Equities: Portfolio & Watchlist – March 2016

Portfolio Holding as on Feb 27 2016

Self:

  • Sun Pharma 20.97%
  • Infosys 17.39%
  • TCS 17.34%
  • NMDC 10.65% (Dividend: Rs. 9.50 per share)
  • Coal India 8.25%
  • REC 6.46% (Dividend: Rs. 12 per share)
  • Castrol 4.46%
  • Tech Mahindra 4.21% (New Addition: Bought from the payout of Infra Bonds)
  • Kaveri Seed 3.74%
  • Larsen 3.36%
  • PNB 2.80% (Added some position to average the cost price)
  • Axis Bank 0.37% (New Addition: Bought from REC Dividend)

Spouse:

  • ONGC 39.09%
  • HDFC Bank 25.51% (Addition to average the cost price – Infra Bonds Payout)
  • Hexaware Tech 18.96% (Dividend: Rs. 2.40 per share)
  • Ambika Cotton 11.22%
  • Vinati Organics 4.78%
  • ITC 0.45% (New Addition: Bought from Hexaware Dividend)

As I captured in an earlier post, I have shortlisted the following stocks for SIP strategy. Please note that this SIP is over and above my normal investments.

SIP Portfolio:

  • HDFC Bank
  • ITC
  • TCS
  • Larsen

I wanted to added Infosys to this list, but I will add to my current list separately.

Watchlist

  • Aurobindo Pharma
  • BHEL
  • SBI
  • Sasken
  • Zensar

Comments/Thoughts/Feedback are welcome.. Share a byte or two 🙂

 

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Manual Stocks SIP Experiment

Recently, I mooted an idea in AIFW FB group about manual SIPs in stocks from the coming month. I got a lot of encouraging and valuable feedback from the esteemed members. Further to that discussion, I embarked on simulating how manual SIP in stocks would have fared if I had started the same from April 2014. This post is about the manual stock experiment and results thereof.

Experimental Conditions:

  • Monthly SIP amount = Rs. 15,000
  • Stocks to invest: INFY, SUNPHARMA, HDFCBANK
  • Prices are adjusted to factor in Bonus Shares and Stock Splits
  • Priority (high to low): INFY ==> SUNPHARMA ==> HDFCBANK
  • Stock purchases are made on the first available opportunity on either of the counters
  • If there is a roll-over balance, a max. of Rs. 30,000 shall be invested in a specific stock
  • Purchase criteria:
    • Stock price should be below 30 DMA and 200 DMA
    • Since I took a hard deadline of 1-Apr-2014, if 200 DMA is not available, 30 DMA is only considered.
  • Dividends are not considered for returns calculation
  • Brokerage + STT is assumed to be zero for calculation purposes
  • SIP purchases doesn’t mean that I don’t add to these scrips in a lump-sum manner. However, the same is not considered for this experiment.

Now, the big question is on the choice of stocks. These are stalwarts in their market dominions and leaders in their own right. I choose IT, Pharma and Public Banks as these scrips have generally given better returns over a decent period of time.

Experimental Results:

StocksSIPSimulation sheet describes the different purchases made in different scrips in the past 23 months. From the sheet, following results can be observed:

INFY:

  • Bought 129 stocks at an average price of Rs. 913.16 – Total Investment: Rs. 117,798
  • At CMP of Rs. 1127, the stock is returning an overall gain of 23%

SUN PHARMA:

  • Bought 136 stocks at an average price of Rs. 771.75 – Total Investment: Rs. 104,958
  • At CMP of Rs. 864, the stock is returning an overall gain of 12%

HDFC Bank:

  • Bought 130 stocks at an average price of Rs. 930.06 – Total Investment: Rs. 120,908
  • At CMP of Rs. 989.30, the stock is returning an overall gain of 6%

From an overall portfolio perspective,

  • Net Investment: Rs. 343,664
  • Current Value: Rs. 391, 496
  • Gain: 14%

Postscript

If we consider the dividends also, there would be a total of Rs. 7000 dividend payout till date. If we add this also to the returns becomes 16%.

Next Steps

I need to review this simulation as this is yielding fantastic results. Please do share your thoughts/feedback/suggestions or corrections as you observe.

Dividends – It’s raining dividends..

Dividends are a small portion of profits shared by the companies to their shareholders. Under the current taxation regime, dividends are tax free in the hands of the investors. While building a portfolio, one needs to have a judicious mix of stocks that can provide long term stability, growth impetus and regular payouts in the form of dividends. In general, I am close to having a stable portfolio which I believe can give me an average 6-8% return p.a. through dividend payouts. Sounds too good to be true.. Let’s see..

