review preview
06 The Economic Times Wealth July 17-23, 2023
product
launches
:: Mutual Funds
Kotak Mutual Fund has launched the
Kotak Quant Fund, an open-ended
equity scheme that will follow a
quant based investing strategy. The
minimum investment is `5,000,
but SIPs can be of `500. The NFO is
open till 26 July.
:: Banking
IDFC FIrst Bank has launched a
co-branded travel credit card in
collaboration with Club Vistara
and Mastercard. The Club Vistara
IDFC First Credit Card gives access
to airport lounges, complimentary
flight tickets and accelerated reward
points. It will also cover cancelled
flight and hotel bookings.
:: Insurance
Edelweiss Tokio Life Insurance has
launched Zindagi Protect, a term
insurance plan with three options.
Child’s Future Protect allows an
increase of life cover. Better Half
allows life cover for spouse after
the policyholder’s death. Premium
Break allows flexibility to skip up to
eight premiums. The policy also has
flexible premium payment terms.
Tata AIA Life Insurance has launched
a small-cap fund, Tata AIA Small Cap
Discovery Fund. The fund will invest
up to 65% of the corpus in small-cap
stocks. Tata AIA policyholders can
invest in it through the company’s
Ulip offerings. The NFO closes on
24 July.
Insurance lifeline for diabetes patients
New term insurance plan for diabetics charges a very high premium, but offers financial security to patients.
by Anulekha Ray
It is difficult, even impossible, to buy
life insurance if you have pre-existing
medical conditions, such as diabetes.
Life insurance companies either
outrightly refuse to offer insurance to
diabetics or charge a hefty premium.
However, Bajaj Allianz Life Insurance
has now come up with a term insur-
ance plan specially designed for people
who have diabetes. The Bajaj Allianz
Life Diabetic Term Plan Sub 8 HbA1c
is a pure term policy that will pay a
lump-sum amount in case of the death
of the policyholder. Being a term plan,
there is no maturity benefit.
Explaining the reason for a term
insurance plan targeted at diabet-
ics, Tarun Chugh, MD & CEO, Bajaj
Allianz Life, said, “A significant num-
ber of diabetics in India are under-
insured. They find it challenging to
get a comprehensive life cover to fi-
nancially secure their family’s needs.
This term plan, designed for diabetics,
will be able to give them well-deserved
New SIP accounts hit
record high in June
However, average ticket size has fallen in past 5 years.
I
nvestors are opening new mutual fund
systematic investment plan (SIP) ac-
counts at a record pace to participate
in the market rally, but the ticket size has
shrunk. New SIP account registrations
reached a record high of 2.78 million in
June 2023, according to the data from the
Association of Mutual Funds in India
(AMFI). This surpasses the previous high of
2.68 million in September 2021.
On an average, about 2.12 million new
SIP accounts per month were opened over
the past 12 months, taking the cumulative
addition to 26 million. The net SIP account
registrations were 1.25 million in June, the
highest in 18 months. The total SIP accounts
reached 67 million.
Consistent inflows and the current rally
in the stock market have lifted the average
portfolio value of SIP accounts to `1.2 lakh,
PAN inoperative? You can still do these transactions
If you did not link your PAN with Aadhaar
by 30 June, your PAN would have become
inoperative. You can’t invest in FDs or
funds, or file your return. However, you
can carry out some transactions, though
they will attract a higher TDS and TCS.
The following transactions can be done:
Receiving interest from bank deposits of
over `40,000 (`50,000 for seniors).
peace of mind.”
Who can buy this policy?
