Author: root

IDFC FIRST Bank compensates families of employees affected by Covid

Banking & Finance

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IDFC FIRST Bank is offering compensation equivalent to four times of the CTC as well as continuation of salary for two years to the families of the employees who lost their lives due to the coronavirus infection.

Among others, the bank is also offering loan waivers of such employees so that their families do not feel pressured due to the economic burden.

“The bank’s employees are usually young people. Their families will be taken by shock. So we put together a composite programme covering all angles. We are giving four times the annual CTC as compensation plus continuing the salary for two more years so that the family can get the time to economically recover,” V Vaidyanathan, Managing Director and CEO, IDFC FIRST Bank, told PTI.

The bank is taking initiative to contact the families of those deceased and informing them about what the bank has to offer to them, he added.

“Among others, as part of this scheme we are waiving employee loans as families will have to bear the burden otherwise. If an employee has taken a personal loan, car loan, two-wheeler loan or education loan, etc, that is 100 per cent waived by the bank. Housing loan waiver is up to Rs 25 lakh (before June 30, 2021),” Vaidyanathan said.

Suppose, if an employee had taken Rs 30 lakh loan, IDFC FIRST will waive Rs 25 lakh and residual loan will become 5 lakh, he explained.

“The family can pay the reduced EMI from the salary credits we will make to them for 2 years. We are asking employees to insure their loans going forward (after June),” he said.

Vaidyanathan said around 20 employees of the bank have lost their lives to Covid.

“We are reaching out to the families of the deceased employees and telling them that you are entitled to this. We will give employment to the spouse if they are eligible on merit, if not then we will give them Rs 2 lakh for skilling them,” he said.

The compensation is applicable retrospectively and will continue as long as the pandemic remains.

Among others under this ‘Employee Covid Care Scheme 2021’, the lender has made provision of scholarship of Rs 10,000 monthly to two children up to graduation, funeral expenses up to Rs 30,000, relocation assistance of Rs 50,000 as well as pro-rata bonus payout for the period served this year by the deceased employee.

Apart from this, Vaidyanathan said the bank employees have taken an initiative on their own to help the needy customers belonging to the low income group by generating a corpus from their salaries.

Under this employee funded Ghar Ghar Ration programme, the bank employees will supply ration kits to 50,000 low income customers whose livelihood has been impacted by the pandemic.

Employees are procuring ration kits comprising 10 kg rice/flour, 2 kg lentils, 1 kg sugar and salt, 1 kg cooking oil, 5 packets of spices, tea, biscuits and other essentials, he said, adding employees have contributed one day to one month’s salary for this.

He said as many as 16,000 benefits have reached across Rajasthan, MP, Maharashtra, Odisha, Gujarat, Karnataka, Haryana, Tamil Nadu, Andhra Pradesh and Chhattisgarh under this programme launched recently.

The lender has also identified 250 vulnerable families who have lost an earning member of their family to Covid-19 with a cash relief support of Rs 10,000 in a partnership with ‘Give India’.

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Bank of Maharashtra plans to raise up to Rs 2,000 crore through QIP

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State-run Bank of Maharashtra is looking to raise up to Rs 2,000 crore through qualified institutional placement (QIP) route before July-end, its Managing Director and CEO A S Rajeev said.

In April this year, the Pune-based lender had received board approval to raise Rs 5,000 crore by way of QIP/rights issue/ preferential issue or by issuing Basel III bonds.

“We are planning to raise around Rs 2,000 crore equity through QIP immediately. The process has already started and we will raise it before July-end,” Rajeev told PTI in an interaction.

The base size of the issue is Rs 1,000 crore and it has a greenshoe option of another Rs 1,000 crore, he said.

Following this equity raise, the Government’s holding in the bank will reduce to below 85 per cent from 94 per cent currently, and the capital adequacy ratio will improve to 17-18 per cent from around 14.49 per cent as of March 31, 2021, Rajeev said.

