Portfolio Management

Shelter in a Storm: Why Asset Allocation Matters Most in Volatile Markets

Markets move in cycles, and every few years a combination of macro and micro factors produces a stretch of volatility that tests investor conviction. In 2018, the broader market began correcting around February and March, while the Nifty held up on the strength of select heavyweights. The rupee then weakened from August onwards as US rates tightened and oil prices climbed.When the Storm HitIn September of that year, the perfect storm arrived. One of India's premier financial institutions defaulted on some of its debt obligations. The shock landed on an already fragile market at a time of the year when liquidity is typically tight, with advance tax payments and half-yearly closings drawing money out of the system. Events of this kind tend to push investors in one of two directions: impulsive action or paralysis that prevents any strategy from being executed at all.Bull markets create an illusion of calm and stability that often leads investors to take on more risk than they can comfortably hold through a correction. A market like the one that followed September 2018 is, in many ways, the moment to revisit risk tolerance and reallocate, not to abandon the plan.A long-term perspective and a measure of discipline are what keep investors committed to their objectives through periods of uncertainty. Equity delivers superior returns over the long run, but it is inherently volatile. The two cannot be separated. The question, then, is whether to react to short-term market movements or to prepare in advance for them.Allocation Is KeyThis is where asset allocation and an investment charter come into play. A prudent allocation across multiple asset classes reduces an investor's risk and makes returns more predictable and consistent over time.Consider the data. Across the past 14 years, no single asset class has been a consistent winner from year to year, although equities have outperformed in the majority of years. However, an equally weighted portfolio across equity, debt, gold, and cash over the same period would have delivered an average return of around 11 per cent (see chart), comfortably above tax-free bonds. There was only one year in that period, 2008, in which the strategy produced a negative return, and even then, the loss was marginal. The 2008 result reflected the global financial crisis, during which most markets were battered.The conclusion is straightforward: diversifying investments across asset classes reduces dependence on any single one and protects during periods of market turbulence. The right allocation for an individual investor depends on their risk appetite.Risk ToleranceRisk tolerance is shaped by several factors: investment horizon, liquidity needs, financial goals, and personal temperament. An investor with high risk tolerance may accept greater volatility in pursuit of higher returns and may allocate a larger share of the portfolio to higher-risk assets. An investor with lower risk tolerance will typically accept lower returns in exchange for a steadier, less volatile portfolio.A portfolio combining equity and fixed income illustrates the trade-off. The equity component carries the potential for higher gains, while the fixed income component absorbs some of the associated risk. A portfolio that is well-diversified across asset classes can deliver superior risk-adjusted returns, which is the more meaningful measure for most long-term investors.The Role of an Investment CharterAsset allocation works only if it is held over time and across different market environments. This is where an investment charter strengthens the approach.Investors today often take advice from multiple advisors, each of whom may have only a partial view of the overall portfolio. An investment charter sets out tailored rules for the portfolio, aligned to long-term goals. It increases the probability of reaching those goals by ensuring that the agreed allocation is followed across market cycles, not abandoned in response to short-term events.Beyond keeping the portfolio aligned, an investment charter also helps mitigate portfolio-level risks, including the risk of impulsive decision-making. It sets out broad guidelines on asset class limits, manager selection, credit quality, and exposure to locked-in products, so that emotion is kept at arm's length when decisions are made.The allocation set out in the charter should be reviewed periodically, and the portfolio rebalanced if it drifts beyond an agreed tolerance from the target. The four pillars of a well-constructed charter, covering investment objective, risk tolerance, investment horizon, and return expectations, have been addressed in detail in an earlier piece on the Investment Charter.In ClosingA combination of a well-planned asset allocation and a custom investment charter is the practical way to plan for long-term financial goals. Asset allocation delivers superior risk-adjusted returns. The investment charter delivers the discipline required to stay the course when markets are turbulent. Together, they form the foundation that holds up when the storm arrives.

• • 2 min read
  • -29-Oct-2018

Portfolio Management

The Conversation Most Families Avoid: Talking About the Estate Plan

Many families consider estate planning too private to discuss openly, and for some, there is a quiet superstition that speaking about difficult events makes them more likely to occur. Even in close families, the conversation tends to fall silent when two subjects come up at once: death and money. These conversations take courage, but they prevent surprises, support better financial planning, and protect the relationships within the family.Why the Conversation MattersThe benefits go beyond asset protection and an accurate understanding of intentions:How to Start the ConversationThe hardest part is often the first conversation itself. A few practical principles tend to make it easier.Choose the right moment. Family gatherings, festivals, and emotionally charged occasions are rarely the right setting. A planned, private conversation in a calm setting works better than one that arises in a moment of crisis.Decide who needs to be in the room. The first conversation does not have to include everyone. Often it is helpful to speak with a spouse or principal heirs first, before extending the discussion to the wider family in subsequent meetings.Be clear about purpose, not just detail. Families benefit more from understanding the intent behind the plan than from a line-by-line account of asset distribution. Once the intent is clear, the specifics become easier to discuss.Consider involving an advisor. An experienced wealth advisor or estate planning professional can help frame the discussion, answer technical questions, and ease the conversation past the points where families tend to get stuck.In ClosingAn estate plan that exists only on paper, without the family understanding what it intends, often creates as many questions as it answers when the time comes. A frank conversation, held early and revisited as circumstances change, ensures that the plan is not only well drafted but also well understood by the people it is meant to serve.

• • 2 min read
  • 18-Jan-2019

Portfolio Management

What Not to Do When Planning Your Estate

Estate planning involves a wide range of instruments, from nominations and joint ownership to Wills, Trusts, gifts, powers of Attorney, life insurance, and charitable structures. The volume of information available on each is large, and the choices can be confusing. The result, more often than not, is either inaction or a decision taken in haste.This piece sets out eight common pitfalls to avoid when planning your estate.1. Do not rely on state or personal succession lawsIn the absence of a Will or Trust, assets are distributed under the personal law applicable to the individual's religion or under the relevant state law. Once an individual understands how these rules actually apply, the resulting distribution is often very different from what they would have chosen. A clear estate plan ensures that personal wishes, not default rules, decide the outcome.2. Do not let the court appoint the guardian for your minor childrenA guardian for minor children is typically named in a Will. If both parents pass away before the children reach legal age and no guardian has been named, the court will appoint someone to raise them and manage their funds. The choice will be made without any knowledge of whom the parents would have selected. This is one of the most consequential decisions an estate plan can address.3. Do not rely on joint ownership as a substitute for an estate planIt is common for parents to add a child to the title of an asset, particularly the family home, in the hope of simplifying succession or avoiding probate. The approach creates more problems than it solves:Control is reduced. The asset can no longer be sold, refinanced, or transferred without the co-owner's consent.The asset becomes exposed to the co-owner's creditors, divorce proceedings, and potential misuse.Where there are multiple children but only one has been added as co-owner, fluctuating asset values can lead to unbalanced or unintended inheritances among the siblings.Joint ownership has a place in estate planning, but it should be a deliberate choice within a broader plan, not a workaround used in place of one.4. Do not assume your children will know your wishesEven close families can find themselves divided after a parent's death. Money and items of sentimental value are particular flashpoints, and the emotional weight of bereavement makes calm decision-making harder. A written plan removes the ambiguity that causes most of these disputes.5. Do not treat your estate plan as a one-time exerciseAn estate plan must keep pace with the life it represents. Marital status, the birth or death of a family member, and material changes in the value or composition of the estate are all events that should trigger a review. Even in the absence of such events, the plan should be reviewed periodically to ensure it continues to reflect the individual's wishes.6. Do not forget to inform key people about the planAn estate plan that nobody can locate is of limited use when the time comes. The executor of the Will, the successor trustee, and key family members should know that documents exist and where to find them. The specific contents of the plan need not be shared in full, but the existence, location, and points of contact should be communicated clearly.7. Do not assume your spouse will handle everythingIt is reasonable to expect a spouse to act in the family's interest, but a plan should account for the possibility that both partners are incapacitated at the same time, for example, in a single accident. A well-constructed estate plan names alternate representatives who can step in to manage affairs if both spouses are unable to do so.8. Do not try to plan your estate aloneA qualified estate planner brings together knowledge of tax implications, succession structures across asset classes, and the coordination required between lawyers, chartered accountants, and trustees. Working with a planner reduces the likelihood of structural errors, ensures that the plan is enforceable, and simplifies the eventual process of settling the estate. For families with assets across geographies, businesses, or jurisdictions, professional input is not optional.In ClosingThe right time to put an estate plan in place is when the decisions can be made calmly and objectively, not when they are forced by circumstance. Estate planning is most effective when it begins early, is reviewed regularly, and is supported by professional advice. The time to start is now.

