CRISIL FUND INSIGHTS

Monthly funds newsletter from CRISIL Research

Volume – 106 February 2020

Budget 2020: With more cash in hand, invest wisely

Investment The Union Budget 2020-2021 attempts to change the mindset of investors regarding savings and investments. First,

thoughts the facts: The government has repealed the Dividend Distribution Tax (DDT) and introduced a new tax regime which
gives investors an option to forego tax-saving investments. It basically provides more cash in their hands. Second, the
dilemma: Avail the benefits of the new regime or continue with the old one? In this edition of Fund Insights, we
discuss the case for both while weighing in the harder and softer aspects of the change for individual mutual fund investors.
More dividend money, but taxable in investors’ hands
The abolishment of DDT increases dividend money in investors’ hands, while removing the double taxation incidence that occurred previously; DDT was
first deducted when received by the mutual fund and then again when received by the investor.

Here’s a look at what has changed:

DDT payable by mutual fund schemes for individuals / HUFs*

Type of fund/ Investor Pre budget 2020 Proposed changes in budget 2020
Equity 10% Nil
Debt 25% Nil
Infrastructure debt fund (IDF) 25% Nil
*Hindu undivided family excludes applicable surcharge and cess

So, getting more money in one’s hands does sound good. But here’s the deal: while it is great for taxpayers at lower levels of income (Rs 10 lakhs and
less), it does not bode well for those in the higher tax brackets as their tax liability increases. It also means that investors who don’t need regular cash
flow would be better off investing in growth option of mutual funds, as they will be taxed on their capital gains which can be preferential if held for more
than a year in case of equity funds (10% on gains above Rs 1 lakh per year) and if held for more than three years in case of debt funds (20% after
indexation).
Chose SWP if you need regular income
While investors with the ability to hold money for longer periods can opt for growth options of mutual funds, what about those who need regular money
but want to reduce the additional tax incidence? Systematic withdrawal plans (SWPs) from mutual funds will work for them. Not only is the money flow
consistent, but investors can also fix the amount and periodicity of cash flows. This is unlike dividend schemes because the frequency and amount of
dividends depend on the discretion of the fund house and are subject to the profits generated by the scheme.
To be or not to be taxed with exemptions
The alternate income tax regime reduces the tax liability of investors, the catch being that investors would need to forgo around 70 exemptions that
they used to avail of in the old regime. The choice between the new and the old lies with the investors based on their profile and financial plan.
CRISIL ran some numbers to identify the overall tax outflow across various income tax brackets and the analysis shows that investors will be able to
save money in the old regime if they avail of major exemptions including investments under Section 80 C compared with the new regime. However, in
case they don’t utilise exemptions, then the new regime increases the money in their hands (reduces taxes). Further, it is important to note that not all
exemptions excluded in the new regime were availed of by investors based on their preferences.

Gross income
Rs 7.5 Rs 10.0 Rs 15.0 Rs 20.0 Rs 22.5 Rs 25.0
lakh lakh lakh lakh lakh lakh
Increase in tax outflow under the new regime over the old (with deductions) * 329% 56% 25% 20% 16%
Increase in tax outflow under the new regime over the old (without deductions).
-29% -27% -24% -15% -13% -11%
Negative percentage indicates lower outgo under the new regime
Note: * No tax was paid under the previous regime compared with tax of Rs 39,000 in the new regime.
The major section deductions used for analysis: Section 16 – Standard deduction of Rs 0.50 lakh, Section 80C – Total deduction of Rs 1.50 lakh, Section 80 CCD (1B) –
Deduction of Rs 0.50 lakh, Section 80 D – Premium on medical insurance policies up to Rs 0.25 lakh and Section 24 B – Interest on housing loan up to Rs 2 lakh

Here’s an interesting point, if investors do opt for the new regime to get more cash in hand, based on behavioural dynamics this money might not be
saved compulsorily for delayed gratification like in the previous regime and instead get used for consumption purposes (immediate gratification).
Historically, most of this money would be invested in medium/ long-term products. Drop in such savings could impact long-term financial planning.
However, we can’t ignore the opportunity investors will get to invest more money in the product of their choice, risk profile and horizon, unlike the
previous compulsions. Most importantly, investors must understand (seek expert advice if necessary) how the change works before committing to any
tax regime.