Not all diabetics can buy this new term
insurance plan. Only Type 2 diabetics with
HbA1c levels of up to 8 and pre-diabetics are
eligible. HbA1c reflects average plasma glu-
cose over the previous 8-12 weeks. For pre-di-
abetics, the HbA1C level stays between 5.7%
and 6.4%, according to the Indian Council
for Medical Research. Diabetics have an
HbA1c level of 6.5% or above.
How much does it cost?
Given the risk it covers, the premium of the
Diabetic Term Plan Sub 8 HbA1c is much
higher than that of a regular term plan for
a non-diabetic. For a 35-year-old male non-
smoker pre-diabetic, the annual premium
is `13,533 for a cover of `50 lakh for 20 years.
Policyholders have the option to pay yearly,
half-yearly, quarterly, and monthly premi-
ums. A similar cover for a non-diabetic will
cost roughly `6,500.
Interestingly, policyholders will be eligi-
ble for a 10% discount on the base premium
at renewal the following year, if they manage
the highest in 20 months. The SIP inflows
were above `14,000 crore for the second
consecutive month in June. As a result, the
12-month cumulative SIP inflows were at
Receiving dividends from companies and
mutual funds exceeding `5,000 in a finan-
cial year (higher TDS).
Selling immovable property if value ex-
ceeds `50 lakh per deal (higher TDS).
Buying a car if the amount exceeds `10
lakh (higher TCS).
Withdrawing more than `50,000 from
EPF if TDS is applicable (higher TDS).
to bring down their HbA1c levels.
StableInvestor Founder Dev Ashish says the
premium of the plan is nearly two times more
than a regular cover. “For a 40-year-old diabetic
with HbA1c level of 7, a policy term of 25 years
and sum assured of `1 crore, the premium of the
diabetes term plan is `23,000-24,000, while that
of a regular term plan is `11,000-12,000 per
year,” he says. This is an approximation
and actual premiums might vary.
“The premium is higher. However,
the people who were earlier denied
a cover can consider this policy,” said Abhishek
Kumar, Founder of SahajMoney.
Key policy details
MINIMUM MAXIMUM
Age of
30 years 60 years
applicant
Term of policy 5 years 25 years
No cap (depends
Sum assured `25 lakh
on underwriting)
a record `1.6 lakh crore. A combination of
inflows and capital appreciation helped the
assets under management (AUM) of the SIP-
linked funds to hit `7.9 lakh crore in June.
However, the average ticket size has come
down. The average ticket size of these ac-
counts dropped to `2,214 in June, compared
with `3,304 five years ago.
Among equity-oriented schemes, small-
cap funds accounted for most of the invest-
ments for ninth straight month, at a record
`5,400 crore, in contrast to outflows of `2,050
crore from large-cap funds, as per the AMFI
data. The small-cap index is up more than
25%, with stocks rallying 50-200% (since
March 2023).
The rise in equity mutual fund inflows
and buying by foreign portfolio investors
(FPIs) in domestic equities has driven an
over 11% surge in the Nifty 50, in 2023-24 so
far. The FPIs bought equities worth over `1
lakh crore in this period, while inflows in
equity mutual funds aggregated to `43,000
crore. “The rise in equity mutual fund
inflows was aided by cooling inflation and
improved macroeconomic indicators,”
AMFI CEO N.S. Venkatesh said, adding that
inflows in small-cap funds could continue to
support the broadening of rally in markets.
—Ashutosh Shyam
Paying rent of more than `50,000 per
month (higher TDS).
Selling goods and services if the amount
exceeds `50 lakh per deal (higher TDS).
Making payments for contract work if it
exceeds `30,000 (higher TDS).
Receiving commission or brokerage pay-
ments exceeding `15,000 (higher TDS).
—Preeti Motiani
 guest column
The Economic Times Wealth July 17-23, 2023 07

