August 2019 ● Volume 09 ● 08

Stay Optimistic!
“An optimist sees the opportunity in every difficulty.”
- Sir Winston Churchill

Greetings from FundsIndia!

Dear investors,

In the month of July, the Union Budget did not turn Also, advisors can now provide recommendations
out the way it was expected to be. This month, and insights via WhatsApp, in order to improvise
there was no progress in the US-China trade talks. the discussion and make it more friendly.
Tensions escalated as the US imposed tariffs on a
further $300 billion worth of imports, set to go into So, hold on to the good news as such and don’t lose
effect on September 1st. hope. Make use of the aid of our expert advisors
and keep your investments active.
The plan to increase minimum public
shareholding to 35% in listed companies may be Happy investing!
put on hold. This news brought some respite to the
market. But, the rate cut of 35 bps by RBI in their
August Monetary Policy announcement is positive.
Lower rates can help spurt growth in stuttering
sectors like Auto and consumer durables.
Girirajan Murugan
FundsIndia has always worked towards improving CEO
its features and platform. On that note, the FundsIndia.com
introduction of the chatbot has helped investors
and non-investors get in touch with our expert
advisors anytime in one click. Video KYC has
immensely simplified the overall KYC process.

Awards

WINNER WINNER WINNER

Innovation in the Start-up
category at The Economic
Times BFSI Innovation Tribe
Awards and Summit
2018
‘Fintech Solution of the
Year’ award at the Frost &
Sullivan India Digital
Transformation Awards
2017
'Best Innovation in Wealth
& Assets Management Award'
at BusinessEx.com's
MoneyTech Awards
2017

WINNER WINNER WINNER

Active Customer ‘CNBC-TV18 – UTI National
Engagement at the CII Online Advisory Service The Economic Times
Award for Customer Award’ at the Financial Promising Brand of the Year
Obsession Advisory Awards
2016 2014,2015 2015
& 2016

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Keep investing through the bear markets
Falling markets spook investors. No one likes seeing their portfolio in red for months on end. But this is business
as usual for equity markets. Investors who understand this reality know how to react to falling prices. They know
that falling markets present a good buying opportunity. So how is a falling market good for mutual fund investors?
Read on to learn more.

Why are equity funds falling? 2. Value buying

After showing some signs of recovery, stock markets
have been falling again since the announcement of
the union budget. The announcement of surcharge of
the super-rich was not received well by the market.
Globally, continued uncertainty over US-China trade
war and slowdown in Europe has hurt sentiments.
Consequently, the returns of some funds in your
portfolio might have gone into negative territory. But
this is most definitely not a cause for panic. Not only is
this a temporary issue, but in fact, falling markets
provide fund managers with ample buying
opportunities. This, in turn, enables the creation of
value in the long term.
How do funds benefit from falling markets?
Markets may have fallen 15-20% from their highs. But
there’s one thing which always holds true for stock
markets, it is it goes up in the long run. Small bumps
along the road are forgotten. Here are two ways in
which mutual funds make the most of a bear market.
This point ties in with the previous one to some
extent. Stocks have their own intrinsic values. While
the view on what is the true intrinsic value of a
company may vary, a correction inevitably brings
some stocks below their intrinsic values. Fund
managers identify these opportunities and buy such
stocks at these cheap valuations. When the market
subsequently recognises the potential of the stock, it
gets bought widely, leading to a price appreciation.
Your fund benefits from this and you make bigger
gains.
The takeaway
Falling markets may depress returns temporarily. But
this is no reason to fear or worse, exit your
investments. Fund managers use these opportunities
to add stocks at cheap valuations and lower their
average costs. This creates more wealth for you in the
long run. The best thing to do in situations like the one
we’re currently in is to keep investing. Stay invested
now, reap the benefits later.

1. Cost averaging
Overall, the budget had very little with regards to
Fund managers buy stocks overtime at various price
income taxes for the middle class.
levels. When stock prices fall, they present an
Gourav Kumar
excellent opportunity to lower the average cost of
Principal Research Analyst - Mutual Fund Research
stocks. If the fund manager believes that the company
FundsIndia.com
has a fundamentally strong business, they will
continue investing in it even after the fall. When stock
markets eventually recover, this yields a larger profit
for the fund, and in turn, for the unitholder.