This article first appeared on www.moneycontrol.com

Market - Overview ● January 2020 was a disappointing month for domestic equities.
Benchmark indices S&P BSE Sensex and Nifty 50 fell 1.29% and 1.70%,
respectively, due to weak domestic cues and as the coronavirus epidemic
% Change in % Change in
Indices raised economic slowdown concerns in China.
January 2020 December 2019
● Domestic equities fell after the IMF lowered India's growth forecast for
Nifty 50 -1.70 0.93
2019 to 4.8% from 6.1% projected in October 2019. Lacklustre earnings
S&P BSE Sensex -1.29 1.13
from some companies and wariness ahead of the Union Budget also
Indicators January 31, 2020 December 31, 2019 contributed.
10-year Gsec 6.60% 6.56% ● Benchmark indices also mirrored the decline in the global equities, which
Monthly CPI Inflation 7.59% 7.35% were weak due to lingering concerns about the coronavirus outbreak in
China, geopolitical tensions in the Middle East, and slashing of the global
growth forecast by IMF.
● Further losses were, however, capped due to encouraging industrial
production data and strong global cues, including the signing of phase one
of the trade deal between US and China on January 15, 2020, and easing of
US-Iran tensions, also aided the local indices.
● Nifty indices ended mixed in January 2020. Nifty Realty index (top sectoral
gainer) surged nearly 11% amid the government's announcement about an
investment of Rs 102 lakh crore in infrastructure projects. On the flip side,
Nifty Metal index was the top sectoral laggard plunging 8% amid demand
concerns from China on the back of the coronavirus outbreak.

Mutual fund - Overview Mutual fund AUM and net flows trend
30 1,80,000

Top Stock Exposures – Jan 2020 Top Sector Exposures – Jan 2020 (AUM Rs lakh cr) 28 1,20,000
1. HDFC Bank Ltd. 1. Banks

(Net Flows Rs cr)

60,000
2. ICICI Bank Ltd. 2. Computers - software 26
3. Infosys Ltd. 3. Refineries/marketing 0
4. Reliance Industries Ltd. 4. Pharmaceuticals 24
-60,000
5. State Bank of India 5. Engineering, designing, construction
6. Axis Bank Ltd. 6. NBFC
22 -1,20,000
7. HDFC 7. Housing finance
20 -1,80,000
8. Larsen & Toubro Ltd. 8. Cement
Apr-19
Jan-19

Mar-19

Aug-19

Jan-20
Jul-19

Oct-19
Nov-19
Dec-19
Jun-19

Sep-19
Feb-19

May-19
9. Kotak Mahindra Bank Ltd. 9. Cigarettes
10. ITC Ltd. 10. Telecom - Services