Know mean reversion

to invest better
If you understand this basic investing principle, it will keep you away from
market distractions and focus on a diversified portfolio, says Dhirendra Kumar.

H
ave you heard the Bob Dylan
song, where he explains one of
DHIRENDR A KUMAR
CEO, VALUE RESE ARCH the basic principles of invest-
ing? The lyrics go as follows:

money ‘For the loser now, will be later to

win.... and the first one now, will later be last’.

mysteries While Dylan had no intention of expounding

on the workings of the financial markets, the
lyrics perfectly sum up the principle of ‘re-
version to the mean’.
Here’s what GPT4 says about this theory:
The reversion to ‘In finance, reversion to the mean refers to
mean often results the assumption that the price of an asset will
move towards its average price over time.
in the formerly best
If the price of the asset has been above the
segment falling to
mean, it is expected to decrease in the future,
the absolute bottom and if it has been below the mean, it is ex-
and creating losses pected to increase.’
even when the While this definition refers to stocks, it’s
rest of the market just as applicable to almost all financial
is booming. This assets, including the markets. This is the
reason it makes little sense to get too excited
goes on year after
about the markets zooming to all-time highs
year, decade after
or specific parts of the markets doing fabu-
decade. The right lously well. Similarly, it’s pointless to get
strategy is to keep panicky when the markets fall too sharply.
investing steadily in a The problem arises because investors do
GETTYIMAGES

diversified manner.
Since one or the other sector
is certain to be performing
better than the average, hav- their deviations from the mean are most se-
vere. When they do well, they do really well.
steadily, in a diversified manner, prefera-
bly through systematic investment plans
ing a diversified portfolio It’s easy to convince investors or, perhaps, (SIPs). It’s not complicated, but avoiding
seems to be a foolish choice. easy for investors to convince themselves
that this means something, when it doesn’t.
the hype requires a lot of effort.

not understand the underlying idea and as-
sume that the ongoing trend will continue.
Of course, in this belief, they are aided and
abetted by those who stand to make money
from them.
The reasons for investing in the market
segment that is doing well at any given
moment is easy to pass off as research.
Professionals (brokers, advisers, fund
companies), as well as individual investors
can always justify investing in an industry
by pointing out that it is doing better than
the others, the assumption being that it
will continue to do better. If this excitement
sustains long or strongly enough, it becomes
conventional wisdom, something ‘everyone’
knows. In sectors, this happened with tech
stocks during the heady days of 1999, and
we all know how that ended. Around 2005-7,
it happened to a set of industries that were
loosely defined as ‘infrastructure’. That
ended up being as big a blowup as tech in
2001.
This also occurs in specific segments of
the market such as small caps. These are
especially prone to this phenomenon because
When a sector or segment sustains better-
than-average performance for a noticeable Please send your feedback to
etwealth@timesgroup.com
period of time, a bandwagon is created
around it. Fund companies launch funds or
start pushing the ones that already exist.
Investment advisers start talking about it,
seeing a clear short-term win if the trend
holds. For a while, the trend does hold. At
this point, it looks sub-optimal to invest
in a diversified manner. The thing to un-
derstand is that this happens almost every
time. Since one or the other sector is certain
to be performing better than the average,
having a diversified portfolio always seems
to be a foolish choice.
However, the averages assert themselves
eventually, the segment starts performing
below average, and the returns revert to
the mean. Those who join the party late are
left with a negative outcome. The reversion
to mean often results in the formerly best
segment falling to the absolute bottom and
creating losses even when the rest of the
market is booming. This goes on, year after
year, decade after decade.
The right strategy is to keep investing
 stocks
08 The Economic Times Wealth July 17-23, 2023

What to know
before you start
margin trading
Margin trading facility is a double-
edged sword that can magnify your
gains, but also incur heavy losses.

GETTYIMAGES

by Sanket Dhanorkar (CDSL), before a specified time (which

W
ith the stock market on a WHAT IS A MARGIN CALL? can vary for every broker) on the day of
purchase. This is called MTF pledge, and is
roll, risk taking is on the up- A margin call occurs when the value of the investor’s margin account different from margin pledge, wherein you
tick. Margin trading, where drops below the account’s maintenance margin requirement. use your existing holdings to get additional
investors borrow from the margin. If you fail to pledge the shares,
broker to buy stocks at a
Suppose you have `1 lakh worth of securities bought using your position is squared off after seven
margin, is witnessing heightened activity.
`50,000 borrowed money and `50,000 in cash as initial margin. trading days. You can hold your positions
The segment hit a record high turnover last under MTF as long as you maintain the re-
Broker’s main- If the value of Your account value
week, as per the stock exchange data. Amount quired margin in your account. If there is a
tenance margin the securities is `1 lakh - `40,000
If you spot a good trading opportunity in borrowed margin shortfall, shares will be squared off
the stock market, but are low on funds, the
requirement falls by (40% of `1 lakh) = after four trading days of the shortfall.
30% 40% `50,000
margin trading facility (MTF) can help. It `60,000 If you are planning to invest via margin
allows you to buy a stock by paying a fraction trading, be cautious. It is usually done by
of the total transaction value. The balance So your equity in But margin So the margin professional traders with years of experi-
amount is funded by the broker. It essentially MTF account is requirement is call is `18,000 ence, but it also gives small investors the
enhances your purchasing power. For in- `60,000—`50,000 30% of `60,000 — `10,000 wings to trade big. When the market is
stance, if you have `20,000 in your account, = `10,000 = `18,000 = `8,000 buoyant, activity in the MTF segment is
you can still take a position up to five times particularly rife in mid- and small-cap
that amount (`1 lakh) by borrowing `80,000 space, says Khoday. Recently, stocks
You may either deposit funds or liquidate a part of the positions you purchased on margin to cover a margin call.
from the broker. Margin trading can poten- recommended by finfluencers have seen a