Grab the chance to earn

AMAZON VOUCHERS
worth ₹5,000*
Refer now

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Why it’s important to start investing early
Just got your first salary? Tempted to go out and buy that expensive gadget you’ve been looking at for a while?
Think again, maybe you should save some of it for your future.

But why, you ask? Shouldn’t you be able to enjoy your life a bit before you start thinking of these responsibilities?

You definitely should. However, spending too much money enjoying life at a young age may severely hamper how
much you can enjoy life at an older age. Here we give you two reasons why you should start saving early.

The Mathematical Reason
Fresh out of college, this reason might appeal more to
young minds. You all must have studied compound
interest at some point in school or college. If yes, then
you would have noticed that the longer the money
compounds, the higher its value becomes.
Compounding is a polynomial function, with the
number of years being the degree of the polynomial.
As you can tell from this, the higher number of years
would lead to exponential growth.
And starting to invest early is the best way to give
your money more time to compound. If you start at
the age of 25 and invest till retirement (let’s say 60
years), you would have invested for 35 years. But if
you start at the age of 30 you would have invested
only for 30 years. So how much difference can this
make? Let’s take a look.
Two friends, Isha and Satish start working at the age
of 25. Isha starts investing ₹5000 immediately, while
Satish spends most of his money and starts investing
only at the age of 30. How much difference do you
think this would make to their corpus when they’re
60? If we assume a uniform rate of return of 12% per
year, at the age of 60, Isha would have accumulated
₹2.76 crore whereas Satish would have ₹1.54 crores.
That’s right, just a small difference of 5 years allowed
Isha to accumulate almost 1.8 times the corpus of
Satish. That’s the power of compounding. The money
invested early on goes on to grow into a huge corpus
due to the higher number of years of compounding.
The Psychological Reason
Now let’s come to the psychological aspects of it.
There’s a certain inertia that gets built when you start
spending all your money. Once you get used to
spending your entire salary, it becomes difficult to
curtail your expenses later to start saving. Therefore,
it is always a good idea to start investing from the
beginning.
World-renowned investment expert and proponent
of value investing, Warren Buffet, says – “Do not save
what is left after spending; instead spend what is left
after saving.” This should be the mantra of every
person. You should plan out your financial goals, see
how much you need to save for the future, and then
prepare your budget according to what you’ll have
remaining in your bank account.
If you inculcate a disciplined approach to saving
money from early on, you’ll find it easier to save and
invest later on in your life, when your expenses grow
along with your responsibilities. The money saved
early on will also act as a cushion, in case you hit a
rough patch in your career. You’ll have some level of
financial independence, and will be able to sustain
yourself for a few months without falling back on
your friends or family. Thus, having some
investments will guarantee mental peace at all times.
Being young also allows you to be more tolerant to
risk. You have fewer responsibilities and loads of time
on your side. This makes it is easier to absorb any fall
in the value of your investments when equity markets
are not doing well. This also teaches you a valuable
lesson. You learn to be comfortable with the volatility
of equity markets. Over a long time, the higher return
potential of equity can make you rich. If you start
early and become comfortable with the ups and
downs of stock markets, you will be able to amass
much greater wealth than you would if you simply

“Minimising mistakes and reducing downside is as important as capturing the upside. EQ

(emotional quotient) and temperament in markets are more important than IQ
(intelligence quotient).”

- Pankaj Tibrewal, Senior VP & Equity Fund Manager, Kotak Mutual Fund
www.fundsindia.com
put your money in a bank.
Investment Quiz
Don’t Wait, Start Early
This is not an exhaustive list, there are a lot more
1. The World Bank has signed a $________ loan
reasons why starting early is a good idea. Basically, agreement to help Kerala magnify its fight
starting early can help you achieve financial against natural disasters.
independence, help you fulfil your dreams, and help
you retire early if you so wish. 2. The online payment providers, _______ &

crore for violating norms.

