Kavitha Menon's Blog

  As India moves towards becoming a 5 trillion-dollar economy, investors have much to gain by participating in this big growth decade via equities. But equities are essentially long gestation investments and come with their fair share of volatility. For investors looking at fixed income to park short term funds or wanting higher returns while diversifying from equities, traditional fixed income instruments and mutual funds offer limited options. On one hand there is  demand for products with higher returns in the fixed income space. On the other hand, is a growing requirement of funds by business owners and individuals for purposes that aren’t traditionally covered by banks or NBFCs. For example, Corporates both in traditional and new age business require high quality and different types of capital when they go through special situations like liquidity crunch, bankruptcy, promotor buy backs etc. Similarly on the retail side, our young consuming population needs quick and e...

    Factor Investing: An introduction   Factor investing, is an asset pricing and portfolio construction approach that involves targeting specific drivers of returns. There are five main factors associated with higher returns that are widely used in factor ETF strategies: value, small-caps, momentum, low volatility and quality (which is also known as dividend payers). A sixth factor, yield, is sometimes included in the main factor definition count. For the purpose of our writeup today, we will be focussing exclusively on factor-based ETFs with some compelling statistics that should help you as an investor to: - Critically evaluate performance of large cap investments in managed funds - Usher in ETFs as a cost effective and promising part of your core portfolio We will also restrict this analysis of funds to the large cap space. It is likely that in a few years midcap and small cap indexes will start outperforming their managed peers, but so far data points t...

Five things to do in the current stock market scenario- My client was nervous. As the head of a leading consultancy firm he was aware of the state of affairs of the economy and specifically of his clients who were bleeding thanks to the impact of lockdown . He wanted to know my view on how to tackle the portfolio given the the stunning rally of stock markets across the globe . Like many a baffled investor he was sure that   the markets were in   bubble and unrealistic . While the rally has been sudden and unexpected there are justifications galore supporting it too. And as with every investor my client was   afraid that there will be reversal to the mean. What should investors do when Nifty is reaching new highs daily? I will share my two cents on how to deal with the current situation. 1.        Prepare yourself for volatility especially in equity – We aren’t exactly in a cheap market reeling from covid hit economy. Valuation ratios ...

Reduce tax impact on Debt Mutual Funds In the last couple of years some changes made in tax rules for dividends in mutual funds have made the dividend option of debt plans very unattractive. While dividend distribution tax has been done away with, mutual funds now deduct TDS (10%) and Stamp duty (.005%) every time dividends are paid and reinvested respectively. Besides the dividends are fully taxable in the hands of the investor. Clearly dividend options is not an option anymore and as an investor you must ensure you move lock stock into the growth option Short term capital gains  (if the units are sold before three years) in  debt mutual funds  are taxed as per applicable  tax  rate of the investor. Therefore, if your  tax  rate is 30% then  short term capital gains tax on debt fund  is 30% + 4% cess.  Long term capital gains  of  debt fund  are taxed at 20% with indexation. With some management , the overall effect...