[whitewing]

Originally Posted by DigitalOne

As an affected investor, I have mixed feelings on this judgement. The court has rightly said unit holders consent needs to be taken before taking decision to change the fundamental attributes of a scheme.

The ruling only has made things worse for the investors now, isn't it? If not, by now you would have already got the liquidation money in your bank accounts.

While the investment calls (and its quality) are the fund manager's responsibility, the call by the AMC to wind up the fund I think actually resulted in preventing losses for the investors. If not for this, the investors would have to face further losses if a flood of redemption had occurred.
And now the investors will additionally face further capital erosion due to the prolonged legal delays.

If there is someone who should be penalized, I would think it is SEBI since in a fluid market situation, they allowed the AMC to shut down the said MF.

[DigitalOne]

Originally Posted by whitewing

The ruling only has made things worse for the investors now, isn't it? If not, by now you would have already got the liquidation money in your bank accounts.
.....

You would not have received the entire amount. Only for the 4 cash positive funds, and that too only part of it. As per FT's yesterday's mail update:

• The 6 schemes have received Rs. 438 cr from maturities, pre-payments and coupon payments during the period 16-29 October 2020. This takes the total cash flows received till date since 24 April 2020 to Rs. 8,741 cr.
  
• The cash available stands at Rs 5,441 cr as of October 29, 2020 for the four cash positive schemes, subject to fund running expenses.
  
• Individually, Franklin India Ultra Short Bond Fund, Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund and Franklin India Credit Risk Fund have 42%, 25%, 20% and 5% of their respective AUM in cash.

So only the four cash positive scheme investors would have received some part of their investments.

I don't know what SEBI could have done anything differently. The options before FT and SEBI were same - stopping redemptions, followed by a controlled winding up or allow redemptions at huge losses to investors.

FT allowed the situation precipitate to such an extent and for that they need to be fined. As late as April 16th, just a week before winding of the fund they made this statement:

Even at shorter end products like Franklin India Ultra Short Bond Fund provide great investment opportunity.

Source : Page 3

I hope SC gives a prudent workable solution.

[adimicra]

All,

I have a lump sum investment to make with a 5-year horizon in mind.
Lump sum investment in equities is extremely risky( particularly with the current market condition) and also 5 years is too less a horizon for equity.
So, I was thinking to go for a pure debt product.
How about constant maturity gilt funds (10 years) or normal gilt funds?
I am a bit confused as interest rates are already very low. So, how are these funds expected to perform in 3-5 years?
Kindly advise

[pradkumar]

How about HDFC short term or IDFC short term debt fund? IDFC has 92% of its portfolio in AAA rated paper. You can expect 8-9% annual returns. Being a short term fund, you don't run the risk of interest rate fluctuations like gilt funds for a period of 5 years.

HDFC short term has a higher credit rating as per value research and 1% more returns. It has 14% in AA paper. I somehow would like to disregard value research ratings and consider IDFC short term to be safer.

Originally Posted by adimicra

All,

I have a lump sum investment to make with a 5-year horizon in mind.

[warrioraks]

Originally Posted by pradkumar

Being a short term fund, you don't run the risk of interest rate fluctuations like gilt funds for a period of 5 years.

I don’t think that’s true. The risk for short term funds might be lower than long term gilt funds, but it’s not like they are insulated from interest rate risks.

[adimicra]

Originally Posted by pradkumar

How about HDFC short term or IDFC short term debt fund? IDFC has 92% of its portfolio in AAA rated paper. You can expect 8-9% annual returns. Being a short term fund, you don't run the risk of interest rate fluctuations like gilt funds for a period of 5 years.

HDFC short term has a higher credit rating as per value research and 1% more returns. It has 14% in AA paper. I somehow would like to disregard value research ratings and consider IDFC short term to be safer.