• • 2 min read
  • 22-Oct-2018

Portfolio Management

5 Things Every Investor Can Stop Losing Sleep Over

Every market cycle leaves investors with a fresh set of anxieties. Some of these worries are valid and deserve attention. But many are habits of thought that quietly work against good investing. Here are five things that tend to trip investors up, and why letting go of them can make a real difference to your portfolio.1. Timing the MarketIt is a trap most investors fall into at least once. When an asset class performs well, money rushes in. When it underperforms, investors pull out, often at exactly the wrong moment. The result is a portfolio that consistently buys high and sells low. The evidence is fairly clear on this: time in the market matters far more than timing the market. Staying invested through cycles, rather than chasing recent performance, is what builds wealth over the long run.2. Herd MentalityChasing the latest investment fad is one of the most common mistakes across every market cycle. The question worth asking before following the crowd is a simple one: does this fit your risk profile and your investment objectives? More often than not, when investors pile into a popular theme, they are reacting to noise rather than making a considered decision. Sound asset allocation, built around your own goals, is a far more reliable guide than what everyone else seems to be doing.3. Prudent Financial PlanningOver-leveraging during a bull run is a pattern that tends to catch up with investors when conditions change. Taking on too much debt while returns are strong can leave you exposed when the cycle turns, and your income or portfolio needs to absorb the pressure of EMIs and commitments. A well-structured financial plan keeps borrowing in check relative to your income and assets, so that a shift in the market does not upend your broader financial stability. Balance, not optimism, is what makes a financial plan resilient.4. Acting on ImpulseWriting off an asset class after a period of poor performance is a costly reflex. Markets move in cycles, and what looks unattractive today can represent genuine value for a patient investor. When equity valuations are low, for instance, that is often precisely when the better opportunities lie. Reacting to short-term noise by reshuffling your portfolio means you risk missing the recovery entirely. A disciplined approach, one that keeps you invested according to your plan rather than your mood, serves you much better over time.5. Liquidity ManagementMost financial plans account for growth, but not enough of them account for the unexpected. A medical emergency, a family situation, or a sudden expense can force you to liquidate investments at the worst possible time if you have not planned for it. Keeping a portion of your portfolio in liquid instruments, such as arbitrage funds or ultra-short-term funds, gives you a cushion without sacrificing returns on the rest of your investments. It is a small adjustment that can make a significant difference when you actually need it.The common thread across all five of these is discipline. Not dramatic portfolio moves or clever market calls, just the quiet habit of staying focused on your goals, sticking to your plan, and not letting short-term anxiety drive long-term decisions. That, more than anything else, is what separates investors who build wealth from those who merely chase it.

• • 2 min read
  • 31-Dec-2019

Portfolio Management

Bet on the Jockey, Not the Horse: A Better Way to Select Mutual Funds

When investors look for a mutual fund, the most common shortcut is to pick the scheme that delivered the highest returns over the past one or three years. The logic feels sound, because what has worked in the past should continue to work in the future. Salespeople find it easy to recommend such schemes, and investors find the numbers convincing.The data, however, tells a different story.What the Numbers ShowWe examined all open-ended equity mutual fund schemes with assets above Rs 250 crore as of December 2016, and tracked their performance from CY2000 to CY2016. The schemes were ranked by past returns and divided into quartiles, with Q1 representing the top 25 per cent.The results are telling:To put this in perspective: the chance of correctly calling a coin toss is 50%. The chance of a top-quartile scheme staying in the top quartile over three years is 29%. Picking funds by past returns alone is, statistically, worse than a coin toss.Why Past Returns Are an Unreliable GuideRepeating top-of-the-table performance is genuinely difficult, even for capable fund managers. Markets shift, sector cycles turn, and styles that produced strong returns in one period often underperform in the next. A scheme's last-year return reflects the market conditions of the last year, not the conditions ahead.A useful analogy: no one drives a car looking only at the rear-view mirror. Investment decisions deserve the same approach. Past performance is a single data point, not a forecast.Bet on the Jockey, Not the HorseIf past returns are an unreliable guide, what should drive the choice? The old adage applies here: bet on the jockey, not the horse. The fund manager, not the scheme, is the more reliable signal.A structured way to evaluate a fund manager is the 4Cs framework:These four factors, assessed using both qualitative judgment and quantitative measures, provide a more durable basis for selection than a one-year return number.In ClosingChoosing the right scheme can support long-term wealth creation. Choosing the right fund manager, evaluated on the right parameters, can enhance it meaningfully. The standard disclaimer, that past performance is no guarantee of future results, is more than a regulatory line. The data behind it is consistent and clear, and it deserves to be taken seriously.

• • 2 min read
  • 31-Dec-2019

Portfolio Management

Keeping Your Will Current: Life Events That Should Trigger a Review

A Will is only as useful as it is current. Most people draft a Will at a specific moment in their life and then never revisit it. Over the years, families grow, assets change, relationships shift, and the people named in the document may no longer be the right choices. A Will that has not kept pace with these changes can be as problematic as no Will at all.This piece looks at when a Will should be reviewed, how it can be updated, and the small but important steps that ensure the Will actually works when it is needed.When to Review Your WillMajor changes in wealthAcquisitions, divestitures, the sale of a business, the purchase of property, or any material change in the size or composition of the estate should trigger a review. A Will written against a different asset base may distribute the estate in ways that no longer reflect the testator's intent.Changes affecting beneficiaries or the executorIf a beneficiary passes away before the testator, the Will needs to be updated to reflect that change. The same applies if the appointed executor passes away, relocates, or is no longer able to take on the role. A Will with a deceased executor or beneficiary creates exactly the kind of ambiguity it was meant to prevent.Achieved or revised financial goalsMany Wills include provisions for specific goals: building a house, a child's marriage, a grandchild's education. When such a goal is achieved during the testator's lifetime, the corresponding provision in the Will needs to be updated. Equally, when the cost of a goal changes materially, the provision should be adjusted. For example, if two siblings undertake a joint financial commitment and one passes away, the surviving sibling may need to enhance their provision to honour the shared obligation.New members of the familyThe birth of a child or grandchild often prompts the testator to provide for the child's education or upbringing. A revised Will, with the appointment of a guardian where the new beneficiary is a minor, ensures these intentions are formally captured.How to Update Your WillCodicils for smaller changesA codicil is a supplementary document that explains, modifies, or revokes part of an existing Will. For example, where a parent had divided the estate equally between two children and one of them passes away, a codicil can be used to redirect that share. Codicils are well-suited to focused, limited changes. For substantial changes, particularly where several provisions are affected, drafting a fresh Will is often the cleaner option. Multiple codicils on a single Will can create interpretation issues over time.Follow the formal processWhether updating through a codicil or drafting a new Will, the formal requirements matter. The document should follow the correct format, set out the objectives clearly, and be signed in the presence of two witnesses. The original Will and any codicils should be kept together in a secure place, with access details known to the executor.Consider a mental fitness certificateWhen updating a Will later in life, particularly after a significant change in health, a certificate of mental fitness from a qualified doctor should be obtained and attached to the revised Will or codicil. This is a precaution against subsequent challenges questioning the testator's capacity at the time of signing.A Frequently Overlooked Step: Aligning NominationsNominations and Wills are often treated as interchangeable, but they are not. In most asset classes in India, the nominee is a trustee who receives the asset on behalf of the legal heirs, not a beneficiary in their own right. The Will determines the ultimate beneficiary. Where nominations and the Will conflict, disputes are common. The practical step is to review nominations across investments, bank accounts, insurance, and provident fund balances alongside any update to the Will, so that the two documents tell a consistent story. For example, an individual who named a sibling as nominee on an investment before marriage, and who subsequently writes a Will leaving that asset to a spouse, should update the nomination to match.After the Update: Making the Will Findable and the Assets ClaimableA surprising amount of wealth in India remains unclaimed simply because the claimants are not aware of it. Balances in Employee Provident Fund accounts, Public Provident Fund accounts, dividend payouts, and interest accruals routinely lie unclaimed for years. A Will is only useful if the people who need to act on it can find it and the assets it covers. The contents of the Will need not be shared, but the existence of the Will, its location, and the contact details of the executor should be known to the principal family members. Where assets are held in a bank locker, the locker details and the key location should be similarly documented.In ClosingA Will set up well at one point in time is not the same as a Will that works when it is needed. Reviewing the document at every significant life event, keeping nominations aligned, and ensuring it is findable are the small disciplines that turn a Will from a piece of paper into an instrument that genuinely protects the family.

