteristics of open & close ended funds in our upcoming episodes covering both such concepts. Mutual fund investors have the convenience to invest and exit on any given business day, subject to lock-in periods, of course, if any. Should you choose to redeem your money before the stipulated time of that scheme, the redemption amount may also attract an exit load.

Rajesh: So Raghu which of these options is suitable for an investor to choose from?

Raghu: Great question! As an investor, it would depend on the Investment objective, amount of risk one is willing to take and the time horizon. Fixed deposits guarantee a fixed return and mutual funds offer market linked performance, thereby offering a potential of a higher return, subject to market risks of course. The gains made from investments in mutual funds and fixed deposits are taxed differently.

Rajesh: It is very important to invest as per your risk profile in line with your goals and objectives. We hope this podcast has helped you understand the difference between these two popular methods of investment.

Raghu: While this brings us to the end of this podcast, we want to stay connected with you through the week - so do visit us on the Citi Wealth Insights page for more such market updates and analysis – We are going to be back next week – Same time – Same day, with more such information. Until next time, goodbye and have a great week.

03 : 15

Demystifying SID and KIM

The Podcast aims at demystifying scheme information document (SID) and Key Information memorandum (KIM) of Mutual funds.

Demystifying SID and KIM

Raghu: Hello everyone, I am Raghuveer Sampath

Ratna: Hello, and I am Ratna Rathore and, we welcome you to this week’s podcast.

Raghu: In our previous episodes, we have discussed a few factors like investment objective, risk appetite and time horizon that investors may consider before taking a decision to invest in mutual funds.

Ratna: That’s right Raghu. And With a variety of mutual fund schemes offered by AMCs, one may think - how can an investor decide which mutual fund scheme to choose? Is there any factual data or detailed document available for every scheme?

Raghu: Yes, there is Ratna! Every AMC or fund house provides fund offer documents known as Scheme Information Document or SID and Key Information Memorandum abbreviated as KIM. Both aim to provide fund scheme details to the investor.

Ratna: So Raghu, What is the difference between these two documents?

Raghu: SIDs are detailed in nature whereas KIMs list out the essential information about the fund scheme in a shorter format. Both documents are readily available on the AMC and market regulator SEBI’s websites.

Ratna: These documents provide mutual fund scheme details like information about the AMC, objective of the scheme I.e. capital appreciation, fixed income or both, units and offer, Fees and expenses, fund manager details and experience, SIP details, Riskometer, and Maturity date and liquidity of the fund.

Raghu: Wow that is a lot of useful information. Then it is of utmost importance for every investor to definitely read the SID and KIM before investing. By the way what is this Riskometer you spoke about?

Ratna: Market regulator SEBI has a system of product labelling and to ensure investor make investments in mutual fund schemes that correspond to the investor’s risk profile. SEBI came out with fresh guidelines to calculate risk grades in October 2020, and these guidelines came into effect in January 2021.

Raghu: I see, so basically Ratna, a Riskometer is a representation of the risk associated with the fund and is explicitly stated in the SID and KIM. It ranges from low to very high and hence, an investor can judge if the mutual fund scheme risk matches with their risk appetite.

Raghu: These details help an investor in choosing the type of mutual fund, assess fund managers and fund‘s performance. So thank you on a refresher on SID and KIM. I must say this has been very useful Ratna.

Ratna: You are most welcome Raghu! And as we sign off for the week - We do hope this podcast has helped our listeners understand the importance of both SID and KIM better and also appreciate the importance of a Riskometer.

Raghu: This brings us to the end of our podcast but we want to stay connected with you.- so do visit us on the Citi Wealth Insights page for more market updates and analysis – We will be back Next Week – Same Time – Same Day - Until the next time, goodbye and have a great week ahead

03 : 15

ELSS Funds

The Podcast highlights the importance of Equity Linked Savings Scheme (ELSS) funds.

ELSS Funds

Rajesh: Hello and welcome to this week’s edition of our podcast.
I am Rajesh Singh.

Sonali: Hi, I am Sonali Dahiya.

Rajesh: Tax-saving mutual funds allow an investor to invest for long term with tax benefits, while participating in the equity market. Today we learn more about this category called Equity linked savings schemes or ELSS.