I know one argument could be, why stocks.. they are risky.. why not park the amount in a savings’ bank account and earn 6% p.a. Well that’s an approach. However, beyond a certain limit, you will have to pay tax on the same too. Moreover, in stocks, if you invest in good companies or businesses as I will explain next, you will get capital appreciation. So imagine, you get a regular 8% payout and capital appreciates at 10% p.a. What more can one expect as an investor.

Stocks / Shares are instruments through which an investor owns a part of the company i.e. she is a co-owner amongst millions of others. When we pick stocks, people have different tastes, strategies, choices, analysis, charts etc. While I don’t discount any of them, personally, I feel it’s basically understanding the business and buying a business. In Peter Lynch’s Beating the Street, there is a chapter on “The Miracle of St. Agnes“. It’s an amazing, awe-inspiring read where a bunch of school kids beat the best fund managers. Why .. In my understanding, they bought business they understand. As an investor, one needs to get some basics on stock picking (which I have covered in an earlier post) and get down to identifying business that she feels will be the right choices to invest.

With this pre-amble, I would like to focus on the matter on hand. Dividends.. How did I do this past year.. How my investments are stacking up and what kind of returns has my portfolio delivered. I will give a detailed analysis of the same below, but to start off, I will pick 3 of the most recent dividend payouts.

Hexaware declared Rs. 2.40 as dividend, NMDC declared Rs. 9.50 as dividend and REC declared a Rs. 12 dividend payout. How does my portfolio look?

I invested in these stocks sometime back and hence, my cost price is on the higher side. If I include all 3 stocks, I got an overall dividend payout at 5.20% of my investment while portfolio is down 20%. If I consider just NMDC and REC, my dividend payout comes to 7.07% and my overall portfolio is down 25%.

If I consider my overall portfolio and all dividends received from April 1 2015 till date, I have received a total of 2.53% dividend with my portfolio loss of only 1.5%. Considering the volatility and amount of correction and wild swings, I think this is a decent return.

A similar exercise with wife’s portfolio shows that she received a 1% dividend with a portfolio loss of 17% (mainly due to ONGC). Again, I am not overly worried and have confidence that this strategy with benefit in the long run.

What do I plan to do next?

Of course, buy more and average out the stocks in my portfolio. The real test would be FY16-17 returns. Fingers crossed..

With the dividends received, I have routed them to some of MF investments. The latest dividends from REC and NMDC will be used to buy either of the stocks as they are pretty significant dividends. So my strategy is simple.. Top-up the dividend payout and buy more stocks or MF units..

Let me know what do you feel about this strategy…

 

Financial Planning: Debt Portfolio Construction

Debt forms an integral part of any portfolio. The importance of Debt can’t be emphasized enough. I am not going over why Debt is important. There is enough literature around to explain and illustrate the importance of debt.

This post is more on the avenues of debt that are available for investment, the reasons for investing into them, individual pros and cons and finally, what would I do. This post is more from sharing an experience perspective.

Prologue:

Emergency fund is an important part of financial planning. The emergency fund is typically made of instruments that are highly liquid and can be retrieved at a very short notice. Typically, these are kept away from market linked instruments like equity as the very objective of this fund is capital preservation.

Emergency fund may contain FDs which may need a relook mainly due to tax inefficiencies of the same. However, emergency fund may also contain Debt funds (described below) and hence, this prologue.

VPF, PPF, Sukanya Samriddhi (SSA)

All salaried individuals are familiar with the PF contribution from the salary. However, there is an underlying power of this instrument in long term retirement planning. First of all, we need to understand the tax implications of any instrument. PF falls into the EEE category where it’s exempt from tax as per the current rules. Typically, the PF rate hovers around 8 – 9 % which is an excellent post tax (or zero tax) return. Hence, PF should be an integral part of any debt portfolio.

The PF contribution that is deducted in office is called EPF i.e. Employee Provident Fund. Typically, this is made up of 12% of basic from employee’s contribution plus 12% of basic minus 1250 (pension scheme) from employer’s contribution.

However, there are other avenues where one can invest into these kind of instruments. For example, most companies allow employees to increase their own contribution through VPF (Voluntary PF contribution). Here, an employee can increase their contribution upto 100% of basic. Since, 12% deduction is already present, an employee can top-up/add another 88% of basic as VPF. Do note some important gotchas below:

  • This is an employee only contribution. Employers WILL NOT match this contribution.
  • Some companies may not offer this facility. Please check with your organization.
  • This is NOT a separate account. All contributions are credited to the same PF number/UAN.
  • When a transfer is initiated, all contributions are automatically transferred.
  • Interest rate is same as EPF rate.