• • 2 min read
  • 06-Aug-2018

Portfolio Management

Nine Essential Steps to Build an Effective Estate Plan

Most of us spend a great deal of energy building assets over a lifetime. But ensuring those assets reach the right people, smoothly and without conflict, is a conversation far too many families keep putting off. Estate planning is not about anticipating the worst. It is about making sure your intentions are clear and your loved ones are protected, whatever the future holds. Here are nine things to keep in mind as you get started.1. Do not procrastinateKnowing what needs to be done and not doing it is its own kind of risk. The right time to begin estate planning is now. The sooner you put a plan in place, the more control you have over how your assets are managed and distributed.2. Make a full list of your assetsStart by writing down everything you own. This includes physical assets like real estate, land, gold, jewellery and precious items, as well as financial assets like shares, bonds and mutual funds. Note your share in each, especially in cases of joint holdings. It also helps to speak with your family about their needs and aspirations, so your plan reflects what actually matters to them.3. Do not leave it entirely on your spouseEven if your spouse is capable and financially independent, it is unfair to leave them with the burden of figuring things out in your absence. A well-thought-out plan, with clear instructions and documented assets, gives them control without confusion. Think of it as a gift of clarity rather than just a legal document.4. A nomination alone is not enoughAppointing a nominee when you buy an asset or make an investment is a good starting point, but a nominee is only a custodian of the asset, not necessarily the sole legal heir. To ensure your assets actually reach the people you intend, a well-drafted will or a private family trust is essential.5. Do not rely entirely on the lawWhen someone passes away without a valid will, the applicable personal law decides how assets are divided. This may not align with what you really wanted. For instance, a Hindu male may wish his wife to be the sole owner of the family home, but without a will, the law may require equal distribution among the wife and children. Do not leave such decisions to chance.6. Appoint a guardian for minor heirsIf any of your heirs are minors, you must name a guardian in your will. If you do not, a court will appoint one, and that person may not share your values or understand your child's needs. Take the time to name someone you trust for this role.7. Review and update your plan regularlyYour life changes, and your estate plan should keep pace. Revisit your will every one to two years, or whenever there is a significant change in your assets, your family situation, or the people you have named as beneficiaries or executors. A plan that is not updated can create as many problems as no plan at all.8. Tell your family that a plan existsMany people hesitate to discuss estate planning with family, worrying it will stir up conflict or raise uncomfortable questions. You do not need to share every detail. What matters is that your family knows a plan exists, where to find it, and how to go about executing it when the time comes.9. Get professional guidanceEstate planning is one of the more complex areas of personal finance. A poorly drafted will, or an ambiguous trust deed can undo years of careful planning. Work with an estate planner who can help you document your intentions clearly and ensure the plan holds up when it matters most.The assets you have built over a lifetime deserve a clear plan for what comes next. Starting early, staying organised, and getting the right advice can make a significant difference to your family's future. If you have been putting this off, let this be the nudge to take the first step.

• • 2 min read
  • 18-Apr-2019

Portfolio Management

Beyond Price and Amenities: What to Check Before Buying Real Estate

Buying a house is one of the largest financial decisions an individual will make, yet it is often the least scrutinised. Decisions are shaped by sentiment, price negotiations, and the appeal of a well-presented brochure. The technical and legal aspects, which determine whether the asset holds its value and remains free of complications, receive far less attention.Brochures and sample flats prepared by the developer give an initial impression of the project, but relying on them alone can backfire. A favourable price, a strategic location, and high-quality amenities are not sufficient grounds for a purchase of this scale.Two factors deserve far greater weight than they typically receive: legal due diligence and technical specifications.On the legal front, a buyer should understand the title of the project, any encumbrances on it, the approvals obtained from the relevant authorities, and the preconditions attached to those approvals. Registration of a project with the Real Estate Regulatory Authority (RERA) provides a degree of transparency, but it does not, on its own, address every legal concern a buyer should be aware of.On the technical front, the considerations extend well beyond carpet area and finishes. Population density and the load on supporting infrastructure, fire safety standards including the number of staircases and ease of access to fire exits, ventilation, structural quality, and the practicality of long-term maintenance all influence how the property performs over time.A useful reference point is the commercial real estate market. Large corporates routinely apply these checks before buying or leasing a property. Individual buyers and small firms tend to skip them, and it is this gap in process, rather than any shortage of information, that leads to avoidable problems later.At the Real Estate practice of Motilal Oswal Private Wealth Management, the objective is to bring expert perspectives to each stage of the house-buying process and to support knowledge-based decisions rather than sentiment-led ones. The decision to buy real estate should rest on subject knowledge and a clear understanding of the details that will matter in the years ahead.

• • 2 min read
  • 18-Apr-2019

Portfolio Management

The Investment Charter: A Framework for Disciplined Portfolio Management

Most of us spend a great deal of energy building assets over a lifetime. But ensuring those assets reach the right people, smoothly and without conflict, is a conversation far too many families keep putting off. Estate planning is not about anticipating the worst. It is about making sure your intentions are clear and your loved ones are protected, whatever the future holds. Here are nine things to keep in mind as you get started.1. Do not procrastinateKnowing what needs to be done and not doing it is its own kind of risk. The right time to begin estate planning is now. The sooner you put a plan in place, the more control you have over how your assets are managed and distributed.2. Make a full list of your assetsStart by writing down everything you own. This includes physical assets like real estate, land, gold, jewellery and precious items, as well as financial assets like shares, bonds and mutual funds. Note your share in each, especially in cases of joint holdings. It also helps to speak with your family about their needs and aspirations, so your plan reflects what actually matters to them.3. Do not leave it entirely on your spouseEven if your spouse is capable and financially independent, it is unfair to leave them with the burden of figuring things out in your absence. A well-thought-out plan, with clear instructions and documented assets, gives them control without confusion. Think of it as a gift of clarity rather than just a legal document.4. A nomination alone is not enoughAppointing a nominee when you buy an asset or make an investment is a good starting point, but a nominee is only a custodian of the asset, not necessarily the sole legal heir. To ensure your assets actually reach the people you intend, a well-drafted will or a private family trust is essential.5. Do not rely entirely on the lawWhen someone passes away without a valid will, the applicable personal law decides how assets are divided. This may not align with what you really wanted. For instance, a Hindu male may wish his wife to be the sole owner of the family home, but without a will, the law may require equal distribution among the wife and children. Do not leave such decisions to chance.6. Appoint a guardian for minor heirsIf any of your heirs are minors, you must name a guardian in your will. If you do not, a court will appoint one, and that person may not share your values or understand your child's needs. Take the time to name someone you trust for this role.7. Review and update your plan regularlyYour life changes, and your estate plan should keep pace. Revisit your will every one to two years, or whenever there is a significant change in your assets, your family situation, or the people you have named as beneficiaries or executors. A plan that is not updated can create as many problems as no plan at all.8. Tell your family that a plan existsMany people hesitate to discuss estate planning with family, worrying it will stir up conflict or raise uncomfortable questions. You do not need to share every detail. What matters is that your family knows a plan exists, where to find it, and how to go about executing it when the time comes.9. Get professional guidanceEstate planning is one of the more complex areas of personal finance. A poorly drafted will, or an ambiguous trust deed can undo years of careful planning. Work with an estate planner who can help you document your intentions clearly and ensure the plan holds up when it matters most.The assets you have built over a lifetime deserve a clear plan for what comes next. Starting early, staying organised, and getting the right advice can make a significant difference to your family's future. If you have been putting this off, let this be the nudge to take the first step.

• • 2 min read
  • 18-Apr-2019

Portfolio Management

Why past returns should not be the sole reason to select a fund?