Sonali: Very simply put, SEBI defines ELSS as tax saving schemes that offer tax benefits to investors under specific provisions of the Income Tax Act, 1961. These schemes are growth oriented and invest pre-dominantly in equities. In a nut shell this is a tax incentive offered by the government to investors to save and invest in specified avenues e.g. ELSS under section 80C.

Rajesh: Let’s break it down further for you.
As you would know, there are 2 tax structures now available for a tax payer – one, where an investor may continue to avail exemptions and the other, without any tax exemptions. ELSS, falls under exemption category and is tax deductible as per Section 80 C of the Indian Income tax act while allowing investors to participate in the equity market.

Sonali: ELSS can be invested using both Systematic Investment Plan and lump sum investment options.
Another important thing to note about ELSS funds is that –they have a lock in period. And you may want to know what that means? Rajesh, would you like to explain that further?

Rajesh: Absolutely! These schemes have a mandatory lock in period of 3 years – which means that the earliest you can exit your investment is 3 years from the date of your first purchase of the product. Since you cannot redeem your funds before this period, the funds are ‘locked in’, hence the use of the term ‘lock in period’.

Sonali: ELSS provides deductions of up to 1.5 lakhs from total income under section 80C, if opting for the old tax regime. This means that you may benefit from a tax deduction of Rs. 1.5 lakhs under Section 80 C, for investments made in permissible instruments, such as ELSS, NSC, PPF, etc.

Rajesh: So should you invest in an ELSS? Broadly speaking an ELSS fund is an option to consider if you are looking for avenues for flexibility of market returns and tax saving. As an Investor, it is important to understand how much risk you are willing to take, and the time for which you would like to remain invested. A lock in period of 3 years means that you cannot access this money immediately.

Sonali: Investing in equity mutual funds carries market-linked risk, and you must keep this in mind before making your decision. This brings us to the end of our podcast and we do hope this podcast has helped you understand what are ELSS funds and their benefits. So Stay connected with us by visiting our 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. See you next week!

02 : 46

What are Hybrid Funds?

The Podcast highlights the different categories of Hybrid funds.

What are Hybrid Funds?

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!

04 : 24

Categorization of Equity mutual funds

The Podcast highlights the different categories of equity mutual funds.

Categorization 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!

04 : 00

Dynamics of Inflation

The Podcast highlights how inflation is measured and its constituents.

Dynamics of Inflation

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!

02 : 38

Things to know before investing in mutual funds

The Podcast highlights a few factors that an investor may want to consider before choosing to invest in a mutual fund.

Things to know before investing in mutual funds

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!

03 : 30

The Gold Conundrum

The Podcast highlights the performance of Gold and factors that determine its price.

The Gold Conundrum

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!

02 : 26

Time in the market, not timing!

The Podcast highlights the importance of staying invested in the market than timing the investments in to the same.

Time in the market, not timing!

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.

03 : 02

Understanding Financial Ratios – PE Ratio

The Podcast highlights the role of PE ratio while evaluating a company’s performance.

Understanding Financial Ratios – PE Ratio

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.

05 : 09

Risks in Debt Mutual Funds

The Podcast highlights the core risks in a debt mutual fund

Risks in Debt Mutual Funds

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!

02 : 04

Understanding Financial Ratios – ROE ratio

The Podcast highlights the role of ROE ratio while evaluating company’s performance.

Understanding Financial Ratios – ROE ratio

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

03 : 02

Mutual Funds poised for growth

An overview of Mutual fund penetration in India

Mutual Funds poised for growth

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

02 : 22

Benefits of SIP

Benefits of Systematic Investment Plan- A Simple way to disciplined investing

Benefits of SIP

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.

02 : 35

Asset Allocation

What is Asset Allocation and why is it important?

Asset Allocation

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.

02 : 55

Power of Profiling

Risk profiling helps find suitable investment options with respect to the investor’s risk appetite.

Power of Profiling

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!

03 : 48

Transforming Trends

We believe this is an important time for investors as the focus turns to The New Economic Cycle and The New Opportunities