Thanks for your response.
Actually, I am currently invested in HFDC short term and Axis short term funds. My debt funds have always been short term and ultra short term. I have always considered debt funds should be encashable when needed. So, I have never gone for long term or gilt funds. However, in this case, I won't be needing this money for 5 years (hopefully). So, I was wondering if 1-2% additional returns is gilt funds is worth the additional risk. Looking at the risk-return ratio, I would say short term funds are probably a better option. So, I will probably stick with Axis or HDFC short term.

Valueresearch is fine but I normally use morningstar for analysis - way better than valueresearch, but for the discerning investor.

[warrioraks]

Originally Posted by adimicra

So, I was wondering if 1-2% additional returns is gilt funds is worth the additional risk.

Not worth the risk. Considering high inflation numbers, there is more than likely probability of interest rates going up which will lead to negative returns for gilt funds. So now doesn’t seem to be a good time.

If you are a salaried person, and you are looking for a debt option, my suggestion would be to max out your VPF contributions and draw on lump sum for monthly expenses.

If you are not a salaried person, then diversify across short term debt, equity through SIP and gold.

Honestly if one is a conservative investor, it is very difficult to find decent investment avenues in today’s time.

[adimicra]

Originally Posted by warrioraks

Not worth the risk. Considering high inflation numbers, there is more than likely probability of interest rates going up which will lead to negative returns for gilt funds. So now doesn’t seem to be a good time.

If you are a salaried person, and you are looking for a debt option, my suggestion would be to max out your VPF contributions and draw on lump sum for monthly expenses.

Thanks, my thought process is aligned with you.
I made a mistake earlier and didn't care about VPF as I was mostly investing in equities and making good returns but one crash has taught me the importance of asset allocation. Learnt it the hard way but better at 40 than at 60 I guess.

Can you explain what do you mean by draw on lump sum for monthly expenses? My VPF is currently 30% on top of 12% employee + 12% employer (-pension fund contribution)

[warrioraks]

Originally Posted by adimicra

Can you explain what do you mean by draw on lump sum for monthly expenses? My VPF is currently 30% on top of 12% employee + 12% employer (-pension fund contribution)

The rules allow VPF to be up to 100% of basic salary. My suggestion was that you increase your VPF contribution to maximum allowed (from 30% to 100%). This might mean that you would have lesser amount in hand for monthly expenses (due to higher VPF deductions).

Now to meet that shortfall, you can invest your lump sum amount in a liquid fund and then draw from it for your monthly expenses, till the time you exhaust your lump sum. Then just bring back your VPF from 100% to 30%. So effectively, you would have routed your lump sum into VPF account over a period of time.

Let me also give an example:
Let’s assume your salary is 1.5 lac per month (1 lac Basic + 50k allowances). Also you have a lump sum of 10 lacs available to invest.

This means your current VPF is 30k per month (at 30% of basic).
If you increase VPF to 100% of basic, you will see a deduction of 1 lac per month when salary is disbursed. Which means your in-hand every month will be 70k less than before.
So invest 10 lacs in a liquid or a similar low risk fund and draw 70k per month to bridge the shortfall. You will dry out the liquid fund in approximately 15 months at this rate but by that time, your 10 lacs would be in your VPF account.

You can play around with VPF percentage, lump sum amount and other variables for your situation. But this is more or less how you can pump up VPF balance if you have lump sum to invest.

[pradkumar]

Sorry for not phrasing the sentence correctly. I meant compared to gilt funds...

Originally Posted by warrioraks

I don’t think that’s true. The risk for short term funds might be lower than long term gilt funds, but it’s not like they are insulated from interest rate risks.

[Simhi]

Originally Posted by adimicra

So, I have never gone for long term or gilt funds. However, in this case, I won't be needing this money for 5 years (hopefully). So, I was wondering if 1-2% additional returns is gilt funds is worth the additional risk.

Gilt funds can be volatile when interest rate start inching upwards. But are safer from credit quality perspective. If you are looking at five year horizon, you can also analyze schemes from Banking and PSU Fund category. There are schemes which invest only in AAA paper +SOV bonds.