Net flows (RHS) Industry Month-end AUM

New Stocks Entries and Exits in Mutual Fund Portfolios – Jan 2020
Entries Exits ● Aided by strong inflows in both the equity and debt categories, the mutual
Suven Pharmaceuticals Ltd. Coffee Day Enterprises Ltd. fund industry's month-end assets under management (AUM) rose ~5% to
IIFL Wealth Management Ltd. settle at a new record high of Rs 27.86 lakh crore in January.
Sarda Energy & Minerals Ltd. ● Fund flows in overnight and liquid fund categories turned positive, with
institutional investors ploughing money back following payment of taxes.
Absolute Monthly Returns %
Category returns Net inflows of Rs 22,652 crore in overnight and Rs 59,682 crore in liquid
Jan-20 Dec-19
schemes contributed to the total AUM of debt funds rising ~9% to Rs
Large Cap Funds -0.24 0.74
Large Cap and midcap Funds 2.17 0.59
13.93 lakh crore in January.
Multicap Equity 1.44 0.85 ● Multicap, midcap, and smallcap funds were the preferred picks for
Focused 0.96 0.72 investors among equity schemes, with the categories seeing net inflows of
Value-Contra 1.01 0.07 Rs 1,722 crore, Rs 1,798 crore, and Rs 1,073 crore, respectively. The
Mid Cap 5.72 0.48 buying was on account of market expectations that the government would
Small Cap 6.90 0.59 announce growth-focussed initiatives in the Union Budget. As a result, the
Arbitrage funds 0.56 0.25
total asset base of the equity category rose 2.37% to Rs 8.23 lakh crore in
Sector/thematic - Infra 3.25 -0.44
January.
ELSS 1.13 0.67
Index -1.55 0.98
● Systematic investment plans (SIPs) garnered the spotlight once again,
Aggressive Hybrid 0.81 0.43 with monthly contributions rising to a new record high of Rs 8,532 crore.
Conservative Hybrid 0.20 0.19 The method of investment, wherein schemes can be purchased for a sum
Gilt 0.34 0.16 as low as Rs 500 a month, saw AUMs rise to a record high ~Rs 3.25 lakh
Dynamic 0.22 0.12 crore in January. This suggests retail investor confidence in the avenue's
Medium to Long 0.06 0.20 long-term wealth creation potential remained unshaken in the face of
Medium 0.37 0.12 market volatility.
Short duration 0.53 0.07
● Meanwhile, fund flows in hybrid schemes largely mirrored December's
Corporate 0.81 0.17
trend, with net inflows in arbitrage funds remaining positive, at Rs 1,700
BPSU 0.80 0.09
crore in January compared with Rs 613 crore in December. On the other
Credit Risk -0.02 0.29
Low Duration 0.28 0.23 hand, investors continued to pull out of conservative and aggressive
Money Market 0.47 0.40 hybrid funds. The categories witnessed net outflows of Rs 325 crore and
Ultra short duration funds 0.24 0.45 Rs 1,260 crore, respectively, in January. Therefore, the hybrid fund
Liquid 0.42 0.43 category's asset base remained nearly flat at ~Rs 3.57 lakh crore.
Category returns represented by average of CRISIL ranked funds – December 2019 ● Among other regulatory developments, SEBI barred portfolio managers
from charging upfront fees from clients either directly or indirectly.
