Wealth Insights Podcasts | Financial Podcasts

03 : 32

Understanding Market Volatility - Part 2

In today’s episode, we talk about Systematic and Unsystematic risk and ways of mitigating it

Understanding Market Volatility - Part 2

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

Arunjeet Taneja: Hello I am Arunjeet Taneja. In our previous podcast we discussed systematic and unsystematic risk. This week we talk about ways of mitigating risk.

Sonali Dahiya: Let’s start with Unsystematic Risk. Unsystematic Risk is also called diversifiable Risk and is often tied to a specific company or industry. The best way to reduce unsystematic risk is to diversify. For example, an investor instead of investing his surplus in one company may choose to invest in 2-3 companies, preferably from different uncorrelated sectors.

Arunjeet Taneja: The more a diversified portfolio of stocks from unrelated sectors, lesser the inherent Unsystematic risk in the portfolio.

Sonali Dahiya: It’s important to understand that a portfolio of well-diversified assets cannot escape all risk. A Portfolio will still be exposed to systematic risk.

Arunjeet Taneja: Systematic risk refers to the uncertainty that faces the market as a whole and includes for example shifts in interest rates, global and domestic events, financial crises, wars, and natural disasters to name a few. Let’s assume you have a well diversified 15 stock portfolio, a degrowth in GDP will affect all stocks and hence, they are all likely to decline.

Sonali Dahiya: Arunjeet are there ways of measuring these risks?

Arunjeet Taneja: Yes Sonali. Standard Deviation is one such measure which is commonly used. It measures the Total Risk. I.e., risk emanating from both the Systematic and Unsystematic factors.

Sonali Dahiya: Standard deviation measures how much an investment fluctuates from its expected return. The smaller an investment's standard deviation, the less volatile it is. The larger the standard deviation, the more dispersed those returns are.

Arunjeet Taneja: Thanks, Sonali and Now Let us understand this through an example too. Let us assume there are 2 funds: Fund A and Fund B, averaging a 10% return over 10 years. However, the annualized returns for last 3yrs of Fund A is 9%, 10% and 11% whereas for Fund B, the returns are 5%, 10% and 15% It suggests fund B is more volatile than fund A. Assuming an investor has a return expectation of 10% next year, he may likely choose Fund A over B.

Sonali Dahiya: Another popular measure is Beta (β) as a measure of the volatility. Funds with betas higher than 1.0 may interpreted as more volatile. Likewise, Betas less than 1 may be interpreted as less volatile. Do Refer to our podcast release of 10th Sep’21 for more details on Beta as a measure of volatility.

Arunjeet Taneja: Sonali, how can we reduce the Systematic risk in a portfolio?

Sonali Dahiya: Risk can be minimized through diversification and sticking to asset allocation while evaluating the risk measures. It cannot be fully eliminated.

Arunjeet Taneja: Well, this was very insightful. Happy to learn about unsystematic risk, systematic risk and ways of measuring and mitigating them. Thank you!

Sonali Dahiya: You are very welcome Arunjeet. This brings us to the end of our podcast and part 2 of the Market Volatility Series. Do Stay connected with us and visit us on Citi Wealth Insights page for more such market updates and analysis – We will be back more such information. Thank you and Have a great week ahead!

02 : 56

Target Maturity Fund - Part 2

In today’s episode, we talk about the difference between Target Maturity Funds & FMP’s

Target Maturity Fund - Part 2

Raghuveer Sampath: Hello I am Raghuveer Sampath and along with my Co Host Ratna Rathore, I Welcome you to this week’s Podcast.

Ratna Rathore: Hi Everyone, In the previous episode we covered what are Target maturity funds. Today we will discuss the key difference between Target Maturity Funds and Fixed Maturity Plans.

Raghuveer Sampath: Fixed maturity plans are closed-ended debt mutual fund schemes that have a specified maturity profile. These funds primarily invest in a portfolio of debt or money market securities such as Certificate of Deposits, Treasury Bills, Corporate Bonds etc. that mature on or before their date of maturity.

Ratna Rathore: That’s easy to understand. But how are these plans different from Target Maturity Funds?

Raghuveer Sampath: While both Target Maturity Funds and Fixed Maturity Plans have a pre-defined tenor, FMPs are closed ended in nature and investors can enter these schemes only during the new fund offer launched by their respective Asset Management Company.

Ratna Rathore: Investors can buy or sell these schemes on the stock exchange, whereas FMPs are listed but the liquidity tends to be low. TMF’s on the other hand are open ended in nature and investor may exit out of it at any time, subject to applicable exit loads, therefore offering liquidity benefit.

Raghuveer Sampath: That makes sense. Are there any other differences between the two fund categories?

Ratna Rathore: Yes!! FMPs have a tenor of up to three years or slightly higher whereas in the case of TMFs, the tenor can go up to 10 years or more. FMPs largely invest in a portfolio of corporate bonds with varying credit quality like G-Sec, AAA, AA+ etc. However, TMF’s are passively managed funds and mainly invest in bonds of underlying index it tracks. The portfolio primarily consists of public sector undertaking, State development loans, G-secs and other bonds.

Raghuveer Sampath: Ratna Are there any similarities between the two fund categories?

Ratna Rathore: Yes, Raghu there are. Target maturity fund and fixed maturity plan (FMP) have fixed maturities. They invest in debt securities maturing in line with the tenor of the scheme.

Raghuveer Sampath: Broadly speaking, these funds can manage volatility through a buy and hold strategy and reduce the mark to market impact in a rising interest rate environment.

Raghuveer Sampath: So, finally who should be investing in these fund categories?

Ratna Rathore: Fixed income investors having a 3-10 year investment horizon may consider these funds while remaining diversified in their portfolios and keeping preference for quality. Investors must choose the fund category commensurate to their investment horizon.

Raghuveer Sampath: Well, this was very insightful. Thank you. This brings us to the end of this podcast. We hope this short discussion was useful. Stay connected with us and visit us on Citi Wealth Insights page for more such market updates and analysis – We are going to be back soon, with more such information. Have a great week ahead!

02 : 53

Target Maturity Fund - Part 1

In today’s episode, we talk about Target Maturity Fund and its relevance in the current market situation

Target Maturity Fund - Part 1

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

Ratna Rathore: Hi and I am Ratna Rathore. Raghu there seems to be a lot of buzz regarding target maturity funds… What are these funds and why are they relevant in the current market situation?

Raghuveer Sampath: Ratna, Most central banks are dealing with persistently high inflationary pressure. RBI’s successive rate hikes in the recent past to bring inflation under control and the rising bond yields is impacting the yields on debt mutual funds.

Ratna Rathore: Ok So Let’s first understand what TMFs or Target Maturity Funds are? Target Maturity Funds are open ended debt mutual fund schemes that invest into a portfolio of an underlying index. They are passively managed funds comprising bonds of mainly Public Sector Undertakings and/or State Development Loans. These are part of the underlying bond index having maturities hovering around the fund's stated maturity.

Raghuveer Sampath: That’s easy to understand. But how are these funds different from other open-ended debt mutual funds?

Ratna Rathore: Target Maturity fund track the underlying index and invest in bonds specified in that index that mature on or before a given date.

Raghuveer Sampath: In an actively managed open-ended debt scheme, the fund manager is focused on the duration of the overall portfolio of the scheme and not maturity of individual bonds. This means that the fund may have investment in long tenured bonds as well as money market instruments, which makes them sensitive to the changes in interest rates.