This fund will be deployed for expansion of the loan book, which the bank is looking to grow by 16-18 per cent to around Rs 1.25 lakh crore in this fiscal from Rs 1.08 lakh crore as of March 31, 2021, he said.

Of the total loan book of the bank at present, the share of corporate loans is 37 per cent and of retail, agriculture and MSME (RAM) segment is 63 per cent, he said adding, “We want the ratio of RAM to the corporate segment to be 65:35 during the current fiscal.” The bank is envisaging a 20-25 per cent growth in the retail, agriculture and MSME (RAM) segment this year. The lender’s corporate loan size is close to Rs 40,000 crore and it is targeting to grow it by another Rs 10,000 crore in this financial year. It has a sanction pipeline of Rs 25,000 crore in the corporate and MSME segments for the current fiscal, he said.

“We have churned our portfolio with improvement in the share of lending to better-rated corporates. This will minimise the delinquencies and attract lower capital requirement,” Rajeev added.

In the corporate segment, the bank will continue lending to better-rated corporates, including sunrise sectors such as infrastructure, pharmaceuticals and FMCG, he said.

Under the government’s Emergency Credit Line Guarantee Scheme (ECLGS), the bank’s total disbursement, so far, is around Rs 2,100 crore, and it plans to lend another Rs 500 crore this year.

Rajeev said the bank’s exposure to the healthcare sector is Rs 2,000-2,400 crore, which is 2 per cent of the total advances portfolio. In April and May, it had already disbursed over Rs 225 crore to the sector.

“We intend to double our portfolio under the healthcare sector and make it 4 per cent of our total advances portfolio during the current fiscal. We have also come out with two to three products in tune with the RBI policy,” he said.

Last month, the RBI had announced an on-tap term liquidity facility of Rs 50,000 crore under which banks can provide fresh lending support to a wide range of entities from the healthcare segment. The government has also announced ECLGS 4.0, under which a 100 per cent guarantee cover to loans up to Rs 2 crore will be provided to hospitals, nursing homes, clinics, medical colleges for setting up on-site oxygen generation plants.

Rajeev further said since the exit from the RBI’s prompt corrective action (PCA) framework in January 2019, the lender has taken several steps to strengthen its balance sheet, which has resulted in a significant improvement in all its financial parameters.

“We have been successful in registering profits quarter on quarter since March 2019. Our net profit rose 41.39 per cent to Rs 550 crore during FY21 from Rs 389 crore in FY20. Operating profit also rose 39 per cent to Rs 3,958 crore in FY21 from Rs 2,847 crore last year,” he said.

The bank’s CASA (Current Account and Savings Account) improved to 54 per cent as of March 31, 2021, which according to Rajeev is one of the best in the banking industry.

The bank has also managed to bring its gross non-performing assets to 7.23 per cent as of March 31, 2021, from 18.64 per cent in September 2018, when it was under PCA. Net NPAs stood at 2.48 per cent as of March 31, 2021.

At present, market capitalisation of the bank stands at Rs 17,500 crore against Rs 3,948 crore as of March 2019, he said. In FY22, the bank is targeting to bring down gross NPA to below 6 per cent and net NPA to below 2 per cent. Net interest margins (NIM) will remain above 3 per cent in this fiscal, he said.

It has set a recovery and upgradation target of Rs 2,500-2,600 crore during the current year. The lender is also expecting Rs 500 crore recovery from written-off accounts in this fiscal, Rajeev said. The lender is looking at opening 200 banking outlets with a hub and spoke model in this fiscal, he added.

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4 Stocks Sharekhan Is Suggesting To Buy For Long Term Investors

Personal Finance

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Bank of India

Bank of India is currently traded at around Rs 80 levels and Sharekhan has a target of Rs 100 on the stock. Recently, the stock was in the news on hopes of a privatisation move by the government.