● EPFO unveiled an online facility where EPF account holders can update
the date of leaving an organisation in the EPFO records.
CRISIL Fund Rank 1 Schemes - Equity
Mutual Funds' Performance Report
Fund Focus
Point to Point Returns % Average Std.
Scheme Name 1 3 6 1 3 Since
Inception
Date
AUM Deviation
Sharpe
Ratio
Axis Small Cap Fund (CRISIL Fund
(Rs.Crore) (%)
Large Cap Equity
Month Month Month Year Years Inception
Rank 1)
Axis Bluechip Fund 0.59 2.38 11.60 20.43 18.65 12.32 5-Jan-10 9120.49 13.81 1.49 Launched in November 2013, Axis Small Cap Fund has
BNP Paribas Large Cap Fund 0.50 1.52 10.58 18.25 13.08 16.00 23-Sep-04 803.31 14.20 0.94 featured in the top 10 percentile of the CRISIL Mutual
Canara Robeco Bluechip Equity Fund 1.36 3.73 13.30 17.36 14.40 11.30 20-Aug-10 264.70 14.32 1.06 Fund Ranking (CMFR) for the past three quarters
Large & Mid Cap ending December 2019. The fund’s average assets
Mirae Asset Emerging Bluechip Fund 0.99 4.00 13.87 17.70 15.22 20.21 9-Jul-10 8892.96 16.75 0.99
LIC MF Large & Mid Cap Fund 2.17 5.19 15.63 18.80 12.52 10.71 25-Feb-15 572.43 14.96 0.85
under management stood at Rs 1,277 crore for the
Multi Cap
quarter.
DSP Equity Fund 3.33 4.14 16.29 23.87 13.07 12.45 7-Jun-07 3020.97 16.24 0.84 Investment approach
LIC MF Multicap Fund 1.32 3.60 13.03 15.22 8.61 6.24 13-Jan-93 296.01 15.71 0.48
The scheme’s investment objective is to generate long-
JM Multicap Fund 0.39 0.85 13.11 21.58 12.43 11.79 25-Sep-08 140.95 15.64 0.82
term capital appreciation from a diversified portfolio of
Focused
IIFL Focused Equity Fund 2.70 6.98 16.52 30.62 13.86 12.58 24-Oct-14 448.10 17.70 0.85 predominantly equity and equity-related instruments
Value / Contra of small-cap companies.
Kotak India EQ Contra Fund 1.41 2.85 10.87 12.79 13.80 12.57 27-Jul-05 870.55 14.38 1.00
Performance
Mid Cap
The fund has outdone its benchmark (Nifty Smallcap
Axis Midcap Fund 4.46 4.77 19.37 21.86 17.76 17.22 18-Feb-11 3669.53 14.20 1.38
Invesco India Mid Cap Fund 5.70 8.20 20.10 14.90 11.89 13.93 19-Apr-07 622.91 15.56 0.77 100 TRI) and peers (represented by the small-cap funds
Small Cap category as per the CMFR – December 2019) across all
Axis Small Cap Fund 8.38 10.27 26.14 33.30 16.15 22.37 29-Nov-13 1276.67 12.87 1.34 the periods analysed (See the Chart below). Since its
Infrastructure commencement of operations in 2013, the scheme has
LIC MF Infrastructure Fund 0.62 4.99 10.96 17.02 9.00 3.64 24-Mar-08 54.45 15.93 0.51 given unitholders annualised returns of nearly 22.1%
Invesco India Infrastructure Fund 6.87 7.80 13.78 18.55 9.92 5.24 21-Nov-07 39.86 16.01 0.59 compared with the benchmark’s 12.2%.
ELSS
Axis Long Term Equity Fund 2.01 1.96 14.49 23.80 16.44 17.34 29-Dec-09 21037.71 15.09 1.19 Performance as on February 17, 2020
Mirae Asset Tax Saver Fund 0.27 2.92 11.29 15.46 15.93 17.08 28-Dec-15 2749.56 16.15 1.08 40 35.9
LIC MF Tax Plan 1997 1.39 4.26 15.11 18.03 13.20 8.61 17-Apr-00 251.75 14.45 0.94
Index 29
SBI - ETF Nifty 50 -1.68 0.74 8.04 11.81 13.24 8.77 22-Jul-15 63106.86 14.78 0.93