Ratna Rathore: That make sense. What are the main benefits of investing in Target Maturity Funds?

Raghuveer Sampath: Being open ended, Target Maturity Funds offer liquidity benefit to an investor. Target maturity funds may help in locking the portfolio yield for a fixed period if held till the maturity.

Ratna Rathore: The interest rate risk gets limited as an investor stays invested thereby reducing volatility in the portfolio. However, if an investor redeems before the stated maturity of the fund, the performance may get impacted by interest rate risk.

Raghuveer Sampath: These funds offer Low credit risk as most of the securities invested are into G-Secs, SDLs & PSU bonds.

Ratna Rathore: Finally, Target Maturity Funds offer low-cost investment platform for building debt assets.

Raghuveer Sampath: Are there any key points to consider from a risk reward ratio?

Ratna Rathore: TMF’s do not have long track record of past performance as they are relatively new in the MF industry.

Raghuveer Sampath: Who should invest in these debt funds?

Ratna Rathore: Client’s must target the fund whose maturity profile matches their investment horizon. This would mitigate the intermittent interest rate risk to a large extent.

Raghuveer Sampath: Well, this was very insightful and with this we come to the end of the podcast. We hope this short discussion was useful. Stay connected with us and visit us on Citi Wealth Insights page for more such market updates and analysis – We will be back with more such information. Have a great week ahead!

02 : 36

Surging Global Gas Prices & Discounted Russian Oil Imports – Impact on Indian Economy

In today’s episode, we talk about Surging Global Gas Prices & Discounted Russian Oil Imports – Impact on Indian Economy

Surging Global Gas Prices & Discounted Russian Oil Imports – Impact on Indian Economy

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

Sonali Dahiya: Hello I am Sonali Dahiya. In this Week’s podcast we will understand how the Russia- Ukraine Conflict has led to a disruption in the global energy market and its corresponding impact on India.

Raghuveer Sampath: Do you know since the start of the Russian Ukraine Conflict, Asian Liquified Natural Gas monthly average prices are up 155% YoY and up 985% from the same period two years ago. The surge in gas price on one hand is negative for large commodity importers like India but on the other hand discounted Russian crude oil purchases are providing the necessary cushion.

Sonali Dahiya: Raghu, what is the impact of these elevated gas prices on India’s Import Bill and Inflation?

Raghuveer Sampath: Broadly speaking, Citi analysts view a limited impact on both Imports and Inflation. This is because LNG accounts for ~6% of India’s total energy needs and ~2.2% of total Imports. Countries in Asia Pacific region have double the share of gas in their energy consumption.

Sonali Dahiya: Further, Direct consumption of natural gas by Indian consumers is limited to CNG or compressed natural gas for transportation and PNG or piped natural gas for cooking gas. The two have limited direct inflationary impact as neither are included in the CPI based Inflation.

Raghuveer Sampath: Even Indirect inflation impact from electricity prices may be small as natural gas is ~3% of total country’s electricity generation.

Sonali Dahiya: What is the impact from discounted Russian crude oil purchases on India’s Imports?

Raghuveer Sampath: As per Citi Analysts, Russia’s share in India’s total petroleum imports has risen to 19.5% in Jul-22 from 2% in FY22. This could result in ~USD 5-10bn benefit on India’s overall crude imports bill thereby cushioning any near-term impact from gas price effect.

Sonali Dahiya: So how would this arrangement influence retail fuel prices and impact the common man?

Raghuveer Sampath: India’s retail fuel prices have remained relatively detached from international crude oil prices. While the global crude prices have been extremely volatile, the retail fuel prices in India have remained stable due to central government’s indirect interventions.

Sonali Dahiya: Well, this was very insightful. Thank you!

Raghuveer Sampath: This brings us to the end of this podcast. We hope this short discussion was useful. Stay connected with us and visit us on Citi Wealth Insights page for more such market updates and analysis – We are going to be back soon, with more such information. Have a great week ahead!

04 : 48

WPI and CPI Indices

In today’s episode, we talk about WPI & CPI Indices and their impact on the economy

WPI and CPI Indices

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

Ratna Rathore: Hi and I am Ratna Rathore. With all the Buzz surrounding Inflation we believe todays podcast will help understand the growing relevance of this macro indicator and its impact on the economy

Arunjeet Taneja: That’ Right Ratna. India’s headline CPI came in at 7% for August 2022 largely driven by food and beverage. It has been observed that there is an increasing divergence within the food basket wherein the vegetables prices are subdued while cereals prices elevated.

Ratna Rathore: Interestingly August saw the sharpest Month on Month jump in rice and wheat prices since at least 2014. Can you tell us briefly tell us how is inflation measured?

Arunjeet Taneja: Sure. There are 2 indices thar are used to measure inflation i.e., wholesale price index and cost price index.The WPI measures the movement in the average prices of goods at the wholesale level, That is, commodities sold in bulk and traded between businesses rather than goods purchased by end consumers. The degree of rise in WPI is used to measure the wholesale inflation in the economy.

Ratna Rathore: The Consumer Price Index measures the change in general prices of goods and services that households purchase for the purpose of consumption. The CPI measures price changes by comparing, through time, the cost of a fixed basket of commodities and is referred to as CPI-based inflation, or retail inflation.

Arunjeet Taneja: So, what are the major components of these Indices?

Ratna Rathore: The index basket of WPI is divided under three groups — Primary articles, Fuel and Power & Manufactured Goods. It is published on a monthly basis by the Ministry of Commerce & Industry. Manufactured Products has the highest weightage ~64% in the WPI.

Arunjeet Taneja: The CPI is divided into eight categories: education, communication, transportation, recreation, clothes, foods & beverages, housing, and medical care. The National Statistical Office publishes it on monthly basis. Food & Beverage has the highest weightage of ~46% in the CPI.

Ratna Rathore: That make sense. We have heard them being covered independently by the government agencies, central banks and in media on numerous counts. What is their importance?

Arunjeet Taneja: WPI provides estimates of inflation at the wholesale level for the economy and enables the government to make timely intervention before the price hike spills over to the retail prices. WPI based inflation is used by the government to prepare fiscal, trade and other economic policies.

Ratna Rathore: CPI is an important statistics to ascertain a country’s economic health as it helps in determining the cost of the standard of living. CPI is widely used by the central bank for targeting inflation and monitoring price stability through its Monetary Policy.

Arunjeet Taneja: Ratna What are the key differences between the two?

Ratna Rathore: In the case of the WPI, only goods are taken into account whereas the CPI includes both goods and services. If the price of services such as transportation or entertainment get costlier, then retail inflation will rise but there will be no impact on wholesale inflation.

Arunjeet Taneja: As broadly speaking - WPI is dominated by the prices of manufactured goods while the CPI is dominated by the prices of food articles. As such, if food prices go up sharply, it will increase the retail inflation rate far more than it would spike the wholesale inflation rate. The reverse will happen when prices of manufactured products (such as electronic goods and cars) rise sharply.

Ratna Rathore: The WPI and the CPI are calculated based on a basket comprising of different articles and as such it is not uncommon to find them at considerable variance with each other. However, CPI has been utilized as a nominal anchor for the conduct of monetary policy in India since the Reserve Bank of India established Inflation Targeting. The Central Bank’s Monetary Policy Committee (MPC) is required to keep the CPI based inflation in the range of 2% to 6%. As a result, the CPI is used to target inflation.
For Example: The CPI based inflation for Aug-22 rose to 7.0%YY from 6.71% in July-22.