The brokerage firm notes that the performance of the bank has been steady on the other income stream, which stood at Rs. 2,053 crore for Q4FY2021, steady from Q3FY2021 but up 21.6% y-o-y. It also noted that the provision coverage ratio has been healthy at 86.24% as of Q4FY2021, which has improved from 83.75% in Q4FY2020 and provides cushion to profitability.

“We expect the bank to post RoA/RoE of 0.36%/6.6% by FY2023E, led by stable balance sheet growth along with higher provision coverage ratio and stable asset quality. However, we expect asset-quality performance to still be a key monitorable during the medium term. We have fine tuned our estimates and target multiples. We upgrade the stock to Buy rating with a revised target price of Rs. 100,” the brokerage has said. The shares of Bank of India were last seen trading at Rs 80 on the NSE.

MOIL

MOIL

Sharekhan has also recommended buying the stock of government owned MOIL. The company has 11 mines, largely engaged in mining manganese.

The brokerage believes that MOIL has under performed the metal index in the last few quarters.

“MOIL’s valuation is attractive at 4 times its FY2023E EV/EBITDA (12% discount to its historical average one-year forward EV/EBITDA multiple of 4.5 times) and its high cash & cash equivalents of Rs. 1,905 crore (Rs. 80 per share or 42% of market capitalization) provides room for share buyback (last buyback announced in November 2019 at a price of Rs. 152 per share) and high dividend payout. Hence, we maintain a Buy rating on MOIL with a revised target price of Rs. 225 (increase reflects upward revision in earnings and higher EV/EBITDA multiple),” the brokerage has said.

MOIL shares were last seen trading at Rs 190. A good pick for the long term, according to brokerage.

Birlasoft

Birlasoft

Birlasoft is an Enterprise Digital and IT company that is recommended by Sharekhan. The brokerage sees good CAGR in revenues for Birlasoft at 15/27% over 21-23.

“At current market price, the stock trades at 25.5x/20.8x/17.6x its FY2022E/FY2023E/FY2024E earnings. We continue to remain positive on the stock considering strong net cash of Rs. 1,119 crore (11% of market capitalisation), healthy FCF generation and improving pay-out ratio. Hence, we maintain a Buy rating on Birlasoft with a revised price target of Rs. 450,” the brokerage has said.

According to it, key risks for the company would be the deterioration in demand for IT services in the wake of second wave of COVID-19 and stiff competition.

Emami

Emami

Sharekhan also has a buy call on the stock of Emami. The company owns brand such as Boro Plus, Navratna, Fair and Handsome, Zandu balm, Mentho Plus balm and Kesh King.

According to the brokerage the shares are currently trading at a 25 times its FY2023E earnings, which is at a discount to some close peers.

“We maintain a Buy recommendation on the stock with a revised price target of Rs. 635,” the brokerage has said. The shares of Emami were last seen trading at Rs 542 on the National Stock Exchange and compared to some of its peers the valuation in terms of p/e is far lower.

Disclaimer

Disclaimer

The above stocks are picked from brokerage reports. Neither the broking firm, nor the author nor Greynium Information Technologies would be responsible for losses based on decisions taken based on the article. The above article is for informational purposes only and stock market investing is risky. Investors should consider the risk before investing. Please do not buy stock based on the information provided above do consult a registered advisor.



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Bank of Maharashtra plans to raise Rs 2,000 crore via QIP, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: Bank of Maharashtra has decided to float a Rs 2,000-crore qualified institutional placement (QIP) of equity shares next month. The public sector lender has received approval from its shareholders for the capital raise last year.

Speaking to TOI, A S Rajeev, MD & CEO BoM, said that the bank had capital adequacy of 14.5%. Of which, 10.9% is the tier I and capital adequacy is good. “For growth purpose, we require capital as we are envisaging a credit growth of 16-18%. This means that advances will grow by around Rs 25,000 crore for which we require Rs 1,400-1,500-crore capital” he said.