Now all this might not make a lot of sense if your
income is not big enough to save. However, it is
imperative to remember that we are not advocating
for saving x% of your salary. The important part is to
start saving. Maybe you are posted in an expensive
city and your rent takes up a major chunk of your
salary. But there’s no harm in starting small. You can
career at the age of 25, and it grows at 12% per year, it
the power of compounding.
Gourav Kumar
Principal Research Analyst - Mutual Fund Research
FundsIndia.com
3.
acting in accordance with the IRAC norms.
Reports and police records say that ATM frauds
have been the most prominent in the state of
___________.
5.
sanctioned by the Asian Development Bank.
Please click here to submit your answers.
Answers for July 2019 Investment Quiz: 1. 625
crores 2. Mastercard 3. Reliance Industries
The winner of the July 2019 Investment Quiz is
Mr. J.Gandhikumar.

Do Mutual Fund Returns Compound?

You might have heard people talking about the wonders of compounding. When talking about the benefits of
long-term investments, investors are often told that over a long time, the compounding effect leads to
higher accumulation. However, time and again we also come across articles claiming there is no compounding
in mutual funds. They say anyone who talks about the wonders of compounding is lying. Why does this
dichotomy exist and why only in case of mutual funds? Let us try to understand.

Understanding compounding
To start with, let us first talk about how compounding
works in banks. When you put money in a bank FD,
the interest rate you will get is stated in annual terms.
However, for a cumulative FD, the interest is credited
quarterly. This means that if the stated rate is 8% p.a.,
then the actual return is slightly higher as it
compounds on a quarterly basis. Here is a simple
illustration:
This is the general understanding of compounding,
where the interest is actually credited into your bank
account every so often. The reason some people say
there is no compounding in mutual funds is that there
are no returns being credited to your account
separately.

How do MF Returns compound?

So then, are people lying when they talk about the
benefits of compounding in mutual funds?