Arunjeet Taneja: Well, this was very insightful. Thank you!

Ratna Rathore: This brings us to the end of this podcast. We hope this short discussion was useful. Stay connected with us and visit us on Citi Wealth Insights page for more such market updates and analysis – We are going to be back soon, with more such information. Have a great week ahead!

03 : 05

Understanding Market Volatility - Part 1

In today’s episode, we talk about Systematic and Unsystematic risk and its impact on investments

Understanding Market Volatility - Part 1

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

Arunjeet Taneja: Hello I am Arunjeet Taneja. In this Week’s podcast we talk about the type of risks that may impact investments.

Ratna Rathore: Do you know that there are risks which we can control and those we can’t? Some risks are caused by external factors and some due to internal factors.

Arunjeet Taneja: Can you explain this a little more Ratna?

Ratna Rathore: There are two types of risk –Unsystematic and Systematic risk. Let’s understand the unsystematic risk first. This risk is specific to the company or the related industry. Unsystematic risk is also called as specific risk or diversifiable risk.

Arunjeet Taneja: And we can understand this through some examples. Business Risk, Financial Risk, Operational, Strategic, Legal and Regulatory are some of the examples of unsystematic risk. These risks are unplanned and unavoidable, but its impact can be limited with diversification into different sectors.

Ratna Rathore: Let’s look at Systematic risk now. This Risk unlike unsystematic risk is attributed to broad market factors. Systematic risk is inherent risk of the market, and this risk applies to all the sectors. Some examples of Systematic risk are Inflation, GDP, unemployment levels, Interest Rates etc. As you can see, Systematic risk is uncontrollable and multiple factors are involved which are usually exogeneous.

Arunjeet Taneja: Can you give an example of Systematic risk as well?

Ratna Rathore: Oh yes! A recent example is RBI Monetary Policy Committee increasing Repo rate on account of elevated inflation print or the global uncertainty accentuating the supply shocks and impacting commodity prices worldwide are examples of systematic risk.

Arunjeet Taneja: If I may summarize for our listeners, there are two risks which we discussed today systematic and unsystematic risk …and both collectively can be called as “Total Risk ‘for the fund. Ratna I have another question - Can systematic and unsystematic risk be calculated?

Ratna Rathore: Yes Arunjeet. Commonly used measures are Beta and Standard deviation. Beta measures the Systematic risk and Standard Deviation measures the Total Risk. Unsystematic Risk can be reduced by Diversification as we discussed before.

Arunjeet Taneja: This was very interesting. Thank you.

Ratna Rathore: This brings us to the end of this podcast. We hope this short discussion on various type of Risk was useful. Stay connected with us and visit us on Citi Wealth Insights page for more such market updates and analysis.

03 : 41

Intrinsic Value of an Asset

In today’s episode, we talk about what is intrinsic value of an asset and how is it relevant for investors?

Intrinsic Value of an Asset

Ratna Rathore: Hello everyone, I am Ratna Rathore and along with my Co Host Arunjeet Taneja, I welcome you all to this week’s Podcast.

Arunjeet Taneja: Thank you Ratna. Let me ask you a simple question – what do you expect when you make an investment in an asset?

Ratna Rathore: Well, I expect the value of my asset to grow over a period of time and thereby make some profits!

Arunjeet Taneja: That’s right. Today we are going to define a key concept related to valuing an asset.

Ratna Rathore: That’s interesting and what exactly is this concept?

Arunjeet Taneja: Well, Ratna, In one of our earlier episode on value Investing dated 12-Nov-2021 we shared a glimpse of value investing framework as an approach to investments and mentioned a term called intrinsic value. Value Investing considers intrinsic value as one of the core tenets of the investing framework.

Ratna Rathore : Arunjeet, this sounds a bit complicated – can you simplify it for us? What exactly is an intrinsic value of an asset is and how it is useful for me an investor?

Arunjeet Taneja: Let me start with asking you another question - If you own shares of a particular company – how will you value them?

Ratna Rathore: That’s simple. Basically, I will look at the quoted market price of the shares in a stock exchange and calculate the value of my holdings.

Arunjeet: Ratna when you refer to quoted market price, you are trying to equate price of an asset as available at a given time in the market to what an asset is inherently worth. But in reality - these may be two different things. Let’s understand this a bit more.

Ratna Rathore: Intrinsic value refers to what an asset is inherently worth. For example, investment in equity shares of a company represents ownership of that business and so when you talk about intrinsic value of an asset like equity shares, you are referring to the price that a rational investor may be willing to pay based on the ability of the company to generate future cash flows and profits.

Arunjeet Taneja: Market price may or may not be equal to intrinsic value as it is a reflection of what investors are willing to pay at a given point of time for an asset.

Ratna Rathore: So Arunjeet in other words, you are trying to say a rational investor may be interested in knowing whether the market price compares with the intrinsic value before an investment decision is made?

Arunjeet Taneja: Exactly! You hit the point Ratna.In the case of a cash flow generating asset – eg – a company- one of the ways to arrive at the intrinsic value is to estimate the future cash flows through detailed analysis and try to find the present value of the cash flows. So Ratna Can I apply the intrinsic value calculation to any asset available in the market?

Ratna Rathore: Good question Arunjeet. Intrinsic value can be determined only for an asset which generates some cash flows over its lifetime. Intrinsic value cannot be computed for an asset which does not generate a cash flow. For example, consider a painting or a work of art by a renowned artist. The painting or a work of art by itself will not generate any cash flows and hence the intrinsic value cannot be computed.

Arunjeet Taneja: This is quite enlightening Ratna.I now realize that the value of an asset may be determined for what it is worth rather than going by the market perceptions of its value.

Ratna Rathore: That’s right Arunjeet.

With this we come to an end of this week’s Podcast. We want to remain connected with you so do visit us on the Citi wealth insights page for more information and market analysis. We will be back next week - Till then goodbye and have a great week ahead!

03 : 12

Decoding: Cyclical and Defensive sectors in investments

In today’s episode, we talk about the understanding of Cyclical and Defensive sector investments.

Decoding: Cyclical and Defensive sectors in investments

Raghuveer Sampath: Hi, I am Raghuveer Sampath.

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

Raghuveer Sampath: Ratna I have been observing that you have been listening to an audio books for a while. Anything interesting you want to share with us?

Ratna Rathore: Oh Yes, Raghu - My 12-year-old niece has given me an assignment to find the meanings for some idioms – so I am on the job!

Raghuveer Sampath: Wow! Idioms can be fun! Have you heard of the expression called “Horses for Courses”?

Ratna Rathore: Yes, I have. It simply means - certain people are suitable for certain types of activities because everyone has different skills. Am I right?

Raghuveer Sampath: Exactly Ratna! But do you also know that just as different people are suited for different activities, similarly there are investments that move in tandem with economic cycles?

Ratna Rathore: You mean “Horses for courses” for investments? Are you referring to Cyclicals and Defensives?

Raghuveer Sampath: You got that right! Let’s take a case of investing in different stocks - there are some stocks that may be classified as cyclicals and some as defensives. For Example - in the case of a mutual fund, a defensive sector fund may invest in stocks of companies that may remain stable through all phases of economic cycles.