The bank is looking at an issue of Rs 1,000 crore with a greenshoe option to retain an oversubscription of Rs 1,000 crore. “In addition to this we will be raising Rs 1,000 crore through additional tier I and tier II bonds,” said Rajeev. The bank’s stock, which was trading below Rs 11 a year ago, closed at Rs 27 on Friday.



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Centre may front load capital provisioning for PSBs this year, BFSI News, ET BFSI

Banking & Finance

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New Delhi, As the Central government draws a plan to privatise at least two public sector banks (PSB) this fiscal, it has also decided to front load capitalisation of state-owned banks so that the balance sheets of some of these entities are strengthened ahead of possible sale.

Sources said that PSBs may be provided this year just after their first quarter results before October. This would be a departure from the practice of previous year when bank capitalisation was undertaken late in the year and towards the end of fiscal.

Even in FY21, a substantial portion of capital was released right at end of the fiscal year in March.

“Front loading of capital will help PSBs to strengthen their financials that may again get impacted this year with weak lending and stress coming back on a lot of their credit assets with Covid pandemic continuing to disrupt businesses. This could also help in taking out weak banks out of the PCA (prompt corrective action) framework that would be helpful in their possible privatisation this year,” said an official source on the condition of anonymity.

The Budget 2021-22 has allocated Rs 20,000 crore towards recapitalisation of PSBs to help them consolidate their financial capacity.

Source said that more than two-third of this capital may be provided by the second quarter.

The government had earlier indicated that banks under prompt corrective action (PCA) framework or weaker banks would be kept out of privatisation as it would be difficult to find buyers for them. This would have left three PSBs, Indian Overseas Bank, Central Bank and UCO Bank, out of the government’s disinvestment plan.

But now the thinking is that they could be brought out of PCA as there are visible signs of improvement in some of the key parameters such as profitability and asset quality (in net NPA terms as they have stepped up provisioning) in the last 3-4 quarters. This could allow them to be considered for privatisation.

Provision of capital earlier in the year will give the necessary boost to them.

Finance Minister Nirmala Sitharaman had announced in her Budget speech this year that two state-run banks along with IDBI Bank would be privatised in FY22.

She also said that one general insurance company would be sold off in the current fiscal.

The recapitalisation roadmap is being redrawn for the PSBs in the current fiscal as the institutions are expected to face stress from the pandemic disruptions with fears that asset quality may further weaken like last year.

Also, the changes in valuation norms AT1 bonds has made the instrument less attractive for banks to raise their capital.

SEBI, though has amended the valuation rule of perpetual bonds in line with objections raised by the finance ministry, it still has said that from April 2023 onwards, the residual maturity of AT-1 bonds will become 100 years from the date of issuance of the bond. This will make the most used route of raising capital by banks less attractive.

Sources said that the Finance Ministry has already started a preliminary exercise to determine the capital requirement of banks in wake of limitations on fund raising norms and expected rise in bad assets during the time of the pandemic. Based on the inputs received by banks, additional capital may be provided to them from budgetary resources at the earliest.

On its part, government is strengthening the banking segment by merger and amalgamation of PSBs.

Since 2017, this exercise has resulted in seven large and five smaller PSBs.

The measures (based on bad loans and regional factors) were intended to help manage capital more efficiently. But emerging regulatory needs and pandemic affected businesses continue to pose challenges for banking segment.



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Tax Query: Does a mother pay tax on money received from NRI son?

Personal Finance

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My son is working in the Netherlands and sends me €300 every month. My son pays income tax on his salary there. I used to send him €2,400 from India every month during his higher education in the Netherlands for almost two years. Is the money I receive from my son every month taxable in India? My existing income falls under 20 per cent tax bracket.

Manjula

As per provisions of section 56 (2)(x) of the Income-tax Act, 1961 (‘the Act’), income tax is payable on any sum of money (if aggregate value exceeds ₹50,000) received by an individual without consideration. However, any receipts from specified relatives (includes lineal ascendant or descendant of the individual), would not be considered as taxable. Hence, a gift of money from your son (who is your lineal descendant) will not be subject to tax in your hands in India.

