Uncertain Times - Returns Certainty - Certainly!!

Due to COVID-19, we are going through unprecedented times. There has been a paradigm shift in the way we are doing things. Would you ever believe beginning of year 20-20, that this would turn out to be such an incredible year; turning all our typical "My Way of Life" beliefs upside down!!! I am not going to go into the negatives of it as it reminds be famous quote of Sir Issac Newton. It says "Stay away from negative people, they will find a problem to every solution"

So to give you a perspective on overall economic outlook. Aug 2020 had recorded USD 9 Billion of FPI equity inflow. This has driven valuations to non justifiable levels. It should correct itself soon again triggering mayhem on Dalal Street. This coupled with government subsidies during COVID time, is going to weaken the economy.  

This is for sure going to impact the credit side of market and potentially more and more companies defaulting on the liabilities payment. 

Have I made to re-think your investment decision or added to your woes? So, in these uncertain times if you are looking to invest, what is the most appropriate avenue for a risk averse investor like me? Do we have any options? Typically we look at Safety, Liquidity, Returns (SLR) while making investment decisions. 

Let me remind you that the safest bank in India, SBI, is offering 5.1% on 2 Year FD. NBFCs like HDFC and Bajaj Finance are offering 125 basis point more that this, so @ 6.35%. This is going to have some degree of credit risk involved. What option I am proposing today is a virtually credit risk free instrument and providing better returns than these options but you may have to forgo liquidity. 

Reserve Bank of India (RBI), recently launched RBI Floating Rate Bonds. Don't you believe, yes RBI, that's why I said zero credit Risk!. This bonds offer a coupon of 7.15% and is a floating rate bond in nature.

Let us look at salient features:

This option gives you a better post tax returns in which ever tax bracket you are in compared with the safest Bank's returns.........So in uncertain times there are options where there is certainty on returns!!!😀

How to invest: 
with ICICI Direct you can invest online or contact any of the RBI appointed intermediaries for investment (State Bank of India, Axis Bank Ltd., ICICI Bank Ltd.,HDFC Bank Ltd., IDBI Bank Ltd. etc) to start investing!!

Note: please feel free to comment ot drop me a note with your candid feedback on Sudarshan.Rajhansa@gmail.com

All about UAN - Universal Account Number

In my earlier posts I did mention about UAN and its advantage. In this article I am going to explain what UAN is all about, advantages of having and registering the UAN (how to register online with EPFO) and services offered under UAN.

What is UAN? :

UAN is “Universal Account Number”, which is a unique registration number for each employee (a member) registered with EFPO (Employee Provident Fund Organization) via hi/her employer.

EPFO has created a separate UAN portal to provide a number of facilities to its members through a single window. 

Advantages of UAN:

• You can update your KYC information online via UAN Member portal
• You can link all your previous EPF accounts to this UAN and utilize the online EPF transfer facility
• Member can download his own member passbook showing details of all contributions, withdrawals (if any), transfer in/out and interest accrued etc.

How to get UAN:

Employees who have been actively contributing to EPF have already been assigned UAN. You will need to get in touch with your employer/HR contact to get your UAN. Employers can download the employee UAN data from “UAN-Member details Download” link on EPFO page Activate UAN

Registration on UAN Portal:

For registration, follow below steps

1. Keep UAN and EPF number ready before you begin registration

2. Go to Activate UAN option on the above page or click on “Activate Your UAN based Registration” button

 

3.       This will take you to next screen shown below. Read the instructions and check the check box next to “I have read and understood the instructions!”

 

4.       Enter your UAN, Mobile Number, EPF Account Details & the Captcha text and hit “GET PIN” button. You will receive a PIN/OTP on your mobile number. Click on “I Agree” check box and enter the PIN to authorize the process.

5.      After this, it will take you to setup your password; update DOB, security questions and emails ID. UAN will be the user ID. Hit submit once you are done and you are ready to go

6.       Click on the link which comes up on the new page or go back to UAN Portal Home page

  

7.       Login with your UAN and Password and you can see below after log in 

 

You can go and download your latest EPF statement. I will write more about how to read/understand and cross check your EPF statement in my next article. Till then, Happy Reading!!!!!!!!!!!!!!!!!

Note: please feel free to drop me a note with your candid feedback on Sudarshan.Rajhansa@gmail.com

Employee Provident Fund Organization (EPFO) Launches Mobile App

EPFO, keeping in mind its long-term goal of making EPFO a paperless office, reached another milestone in providing efficient service at our fingertips. EPFO has implemented multiple technology upgrades to really put off the inefficiency dust and become the most laudable and techno-savvy government office.