Ratna Rathore: In the long term, an economy experiences business cycles which may oscillate between expansionary periods and contractionary periods. Cyclical companies largely move in tandem with the business cycles or simply put may be dependent on the changes in the overall economy.

Raghuveer Sampath: Generally speaking, in an expansionary cycle, jobs are plenty, Income levels are generally higher, and people tend to spend more on discretionary items like purchasing an automobile, constructing new houses etc. Hence, stocks of companies in the automobile sector or construction sector may be classified as cyclicals.

Ratna Rathore: On the contrary, when an economy enters a contractionary period, these sectors may get affected as people may have limited disposable income and hence could postpone the purchase of a discretionary item like an automobile.

Raghuveer Sampath: Hence in other words, profits and share prices of cyclical companies tend to follow the ups and downs of the economy.

Ratna Rathore: Raghu - do we have certain sectors or companies which may not track the ups and downs of an economic cycle so closely?

Raghuveer Sampath: Yes Ratna. Think of a company which is in the basic consumer goods sector – like healthcare or FMCG.Generally, their revenues may not be impacted by the economic cycles as people do not usually postpone consumption of basic consumer goods. Stocks of these companies are called defensive stocks.

Ratna Rathore: The stock prices of defensive stocks usually do not variate according to the existing economic conditions An understanding of cyclicals and defensives could help investors to create a diversified portfolio of such investments since market conditions are unpredictable.

Raghuveer Sampath: Thank you Ratna for this short capsule on understanding the key difference between cyclicals and defensives. As always, it is important to stick to your asset allocation, risk appetite and time horizon while opting for these investments.

Ratna Rathore: And with this we come to an end to this week’s Podcast. We will be back with more such market updates and insights next week. Till then goodbye and have a great week ahead!

04 : 03

Portfolio Management Services (PMS) vs Mutual Funds

In today’s episode, we talk about the comparison between the two popular investment tools: Portfolio Management Services (PMS) and Mutual Funds

Portfolio Management Services (PMS) vs Mutual Funds

Sonali Dahiya: Hello I am Sonali Dahiya and along with my co-host Arunjeet Taneja, I welcome you to this week’s podcast. In one of our earlier episodes dated 16th July, we discussed two common ways of saving money – namely the fixed deposits and Mutual funds. Today we will talk about portfolio management services or PMS.

Arunjeet Taneja: A PMS refers to an investment service where a professional portfolio manager invests your money directly in securities like stocks, fixed income, debt, cash, structured products, and other individual securities. The amount of money invested across these assets can potentially be tailored to meet your specific investment objectives

Sonali Dahiya: Arunjeet, How is a PMS different from say a Mutual Fund? Mutual funds are also managed by a professional fund managers and they also invest in different securities. So What is the difference?

Arunjeet Taneja: Sonali, A Mutual fund is an investment vehicle created by pooling money collected from various investors. In return, investors receive units of this pool. This pool of money is then invested by a fund manager in securities like stocks, money market and others. The Fund manager decides the fund allocation. Whereas, generally, if you invest in a PMS, you own the securities directly through a Demat account.

Sonali Dahiya: I see so In the case of a Mutual Fund, as an investor you own the units of the mutual fund and not the underlying securities. The Market value of these units are calculated basis the Net Asset Value or (NAV), whereas in a PMS, the market value of holding is the total of market values of securities held in the Demat account.

Arunjeet Taneja: Sonali, Is there a minimum investment amount mandated for PMS vis-à-vis mutual funds?

Sonali Dahiya: Arunjeet, you may start investing in Mutual Funds with an amount as low as INR 500 via SIP’s or Systematic Investment Plan whereas SEBI mandates a minimum ticket size of 50 lakh rupees for a PMS Investment.

Arunjeet Taneja: Another important feature that you may differentiate a Mutual fund from a PMS is the degree of customization permitted in the portfolio.

Sonali Dahiya: Generally, in a mutual fund, an investor cannot customize his portfolio, but a PMS may offer some customization. For example, if an investor does not want to buy shares in a particular company, he can mention the same in the PMS agreement with the fund manager.

Arunjeet Taneja: I see! Since the PMS investments are held in the Demat, I assume the current portfolio holdings can be viewed daily.

Sonali Dahiya: While the value of Mutual fund investments may be known daily by way of NAV getting published by the mutual funds, the portfolio of a mutual fund is made available to the investors usually once in a month when it is published in the fact sheets.

Arunjeet Taneja: That’s Right Sonali but in PMS, the individual security holdings in the portfolio can be seen daily by accessing the individual Demat account.

Sonali Dahiya: Let us also understand the charge or fee structure between the two. The charges in PMS investments are not capped by the regulator and the investor will have to incur audit fee, custodian charges, Demat charges etc. in addition to the management fee.

Arunjeet Taneja: In the case of a Mutual fund, charges are guided by SEBI regulations. They are referred to as expense ratios. Equity funds are permitted to charge up to 2.5% per annum as expense ratio based on average net assets and Debt funds are permitted to charge up to 2.25% per annum as expense ratio based on average net assets.

Sonali Dahiya: All the running expenses of the mutual fund scheme are included in this expense ratio. The charges tend to be lower for a mutual fund with a higher Asset Under management.

Arunjeet Taneja: One may choose between MF and PMS depending on the size of investment fund available, the need for customized investments, transparency in transactions, risk appetite and investment objective.

Sonali Dahiya: With this we come to an end for this week’s podcast. We will be back next week.Till then stay tuned and visit us on Citi Wealth Insights – your platform to learn and engage. Have a great week ahead.

02 : 48

Evaluating Bond Performance

In today’s episode, we talk about - what is a bond, how is it evaluated, and how it benefits your investment portfolio

Evaluating Bond Performance

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

Ratna Rathore: Hello I am Ratna Rathore. In this Week’s podcast we look at what is a bond and how is it evaluated. We also explore how it may benefit your investment portfolio. Do you know Raghu that When you invest in a Bond you actually become a lender to say the Company or the Govt?

Raghuveer Sampath: Can you explain that a little more? Why would I lend my money to a Company or a government?

Ratna Rathore: By issuing a bond to an investor - the company or the government borrows money from an investor and in return pays interest on the money they have borrowed.

It is the most common type of fixed income security issued by large companies or by sovereign governments,

Raghuveer Sampath: That’s interesting but why do these companies or governments issue bonds?

Ratna Rathore: Well generally speaking - the funds raised by issuing bonds may be used to fund new projects or expenses.

Raghuveer Sampath: I get it and how does it benefit an investor?

Ratna Rathore: A bond is a fixed income security that promises to make a series of interest payment in future in fixed amounts and then pay the principal amount at maturity. Investors may consider this as a source to generate additional income and use it as an asset class to diversify the portfolio. However, like any investments Bonds carry risks too e.g. default risk, interest rate risk. It is important to consider your risk profile, time horizon and follow portfolio diversification before investing.

Raghuveer Sampath: Ratna could you take us through the key elements of evaluating bonds?

Ratna Rathore: Oh yes! Let’s look at 3 variables to understand this with the first being issue price of the bond. When a Bond is priced lower than its face value, it is said to be trading at a discount and conversely, when a Bond is priced higher than its face value it is said to be trading at a premium. The Face value of a Bond is the amount of money a Bond will be worth at maturity

Raghuveer Sampath: the coupon rate of a bond is the second factor the higher the coupon rate, the higher the return for the investor. The coupon rate of a bond is the interest rate that is paid to the investor or the holder of the bond on a periodic basis.