I got only one folio with Sundaram MF i.e. Diversified Equity Fund. The fund had declared a dividend of ₹725 and deducted tax at the rate of 20.8 per cent. On taking up the matter with them they stated that timings and frequency and amount of dividend declared is not known in advance. They also said that the investment horizon of the investor is unknown and actual dividend income accrued for such TDS cannot be assessed. The fund-house also said the threshold limit of ₹5,000 has been aggregated at PAN level across all AMCs and Sundaram MF does not have investor level data of dividends being declared for each PAN during a year. So, they will deduct TDS from each dividend declared even without reaching the ₹5,000 threshold. In case of total TDS exceeding the actual tax liability of any investor, he/she can claim refund while filing income tax returns. I feel the explanation given by Sundaram is patently absurd. If all MFs take this stand, and deduct tax irrespective of the amount of dividend, what is the sanctity of the threshold limit of ₹5,000. In my view, they should aggregate the dividend under their schemes alone and deduct tax if it exceeds ₹5,000 and not otherwise. Please give your considered opinion on this subject.

Cyril Dsouza

As per provisions of section 194K of the Income-tax Act, 1961 (‘the Act’), payers (MF house in this case) are required to deduct tax at source (TDS) at 10 per cent for payments made to resident individuals. However, if the amount of such income paid during financial year (FY) to the payee does not exceed ₹5000, tax is not required to be deducted at source. Literal reading of the section suggests that no TDS is to be deducted by the payer if amount paid by them during a FY does not exceed ₹5,000. However, practically some payers take a view that the threshold limit of ₹5,000 is to be considered qua the individual (i.e. at PAN level) and necessary TDS to be done. In such a scenario, individual would have to claim credit of such TDS in the return of income. Also it is important to note that, as per provisions of section 206AA of the Act, in case you do not provide your PAN to the payor, then tax is required to be deducted at a rate of 20.8 per cent (including applicable cess). If this holds true for your case, this may be reason for the MF house to deduct tax at the rate of 20.8 per cent.

The writer is a practising chartered accountant

Send your queries to taxtalk@thehindu.co.in

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‘Avoid investments you don’t understand’: Bhavesh Sanghvi of Emkay Wealth

Personal Finance

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At Emkay Wealth Management, Bhavesh Sanghvi as the CEO is the last word when it comes to managing and growing the wealth of hundreds of client families. So, BL Portfolio caught up with Sanghvi, whose firm currently manages around ₹2,000 crore corpus, to understand his personal finance philosophies, investing journey hightlights and crucial lessons he has learned over the 30 years.

When did you first start investing?

I started investing way back in 1989 when I started my career and I remember I would actually wait for the Bhav copy in the evening at Vile Parle station. I saw the whole Harshad Mehta bull run, but did not get carried away by it. I invested in companies whose products I consumed every day. I had read ‘One Up on Wall Street’ by Peter Lynch at that point in time. So, I bought Indian Shaving Products, which is known as Gillette India today. I bought Colgate-Palmolive, P&G Hygiene etc. I still continue to own them.

What does money mean to you?

Money is freedom and freedom means the ability to do something I want. For me, I get happiness by doing something for the society. So, money helps me to pursue a little bit of philanthropy, educate under-privileged children etc. While cash makes one happy, for me it is also important that money goes around. Just a few months back I lost my wife to cancer after a two-year battle. Irrespective of the money you have, it means little if it has no purpose. When I give back to the society, it makes me happy to see those smiles.

As an individual, what are your top financial goals and how have you planned for them?

My single-biggest goal today is to get my daughter a good higher education. I am going to achieve that by investing in equities. If one goes abroad to study, one has to set aside atleast ₹3 crore. Once her education is done, she is on her own. I have sufficient savings that I have done over the last 30 years which can help me lead a comfortable life. I never hade a flashy lifestyle and so I was able to save right from my first job.

Did Covid offer any money takeaways to you?