These are the times when temptations to invest are high and convincing as almost every alternate day the market is scaling new highs.More investors are attracted to stock markets and equity mutual funds. The desire to earn high returns from mutual funds make many investors look for winners.The easy way out for most do-it-yourself investor is to pick the best performer scheme or to put it straight -invest in the scheme that has given the highest returns in the past one year. The logic behind this action is very simple: What has worked in the past will also work in the future.Even some salesmen also find it easy to recommend a scheme with good numbers as it convinces investors. But does it really help investors when they put their money into best performing schemes?Is it wise to rely solely on past perfor mance of mutual fund schemes? Lets look at the hard numbers for the period from CY2000 to CY2016.We arranged all open-ended equity mutual fund schemes which garnered more than Rs 250 crore as of December 2016. We sorted them based on their past performances in descending order. Top 25 per cent schemes with highest returns were placed in Q1, next 25 per cent schemes were placed in Q2 and so on.Out of all schemes in Q1, only 35 per cent schemes continued to do well in the subsequent year. To put it simply , 65 per cent of schemes could not do well in the second year and lost their position in Q1.Similarly, in the three-year period performance, if one looks at performers after three years, 71 per cent of schemes could not retain their position in Q1.A point to note is: It is difficult to repeat the top of the table performance for majority of fund managers. This is a serious issue. In case of a toss of coin your chance of guessing it right is 50 per cent. However, in the above case of picking schemes on the basis of past performance, the chance of failure is as high as 71 per cent.If this made you uncomfortable, let me ask you a simple question: Do you drive your car looking at the rear view mirror? You dont, right? Investment decisions too should not be based on just past performance. You must go beyond the norm of return-based analysis to arrive at investment decisions.So, how do you identify winners who will put you ahead of others?As the age old adage goes "bet on the jockey, not the horse," the same holds true for investment wherein you lay your bet on manager and not on fund. Manager selection methodology must go beyond the obvious -looking at the performance record of the scheme.It pays to focus on four Cs -clarity of philosophy and style, capabilities of manager and AMC, consistency of performance and approach and class of the manager. These four matrices help in identifying the fund managers investment style. Evaluating the fund managers performance across time frames and across schemes using qualitative and quantitative parameters can help you evaluate a fund managers expertise.Getting the schemes right can help you create wealth for yourself in the long term. But zeroing in on a right fund manager can enhance your wealth significantly. So, the next time you read the mundane disclaimer -past performance is no guarantee of future results -I am sure you will take it more seriously.

• • 2 min read
  • 10-Jan-2018

Portfolio Management

Estate Planning: Protecting What You Have Built for the Next Generation

Assets built over a lifetime, whether financial investments, businesses, or property, are typically intended to provide security and continuity for the next generation. Estate Planning is the process by which that intent is given structure. It arranges a person's succession and financial affairs so that the estate passes to the intended beneficiaries with the least possible friction, supported by efficient tax and succession planning and a reduced likelihood of disputes or court proceedings.India does not currently levy an estate tax, estate duty, or inheritance tax. Estate Duty was first introduced in 1953 and was abolished in 1985. Historically, trust structures were used in part to minimise this duty. The absence of estate duty today does not, however, reduce the case for structured estate planning. The reasons to plan today are governance, control, continuity, and the avoidance of family disputes.Why Estate Planning MattersA well-constructed estate plan addresses several objectives at once:Will and Trust: Two Routes, Different StrengthsA Will and a Trust serve overlapping purposes but operate differently. A Will takes effect after death and is well suited for individuals who want absolute control over their assets during their lifetime. A Trust, by contrast, can be set up during one's lifetime and offers more flexibility, particularly where the family situation is complex, where assets need to be ring-fenced from disputes or creditors, or where benefits need to be tailored to different family members over time. In practice, the two are often used together. Even where a Trust structure is set up during one's lifetime, immovable properties are frequently contributed into the Trust through a Will.Three Strategic ConsiderationsWhen deciding between a Will, a Trust, or a combination, three considerations tend to shape the choice.Control. The extent to which the asset owner wishes to retain control during their lifetime is often the deciding factor. A Will preserves absolute control until death. A Trust transfers legal ownership earlier, which suits those who want to begin succession in a structured way while they are still able to oversee it.Flexibility. A Trust offers greater flexibility than a Will. Benefits can be provided to different family members at different points in time, calibrated to changing circumstances, contributions, and needs. This flexibility is particularly useful for multi-generational planning.Involving external and independent persons. Family members or friends acting as trustees can, in some situations, become biased in favour of or against particular beneficiaries. To address this, many families now prefer to appoint an unbiased, independent trustee. The growth of institutional trustee service providers in recent years has made this option more accessible, and the choice between an individual and an institutional trustee should be made based on the level of discretion required and a cost-benefit assessment.Understanding the Trust StructureIn a Trust, the asset owner transfers property to a structure administered by a Trustee for the benefit of named beneficiaries, or for the benefit of both the beneficiaries and the owner. A Trust has three principal parties:A Private Family Trust, used well, creates a ring-fenced structure that protects future generations and ensures the Settlor's directions are followed across cycles of leadership and family change.In ClosingEstate planning is often delayed because the subject is uncomfortable or assumed to be complex. In practice, the cost of postponing the decision is significantly higher than the cost of putting a structure in place. A well-drafted Will, a properly constituted Trust, or a combination of the two, can be set up without unnecessary complexity. The benefit is the certainty that the estate will pass on as intended, and that the family is protected from the disputes and delays that arise in the absence of a plan.The next step is a review of existing arrangements with an advisor who can assess whether a Will, a Trust, or a combination is appropriate for the specific family and asset profile.

• • 2 min read
  • 18-Apr-2019

Portfolio Management

The Road Less Travelled: How to Make a Will in 8 Steps

Making a Will is one of those things most of us know we should do, but keep putting off. Your estate, meaning everything you own as an individual, whether it is property, jewellery, investments, bank accounts or shares, represents a lifetime of effort. Estate planning is simply the process of deciding how that wealth is managed and passed on, both during your lifetime and after. A Will is the clearest way to make sure your wishes are followed and your loved ones are looked after. Here are eight steps to help you get started.Step I: Itemise all your assetsBegin by listing everything you own. This includes land, property, jewellery, investments and bank accounts. Note not just what you own, but how it is held. For instance, which locker holds the jewellery, or whose name a property is registered in. This reduces the risk of assets being overlooked or going unclaimed.Step II: Itemise all your liabilitiesAlong with your assets, document any outstanding liabilities. This allows your executor to settle debts before distributing the estate, helping avoid disputes or unnecessary legal proceedings down the line.Step III: Decide who will be the executor of your WillThe executor is the person responsible for carrying out the instructions in your Will after you are gone. Naming an executor clearly in the Will removes any ambiguity about who is in charge and ensures things are handled the way you intended.Step IV: Decide who will witness the WillFor a Will to be legally valid, two witnesses must sign it. Choose people who will be traceable and accessible in the future. It is generally advisable to select witnesses who are younger than you, so they are more likely to be available if the Will is ever called into question.Step V: Obtain a medical certificateThis step is not mandatory, but it is a sensible precaution. A certificate from your doctor confirming you were of sound mind at the time of writing the Will can help protect against any future challenge on grounds of mental incapacity.Step VI: Decide who receives which assetBe clear and specific about who gets what. This makes it easier for the executor to distribute assets and gives your family members a shared understanding of your wishes, significantly reducing the chances of disputes.Step VII: Appoint a guardian for minor or special needs dependentsIf you have minor children or dependants with special needs, you can name a guardian of your choice in your Will. If you do not, the law will make that decision by default, and the person appointed may not be who you would have chosen.Step VIII: Ensure your Will is properly executedOnce your Will is drafted, follow these steps to make it valid and accessible:A Will is not a morbid document. It is one of the most thoughtful things you can do for the people you care about. Once it is in place, you will have the peace of mind that comes from knowing your wishes are clearly documented and your family is protected. If you have not started yet, there is no better time than now.