Ratna Rathore: what is the third factor Raghu?

Raghuveer Sampath: The 3rd l factor is the maturity period of the bond. the longer the maturity period, the higher the risk that is involved for the investor, with respect to changes in prevailing rates and the price of the bond.

Ratna Rathore: This was very insightful. Thank you!

Raghuveer Sampath: This brings us to the end of this podcast. We hope this short discussion on Evaluating bond performance was useful. Stay connected with us and visit us on 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. Have a great week ahead!

02 : 42

An Introduction to the Yield Curve

In today's episode, we talk about the yield curve and its significance

An Introduction to the Yield Curve

Raghuveer Sampath: Hello and welcome to this week’s edition of our podcast, I am “Raghuveer Sampath”

Ratna Rathore: Hi and I am “Ratna Rathore”

Raghuveer Sampath: In the past, we’ve covered several topics ranging from ‘Understanding financial ratios’ to ‘Types of Mutual Funds’ as well as most recently an overview of the Union Budget. Today we want to discuss a fundamental topic relevant to fixed income valuation called “The Yield Curve”.

Ratna Rathore: That is an interesting topic Raghu, I have read about it and will be great to understand its relevance and application.

Raghuveer Sampath: Given the downward revision to the GDP forecast for this fiscal by our analysts and persisting inflationary pressures, this could be a good time for a quick refresher on this topic specially with RBI indicating a change in key interest rates later this year.

Raghuveer Sampath: Simply put – A yield curve shows yields by maturity. Typically, it depicts average yields on short, medium or long term maturity bonds- on a given day or week of trading. Therefore, its very important to understand exactly which yield is being shown.

Ratna Rathore: Can you please explain what the yield on a bond is?

Raghuveer Sampath: Yield is the expected return on an investment or in this case, the interest received from holding a security.

A bond yield is the return an investor will derive by investing in the bond. This is usually expressed as a percentage, and it is calculated by dividing the annual coupon payment by the bond price.

Hence, Bond yield and Bond Price have an inverse relationship, or put simply, when the price of the bond goes up, the yield falls and when the price of the bond goes down the yield goes up.

Ratna Rathore: What is the significance of this curve

Raghuveer Sampath: Generally speaking the yield curve gives us an insight into inflation, growth and interest rates -over medium to long term.

Ratna Rathore: The yield curves are usually upward sloping which means higher fixed rate of return could be earned by lending money for longer periods. The yield curve tends to flatten when investors expect an economic slowdown. An inverted yield curve usually points to an expectation of an upcoming economic slowdown and usually it is seen as a leading indicator of an upcoming recession.

Raghuveer Sampath: In general, short term bonds carry lower yields which tell us that the investor’s money is at less risk. It will be good to recall that bond prices have an inverse relationship to interest rates and long term bonds are more sensitive to interest rate changes.

Ratna Rathore: This was extremely insightful, thank you Raghu!

Raghuveer Sampath: This brings us to the end of this podcast. We hope this short discussion on yield curves was useful. Stay connected with us and Visit us on 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. Have a good week!

03 : 42

Inflation & Savings

In today’s episode, we talk about Inflation and its impact on savings

Inflation & Savings

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

Arunjeet Taneja: Hi and I am Arunjeet Taneja

Sonali Dahiya: In our episode, we discussed about Inflation Sensitivity. In our Podcast today we discuss further on inflation – how it affects households across the globe and its impact on savings.

Arunjeet Taneja: Let’s start by understanding what Inflation really means.

Sonali Dahiya: Inflation is the rate of increase in prices over a given period. In other words, Inflation is the decline in purchasing power over time.

Arunjeet Taneja: You know – Sonali, despite prudent habits of investing, I seem to be paying more for almost everything – is this the price increase you are referring to?

Sonali Dahiya: The Indian economy as well as other large economies globally have been witnessing high inflation since the past few months. The India Headline inflation touched the 6.0% mark in Jan-22 led by unfavorable base effect led by vegetables. Citi analysts see this as a near term peak and expect moderation over the next 4-5months.

Arunjeet Taneja: Sonali, what is causing this high Inflation?

Sonali Dahiya: Broadly Speaking, Inflation occurs as demand for goods and services grows. As the total money supply in an economy rises, there is likely to be more demand from consumers. As more people buy more goods, sellers hike their prices. Hence, increased money supply caused by higher liquidity infusion, increased demand from consumers and supply constraints are the leading causes of inflation.

Arunjeet Taneja: How do we measure this price increase?

Sonali Dahiya: We use the consumer Price Index which tracks the prices of a variety of such consumer goods and services.CPI has five sub-groups including food & beverages, fuel and light, housing & clothing, bedding & footwear. thus allowing for a single value representation of the increase in price levels over a period of time.

Arunjeet Taneja: Why is rising inflation a worry?

Sonali Dahiya: Let’s suppose you have a fixed income and spend a certain part of it for your living expenses and save the rest. As the costs of goods and services rise, your expense will rise too, and you may end up saving less.

Arunjeet Taneja: Moreover, the purchasing power of the money that you are saving would decline too. Eventually, it will be hard to maintain the same standard of living, as the value of your money decreases. Sonali - Can the Government do anything about it?

Sonali Dahiya: The Central Bank has several tools at their disposal to help control inflation. These include measures by the RBI to absorb surplus Liquidity by increasing bank rates, repo rates, cash reserve ratio, buying/selling dollars, thus reducing money supply in circulation to make spending of borrowed money more expensive for companies and individuals.

Arunjeet Taneja: The government too can pitch in by way of reducing taxes, easing supply side constraints on specific goods

Well, that’s a relief. Can I do something about it too in order To keep the purchasing power of my savings intact, I mean.

Sonali Dahiya: Yes, of course Arunjeet. If you allow your savings to grow faster than inflation in the economy, the purchasing power of savings can be preserved. You may follow- a disciplined investment plan with a balanced asset allocation, time horizon and risk profile that is designed keeping your objectives and risk appetite in mind.

Arunjeet Taneja: This was extremely insightful, Thank you Sonali!

This brings us to the end of this podcast. We hope this short discussion on Inflation and Savings was useful. Stay connected with us and Visit us on Citi Wealth Insights page for more such market updates and analysis. Have a good week ahead!

03 : 32

Inflation Sensitivity: FY23

In today’s episode, we discuss the key drivers that may impact Inflation

Inflation Sensitivity: FY23

Ratna Rathore: Hello everyone. My Name is Ratna Rathore and along with my co-host Arunjeet Taneja, I welcome you to our Podcast today.

Arunjeet Taneja: You know Ratna, there are many worries on the mind of an investor today given the distortions experienced on account of supply chain disruption, the uncertainty around covid variants and geopolitical instability.

Ratna Rathore: That’s right Arunjeet and in this episode, we look at another factor namely Inflation and try and analyze the possible risks to inflation in FY23. Citi economists except that the global inflation trend to be around 2.5% in the coming decade and a likely retreat to slightly more bearable levels in 2022 as some of the current distortions abate.

Arunjeet Taneja: Infact Inflation has dominated client conversations post the February MPC meeting due to skepticism over the RBI’s forecast of a benign inflation profile for FY23. RBI expects FY23 average CPI inflation at 4.5%YY which is below Citi estimate of 5.0% and market view of 5.2%.