When the market started reacting to Covid in February/March, we were not prepared for Covid, leave alone understand what it was. Markets then crashed. I did nothing as a reaction, but I did realise that one must have a good emergency corpus because we don’t know when or from where the next negative event will come from.

I don’t believe in investing when you are already carrying loans on your head. Your priority should be to pay off the loans. Only then does one have the peace of mind to have a long horizon for investments. If you have a loan and then your portfolio goes out of whack, then the trouble could be bigger especially if there is a job loss or pay cut.

What is your investment portfolio made up of?

I am a hardcore equity investor. Right now, equity is 47 per cent, 28 per cent in real estate, 2 per cent in gold and the rest is in fixed income where the bulk is in EPFO. I dont believe in fixed deposits, because they dont beat inflation.

I invest in equity that part of my money which I will not require in the next 10 years. Equity markets go through cycles and I will be in a far better position if I give 10 years to a great company, rather than 3-5 years. My real estate exposure appears bumped up due to me buying the next-door house.

Otherwise, rental yields at 1.5-2 per cent is practically nothing, even lower than liquid funds.

Following right asset allocation is very important. When a large drawdown happens in markets, one should move from debt to equity.

Any alternative investments?

I started buying art about 4 years ago. It is more instinctive. My collection is small and consists of works by Sujata Achrekar, Dinkar Jadhav, Ann Ray etc.

Tell us about your most successful investment.

On paper while Colgate stock may have optically moved from ₹17 to ₹1700 and there are many such examples, actually my most successful investment is the 300-400 books that I have. The wealth of knowledge that I have got cannot be measured by IRR. They have helped me become a better individual.

One investing mistake you regret having done?

I bought a stock and sold it for ₹3 per share profit after listening to somebody else. Had I held on, the position would be worth crores today. The mistake was not doing my homework at that time. That’s why I say one should not be overawed by what others say. We tend to question ourselves a lot. Once you have the conviction, just go with it. Markets will keep going up and down.

But when markets fall by 30-40 per cent like in 2008 or 2020, isn’t it difficult to hold on?

It’s very simple. Follow asset allocation. When a large drawdown happens, move from debt to equity. That is where asset allocation comes in.

What are the financial lessons learned so far in your professional career?

I personally err on the side of conservatism. I know what works for me and what doesn’t. Doing your homework diligently matters. For instance, if you don’t read last 5 years annual report of a company, you shouldn’t directly invest in stocks. I stay away from things that I don’t understand even if a big expert tries to convince me. I also don’t blindly follow what others are doing. At the end of the day, it is all about my hard-earned money. Nobody is going to replace that money if things go wrong.

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What is insurance bonus – The Hindu BusinessLine

Personal Finance

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Two neighbours’ daily routine of watering plants leads to an interesting conversation.

Sindu: This mint family plant took only about three weeks to grow and it smells good.

Bindu: That is a sage plant. Not only is it aromatic, but it has medicinal qualities too.

Sindu: Great. That’s a bonus! Just what we need during these tough times.

Bindu: Speaking of bonus, my life insurance policy matured and I got extra cash as bonus.

Sindu: That explains your extra plants on the walls. But what is a bonus in life insurance?

Bindu: Well, ‘bonus’ in insurance is a benefit given by the insurer to a policyholder over and above the maturity amount of the policy. So when a life insurer makes profit, it is distributed in the form of bonus.

Sindu: Does every life insurance product offer bonus?

Bindu: No. Bonuses are usually offered with traditional products, that is, ‘with profit’ policies.

Sindu: How many types of bonuses are there?

Bindu: There are broadly three types – terminal, interim and reversionary bonus. Terminal bonus is a one-time benefit offered by an insurer when the policy matures, though it is left to the discretion of the insurer to pay this. Interim bonus is declared in cases where an insurance policy matures before the end of the financial year or in case of the insured person’s demise during the term of the policy. In case of reversionary bonus, a certain bonus value is added regularly to the policy. These bonus amounts continue to accrue until the policy term and are paid out at maturity. After declaring reversionary bonuses, if there are still residual profits available with the insurer, they normally are declared as terminal bonus.