You can also refer to following posts
https://www.team-bhp.com/forum/shift...ml#post4798352 (The Mutual Funds Thread)
https://www.team-bhp.com/forum/shift...ml#post4798359 (The Mutual Funds Thread)

[arundeepbv]

Originally Posted by warrioraks

The rules allow VPF to be up to 100% of basic salary. My suggestion was that you increase your VPF contribution to maximum allowed (from 30% to 100%). This might mean that you would have lesser amount in hand for monthly expenses (due to higher VPF deductions).

So invest 10 lacs in a liquid or a similar low risk fund and draw 70k per month to bridge the shortfall. You will dry out the liquid fund in approximately 15 months at this rate but by that time, your 10 lacs would be in your VPF account.

You can play around with VPF percentage, lump sum amount and other variables for your situation. But this is more or less how you can pump up VPF balance if you have lump sum to invest.

Thanks for the tip. This is a great way to increase your VPF balance.

Is there any way we can partly withdraw from the VPF account ? For example our warrioraks is having an investment horizon of 5 years, would it be possible to withdraw the from VPF partially ?

[adimicra]

Originally Posted by warrioraks

The rules allow VPF to be up to 100% of basic salary. My suggestion was that you increase your VPF contribution to maximum allowed (from 30% to 100%). This might mean that you would have lesser amount in hand for monthly expenses (due to higher VPF deductions).

Now to meet that shortfall, you can invest your lump sum amount in a liquid fund and then draw from it for your monthly expenses, till the time you exhaust your lump sum. Then just bring back your VPF from 100% to 30%. So effectively, you would have routed your lump sum into VPF account over a period of time.

Let me also give an example:
Let’s assume your salary is 1.5 lac per month (1 lac Basic + 50k allowances). Also you have a lump sum of 10 lacs available to invest.

This means your current VPF is 30k per month (at 30% of basic).
If you increase VPF to 100% of basic, you will see a deduction of 1 lac per month when salary is disbursed. Which means your in-hand every month will be 70k less than before.
So invest 10 lacs in a liquid or a similar low risk fund and draw 70k per month to bridge the shortfall. You will dry out the liquid fund in approximately 15 months at this rate but by that time, your 10 lacs would be in your VPF account.

You can play around with VPF percentage, lump sum amount and other variables for your situation. But this is more or less how you can pump up VPF balance if you have lump sum to invest.

Very interesting concept. Thanks for sharing.

However, I do some challenges regarding liquidity but I believe this is something which can be implemented with some thought. 8%+ post-tax guaranteed return is only possible in EPF/VPF. Debt funds can probably give 7-7.5% post tax return at best if holding period is more than 3 years (long term capital gains)

[sagarpadaki]

Originally Posted by adimicra

Very interesting concept. Thanks for sharing.

However, I do some challenges regarding liquidity but I believe this is something which can be implemented with some thought. 8%+ post-tax guaranteed return is only possible in EPF/VPF. Debt funds can probably give 7-7.5% post tax return at best if holding period is more than 3 years (long term capital gains)

VPF/EPF interest rates are seeing a downward trend. Expect them to continue the reducing trend. It is not practical to expect 8% interest rate in the medium to long run

[warrioraks]

Originally Posted by arundeepbv

Thanks for the tip. This is a great way to increase your VPF balance.

Is there any way we can partly withdraw from the VPF account ? For example our warrioraks is having an investment horizon of 5 years, would it be possible to withdraw the from VPF partially ?

I did not fully understand your question. But withdrawal rules for VPF and EPF are similar. You can withdraw for medical/wedding/property/education expenses. Specifically for VPF, there can be a tax liability depending on duration of your investment.

Originally Posted by adimicra

8%+ post-tax guaranteed return is only possible in EPF/VPF. Debt funds can probably give 7-7.5% post tax return at best if holding period is more than 3 years (long term capital gains)

The returns might not stay above 8% if RBI softens the interest rates further. But EPF should continue to provide class leading returns amongst debt category.
Also in case the rates go up due to inflation, EPF/VPF investments should benefit. On the other hand, GILT and debt funds will most probably dip.