• • 2 min read
  • 31-Dec-2019

Portfolio Management

5 things you need not worry about 2020

1)Timing the Market: Take an example of large caps in 2017 or mid & small caps in 2018, investors made a simple mistake of chasing the performance and redeeming from the respective asset classes in the subsequent year at the wrong time; result- under performing portfolios. I am sure 2019 taught us 'time in the market is far more critical than timing the market'.2)Herd Mentality:Overexposing ourselves to the latest fad is one of the most favorite of mistakes investors make during all market cycles. But do they consider their risk profile before doing that? Do they keep in mind the investment objective before moulding their portfolios? Seldom is the answer yes but in most cases, it is not. 2019 taught us the importance of asset allocation. The lesson learned we need not worry about in 2020!3)Prudent Financial Planning: Often I have seen investors over-leveraging in bull run and taking the adverse impacts during periods like 2019 where the scenario demands managing your expenses in order to pay EMIs. An economic scenario in 2019 helped us understand the same and in the New Year yes, we will balance it out.4)Acting on Your Impulse:Often we discard an asset class over its performance and then the cycle turns. What are we missing out in this? Some really good investment opportunities! 2019 was not that good year for equity but the valuations were attractive for quality investments. 2020 as a year will be calmer as we will refrain from taking any impulse actions on our portfolio.5)Liquidity Management: Do we plan for some unforeseen events where we are exposed to a situation of raising immediate funds or cash for any unfortunate event in the family? 2019 was full of such events and it tasted the patience of every investor. Wouldn’t it be wise to prepare your financial plan in a way that it has a certain allocation to arbitrage or ultra short term funds to help us in difficult times?With learnings from 2019, I will be more disciplined thereby becoming a Stress-free investor.Happy New Year!- Virendra SomwanshiMD & CEO, MOPWM

• • 2 min read
  • 31-Dec-2019

Explore research-backed perspectives and market intelligence curated for visionary investors.

• • 2 min read
  • Years of ResearchAnalystsTracked

• • 2 min read

Portfolio Management

Remember these nine steps for putting in place an effective estate plan

In this pandemic situation, fear is all-pervasive, and if you are the head of a family, your biggest fear would be the security of your loved ones if something happens to you. But now is the time to conquer this fear through adequate preparation. One way to be prepared to deal with any eventuality or uncertainty is to look at assets you have created and ensure that the rightful beneficiaries reap their full benefits without hindrance. A well-documented estate plan can help you do that.Here are nine things to remember when planning your estate:Don't procrastinate: Sooner, the better is the operative expression here. Knowing and not implementing a vital idea is a blunder. So take the first step - stop procrastinating and begin your estate planning process.Make a list of your assets: These include physical assets such as real estate and land, bullion gold, jewelry, precious artifacts, and financial assets such as shares, bonds, and mutual funds. Note down your claim in each of these; in case of joint holdings, you should know how much you own. You may also want to talk to your family to understand their aspirations and plan accordingly.Don't leave it on your spouse: Even if your spouse is working and capable of shouldering responsibilities, do not leave the cumbersome task of getting your finances to them in your absence. Prepare a plan, which can be executed to ensure they have sufficient control over the assets you will leave behind.Just nomination does not work: It is essential to appoint a nominee when you buy an asset or make an investment, but a nominee is merely a custodian of your asset when you are not around and not necessarily the only legal heir entitled to receive assets.  A well-drafted will or a private family trust as a part of an estate plan can help in transferring your assets smoothly to loved ones.Don't rely on law solely: When a person dies intestate or without a valid will, the respective personal law takes over the distribution of assets. This ensures that all legal heirs are entitled to their shares. However, the deceased person might have different intentions or goals. For example, a Hindu male may want his wife to be the sole owner of the house after his death. But if he dies without a will, then the house's ownership will not only go to his wife but also his children in equal proportion. Hence, it is not advisable to leave the fate of your assets to the law.Appoint a guardian: Some individuals are prudent enough to draft a will. However, if an heir is minor, appointing a guardian is mandatory. If you fail to appoint a guardian, the court appoints one. The person appointed by the court may not be the right person to take care of your child's aspirations. Hence, you should appoint a guardian, wherever required.Keep amending the plan: If you have already prepared your will, then you are on the right path. You must review the will periodically to consider the changing needs and aspirations of your loved ones. Whenever there is a change in the assets or beneficiaries or executors, one should review the will. One should relook at the Will every one to two years.Inform your family: Many believe that talking of estate planning or will may lead to clashes or unnecessary rift among people they intend to give their assets. However, there is no need to spell out the contents of the will. Instead, inform them about the existence of an estate plan and the process to execute it.Seek professional help: Estate planning is the most complex part of your financial plan. Unfortunately, this is the only document, which acquires meaning when its creator is not around. To ensure smooth execution and prevent any wrong interpretation, it is crucial that you consult an estate planner. A well-documented will or a trust deed will respect your perseverance in creating assets and the intention behind making the will.

• • 2 min read
  • 08-Dec-2020

• • 2 min read

• • 2 min read

Portfolio Management

Opportunities in the Current Market: A Contrarian Approach for H1CY25

Sooner, the better is the operative expression here. Knowing and not implementing a vital idea is a blunder. So take the first step - stop procrastinating and begin your estate planning process.These include physical assets such as real estate and land, bullion gold, jewelry, precious artifacts, and financial assets such as shares, bonds, and mutual funds. Note down your claim in each of these; in case of joint holdings, you should know how much you own. You may also want to talk to your family to understand their aspirations and plan accordingly.Even if your spouse is working and capable of shouldering responsibilities, do not leave the cumbersome task of getting your finances to them in your absence. Prepare a plan, which can be executed to ensure they have sufficient control over the assets you will leave behind.It is essential to appoint a nominee when you buy an asset or make an investment, but a nominee is merely a custodian of your asset when you are not around and not necessarily the only legal heir entitled to receive assets.  A well-drafted will or a private family trust as a part of an estate plan can help in transferring your assets smoothly to loved ones.When a person dies intestate or without a valid will, the respective personal law takes over the distribution of assets. This ensures that all legal heirs are entitled to their shares. However, the deceased person might have different intentions or goals. For example, a Hindu male may want his wife to be the sole owner of the house after his death. But if he dies without a will, then the house's ownership will not only go to his wife but also his children in equal proportion. Hence, it is not advisable to leave the fate of your assets to the law.If you have already prepared your will, then you are on the right path. You must review the will periodically to consider the changing needs and aspirations of your loved ones. Whenever there is a change in the assets or beneficiaries or executors, one should review the will. One should relook at the Will every one to two years.Many believe that talking of estate planning or will may lead to clashes or unnecessary rift among people they intend to give their assets. However, there is no need to spell out the contents of the will. Instead, inform them about the existence of an estate plan and the process to execute it.

• • 2 min read
  • November 28, 2022

• • 2 min read

• • 2 min read

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• • 2 min read

Portfolio Management

Real Estate Insights

Planning to buy real estate? Well, it is time to look beyond price and amenities.Today, buying a house is a social need which is considered an achievement by the standards of the society. Big houses at strategic locations with high-quality amenities serve as proof of a keenly-desired aspiration fulfilled. If you buy such a house at a rate which is cheaper than the prevalent market rates then it is an icing on the cake. On second thoughts, do these conditions ensure your peace of mind? Most probably, No.Buying a house based on sentiments, price negotiations and hastily-arrived conclusions can result in disastrous consequences in the future, as house buying entails a large amount of money, time and effort. The brochure and sample flat is the first level of introduction of a client to the dream house. These brochures and sample flats prepared by the developer definitely offer some idea of what you are going to get. But solely relying on them can backfire.House buyers suffer more as they ignore many issues at the time of house purchase. Two most important factors are legal due diligence and technical specification. On the legal front it is critical to understand the pro and cons of the project title and various preconditions set by authorities. On the technical aspect, one must consider aspects like population density and load on the infrastructure. Ease of maintenance, fire safety standards like a number of staircases, ventilation, and ease of access to fire exits also should be checked as a part of technical specification.It is important to seek answers to questions that may seem basic. But such answers to such questions may help avert unintended consequences in the future. Just because a real estate project is registered with Real Estate Regulatory Authority (RERA), need not necessarily address these issues completely. In commercial asset class, most of the large corporates follow these practices while buying or taking property on lease but in case of an individual or small firms these factors are ignored.At the real estate practice of Motilal Oswal Private Wealth Management, we intend to bring in the insights of experts on various aspects of the house-buying process. The idea is to promote knowledge-based decision making in real estate.“The decision of buying a real estate must be based on subject knowledge than sentiments; it is important to know the nitty-gritty of things which would matter in future”.