Sindu: Do we know how much will be the bonus at the time of taking the policy?

Bindu: Not always, though there are products that do mention the bonus at the inception itself. Bonus is declared either as a certain amount (say ₹20 or ₹50) per ₹1,000 sum assured or as a percentage of the sum assured. As bonus is declared only when an insurer make a profit, it may not be known at the inception of the policy.

Sindu: Can I purchase a policy based on the bonus payment?

Bindu: You can. While you can check the historical bonus paid by an insurer on their websites, that shouldn’t be the only criteria for selection.

Sindu: Bonuses are a reward for staying invested for long-term.

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Should you invest in curated investment portfolios?

Personal Finance

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If you are one of those investors who wish to invest directly in stocks/ETFs but don’t have the time or skill to do the required analysis, here is help. You may consider the readymade equity portfolios such as smallcases by Smallcase, Stockbaskets by Samco Securities, One Click Equity by ICICI Direct, Theme Investing by Fyers and Intelligent Advisory Portfolio (IAP) by Motilal Oswal. Here, we look at a few of these products.

How it works

Readymade portfolios are a basket of stocks/ETFs that may reflect a particular investment theme, idea or sector. So, a dividend-yield basket from Smallcase may be made up of stocks that have increased their dividend payout consecutively for the last 10 years and a small-cap basket from Motilal Oswal could have a few stocks of pint-sized firms that are high risk-high return. ICICI Direct provides short term portfolios such as Quant Breakouts 2.0, which is based on quant indicators and F&O (futures and options) data reading. The investing strategies employed to build readymade stock portfolios have been created by SEBI-licenced professionals such as brokers and research analysts, who use fundamental, technical, quantitative models and algorithms.

Few platforms such as Smallcase and Fyers give flexibility to the investors to add/remove stocks or change the weight of the stock. However, baskets by Samco Securities and ICICI One Click does not provide such flexibility for the research-recommended portfolios. Paras Matalia, Head of StockBasket, Samco Securites believes that if flexibility is given to users to deviate from the researched portfolios, it may lead to desired returns.

For example, Motilal Oswal’s IAP on large-cap rebalances the portfolio on a quarterly basis and on corporate governance issues in any company. This will be intimated to the investor through an e-mail or SMS. However, iDirect’s One Click baskets do not undergo rebalancing. Pankaj Pandey, Head Research at ICICI Securities, says that once the target price of the created basket is achieved, the firm recommends an exit from the basket.

To invest in these portfolios, you need a demat account with these platforms. The minimum investment amount may vary depending on the stocks that make up a basket and varies with the prices of constituents in the basket. All the baskets mention the investment strategy, minimum amount and the historical returns of the basket.

Once a basket is chosen, you can invest a lumpsum or run a systematic investment in it.

Smallcase, in addition to providing baskets on its platform, also provides their infrastructure to all leading brokerages including Zerodha, HDFC Securities, Kotak Securities, Axis Direct, Edelweiss and Angel Broking. The smallcases on most of these brokerages are those built by a subsidiary of Smallcase, Windmill Capital; while some brokerages have curated their own in-house smallcases as well.

Costs involved

In case of Smallcase and Fyers, a flat fee of Rs 100 is charged for one smallcase or a theme. Besides, brokerage and other statutory fees are applicable for all orders. The fee is also levied when the portfolio gets rebalanced and the investor chooses to amend the portfolio.

There are certain smallcases created by managers other than Smallcase’s subsidiary – Windmill – such as Weekend Investing, Green Portfolio and Aurum Capital, which charge subscription fee for a specific period that could be either a fixed amount (between Rs 1,200 to Rs 60,000 per year) or a percentage of the investment value (0.25 per cent to 2.5 per cent annually). The pricing varies across the mangers associated with the Smallcase.