Returns (%)
Nippon India ETF Nifty BeES -1.68 0.74 8.05 11.84 13.23 15.91 28-Dec-01 2055.25 14.77 0.93
18 13.9 14.6
Kotak Nifty ETF -1.69 0.70 7.96 11.69 13.11 10.67 2-Feb-10 888.24 14.77 0.92 11.4 12.5
7.4 8.1
CRISIL Mutual Fund Ranks as of December 2019 7 5.5 2.9
Point to Point Returns are as on January 31, 2020
Returns are annualised for periods above 1-year, other wise actualised
-4 -1.2
Risk Ratios are annualised -5.6
Period for Risk Ratios is three years
-15 -13.4
For Sharpe Ratio the risk free rate is 6.14% - the average 91-day T-Bill auction cut-off rate for three years
Average AUM is 3-months average number as disclosed by AMFI for the period October-December 2019
1 Year 2 Years 3 Years 5 Years
Period
Axis Small Cap Fund Category Nifty Smallcap 100 TRI
Average Assets under Management - A Bird's Eye View Note: Returns above one year are annualised
Oct-Dec Jul-Sep
Change %
Oct-Dec Jul-Sep
Change %
Better risk-adjusted returns
Mutual Fund Name 2019 2019
(Rs.Cr) Change
Mutual Fund Name 2019 2019
(Rs.Cr) Change The fund outperformed its category and the benchmark
(Rs.Cr) (Rs.Cr) (Rs.Cr) (Rs.Cr) on a risk-adjusted basis as measured by the Sharpe
HDFC Mutual Fund 382805 376868 5938 1.58% BNP Paribas Mutual Fund 7731 7301 431 5.90% ratio (higher the better) over the three years ended
ICICI Prudential Mutual Fund 366853 351234 15619 4.45% Principal Mutual Fund 6730 6838 -108 -1.58% February 17, 2020. The fund’s Sharpe ratio was 1.2
SBI Mutual Fund 353018 321011 32007 9.97% JM Financial Mutual Fund 5683 6488 -805 -12.40% against -0.2 and 0.2 for its benchmark and the
Aditya Birla Sun Life Mutual Fund 250152 254047 -3895 -1.53% Mahindra Mutual Fund 5258 5221 37 0.71% category, respectively, over this period.
Nippon India Mutual Fund 205158 203409 1748 0.86% IDBI Mutual Fund 5121 5381 -260 -4.83%
Kotak Mahindra Mutual Fund 177198 168601 8597 5.10% Union Mutual Fund 4285 4089 195 4.77% SIP returns performance
UTI Mutual Fund 157119 154229 2890 1.87% PGIM India Mutual Fund 4042 4264 -222 -5.21% If an investor had set aside Rs 1,000 every month under
Franklin Templeton Mutual Fund 127599 125109 2490 1.99% PPFAS Mutual Fund 2770 2379 392 16.47% the systematic investment plan (SIP) for five years
Axis Mutual Fund 122924 105579 17344 16.43% BOI AXA Mutual Fund 2323 2479 -156 -6.28% ended February 17, 2020, his/her investment of Rs
IDFC Mutual Fund 104837 94363 10475 11.10% Quantum Mutual Fund 1537 1526 10 0.66% 60,000 would have grown to Rs 86,494, at 14.8%
DSP Mutual Fund 77213 75416 1797 2.38% Indiabulls Mutual Fund 1453 2237 -784 -35.06% compound annual growth rate. A similar investment in
L&T Mutual Fund 71587 69213 2374 3.43% IL&FS Mutual Fund (IDF) 1259 1236 22 1.80% the benchmark would have grown to Rs 60,031 at
Tata Mutual Fund 52678 49646 3032 6.11% IIFL Mutual Fund 1232 1349 -117 -8.69% 0.02%.
Mirae Asset Mutual Fund 39349 33282 6067 18.23% Essel Mutual Fund 856 901 -45 -5.04% Portfolio analysis
Sundaram Mutual Fund 31469 30613 856 2.80% IIFCL Mutual Fund (IDF) 561 562 -1 -0.22% The fund consistently held six stocks over the past
Invesco Mutual Fund 25197 23557 1640 6.96% Taurus Mutual Fund 431 410 21 5.15%
three years, with highest exposure to Gulf Oil
Motilal Oswal Mutual Fund 20393 19012 1381 7.26% YES Mutual Fund 395 917 -521 -56.88%
Lubircants India Ltd (4%), followed by VST Industries
Canara Robeco Mutual Fund 17298 16578 719 4.34% Shriram Mutual Fund 185 171 14 8.27%
Ltd (3.8%), Blue Star Ltd (2.1%), Vesuvius India Ltd
LIC Mutual Fund 16624 15468 1156 7.47% ITI Mutual Fund 170 63 107 169.44%
(1.7%), Grindwell Norton Ltd (1.6%), and Igarashi
Edelweiss Mutual Fund 12415 11764 651 5.53% Quant Mutual Fund 82 215 -134 -62.13%
Motors India Ltd (1.2%).
HSBC Mutual Fund 11605 12125 -520 -4.29% Sahara Mutual Fund 50 49 1 2.47%
Baroda Mutual Fund 11153 10676 477 4.47% Grand Total 2686797 2575876 110920 4.31% Over the past three years, the top five sectors, on
average, formed 42.7% of the portfolio. The fund had
the highest exposure to finance (12.6%), followed by
chemicals (8.5%), industrial products (8.4%), auto
ancillaries (6.9%), and banks (6.3%).
Fund manager
Anupam Tiwari, a BCom and CA, has been managing the
fund since October 2016. He has over 14 years of
experience in financial markets.
Crossword Corner – boost your financial knowledge
1 2