Ratna Rathore: Arunjeet, How Much Can Inflation Deviate from RBI Forecast?

Arunjeet Taneja: Well Citi economists evaluate a few key risks and I believe it will be beneficial for our listeners to get an overview of the same

Ratna Rathore: Sure!, Why don’t you go ahead and expand further on these Inflation Drivers?

Arunjeet Taneja: Citi economists are focusing on risks emanating from oil prices, food prices, reopening of the economy and the accelerated closing of the output gap. They believe that only if all inflationary threats happen together, there is a risk of FY23 average headline CPI coming closer to the upper end of RBI’s comfort zone 6%

Ratna Rathore: Citi economists expect an increase in retail fuel prices from mid-March to April, but rate of change will depend on future Brent prices. Also, there are Upside risks to Food CPI emanating from delayed pass-through of elevated Food WPI.

Arunjeet Taneja: Ratna, what happens when economies start reopening?

Ratna Rathore: Well Arunjeet…We see ~30bps upside risk to our average FY23 inflation view if the demand pressure from economic reopening gets intense and the service providers get back their pricing power.

Ratna Rathore: In Conclusion Is there a policy response for different inflation outcomes and possibility of factors other than standard growth-inflation dynamics influencing monetary policy?

Arunjeet Taneja: We believe that growth and Inflation dynamics will be key to set the pace of policy normalization, with a likely change in stance in August and the possible first-rate hike in October this year.

Ratna Rathore: Also there is a need for a “coordinated” fiscal and monetary policy stance further that may support the view of deferred normalization when inflation is under check

Arunjeet Taneja: This has been rather enlightening, with this we come to the end of our podcast today. Please stay tuned with us and visit us on Citi Wealth Insight as we as we continue to bring you market insights, trends and analysis .Thank you and Goodbye.

03 : 15

Part 3 – Union Budget 2022-23 : Key Highlights

In today’s episode, we talk about the Key Highlights of Union Budget 2022-23

Part 3 – Union Budget 2022-23 : Key Highlights

Ratna Rathore: Hello everyone and welcome back to the concluding episode of our ongoing series on the Union Budget. Joining me today is my Co Host Arunjeet Taneja.

Arunjeet Taneja: Indian Finance Minister Nirmala Sitharaman presented the Annual Budget for fiscal year 2022-23 on 1st February in the backdrop of extended pandemic, concerns over inflation, global supply chain issues, low interest rates and a challenging global environment.

Ratna Rathore: The Budget is Anchored on Policy Continuity - a Pro-Growth Road Map with “Gati” & “Shakti” through increased capex.

Arunjeet Taneja: Ratna- there is a lot of talk about the government continuing its course to improve quality of its expenditure by focusing on Investment Growth with a thrust on Infrastructure

Ratna Rathore: That’s right Arunjeet. The changing nature of the government spending was evidenced with a tilt toward capital spending from revenue spending. There has been a favorable shift in direction of spending from subsidies to capex. We estimate total Central capex to grow at ~16%YY in FY23, higher than pre-Covid average.

Arunjeet Taneja: The FM in her speech alluded to laying the foundation of the Indian economy over Amrit Kaal of next 25 years from India@75 to India@100. She listed the 4 pillars namely: Productivity, Climate action, Financing Investments and PM Gati Shakti Plan.

Ratna Rathore: Citi analysts believe the budget refrained from any populist consumption push despite the busy election calendar ahead.

Ratna Rathore: While focus on capex is a welcome move, they believe lower allocation towards social security related spending could come under pressure from economic disruptions

Arunjeet Taneja: FY23 fiscal deficit has been pegged at 6.4% of GDP, marginally higher than Citi analyst’s estimate of 6.2%.

Ratna Rathore: Infact the Upcoming RBI MPC meeting is expected to be focused on navigating calibrated normalization path while supporting the bond market at the same time. Citi analysts expect the 10y yields to be on path to 7.25%

Arunjeet Taneja: So Ratna if we were to summarize: What are some key take aways for our listeners?

Ratna Rathore: Arunjeet to begin with the Budget focuses on supporting economic growth and job creation, with its focus on public capex.

Arunjeet Taneja: There were No major changes announced to capital gains taxes/cesses which is a likely positive for equities although limited consumption boost, given absence of income tax changes.

Ratna Rathore: The Expected reversal of interest rate cycle may have implications for private borrowing costs, asset valuations and fledgling growth recovery.

Arunjeet Taneja: Long-term impetus to green infrastructure development and digitalization of the economy are other major positives

Ratna Rathore: On that note we wish our listeners a good week ahead. We want to stay connected with you through the week, please do visit us on Citi Wealth Insights page for the latest on market trends and analysis. Thank you and Good bye.

03 : 33

Union Budget – Part 2: What is it and Why is it Important?

In today’s episode, we talk about the Union Budget - it's constituents and why it is important.

Union Budget – Part 2: What is it and Why is it Important?

Ratna Rathore: Hello everyone and welcome back to our ongoing series on the Union Budget where we are covering it’s constituents and its importance for the Indian Economy and Investors. My Name is Ratna Rathore and joining me today is my Co-Host Raghuveer Sampath.

Raghuveer Sampath: Thank you Ratna. …By the way Do you Like Sweets?

Ratna Rathore: Yes - I do have a sweet tooth –but why do you ask Raghu?

Raghuveer Sampath: One of the questions you asked me in the previous episode was - who Prepares the Union Budget?

Ratna Rathore: That’s right and I am sure it is a multifold process – so are you ready with my answer?

Raghuveer Sampath: Absolutely. The department of economic affairs in the ministry of finance prepares the Union Budget and the same is presented by the Finance Minister. A quick glance at the key documents tabled in the parliament during the Budget presentation process - indicate a systematic preparation - beginning at data gathering.

Ratna Rathore: Data is very important when it comes to budget making and the next critical step is formulating the budget composition - which also involves consultation with stakeholders such as economists, financial bodies, and bankers etc.

Raghuveer Sampath: Next is the Printing of the Budget Documents. As someone who likes sweets - you will be delighted to know that a Halwa ceremony is held at the North block in Delhi to mark the process of the printing of the Budget Documents. According to this ritual a sweet dish is prepared and served to the officials of the Finance Ministry.

Ratna Rathore: This is very interesting Raghu, and Should I also tell you an important fact about Last year’s Budget?

Raghuveer Sampath: Sure Go ahead:

Ratna Rathore: Union Budget 2021-22 was delivered in a paperless form for the first time ever.

Raghuveer Sampath: Wow - Now you asked me another question i.e.: why is it important for common people like us?

Ratna Rathore: Yes and I Can see that you have an answer ready for that ..so go ahead.

Raghuveer Sampath: Let’s say - If I gave you 100 rupees today and asked you how much will be left from it by end of the year – logically you will work out how much you will spend, how much you will save, expected increases in prices, provisioning for taxes etc. Wouldn’t you?

Ratna Rathore: You are right - I will need to work out those details

Raghuveer Sampath: Similarly, the objective of the union budget is to ensure efficient allocation of resources, reduce unemployment, poverty level, influence distribution of income, keep a check on prices and bring about changes in the tax structure.