In case of StockBasket, the main charge is also research subscription fee in addition to brokerage charges. This would be about 1.2-1.5 per cent of the minimum investment amount. The firm charges a cancellation fee if you exit or cancel the basket before five years. The firm also returns the subscription fee in case the basket fails to make the target corpus for a tenure of 5 years. Motilal Oswal’s products too work on the same basis of subscription fee which depends on the investment advisor. While brokers such as ICICI Direct do not charge any cost for its products – which are created in-house, they charge the applicable brokerage.

Be cautious

When choosing pre-packaged baskets, the returns may include a backtest period. Since most of these baskets have been created only recently , backtested returns are included to show the longer track record (including the period before the inception of the basket).

Mind you, your return from the invested basket could be different from those shown. This will depend on the price and time of your entry and exit. Also, deviations can occur whenever the basket is rebalanced, and you don’t opt for it.

For investors who understand the stock market reasonably well and don’t want to pay for the services of a mutual fund manager, readymade portfolios offer a good alternative. Also, these platforms make investing convenient by automating the process. You also get to follow and invest in portfolios created by some of the famed money managers.

However, if you opt for baskets where you need to pay research subscription fee, compare it with the other similar MF products. Though the choice of portfolio that fits your risk profile and return requirement is left to you.

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How a middle-aged couple can meet short and long-term goals

Personal Finance

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Sankar and his wife Aparna wanted to plan for their goals. Sankar is 43, Aparna 40.

Both were interested in long-term saving and investing. Past returns of the market, coupled with lower interest rates on fixed deposits, kindled their interest in equity related investments. Though they appeared keen to invest in equity oriented products, they lacked exposure to market volatility.

We analysed their risk profile and observed that they had a disciplined savings culture. They had exposure to products such as Public Provident Fund, Unit linked insurance plans and mutual funds. But, there was a lack of purpose in their choices.

They were tuned to looking at product features and popular choices. We advised them to think in terms of their own goals and time horizon, for each goal. The benefits of staying invested across market cycles was highlighted with data. They were enthused to put this concept into practice. They were also encouraged to think in terms of the time available for a goal — which helped them to avoid a few products and add new baskets!

We suggested that they invest not more than 50 per cent of their yearly savings in equity in the first three years. to be reviewed at the end of this period. We suggested four baskets of investments for them.

Emergency kitty

Both Sankar and Aparna are employed. Their expenses were found to be relatively low compared to others with similar income. They had more fixed income investments with some flexibility to rely upon. Hence, we advised them to reserve three months’ of expenses in fixed deposits.

Short-term – 1-2 years

They anticipated some planned expenses related to travel and gifts. They also wanted to change their car within the next two years. The total amount needed for this was found to be ₹5 lakh.

We advised them to invest in liquid funds and FDs, and to save around ₹25,000 per month towards this goal.

Medium-term – 3-6 years

The couple’s son’s college education, a family function and house construction were all falling due in that time period. They already had some savings but these were not enough. This had to be funded by way of regular investments. The goal target was around ₹15 lakh.

We suggested that they invest in a combination of debt MFs, asset allocation funds and large-cap MFs towards this basket. They needed to invest ₹24,000 per month. Expected return would be around 8 per cent CAGR and the withdrawal may happen after four years, in tranches.

Long-term basket

Though they were saving towards their retirement in Provident Fund and other fixed income products, it was recommended that they add equity MFs. They were advised to invest ₹50,000 per month in large and mid-cap equity MFs for 10 per cent post tax returns over a period of 10 years. This will help them reach a ₹1-crore corpus.

It is important to map your savings and investments to consumption needs or wealth needs. It is ‘beginning with the end in mind’ that matters a lot.

The writer, Co-founder of Chamomile Investment Consultants in Chennai, is an investment advisor registered with SEBI

(This is a free article from the BusinessLine premium Portfolio segment. For more such content, please subscribe to The Hindu BusinessLine online.)

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