• • 2 min read
  • 18-Apr-2019

Portfolio Management

Succession of a Male - Hindu

On the death of a person, his/her assets are distributed amongst the persons as specified in the will. However, in case a person who dies without leaving a will (i.e. he dies intestate), in such cases the assets would be distributed according to the law based on his/her religion.The succession of Hindu, Jain, Buddhist and Sikh is governed by the Hindu Succession Act. Muslim succession is governed by the Muslim Law and Christians are governed by the Indian Succession Act.For e.g. Intestate Succession in case of death of a Male Hindu.In case a Hindu male dies intestate, i.e. without making a will, his assets shall be distributed according to the Hindu Succession Act and the property is transferred to the legal heirs of the deceased.The legal heirs are further classified into two classes - class I and class II.Class I heirs consist of the immediate family linked by the male. It includes wife, son, daughter and mother. All the people in this class shall equally divide the share among themselves.For better understanding of class I heirs, refer to the chart given below:In case of absence of the class I heirs, the class II heirs will become entitled to the property of the deceased, Class II shall include other family members including extended family members. If even one class I hire is available then the assets shall be transferred to that person.Conclusion:By writing a Will, a person can bypass the above succession law and bequeath his assets as per his Wish. For example: He can bequeath 100% of his assets to his Wife

• • 2 min read
  • 12-Apr-2018

Portfolio Management

5 things you need not worry about 2020

1)Timing the Market: Take an example of large caps in 2017 or mid & small caps in 2018, investors made a simple mistake of chasing the performance and redeeming from the respective asset classes in the subsequent year at the wrong time; result- under performing portfolios. I am sure 2019 taught us 'time in the market is far more critical than timing the market'.2)Herd Mentality:Overexposing ourselves to the latest fad is one of the most favorite of mistakes investors make during all market cycles. But do they consider their risk profile before doing that? Do they keep in mind the investment objective before moulding their portfolios? Seldom is the answer yes but in most cases, it is not. 2019 taught us the importance of asset allocation. The lesson learned we need not worry about in 2020!3)Prudent Financial Planning: Often I have seen investors over-leveraging in bull run and taking the adverse impacts during periods like 2019 where the scenario demands managing your expenses in order to pay EMIs. An economic scenario in 2019 helped us understand the same and in the New Year yes, we will balance it out.4)Acting on Your Impulse:Often we discard an asset class over its performance and then the cycle turns. What are we missing out in this? Some really good investment opportunities! 2019 was not that good year for equity but the valuations were attractive for quality investments. 2020 as a year will be calmer as we will refrain from taking any impulse actions on our portfolio.5)Liquidity Management: Do we plan for some unforeseen events where we are exposed to a situation of raising immediate funds or cash for any unfortunate event in the family? 2019 was full of such events and it tasted the patience of every investor. Wouldn’t it be wise to prepare your financial plan in a way that it has a certain allocation to arbitrage or ultra short term funds to help us in difficult times?With learnings from 2019, I will be more disciplined thereby becoming a Stress-free investor.Happy New Year!- Virendra SomwanshiMD & CEO, MOPWM

• • 2 min read
  • 31-Dec-2019

Portfolio Management

HAVING A FRANK CONVERSATION WITH YOUR FAMILY ON YOUR ESTATE PLAN

• • 2 min read
  • 18-Jan-2019

Portfolio Management

Investing in Mutual Funds? Diversify but avoid duplication

• • 2 min read
  • 10-Jan-2018

Portfolio Management

Where there’s a Will

Where there’s a WillWe are familiar with stories of a man working hard all his life and dying without a Will, depriving the fruits of his labor to his near and dear ones. Having no idea about the whereabouts of the money he had earned, the survivors spent life in penury. We are also familiar with stories wherein a distant relative deceives the family of deceased because of some glitches in the Will. These stories are a strict reminder of how important a well-thought-out Will is.Two important lessons to learn here are: One should always write a Will and one should constantly update the Will with the changes in one's life's circumstances. A lot has been written about the former. So, let us focus on the latter.Timely updateYou have to timely update your Will. If there are major changes in your wealth - acquisition or divestitures - it is better to update such changes. Sometimes the beneficiaries die before the death of the person who has written the Will.In such circumstances, the Will needs to be updated accordingly. One may also have to update his Will for the appointment of the executor in the case the earlier appointed executor dies.Unfinished goalsEach one of us has our own financial goals. Some are fulfilled in our lifetime, while some are expected to be achieved after that. These goals may be building a house, son's marriage or granddaughter's education.Many times these are mentioned in the Will and a provision is made for them. If such goals are already achieved in your lifetime, you should make the necessary changes in your Will.Sometimes the extent of the funds required to achieve a particular goal may change. In such circumstances, you have to make those additional provisions. For example, two brothers decide to build a house. If one of the brothers die early, the surviving brother may have to contribute more if he wants to share the liability of his deceased brother's family. In such a case, the provision need to be enhanced.Change in nominationThis may sound really basic. But it becomes a reason of many disputes. Nominate the right person according to your Will.For example, a person buys an investment before his marriage and appoints his sister as a nominee. After his marriage, he makes a Will and decides to give that investment to his wife after his death. In such a case, it makes sense for that person to remove his sister's name and change the nomination in his wife's favor.Use of codicilMany use codicil to effect a change in their Will. For the uninitiated, a codicil is an addition or supplement that explains, modifies, or revokes a Will or part thereof.For example, Ramesh had two sons and he wanted both of them to share his wealth. However, his younger son died young before getting married. Now Ramesh can use a codicil to transfer his younger son's share to his elder son.This way of changing the Will is perfectly legal. But be careful. Follow the process - use the right format, mention the objectives and reasons clearly, and more importantly, get two witnesses to sign it. And keep the codicil safe along with the Will.Mental fitnessAs you grow old, you may detect new health problems. While updating a Will after such a discovery, it is prudent to approach a doctor and get a certificate of mental fitness. Such a certificate should be attached to the revised Will or codicil. It comes in handy if the Will is challenged in the court of law, questioning the mental fitness of the person making the Will at the time of updating the document.For the new membersIf there are new entrants in your family and you intend to provide for them, you will have to revise your Will.For example, a child birth in a family is a happy moment and you may want to provide for the child's education and upbringing.Many times one ends up investing afresh with a long time frame in mind to achieve these goals.A revised Will with the appointment of a guardian may help in such a scenario.Inform your inheritorsA lot of wealth remains in abeyance just because there are no claimants. There are many stories about how crores of rupees are lying around in EPF, PPF, dividend payouts and interest payouts and so on. Who does not want money? Such money remains unclaimed because the claimants are not aware of it.Locker infoIf you have written a Will, you have taken the step in the right direction. You need not share the contents of your Will with your family members. But you must inform them where the Will is kept safely.A Will is a prudent decision. It will ensure that your loved ones reap the benefits of your lifetime's investments.Neha Pathak, Head - Trust & Estate Planning, MOPWMCourtesy  - The Telegraph India

• • 2 min read
  • 06-Aug-2018

Portfolio Management

Effective Estate Planning

You workhard to build your assets, your investments, home, properties, etc. to providea level of financial security your loved ones.Then, doesn'tit make sense to protect them in the event something should happen to you?That's the primary goal of estate planning to protect, preserve and manage yourestate during and post your life.EstatePlanning is a process of arranging and planning a person's succession andfinancial affairs. An Estate Plan which incorporates a person's wishes abouthis estate could be regarding Estate Management, Estate Preservation and EstateLegacy during and post life. The primary goal of an estate plan is to ensurethat the estate of the individual passes to his intended beneficiaries,including efficient tax and succession planning and avoiding or minimizingcourt proceedings in succession matters.Thoughearlier India had an estate tax, today we have no estate tax or estate duty orinheritance tax, unlike many advanced market economies. First introduced herein 1953, Estate Duty was abolished in 1985. Estate Planning by Trust Structureswas primarily done to minimize Estate Duty/ Tax which is imposed on all property(on market value) transferred at death of the estate owner.Why is estate planning soimportant?Because itallows you to accomplish a number of crucial objectives like:•    Harmonious and planned succession anddisposition of the estate which helps ensure that your money and other assetsgo to the people you choose•    Efficient management and accumulationduring and afterlife•    To take care of unforeseen eventualities byproviding for who will care for your minor children if you become unable to•    Defusing potential conflicts over thedistribution of your assetsWhat is a Trust?In a Trust,the Estate Owner transfers his property to a trust that is administered by theTrustee to hold it for the benefit of certain beneficiaries or it can be forthe benefit of beneficiaries and himself. By adopting a Trust Route a personcan make a ring-fenced structure to ensure that his future generations are wellprotected through a vehicle created by him and in accordance with his directions.The Trust has the following main parties:·        Author ofthe Trust/ Settlor·        Trustee·        BeneficiaryPrivateFamily Trust can avoid many legal issues and also make a ring-fenced structureto ensure that the future generations are well protected through a Truststructure.Conclusion:·        Thoughplanning one's estate may feel uncomfortable, the cost of procrastination canbe high·        Though somepeople are put off by the belief that estate planning will be complicated,time-consuming and costly, setting up an estate plan doesn't have to be acomplex process. It is not as complicated as it sounds·        You losenothing, but gain the assurance that your wishes will be carried out ifsomething happens to you