Along with VPF, interested individuals can opt for PPF (Public Provident Fund) contributions. These accounts can be opened in a Post office or a bank. Some important gotchas w.r.t. PPF as below:

  • You can open account in your name or kids’ name
  • Total contribution across all PPF accounts (Self & Minor) can’t exceed Rs. 1.5 Lakhs per year
  • Interest rate is same as EPF rate

Last year, Government of India launched a new scheme for girl children below 10 years called Sukanya Samriddhi Scheme (SSA) opened in post offices or banks. This scheme is similar to PF and enjoys a relatively higher Rate of Interest (PF Rate + 0.4%). Some features below:

  • Max Investment: Rs. 1.5 lakh per year
  • Interest rate is PF rate + 0.4%
  • Investment period: 14 years
  • Maturity:21 years after opening account or when the girl gets married
  • Partial Withdrawal when the girl attains 18 years of age

An individual can consider to increase VPF contribution based on cash flow perspective, maximize PPF contributions and if a girl child is there, maximize SSA contribution. Please note that SSA contribution is over and above PPF contribution.

Note: All these instruments are highly illiquid and mainly intended for retirement or Girl Child’s education and/or marriage.

Tax Free Bonds

As the name suggests, the interest earned from these bonds are tax free. These bonds are typically available for 10 year, 15 year and 20 year periods with very good interest rates. Some salient features of these bonds are:

  • Can be traded in secondary market
  • Every year, interest is credited into the account
  • Capital is returned at the end of tenure
  • Can be employed to create a steady flow of annual income
  • Excellent instrument from a tax perspective

Personally, I am considering a portfolio to create a steady income to fulfill some of my needs through these bonds. This is a definite must in a debt portfolio.

Fixed Maturity Plans (FMP)

These are closed ended funds from AMCs. Typically, their returns are similar to FD rates. Where FMP scores over FDs is that from a tax perspective, beyond 3 years, FMPs are taxed at same rate as Debt Funds (20% with indexation).

Debt Funds

Debt funds are the most commonly employed MF instruments for Debt Portfolio construction. A list of different types of debt funds are available as part of Mint50 or FundsIndia Select Funds in my previous post. Some points to note:

  • Redemption before 3 years – Profit added to Income  – Taxed @ individual tax slab
  • Redemption after 3 years – Tax = 20% with indexation
  • Highly Liquid – Funds are available in T + 1 date
  • Carries a market risk and interest rate risk

So, what should one do..

Personally, I feel one should invest in all these avenues as part of goal planning or debt portfolio creation. Please do study these instruments, understand the risks before investment. However, one important point which is often not considered is the tax implications of the instrument. Take a judicious call after analyzing all angles.

Stay Healthy.. Stay Financially Healthy…

 

Mutual Fund Portfolio: Feb 13 2016

Equity Funds

  • Axis Long Term Equity Fund (ELSS) 11%
  • Franklin India Prima Plus (Large & Mid Cap) 13%
  • ICICI Pru Focussed Bluechip Fund (Large Cap) 25%
  • IDFC Premier Equity Fund (Mid & Small Cap) 28%
  • Franklin India Smaller Companies Fund (Mid & Small Cap) 1%
  • HDFC Mid-cap Opportunities Fund (Mid & Small cap) 2%
  • Tata Balanced (Balanced) 18%
  • PPFAS Long Term Value fund (Value Fund) 1%
  • Motilal Oswal Multicap 35 (Multicap Fund) 1%
  • Mirae Asset India Opportunities Fund (Multicap Fund) 1%
  • HDFC Childrens’ Gift Fund – Investment Plan (Balanced) – To be invested

Note:

  • Funds with Name in this color indicate a direct investment online from the AMC
  • (Genre) indicates the market cap/genre of the fund
  • The number of funds are high as they map into my goals as part of my overall portfolio planning

Selection Criteria:

  • Sites of research: ValueResearchOnline, MorningStar
  • References: Mint50, FundsIndia Select Funds
  • Prefer Funds with more than 10 years of track record
  • Funds in top 5 of 3 year, 5 year and 10 year (if applicable) are part of my portfolio
  • Some new funds like PPFAS, Motilal Oswal have been selected for their unique offering

Debt Funds

The following debt funds are part of my portfolio as part of my emergency fund. This is one space which I will be updating more in the near future

  • Birla Dynamic Bond Fund – Growth
  • Birla Sunlife Floating Rate Fund – Short Term Fund Plan
  • Franklin India Ultra Short Term Bond

I plan to add some Income, MIP plans in the near future. I plan to write another post on debt portfolio soon.