Horizontal
3
1) An index against which the performance of a scheme is measured (9)
4 4) Periodic disbursement of funds subject to the discretion of the fund house's management (8)
6) An alphanumeric code that uniquely identifies securities (1,1,1,1)
7) A scheme that predominantly invests in government securities (4,4)
5 6
8) The holding period for an investment (7)

Vertical
7
2) The increase in value of an asset that may be subject to taxation on sale (7,4)
3) The regulator of the financial market in India (1,1,1,1)
8 5) Bonds which offer this pay investors interest periodically (6)

Answers
2) Capital Gain 3) SEBI (Securities and Exchange Board of India) 5) Coupon
Vertical:
1) Benchmark 4) Dividend 6) ISIN (International Securities Identification Number) 7) Gilt Fund 8) Horizon
Horizontal:

Contact Details
Kruti Rawal : +91 22 3342 3361; Kruti.Rawal@crisil.com
Dinesh Agarwal: +91 22 3342 3440; Dinesh.Agarwal@crisil.com
Ankur Nehra: +91 124 6722 418; Ankur.Nehra@crisil.com
Pradeep Nair: +91 22 3342 3539; Pradeep.Nair@crisil.com
Sandeep Tripathi : +91 22 3342 8047; Sandeep.Tripathi@crisil.com

About CRISIL Limited

CRISIL is a leading, agile and innovative global analytics company driven by its mission of making markets function better.
It is India’s foremost provider of ratings, data, research, analytics and solutions, with a strong track record of growth, culture of innovation and global footprint.
It has delivered independent opinions, actionable insights, and efficient solutions to over 100,000 customers.
It is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets
worldwide.

About CRISIL Research

CRISIL Research is India's largest independent integrated research house. We provide insights, opinion and analysis on the Indian economy, industry, capital markets and
companies. We also conduct training programs to financial sector professionals on a wide array of technical issues. We are India's most credible provider of economy and
industry research. Our industry research covers 86 sectors and is known for its rich insights and perspectives. Our analysis is supported by inputs from our large network
sources, including industry experts, industry associations and trade channels. We play a key role in India's fixed income markets. We are the largest provider of valuation of
fixed income securities to the mutual fund, insurance and banking industries in the country. We are also the sole provider of debt and hybrid indices to India's mutual fund
and life insurance industries. We pioneered independent equity research in India, and are today the country's largest independent equity research house. Our defining trait
is the ability to convert information and data into expert judgments and forecasts with complete objectivity. We leverage our deep understanding of the macro-economy
and our extensive sector coverage to provide unique insights on micro-macro and cross-sectoral linkages. Our talent pool comprises economists, sector experts, company
analysts and information management specialists.

CRISIL Privacy
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional
information from CRISIL. For further information on CRISIL’s privacy policy please visit www.crisil.com/privacy.

Disclaimer
CRISIL Research, a division of CRISIL Limited (CRISIL) has taken due care and caution in preparing this Report based on the information obtained by CRISIL from sources which it considers reliable
(Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of
Data / Report. This Report is not a recommendation to invest / disinvest in any entity covered in the Report and no part of this report should be construed as an investment advice. CRISIL especially
states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this Report. CRISIL Research operates independently of, and does not have access to
information obtained by CRISIL’s Ratings Division / CRISIL Risk and Infrastructure Solutions Limited (CRIS), which may, in their regular operations, obtain information of a confidential nature. The
views expressed in this Report are that of CRISIL Research and not of CRISIL’s Ratings Division / CRIS. No part of this Report may be published / reproduced in any form without CRISIL’s prior written
approval. CRISIL or its associates may have commercial transactions with the company/entity.

Argentina | China | Hong Kong | India | Poland | Singapore | UK | USA | UAE

CRISIL Limited: CRISIL House, Central Avenue, Hiranandani Business Park, Powai, Mumbai – 400076. India
Phone: + 91 22 3342 3000 | Fax: + 91 22 3342 3001 | www.crisil.com