• • 2 min read
  • 18-Apr-2019

Portfolio Management

Investment Charter

Investment Charter is a comprehensive parameter to review portfolio on the agreed guideline. It ensures a strong risk management framework by putting in place for performance, asset allocation, and risk measures.Purpose and Objective

• • 2 min read
  • 20-Jun-2019

Portfolio Management

Estate Planning Do Not’s

Nominations, Joint ownership,Power Of Attorney, Wills, Gifts, Life Insurance, Charitable trust, Private FamilyTrust etc. There are mountains of information available and much of it can beconfusing. This can often lead to inaction or bad actions.Things one must avoidDon’t rely on the State/Personal laws. Every religion and some states has laws for distributing theproperty in case of demise of someone without an estate plan (i.e. withoutmaking a Will or Trust). But once you understand the personal / State law, onemay not be pleased to know the way your assets will be distributed OR may notbe distributed once you are not around.Don’t let the Court name theguardian for your minor children. A guardian for minor childrenis generally named in a Will. If the parents have not done this, andboth die before the children reach the legal age, the court will have to namesomeone to raise them and manage their funds without knowing whom the parentswould have chosen.Don’t rely on jointownership. Many older people add a child to the title of their assets(especially their home), often to avoid probate. But this may create problemsin the future. When you add a co-owner, you lose control. Jointly-owned assetsare now exposed to the co-owner’s creditors, divorce proceedings and possiblemisuse of the assets, and the co-owner must agree to all business transactions.If you have more than one child but only name one to be co-owner with you,fluctuating values could cause your children to receive unbalanced/unintendedinheritances.Don’t assume your childrenwill intuitively know your wishes, and handle the situationappropriately upon your death. Money and sentimental items can cause a riftbetween even the most agreeable siblings, and they will be especiallyvulnerable as they deal with the emotional impact of your passing.Don’t assume that once you’veprepared your estate plan it is set in stone. Estateplanning documents regularly need to be revised, often due to a change inmarital status, birth or death of a family member, or a significant change inthe value of your estate should be periodically reviewed to ensure they are upto date as per your wish.Don’t forget to notify yourfamily members, or other beneficiaries of your estate plan. Make sure yourexecutor and successor trustee have access to your documents.Don’t assume your spouse willhandle everything if something happens to you. It’s possible your spouse may beincapacitated at the same time, for example if you both are injured in the sameaccident. A proper estate plan appoints alternate representatives to handleyour affairs if both you and your spouse are unable to do so.Don’t assume you can planyour estate by yourself. Get help from an Estate Planner whosetraining and experience can ensure that you minimize financial implications andsimplify the process of settling your estate plan.Don’t wait, there’sno time like the present to get moving on your estate planning goals. It’s bestto tackle this subject while you are clear-headed and not facing difficultdecisions, so you can weigh all of your estate planning decisions carefully andobjectively. Quite simply, the time to start getting your estate plan in order is now.

• • 2 min read
  • 22-Oct-2018

Portfolio Management

Recategorization of mutual fund schemes

A turnaround effort by SEBI to rationalize the industryGiven the phenomenal growth of the Indian MF industry over the last 2 decades, investors' dilemma over a selection of schemes has only aggravated due to the plethora of 800+ open-ended schemes and 1000+ close-ended schemes offered by 41 fund houses. The process of understanding, evaluating and finally investing in a scheme suitable to one's risk-return objective is like looking for a needle in a haystack.Hence, keeping in mind the prime objective of maximization of investors' interest, in October 2017, SEBI took another positive step in that direction and issued a circular on mutual fund scheme categorization with an aim to clean up the industry and to enhance simplicity, transparency, comparability, and uniformity in scheme characteristics.SEBI has defined various categories of funds along with scheme characteristics and naming convention for each fund category. While the broad parameter for equity categorization includes market capitalization, debt categorization is broadly based on the maturity/duration of the fund. The broad categories are as follows:·         Equity (10 subcategories)·         Debt (16 subcategories)·         Hybrid (6 subcategories)·         Solution-oriented (2 subcategories)Others which includes index funds, Exchange Traded Funds and Fund of Funds (2 subcategories)SEBI has also mandated that each fund house can have only one scheme in each subcategory (the exception being sector funds, ETFs and FoFs) and the scheme needs to comply with the parameters/characteristics of the said category. A case in point worth mentioning is the AMFI list of large-cap (1st 100 stocks), mid-cap (101 – 250 stocks) and small cap (251st stock onwards) in terms of full market capitalization which fund houses are expected to comply with and rebalance the portfolio, if required, in line with the AMFI list which will be updated every six months.Thus, the regulator's initiative towards rationalization of the MF industry has kept the fund houses on their toes since the last six months. Schemes that have seen changes can be classified into three levels—schemes that have simply changed their name; schemes that have changed their category and schemes that have wound up and merged with another scheme. Just to put numbers to perspective, the industry has seen mergers of 80+ schemes into 31 unique schemes across categories. Post re-categorization, there are 39 schemes in large-cap (AUM of ~Rs. 1.20 Lakh Crs), 22 schemes in midcap (AUM of ~Rs. 69,000 Crs) and 11 schemes in small cap (AUM of ~Rs. 30,000 Crs) categories (Data as on 31st May 2018).Any structural change brings along with its benefits as well as difficulties, the scheme rationalization is no exception. While there is no second thought to the long-term benefits the change would provide to the investors, advisors as well as the fund houses, there are also some costs attached to it in terms of portfolio churn, a risk of front-running, increased transaction costs, shrinkage of mid-cap universe, etc.Thus, from an advisor and investors' perspective, it is pertinent to revisit the portfolio, decipher whether the changes post re-categorization are cosmetic or much deeper and then take a holistic view to readjust the portfolio in alignment with one's risk-return profile.

• • 2 min read
  • 19-Sep-2018

Portfolio Management

The Road Less Travelled: 8 Steps for making a Will

The Road Less Travelled: 8 Steps for making a WillIn a time like today’s when we have complete lock-down of the cities, we should try and use this as an opportunity to assess our estate plans. We should discuss with our family the future objectives. During the days of the lock-down, we will try and assist you with a few basic things to organize your estate planning closet.But before we start, we will take you through certain basics like what is an Estate and what is Estate Planning?An estate is everything that you own in your individual capacity.Example: Car, Jewelry, Investments in mutual funds or shares, Bank Account, Shares of Unlisted Companies and etc.An estate plan is a process that involves planning for the transfer of an individual’s estate, during and after his lifetime.Below are 8 steps to prepare a Will:

• • 2 min read
  • 03-Apr-2020

Portfolio Management

Investing is a Marathon.