Margin funding in stocks hit a record high

tially magnify gains from a winning position.
Suppose X has `20,000, but wants to buy
shares worth `80,000. He opts for MTF with
his broker, paying 25% of `80,000, or `20,000,
as margin, and borrows the balance `60,000.
If the stock price rises by 20% in the next five
days, and if X had only invested his own funds
of `20,000, he would net a gain of `4,000 (20% of
`20,000) on his position. But since X opted for
MTF, his initial capital of `20,000 has grown to
`96,000, translating into a net gain of `16,000
(final value `96,000 - borrowed capital `60,000 -
initial capital `20,000), minus the interest cost,
or roughly a 4x gain of 80% on his own capital.
This potential for higher upside is drawing in-
vestors in the current bull market. Shrey Jain,
Founder, SAS Online, observes, “Investors
tend to leverage when there is buoyancy in the
market. It allows them to make more money
with lesser capital.” It is particularly useful
if you want to punt big on stocks that are not
already a part of the F&O segment.
However, margin trading can also amplify
losses if the position doesn’t work in your fa-
vour. In the earlier example, if the share price
had fallen by 20%, X would have lost `4,000
if he had put in his own capital. With MTF
facility, the loss would be 4x higher at `16,000,
apart from added interest cost. “Margin trad-
ing can be a double-edged sword,” says Jain.
Heightened risk-taking amid soaring market has driven the interest in MTF.
688 645
573
31 53 113
RIL Infosys SBI
Investors also need to watch out for margin
calls by the broker when the value of shares
in the MTF account falls below the mainte-
nance margin. When the broker makes a
margin call, you must deposit money in the
account or sell securities to meet the main-
tenance margin. If you do not keep the mini-
mum balance, your trade will be squared off.
To use margin trading, you must start an
MTF account with the broker, which is differ-
ent from a demat account. You must deposit
a certain amount, which varies for brokers,
to initiate the facility. The extent of margin
varies from broker to broker and interest rate
ranges from 9-18% per annum. The securities
build-up in the MTF book, says Jain. “Don’t
be swayed by market sentiment or social
media. Do your own research thoroughly,” he
cautions. Avoid trading on margin in highly
Amount (` cr) Number of shares in MTF (lakh)
volatile securities. You should invest through
margin trading only if you have sufficient
402 393 360 330 328 324 cash buffer to withstand a swift move against
296 your position. Do not borrow on margin for
longer durations. Have the discipline to book
profits in time and reduce the turnaround
time for your positions. That is your best bet
194 13 140 6 322 22 20 against market volatility.
Tata TCS Vedanta Bajaj Tata Bajaj HDFC Manjit Singh, Partner, Alpha Capital,
Power Finance Steel Finserv Bank warns, “Keep a close watch on the market. If
As on 30 June. Source: NSE. your position reverses and you cannot replen-
eligible for MTF are predefined by Sebi and ish the margin, you could lose your existing
the respective stock exchanges. However, bro- holdings.” Don’t leave it to the broker to close
kers can further restrict the facility to select the position either, since you may not get a
stocks or limit margin funding depending good price. Don’t get into a margin funding po-
on volatility, as reflected in the value-at-risk sition without calculating the effective break-
(VaR), a metric that measures risk of loss in even point. Besides interest costs, there are
an investment. Tejas Khoday, Co-founder and other costs like pledging, depository partici-
CEO, FYERS, points out, “Brokers are wary pant (DP) and processing charges. If you are a
of event risk. If their risk management is not beginner, start small. Refrain from borrowing
good, it can crush their MTF book.” the full permissible limit. If you overextend
The margin amount can be paid either in yourself, you may suffer big losses.
cash, or by pledging your existing holdings
(margin pledge). The shares bought under
MTF must be mandatorily pledged sepa- Please send your feedback to
etwealth@timesgroup.com
rately with the Central Depository Services
 financial planning
The Economic Times Wealth July 17-23, 2023 09