Not really. What banks do with your fixed deposits is

actually just one way how compounding works. But
that is not the only way in which compounding can
As you can see from the illustration, you have gained
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work. Because compounding does not mean interest
getting credited into your account at regular
intervals. Compounding refers to the increase in the
value of an asset due to the returns earned on both
the principal as well as the previously accumulated
returns.
To state it more simply, compounding refers to a
situation where you earn interest or returns on
interest and returns which you have already earned.
Looking at it this way, it is not hard to see how mutual
fund returns are compounded.
Let’s look at this simple example. It’s a hypothetical
fund which has given 10% return every year. You
made an investment on 1st January 2015.
As you can see from the illustration, you earned
₹10,000 in the first year. The fund’s value, therefore,
was ₹11,000 at the end of the first year. The 10%
return of the second year was on this entire ₹11,000,
resulting in a net gain of ₹1,100. The return of the first
year got compounded because your fund’s value had
already increased by that amount. The same thing
happens in the third year, resulting in a net gain of
₹3,310 in three years.
When you put money in a fixed deposit, the value of
the FD remains constant for three months, then the
interest is credited and the value increases. Future
interest is calculated on this total amount resulting in
compounding. However, in mutual funds, whatever
returns you earn or losses you make are adjusted
from the value of your holdings on a daily basis. You
don’t have to wait for the returns to be credited to
your account, it happens automatically every single
day. Hence the returns actually compound on a daily
basis.
Understanding CAGR
Keep in mind though, that mutual fund returns are
not expressed in daily compounded terms. It is shown
as compounded annual growth rate or CAGR. This,
again, is a way of showing returns which makes it
intuitive and comparable. This is also a global
standard of and facilitates comparison across asset
classes and geographies.
Take this example. You are told you will earn 8% per
year on a bond and may earn up to 12% per year in
equities. You immediately know that you may get 4%
more every year in equities. This helps you compare
and make a decision. However, if you were told you
will earn 4% every 6 months on a bond and 40.5% in 3
years in equity, that would make comparison and
decision making nearly impossible.
So when we say that a particular fund gave returns of
15% p.a. over the last 3 years, it means that the 15% of
the second year was not just on your invested
amount, but also on the returns you earned in the first
year. Similarly, the ‘15%’ of the third year was on both
your investment and your returns of the first two
years. The returns get compounded because the value
of your holdings always reflects the returns you have
already earned. Just as your FD would, once the
interest is credited at the end of a quarter.
So mutual fund returns do get compounded because
the NAV of the fund is adjusted on a daily basis. The
returns you have earned at any point, whether
positive or negative, are already reflected in the fund
value. So any return you earn thereon will be on the
return you have already earned. Hence your mutual
fund returns are compounded just as much as your
bank FD returns.
Gourav Kumar
Principal Research Analyst - Mutual Fund Research
FundsIndia.com
Recommended Funds
Equity Funds - High Risk
Aditya Birla SL Equity Fund(G)
Franklin India Prima Fund(G)
Franklin India Smaller Cos Fund(G)
HDFC Mid-Cap Opportunities Fund(G)
HDFC Small Cap Fund-Reg(G)
ICICI Pru Value Discovery Fund(G)
Invesco India Contra Fund(G)
Kotak Emerging Equity Scheme(G)
L&T Midcap Fund-Reg(G)
Mirae Asset Emerging Bluechip-Reg(G)
Sundaram Mid Cap Fund(G)
To view our complete list of Select Funds,
click here.
www.fundsindia.com
 Technical View
Nifty
Technically, Nifty has strong support at 10,780
levels, whereas the minor resistance level is at
11,080. The index has closed below the 200 days
simple moving average level of 11,163. Currently,
the Nifty has witnessed fresh buying interest at
lower levels. The short-term trend will turn bullish
above 11,080 levels. On the flip side, if the index
breaks below 10,780 levels, we can expect the Nifty
to test a level of 10,585. The crucial support for
Nifty is placed at 10,780 / 10,720 / 10,630. The
resistance is at 11,080 / 11,230 / 11,310.
HDFC Bank
HDFC Bank has declined sharply from a high of
₹2,503 to test a low of ₹2,163. Currently, the stock
is trading above the support level of ₹2,222 and
that indicates the stock has turned bullish for the
short term. The momentum oscillator RSI has
shown a positive divergence in the chart. The
major resistance is placed at ₹2,278 and
₹2,380. The strong support for the stock is at
₹2,160 and ₹2,130. The 21 days simple moving
average is placed at ₹2,294. We recommend you
to invest in HDFC Bank at the current market
price for a target of ₹2,470. The stop loss is placed
at ₹2,125.
This column is targeted at investors who are registered customers of
FundsIndia for trading and investing in equity as well as prospective
investors who wish to open an equity account with FundsIndia.
COLPAL Ltd
Colgate Palmolive has declined sharply from a high of
₹1,350 to ₹1,104 in 2019. The stock has formed a
strong base around ₹1,122. Currently, the stock has
broken out from the consolidation band and the
short-term trend has turned bullish for the stock. We
expect the stocks to continue its upward trend as long
as the stock trades above ₹1,122. The 21-day simple
moving average is at ₹1,170. We recommend you to
invest in COLPAL for a medium-term target of ₹1,355
with stop loss at ₹1,120. The resistance is placed at
₹1,235 and ₹1,310. The strong support is placed at
₹1,150 and ₹1,122.
Perumal Raja
Technical Analyst - Equity Research Desk
FundsIndia.com
Disclaimer: Mutual fund investments are subject to market risks. Please read the
scheme information and other related documents before investing. Past
performance is not indicative of future returns. Please consider your specific
investment requirements before choosing a fund, or designing a portfolio that
suits your needs. Investments in equity shares, debentures, etc. are not
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Think FundsIndia, a monthly publication of Wealth India Financial Services Pvt.
Ltd., is for information purposes only. Think FundsIndia is not, and should not, be
construed as a prospectus, scheme information document, offer document or
recommendation. Information in this document has been obtained from sources
that are credible and reliable in the opinion of the Editor.
Publisher: Wealth India Financial Services Private Ltd.
About us: FundsIndia is India’s friendliest
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funds from leading fund houses in India, stocks from
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