Ratna Rathore: And If you recall – last years budget, proposed a slew of measures to aid the recovery of Indian economy that was hit badly by the Pandemic. The Budget had focused on 6 key pillars: Health and wellbeing, Infrastructure, Inclusive development, Reinvigorating human capital, Innovation and R&D and Min Government and Max governance.

Raghuveer Sampath: A union budget that considers all different sectors of the economy is important for economic growth and hence crucial for you to understand as an investor. But over and above everything - It is important for us stay focused on your Objectives and not be distracted by all the noise about Budget Sops etc.

Ratna Rathore: This episode and this series has been delightfully enriching. I will be keenly awaiting our Finance Minister Nirmala Sitharaman’s presentation of the Union Budget for the financial year 2022-23 on February 1st.

Raghuveer Sampath: Me too! Ladies and Gentlemen - with this we come to the end of this episode. We want to stay connected with you so do Visit us on Citi wealth Insights page for more such analysis and Updates. Stay safe and have a great week ahead!

03 : 51

Union Budget - Part 1: What is it and Why is it Important?

In today’s episode, we discuss the Union Budget – What is it and Why is it important.

Union Budget - Part 1: What is it and Why is it Important?

Raghuveer Sampath: Hello everyone It gives us immense pleasure to welcome you to our first edition of the Podcast in this New Year. My Name is Raghuveer Sampath

Ratna Rathore: Hi and I am Ratna Rathore, and we are very excited to kick start this year with a special Coverage on the Upcoming Union Budget.

Raghuveer Sampath: Ratna before we begin - I am very keen to know if you have made your new year resolutions?

Ratna Rathore: I don’t know about the resolutions Raghu - but I am definitely working on my annual budget like, how do I pay down my debt this year, how much should I set aside for my retirement corpus, should I top up my annual Mediclaim this year? how much should I expense in for the school fee of the children etc.?

Raghuveer Sampath: That is very good, and it is very important for everyone to set their objectives as well as review them periodically - specially in such dynamic market conditions.

By the way since you mentioned annual budget – it’s that time of the year when our central govt will set its budget too. The union budget is a statement of estimated receipts and expenditure of the government - for the fiscal year - that runs from April 1st to March 31st.

Ratna Rathore: You know Raghu - while browsing through news channels looking at the portals lately, my news feed is full of news related to the union budget – Why is the budget so important? And How does it impact me?

Raghuveer Sampath: Great Question but before I answer that – let’s understand a few important constituents of the budget.

Ratna Rathore: The Budget of the central govt is not merely a statement of receipts and expenditure. It reflects and shapes and in turn is shaped by the Indian economy

Raghuveer Sampath: The union budget can be classified into 2 parts – the capital budget and the revenue budget. And for ease of understanding - “Budget at a glance” is a document that presents the gist of broad aggregates and estimates in a reader friendly manner.

Ratna Rathore: That’s right e.g., this document shows receipts and expenditure as well as the Fiscal Deficit, Revenue Deficit, Effective Revenue Deficit, and the Primary Deficit of the Government of India.

Raghuveer Sampath: Simply put - this is our country’s annual financial statement. As per article 112 of the Indian constitution, the budget presentation is mandatory before a new fiscal year begins.

Ratna Rathore: Raghu - You mentioned about receipts and expenditures – can you explain to our listeners as to where does the money come from and where does it go?

Raghuveer Sampath: Sure Ratna. Broadly speaking the different sources from which the government can raise resources can be – tax revenues, non-tax revenues, divestments/Borrowings and Grants in Aid.

Ratna Rathore: Ok and where does this money go?

Raghuveer Sampath: Well, the government may intend to spend it on interest payments, defence, provisioning for pensions, providing for subsidies, grants in aid.

Ratna Rathore: This sounds quite elaborate and here I am sitting with a calculator, pen and a paper trying to estimate my annual budget and wondering how a Union Budget for an Economy - the size of India is prepared?

Raghuveer Sampath: Oh, it’s not that simple - There are several steps involved in the preparation, presentation and finally the implementation of the Union Budget. E.g., Did you know that the initial process starts as early say 5 to 6 months prior to the budget presentation?

Ratna Rathore: Wow This has been a delightfully engaging conversation with you today, Thank you. I am very keen to know more like Who Prepares it? What steps are involved? Who Presents it etc.?

Raghuveer Sampath: Well, Why don’t you join me over a cup of coffee, and we can talk through some of these questions - Infact I still must answer an important question for you i.e. – Why is the budget important for you and me as an investor?

Ratna Rathore: Thank you Raghu and I do look forward to continuing our Discussion and with this we come to the end of our podcast today. Please stay tuned with us and visit us on Citi Wealth Insight as we as we continue our coverage on the union budget over the next couple of episodes. Thank you and Goodbye.

02 : 57

Time Value of Money

In today’s episode, we talk about the Time value of money and what it means.

Time Value of Money

Raghu: Hello and welcome to this week’s edition of our podcast. I am Raghuveer Sampath

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

Raghu: Let us talk about time value of money. Time value of money is the idea that an amount of money is worth more today than the same amount at some point in the future.

Ratna: That’s right Raghu and it will be great if you can explain this concept further.

Raghu: Sure. Let me ask you a simple question, if you had a choice of getting One Lakh rupees now versus 5 years later, what would you choose?

Ratna: Obviously, I would go with getting the one lakh now.

Raghu: That’s right. And we may all choose to get it now. The reason is simple. if this sum of money is invested today as per your goals in line with your time horizon and risk appetite, it may grow with time and could be worth more in 5 years from now.

Ratna: Raghu, is there a way for me to find out what could be the future value of my money?

Raghu: Yes, and we have a formula that you can use to calculate the future and present value of money.

Ratna: The Future value of money is equal to the Present value of money times the time factor. The time factor can be defined based on the interest rate per annum and the number of years

Raghu: Given a fixed positive interest rate, the future value of money will be higher than the present value of money.

Ratna: Raghu, which means, if I took an amount of money and hid it under my pillow for 5 years, will it be worth less than what it is now?

Raghu: Yes, and the reason is inflation. Inflation is the steady rise in the prices of goods and services over time eventually leading to a decline in the purchasing power of money. That is why a cup of coffee costs much more today as compared to five or ten years earlier.

Ratna: I get it. Over time the same amount of money is worth less than what it is now and that is why it is so important to start investing early.

Raghu: The earlier we start, the better equipped we are to take on inflation. In fact, let us talk about the concept of compounding which Warren Buffet refers to as ‘the 8th wonder of the world’.

Ratna: The power of compounding is it? could you explain this through an example?

Raghu: Sure. Let me take an example of two investors, they both invest in a monthly SIP or Systematic Investment Plan of 5000 Rs. They both invest, say, until the age of 58.

Ratna: The only difference is that Investor A starts at the age of 23, while Investor B starts at the age of 33. At an assumed annualized rate of return of 11%, A will have 2.64 crores in his portfolio, whereas B will only have 79 lakhs.

Raghu: Wow, that is a huge difference and thank you for explaining that!

Ratna: You are Welcome! This brings us to the end of the podcast and we do hope this episode helped you understand Time value of money better.

Raghu: Stay connected with us by visiting our Citi Wealth Insights page for more such market updates and analysis – We are going to be back next Week with more such information. Goodbye and have a great week ahead!

02 : 22

Value Investing

In today’s episode, we discuss the concept of Value Investing.

Value Investing

Ratna: Hello and Welcome to our Podcast. I am Ratna Rathore. You may have often heard the quote “Price is what you pay, and Value is what you get”. This famous quote by Ben Graham is at the core of our podcast today.