Benefits of PAPER WORK

:: Contract note
For every transaction on the stock

balanced
exchange, the broker provides a con-
tract note. Typically, the note is sent
on the e-mail registered with the bro-
ker. It serves as a crucial record for

advantage funds
transactions and costs. Here are the
key components of a contract note.

Trade information
The contract note begins
with the trade informa-
tion section. This typically includes
details about the transaction, such as
trade date, contract number, segment
(equity, derivatives, etc.), quantity

GETTY IMAGES
of securities bought or sold, name of
the security, and the price at which
the transaction was executed.

Brokerage charges
The funds’ dynamic asset allocation helps deal with market volatility. The contract note
specifies the brokerage

Sharad wants to build a long-term
portfolio for his retirement corpus.
However, he is a sensitive investor, who
is easily excited and just as easily de-
motivated. A falling market and fear of
potential losses sees such investors run-
ning towards the exit door, while in a
rising market they rush to get their foot
in the door. Market direction in the long
run is always going to be upward, but in
the short term, volatility is inevitable.
This is the part that most investors like
Sharad struggle to accept. Most inves-
tors are still wary of any decline in the
market as they consider it a loss in their
portfolio. Sharad is wondering if there
is a way for him to invest in an automat-
ic asset allocation (investing and disin-
vesting) product, as he strongly believes
that this balancing role is crucial for his
long-term wealth creation.
T
here will always be short-
term downsides in invest-
ment. There is no way of
avoiding it, but there are
ways of limiting it. One such efficient
means to control the downsides may
be investing in a balanced advantage
fund (BAF). So, for Sharad to deal
with spells of volatility, such funds
may be the best bet.
Contrary to a lay investor’s percep-
tion, the favourable scenario for equity
investment is when the equity markets
are on a decline and valuations have
turned attractive. A falling market
comes with the promise of gains in the
future. Typically, each BAF scheme
has its own unique model, which pre-
dicts the market direction on the basis
of valuation parameters and allows the
fund manager to increase or decrease
equity exposure. Unlike an equity
scheme or a typical balanced hybrid
fund, the BAF can reduce its equity
holding when the markets look expen-
sive and are likely to witness a sharp
decline. This helps reduce the scheme’s
downside as it declines less than the
overall market correction. When the
markets are on the rise again, the BAF
is well poised to capitalise on the gains
as it can increase equity allocation
when valuations turn attractive.
The fund’s dynamic asset allocation
strategy indicates that the exposure to
equity and debt asset classes is flexible
and changes as per the dynamic mar-
ket conditions. So, in an equity-favour-
able scenario, the scheme increases
gross equity exposure and reduces debt
exposure, and vice versa. The exposure
is dynamically managed in such a
manner that the schemes remain equi-
ty-oriented, with gross equity (equity
plus arbitrage) exposure at 60-65% and,
therefore, enjoy equity taxation.
BAF is a ‘buy it, shut it, forget it’ kind
of fund. Investing in it does away with
the need to find the opportune time in
the market because the scheme aims
to find the right opportunities for the
investor in any market cycle. What
investors like Sharad often forget is
that while gaining more than the mar-
ket is important for wealth creation,
it is equally important to fall less than
the overall market to reduce potential
losses in one’s portfolio.
charges levied by the broker for
carrying out the trade. It can be a
percentage of trade value or a fixed
amount charged on the transaction.
Taxes and
other levies
The contract note speci-
fies the taxes and charges applicable
on the executed trades, such as secu-
rities transaction tax, goods and ser-
vices tax, stamp duty, and exchange
transaction charges. These charges are
calculated on the basis of transaction
value and are in accordance with Sebi
regulations and other tax laws.
Payable, receivable
The contract note provides
a summary of the net
amount payable or receivable from
trading activities. It takes into account
the buy and sell transactions, broker-
age charges, taxes, levies, and clearing
charges. It is important to review this
to know the financial impact of trades.

Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.

smart things to know

Balanced advantage funds

1 2 3 4 5
Balanced
advantage
funds are
hybrid mu-
tual funds They also aim Through a These can be
that use a They to manage market cycle, taxed as debt
dynamic have the risk by reduc- BAF returns or equity funds
asset alloca- potential to ing equity can help beat based on asset
tion strategy maximise exposure inflation in allocation. Most
to switch be- returns by during vola- the long term manage equity
tween debt increasing tile markets by reducing taxation by using
and equity equity ex- which can the downside equity deriva-
without any posure in a help protect of equity tives and hedg-
constraints. bull market. capital. markets. ing strategies.
 stocks
10 The Economic Times Wealth July 17-23, 2023
GETTYIMAGES
Stocks to avoid right now
Investors should stay away from the companies
that have been snubbed by analysts as these
have a higher probability of generating losses.
by Sameer Bhardwaj
A
s market benchmarks,
BSE Sensex and Nifty
50, continue to scale new
highs, rich valuations and
concerns about the sus-
tainability of the rally are making
experts anxious. The analyst ratings
compiled by Reuters-Refinitiv show
a reduction in the number of ‘buy’
ratings, while the number of ‘sell’
ratings has gone up since the start of
2023-24.
There were 427 stocks with a total of
4,703 ‘buy’ ratings as on 31 March 2023.
Currently, these are down to 4,566. On
the other hand, there were 269 compa-
nies with a total of 887 ‘sell’ ratings as
on 31 March 2023, and these have risen
to 931.
The domestic markets have wit-
nessed a broad-based rally since the
last week of March 2023. About 73%
of over 2,741 listed stocks saw a price
jump of more than 10% between 31
March 2023 and 11 July 2023. Nearly
all sectors witnessed an increase
during the period. Positive returns
were witnessed by 20 sectoral in-
dices of the BSE during the period
under consideration, with 11 indices
delivering double-digit returns.
The recent rally is fuelled by strong
FPI inflows, moderation in inflation
rate, lower Brent prices, stability in
the rupee exchange rate and narrow-
ing current account deficit.
Why are experts anxious?
The broad-based rally has created
valuation concerns. The CLSA, in its
recent India strategy report, warned
that the valuations may soon over-
extend. Its proprietary Bull-Bear
Index, which helps in identifying the
market’s top and bottom is now at a
20-month high to an extremely bull-
ish reading.
The market valuations have moved
above their long-term averages. The
12-month forward PE of the MSCI
India Index stood at 21 times com-
pared to its five-year average of 20.2
times. Also, the valuation premium
of the Indian markets over the emerg-
YES BANK
12-M forward P/BV Current price (`) 1-year target price (`) DOWNSIDE
1.1 17 14 -17.4%
THE PRIVATE SECTOR bank reported a weak
ANALYSTS’ RECOMMENDATIONS
performance in the March 2023 quarter, with BUY HOLD SELL
a 2.7% decline in operating profit. The perfor-
0 4 8
mance was impacted by the elevated cost-to-
assets ratio as the bank continues to invest
the litigation to impact its CET1 (bank’s capital
in franchise, retail business and digital infra-
that determines the ability to withstand finan-
structure. The asset quality weakened during
cial distress) by around 300 basis points in the
the quarter as GNPA remained elevated, with
worst-case scenario.
slippages from retail and SME books. The weak
The first quarter (June 2023) business update
operating profile and ageing provisioning on
submitted by the bank to the stock exchanges
the existing stress assets are expected to keep
indicates a listless performance on a sequential
the RoA of the bank sub-par in the future.
basis. The loans and advances growth was flat,
The bank also faces risks due to AT1 bonds
with a meagre 0.1% growth as gross retail dis-
write-off litigation that is pending in the
bursements fell 10.6% quarter on quarter. The
Supreme Court. An ICICI Securities
CASA ratio also fell to 29.4% in the June quar-
report, which was released after the
ter, compared to 30.8% in the March quarter.
March 2023 quarter results, expects
YES Bank
133.59
100
Nifty 500
120.39
Banking sector median 12-M forward P/BV: 1.1.
8 July 2022 11 July 2023