• • 2 min read
  • 22-Apr-2019

Portfolio Management

Shelter in a storm: How to make your way through the market mayhem - By Ashish Shanker

Investors have been gripped with fear and anxiety in the current market scenario. Several macro and micro factors have caused the markets to fluctuate.Correction in the broader markets started earlier this year around February-March, while the Nifty continued to chug along aided by surges in select heavyweights. The rupee was on a decline from August because of tightening of rates in the US and surge in oil prices.When the storm hitThe perfect storm hit the markets in September when one of our premier financial institutions defaulted on some of its debt obligation. This was a scathing attack on an already fragile market at a time of the year when liquidity runs dry because of advance tax payments and half yearly closing. In the face of such news, investors may find themselves taking impulsive decisions or conversely, becoming paralysed and unable to implement an investment strategy.During bull markets, there is an illusion of calm and stability which may push us to take more risks than desired. Hence, this is the time to rethink your ability to take risks and reallocate at an opportune time.It is very important to have long-term perspective and discipline as these qualities help investors to remain committed to their investment objectives through periods of market uncertainty like the one we are seeing now.While equity offers superior returns in the long run, it also exposes one to certain volatility inherent in the nature of the asset class. You cannot have one without the other. This is what the markets are witnessing now. So what does one do in such a scenario? Does one react to random movements of the market or can one prepare in advance to wade through volatile times?Allocation is keyThis is where your asset allocation and investment charter come into the picture. Prudent allocation to multiple asset classes not only minimises an investor’s risk, but also makes returns more predictable and consistent.Let us substantiate this with some data. If one were to compare the performances of different asset classes such as equity, debt, gold and cash over the past 14 years, one would observe that no asset class has been a consistent winner (although equities outperformed most of the time).Yet, if one had allocated one’s portfolio equally among these asset classes for the said period, one would have made an average return of around 11 per cent (see chart), which is way above tax-free bonds. More so, there has been only one instance, in 2008, where the strategy gave negative returns, that too very marginal. This was because of the global financial crisis in 2008 when most of the markets were battered.Thus, there is clear merit in diversifying investments across asset classes as it reduces dependence on a single asset class and protects one from market turbulence. Based on your risk taking appetite, one should decide on how much money needs to be allocated to different asset classes.Risk tolerance levelThere are multiple factors that define your risk tolerance level such as the investment horizon, liquidity needs, investment goals etc. An investor with high risk tolerance may be willing to accept greater volatility in pursuit of higher returns and may allocate a higher percentage of the portfolio towards higher risk assets.On the other hand, an investor with low risk tolerance may have to forego higher returns for a steadier and less volatile portfolio. If one selects a portfolio with equity and fixed income, the potential gains that the equity component can give are much higher and the associated risk can be taken care of by the fixed investment component.Thus, a portfolio invested across asset classes has the ability to generate superior risk-adjusted return.Investment charterAn investment charter makes the approach more full-proof. But first, where does an investment charter fit in and what are its benefits?In the current investment world, investors seek advice from multiple advisers who, more often than not, have limited understanding of the overall assets. An investment charter lays down tailor-made rules for your portfolio to achieve your long-term goals. It increases the probability to reach your goal by ensuring that you adhere to a suggested allocation over time and varying market environments.Besides helping you reach your goals, an investment charter attempts to mitigate various portfolio level risks, including impulsive calls. To ensure that undue risk is discouraged and emotions are kept away while making investment decisions, it lays down the broad guidelines for asset class levels, managers, credit and locked-in products.Although asset allocation is one of the cornerstones for achieving an objective, it only works if the allocation is adhered to over time and through varying market environments. The allocation should be periodically checked keeping the investment charter in mind and the portfolio should be rebalanced if it deviates by more than an agreed percentage from the target.A combination of a well-planned asset allocation ratio along with a custom investment charter is the way to plan for one’s financial goals. While asset allocation provides superior risk adjusted returns, an investment charter will ensure the discipline required to see one through any potential turbulence. A sturdy foundation provides shelter during storms and asset allocation is that foundation which one can bank on in turbulent times.(Published on 29th October 2018 in The Telegraph India)

• • 2 min read
  • 29-Oct-2018

Portfolio Management

Nominations V/s Legal Heir Rights

There has been always some ambiguity on the rights of the Nominee and legal heir. In case of the demise of the owner, who shall be the rightful successor for the property of the deceased? Nominee or the legal heirs?A division bench (two-judge bench) of the Bombay High Court, comprising of The Honorable Justice Oak and The Honorable Justice Sayed, in Shakti Yezdaniand Ors. Vs. Jayanand Jayant Salgaonkar and Ors. has upheld the rights of successors over nominees and has settled the controversy regarding the rights of legal heirs as opposed to nominees. The court stated that the nominees are appointed to ensure that the subject matter of the nomination is protected,until the actual legal heirs take the right steps, such as obtaining probate of the will of the deceased or letters of administration or applying for succession certificate, to claim their rights over the assets of the deceased.The Bombay High Court`s ruling on nominee`s rightsThe Bombay High Court took into account the various provisions of law governing the nomination of shares under the Companies Act, 1956, (1956 Act),the succession laws governing the estate of a deceased as per the Indian Succession Act, 1925 and the bye-laws under the Depositories Act, 1996 and held that the provisions relating to nomination do not override the law in relation to testamentary or intestate succession and vesting under Section 109 A (of Companies Act,1956) does not create a third mode of succession. The Bombay High Court observed that the provisions relating to nominations have beenconsistently interpreted as only giving a temporary controlling right to the nominees, for interim management of the affairs.Importance of Will:Therefore it is amply important to write a Will which supersedes the nominations and to make things clear and simple. It is recommended the beneficiary of the Will and nominations should be in sync to avoid any kind of disagreements within the family.

• • 2 min read
  • 17-Jun-2020

Portfolio Management

PASSING YOUR WEALTH TO YOUR GRANDCHILDREN

PASSING YOUR WEALTH TO YOUR GRANDCHILDRENMost people wish to leave a legacy behind after they are gone, for their grandchildren. Many buy assets or make investments while mentally allotting these to a grandchild. But this may not be enough. A proper succession plan is needed if you want your assets to go to specific people, such as your grandchildren.   This is because without clear instructions mentioned, say, in a Will, succession laws will apply which may or may not be in accordance with your wishes.Therefore, if you want to bequeath something to your grandchild, a proper succession plan is needed.Through Will or TrustThe two most popular ways to bequeath immovable assets, to grandchildren are via a Will or a Trust. A Will is a legal declaration of a person’s intentions, which a person wishes to be, performed after his/her death. It regulates the process of passing on assets and provides for succession as declared by the testator.Grandparents like to keep some portion of movable and/or immovable assets for their grandchildren. It is important to highlight the same in a Will created by them.In India,succession laws are determined by the faith that the testatorfollows. So, this factor plays a big role in the way assets aredivided or a Will is prepared and executed.In the caseof Hindus, Christians, Parsis, Jains, Sikhs, and Jews, the Will wouldhave to be executed and attested in the manner set out in theSuccession Law.ForMohammedans, the general rule (with certain exceptions) is that aMohammedan cannot bequeath more than one-third assets by way of aWill.  Therefore, even if the bequest is to a grandchild orgrandchildren, the case of Mohammedans, be more than one-third of theassets of the testator/testatrix, and in some cases.A good wayto start preparing a Will is by listing out all your assets andclearly putting down the names and percentage of assets to beallotted to each grandchild so that any conflict at a later stage canbe avoided. It is advisable to seek professional help for draftingyour Will.Ensure thatyour Will is executed in the manner prescribed as per law. “Ifcertain heirs are being excluded and a preference is being given tograndchild, then it is possible that the excluded heirs may challengethe validity of the Will. So the testator or testatrix needs toensure that adequate precautions are taken so that the challenges canbe properly dealt with at the relevant time and the bequest is upheldas legal and valid.A Trust is advance succession planning mechanism from a Will. It is a fiduciaryarrangement that allows a third party (known as a trustee) to holdassets on behalf of beneficiaries. Trusts can be arranged in manyways and can specify exactly how and when the assets are passed tothe beneficiaries.A privateTrust may be useful in scenarios where there is a significant wealthinvolved and the assets must be transferred to the beneficiaries in aplanned manner or on specific events.It isimportant to make sure that the beneficiary receives the assets atthe right age. A private Trust can help in addressing this issue aseven if the grandparent or settlor dies when the beneficiarygrandchild is a minor, the money would continue to be managed in theTrust till the child reaches an age where he/she has the maturity tohandle the significant assets.Things to keep in mindLike all financial goals, start early when planning for succession for a grandchild, also Earmark major events in your grandchild’s life,such as higher education or marriage, and make specific allocations and stipulations in a Trust.

• • 2 min read
  • 12-Mar-2018