Sonali: That’s right. Hi, I am Sonali Dahiya, and today we will discuss the concept of Value Investing. Value investing may be defined as buying an asset whose price is lower than the intrinsic value of that asset.

Ratna: Now you may ask – What does intrinsic value mean? Intrinsic value refers to what an asset is actually worth. In the case of stock market, it may involve buying the shares of a company which may be underpriced relative to the fundamentals of the company.

Sonali: This value is compared with the market price of the stock. If the market price is lower than the intrinsic value, the investor can choose to buy the stock. So simply put the basic idea of value investing rests on selecting currently undervalued stocks that may increase in value in the future ultimately yielding growth!

Ratna: Value investing approach also believes that Mr. Market, an allegory for stock market as popularized by Benjamin Graham is not always efficient. This basically means that a price quoted may not always be reflective of the fundamentals.

Sonali: In other words, as the saying goes, do not miss the forest for the trees- In the value investing approach, If the fundamental analysis of a company reflects more value than what is quoted in the stock price an investor proceeds to buy it.

Ratna: It is also important to note that value investing may require a longer time frame of investment as it may take some time for the market to discover the true value of a stock and reward the investor who has opted for this approach

Sonali: An investor has an option of investing in what are called value funds through a Mutual Fund. According to SEBI’s categorization of equity funds, Value funds are those funds which follow a value investing strategy.

Ratna: We hope this short capsule was useful to get a glimpse of value investing. With this we come to the end of our podcast. Stay tuned and visit us on Citi wealth insights to stay updated on global and local market trends We will be back next week with more insights. Have a good week!

03 : 13

Household Assets and Liabilities

In today’s episode, we discuss Asset holding and the indebtedness of rural and urban households.

Household Assets and Liabilities

Sonali Dahiya: Hello I am Sonali Dahiya.

Arunjeet Taneja: Hi and I am Arunjeet Taneja and we welcome you to this week’s Episode. Sonali, will it not be interesting to know how the household assets and liabilities in India have evolved over a period of time?

Sonali Dahiya: Certainly, Arunjeet and the 2019 All-India Debt and Investment Survey - that was released recently - tell us just that!

Arunjeet Taneja: Who has released this survey?

Sonali Dahiya: Arunjeet this survey has been released by The National Sample Survey Office.

Arunjeet Taneja: Thank you Sonali. So what is the financial status of the Indian households as per this Survey?

Sonali Dahiya: Well Arunjeet. The findings suggest that asset growth has moderated significantly between 2012 and 2018 and this may have been caused by a sluggish income growth and valuations. While the Pace of indebtedness has also moderated, however debt to asset ratios have been increasing.

Arunjeet Taneja: That’s interesting Sonali. In fact between the two reports of 2012 and 2018, Citi analysts observe that the average value of assets per household in rural and urban areas grew at a CAGR of only 8% and 3% respectively, which is much slower than the nominal GDP growth.

Sonali Dahiya: Arunjeet, Would you also know if all households that were covered under the survey actually hold assets?

Arunjeet Taneja: Yes Sonali. Almost 98 to 99 % of households that were surveyed in both rural and urban India reported holding some asset.

Sonali Dahiya: That’s good to know and would you also know what kind of assets do they hold?

Arunjeet Taneja: Yes. The Assets of rural households are predominantly in the form of land and buildings which indicate a very low proportion of financial assets.

Sonali Dahiya: Urban households also have a large share of assets in land and buildings, but the share of assets in buildings has declined substantially from the 2012 survey.

Arunjeet Taneja: Well this could possibly be due to a near stagnancy in real estate prices over the period between the two survey reports along with the lack of preference for physical assets.

Sonali Dahiya: That’s right Arunjeet. But fortunately, the borrowing costs are moderating! Citi analysts observe, that due to the general softening of rates - this improvement could be traced back to higher proportion of borrowing being done from formal institutions like banks, rather than informal moneylenders.

Arunjeet Taneja: One last question Sonali. Why are the households borrowing?

Sonali Dahiya: Well, Arunjeet, the rural households are borrowing mainly for farming and mortgages from institutional sources. Interestingly a very large proportion of informal lending goes into meeting education needs and other household expenditure.

Arunjeet Taneja: The Urban borrowing is overwhelmingly for mortgages which accounts for more than 60% of institutional borrowing.

Sonali Dahiya: Wow, this has been quite an eye opener Arunjeet and gives a bird’s eye view of Rural- Urban household asset holding and indebtedness. Thank you!

Arunjeet Taneja: You are welcome Sonali. This brings us to the end of this podcast. Do Stay connected with us and Visit us on the Citi Wealth Insights page for more such market updates and analysis. Till next time - Thank you and Have a good week!

03 : 37

Statistical measures for Portfolio Valuation – Sharpe ratio

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

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.

02 : 57

Labor Dynamics and Consumption Trends

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

Labor Dynamics and Consumption Trends

Raghu: Hello and welcome to this week’s edition of our podcast. I am Raghuveer Sampath.

Ratna: Hello and I am Ratna Rathore. Previously in our 23^rd July Podcast we had covered consumption trends for FY22 and we discussed how an economy depends on increasing levels of consumption to maintain its health.

Raghu: Today we are back with another episode on trends emerging from the labor market and its implication on consumption especially post the second wave.

Ratna: In a recently published Citi research report, Citi analysts observe that not just employment but wages in the organized sector seems to have fared better during the second wave than the first wave.

Raghu: In fact Ratna Organized sector adapted well to the Covid led challenges and disruptions with Employees Provident Fund data showing only marginal fall in the net payroll additions in 1^st Quarter of FY 2022. You know employment has exhibited a good pickup post the second wave and the total employment is up by around 9 million in the July to August period.

Ratna: That’s good to know Raghu. Can you also please tell us what type of jobs are leading this post-second wave rebound? Like, do you know which sector saw the largest recovery of Jobs from July to August?

Raghu: Oh yes – It was the retail trade sector followed by construction and real estate. There seems to be little reason to believe that the pent-up demand led consumption recovery after the second wave will be necessarily weaker than the first wave. Citi analysts hope that the catchup in consumption would happen at least in the Second Quarter of FY 2022 and to a lower degree in the third quarter festive season as well - but it may fade away post the festive season.

Ratna: I see. So Raghu, what are some key consumption trends emerging from this labor market dynamics that our investors should know about?

Raghu: First and foremost the thing to note is that as per the report the wage cost and consumption data still suggests that there is scope for forced saving led pent-up consumption in the 2^nd quarter and the 3^rd quarter of FY 2022.

Ratna: Secondly, Citi analysts also highlight that there seems to be lower permanent scarring at least in the organized sector.

Raghu: The report highlights that that the possibility of impact of successive covid waves will be lower on consumption and Citi analysts expect that ferocity of any Covid waves post the festive season would be likely tempered by better vaccination coverage.

Ratna: And lastly, Citi analysts observe a continued flat-lining of rural-urban consumption divide. The Rural and urban consumption trends look broadly similar now with support for the non-farm rural economy significantly lower than FY21.

Raghu: Thank you Ratna, this was rather insightful and very interesting.
This brings us to the end of this podcast. We hope this short capsule on Consumption dynamics was useful. Stay connected with us and 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. Have a great week ahead!

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.

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

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.