Still hard to believe to have come it from the EPFO? Yes indeed, EPFO has launched its android based mobile application. This gives you now quite a few options which were never even dreamt of a decade ago. Let us see how this new App is and what it provides to the end user, typically to an employee who is a member.

EPFO Mobile App:

To download, you will have to first visit the EPFO link EPFO Mobile App, and click on the download button. The .APK file will download to you mobile phone.

Ensure to enable/Check “Allow installation of apps from sources other than the Play Store” on your mobile under settings. This will ensure that the app is successfully installed.

This is how the main screen looks like with three distinct options for Members, Pensioners & Employers. We are going to look into “Member” Option only.

If you have received your UAN (Universal Account Number) and not yet activated it via web portal, then this App gives you an option to activate your UAN. To activate, just click on “Activate UAN” button and it will take you to below screen. Enter all the details and click “Activate” to complete the activation process. Once you are done with Activation, you can check the EPF balance by clicking on tab BALANCE/PASSBOOK tab from main menu. The screen looks like below.

     

 

To Download the EPFO passbook, you just need to input your UAN and mobile number; the details will be displayed on the screen with a link to download your passbook.

So what are you waiting for, Just go ahead and have the EPF balance on your fingertips literally!!!!!!

Note: Please feel free to drop me a note  with suggestions/comments on this post at  Sudarshan@myvitaminm.com. 

EQUITIES ARE BEST BET IN LONG-TERM!

EQUITIES ARE BEST BET IN LONG-TERM!

Here is interesting piece of analysis and equally significant from an individual’s investment perspective.

Most of the time people ignore equity being high risk and high return investment category. Investment in equities require excellent understanding of stock market, deep study of individual companies, risk appetite, holding capacity (in case share prices drop considerably before picking up). People who tend to invest in equities have a mindset that the money should multiply in quick time without understanding the downside risk.  

How this risk component can be mitigated in such a manner that one can get good returns? There is way out. A diversified Equity mutual fund is one of the options. These funds would try and outperform (some time underperform) the benchmark index. In Indian context, the benchmark indices are BSE-30 (Bombay Stock Exchange) and NSE-50 (National Stock Exchange). The number in the end denotes the number of companies in the index.

How about a portfolio which would mimic the returns provides by the benchmark index? Such funds are called Index Fund. A BSE Index fund would typically copy the portfolio of the underlying BSE index. Index funds came into existence recently. BSE started somewhere in late 70’s.

Let us assume that the Index Fund existed in those times. With this assumption, I have tried to calculate the returns delivered by the BSE. These returns are rolling returns compounded and annualized (CAGR). 

The data used is from 2^nd Jan 1980 to 29^th Oct 2014 period taken from BSE website. The strategy is BUY and HOLD.

So if you invest on 2^nd Jan 1980 and withdraw after 5 years on 31^st Dec 1984 where index changed from 118.16 to 271.87, the CAGR works out to be 18.13%. So on if you invest on 4^th Jan 1980 and withdraw on 2^nd Jan 1985, the rolling CAGR works out to be 18.00%.

So in rolling return analysis, I am assuming you invest on any day and withdraw after 5, 10, 20 or 30 years. This way we take out “Timing the Market” philosophy. So there are instances when you could end up investing at the peak and 5 years rolling return could be massive –ve. Here is how this fares on high level

BSE-30 Data From 2-Jan-1980 to 29-Oct-2014	*-Ve Return Instances	Maximum -ve Return	Maximum +ve Return	Minimum +ve Return
5 Year Rolling Returns	651	-8.08%	56.24%	0.01%
10 Year Rolling Returns	53	-2.72%	34.98%	0.02%
20 Year Rolling Returns	0	NA	21.52%	7.03%
30 Year Rolling Returns	0	NA	18.50%	14.80%

So in 5 year rolling return period, there are 651 instances where you could end up losing money but as you go up and invest for longer term the returns stabilize over longer term. Remember this is BUY and HOLD strategy. If we couple this with cost averaging strategy, then the returns are phenomenal. I will write about that in my next article. 

These returns, in Indian context, are tax free (No long term capital gains tax on equities in India) and are incomparable with other investment avenues.

Here is graphical representation of the analysis.

So you will also agree that  EQUITIES ARE BEST BET IN LONG-TERM!!!

Note: If you want to see the details of analysis done in excel, please feel free to drop me a note on Sudarshan.Rajhansa@gmail.com