Category Archives: The Daulat Blog

Cash Management solutions from banks are boring and do no better than the 3-4% that you earn on your savings account balance. We are out to change that. Daulat was started to provide relevant solutions for all of your wealth needs. We launched with our flagship advised portfolios – Daulat Multi-Asset Solutions (‘DMAS’) – which proved extremely resilient during last year’s market volatility. These portfolios are built using time-tested investing principles and designed to create long-term wealth for you.

However, we constantly heard from our clients that they were looking for better solutions for their short-term cash goals than what their savings/current account offered. We couldn’t agree more. Letting your cash sit idle in a bank or a fixed deposit – while easy and convenient – is not the most efficient way of parking your money.

So, today, we are introducing Cash+ : our new and innovative cash management solutions for individuals and corporates.

What is Cash+?

As we transition away from a period of ultra-low interest rates, the banks are still stuck at providing a 3-4% interest on your savings account. We think you deserve better. Cash+, as the name suggests, lets you earn higher returns than the cash sitting in your bank account. By investing in a combination of liquid, ultra-short term, and arbitrage mutual funds – depending on your risk appetite — these portfolios are a better alternative to your existing solutions.

Traditionally, we have resorted to putting our money away in our savings account because it’s liquid i.e. one can take it out whenever required and it preserves our capital i.e. we know that we will at least be able to take out the principal amount or how much we have put.

Both of the above characteristics – liquidity and capital preservation – are also at the heart of our Cash+ portfolios. We recognize the need for both of these characteristics and thus have carefully curated funds to ensure you can have your money whenever you want it.

Where will my Cash be invested?

These short-term debt and arbitrage mutual funds portfolios invest in securities like certificates of deposits (CDs), commercial papers (CPs), and bonds issued by central/state governments and corporations. Just like how when you put your money with a bank — the bank in essence then lends that money forward to thousands of different borrowers whether individuals or companies. Similarly, when you invest in a Cash+ portfolio — your money is effectively being lent out to many different companies. All these companies are assigned a credit rating — which measures the riskiness of the debt issued — and the Cash+ portfolios only invest in funds that invest in companies with the highest and the best credit ratings.

Risk

Cash+ portfolios are investment products, not bank deposits, inherently carrying a certain level of risk. We acknowledge that and effectively manage the risk by investing in the best funds that invest in the highest-quality assets like AAA bonds issued by the Government of India, PSUs, and blue-chip companies like Reliance, Tata etc.

These funds further invest only in short-duration instruments because they are less risky than long-duration bonds. Put simply, bonds with shorter maturity i.e. 1-6 months are less risky than longer maturity bonds because they are less exposed to any interest rate risk.

Liquidity

Liquidity is a priority when considering which funds to invest in and how we construct portfolios. All our portfolios are redeemable with no lock-ins and penalties. The money gets credited directly to your bank account in T+1 working days.

No filling out any form, doing additional paperwork or sending us any documents. Take advantage of our digital platform and put your cash to use instantly. And redeem whenever you want — no questions asked! After all, it’s your cash.

Returns

Cash+ portfolios offer significantly higher yields than your savings bank account while providing the benefits of liquidity, safety, and capital preservation. The current yield-to-maturity of our two Cash+ portfolios are:

a. Cash+ Secure: 6.5% – 7.5% per annum

b. Cash+ Advanced: 7.5% – 8.5% per annum

However, please note that the estimated returns are based on the current yield-to-maturity of the debt portfolio and indicative historical returns from the arbitrage funds. There is no guarantee that such returns will be sustained in the future in an evolving macro-economic environment

Is it for me?

If you are looking to save for an upcoming expense in the next 6-12 months. Or simply want to put your money away before you start investing, then this is definitely for you.

It is an even better options for coprorates like private limited companies/LLPs who earn 0% on cash sitting in their current account. We can create customised treasury portfolios for you to meet your liqudity needs.

So, what are you waiting for?  Speak to a wealth expert today or write to us at hello@daulat.co.in. And don’t let your cash sit idle.

Invest with Cash+ and earn better than your bank account/fixed deposit.

Individuals tend to accumulate debt over time. Some of the debt types are good like a Home or a Car Loan, which are deemed to be Secure Loans. Sometimes one is also forced due to unprecedented situations to take a high-cost debt, which may be in the form of Credit-Card dues or borrowing from the market at very high interest rates. All of these could push you into a corner and eventually lead into a debt trap which means that you have more debt than you can repay.

In this blog, we will go over 4 ways one can get out of the dreaded debt trap

Opt for Debt Consolidation

One of the best ways to get out of the debt trap is debt consolidation. This means that you can opt for a new, lower-cost Personal Loan, financed by some other source and pay of several of your pending debts. When you consolidate your debts, you are combining multiple debts into a single, larger debt (such as a loan). Consolidating your debt also allows you to opt for favorable payoff terms, lower rates of interest and lower EMIs. Debt consolidation can be used as a tool to deal with various forms of debt such as, student loan debt, credit card debt, and other liabilities.

Use the snowball or avalanche method

The “snowball method” in simple terms, means paying off the smallest of all your debts as quickly as possible. Once that debt is paid, you take the money you were putting towards paying of the debt and roll it onto the next-smallest debt owed. Ideally, this process would continue until all remaining debts are paid off. As you keep on rolling the money used from the smallest balance to the next on your list, the amount “snowballs” and gets larger and larger and the rate of the debt that is reduced keeps on accelerating.

In contrast, the “avalanche method” focuses on paying the loan with the highest interest rate first. Similar to the “snowball method” when the debt with the highest-interest is paid off, you put that money towards the account with the next highest interest rate and so on and so forth, until all the debts are paid off. By focusing on the loans that are the most expensive to carry, in the long run, would effectively mean you should pay less and save money over time with this method, as it addresses high interest first.

You may save some money with the “avalanche method” but if the principal is large, the time it may take to pay off debt with the highest interest can be discouraging for many and make it difficult to stick to the plan. Paying off small debts quickly can feel rewarding mentally. If you prefer to see progress quickly and work your way up, then the “snowball method” may be a better fit for your debt management goals. Both these methods are viable to get out of the debt trap, depending on your preference.

Refinance your debts

Debt refinancing is the replacement of an existing debt by means of another debt with terms and/or conditions that are more favorable. In other words, debt refinancing refers to the replacement of existing debt with new debt.

Debt refinancing is commonly used to take advantage of new financing that offers more favorable terms and/or conditions. In such a situation, an individual or company will settle their current debt outstanding through issuing new debt with more favorable terms or conditions.

The main difference between debt refinancing and debt consolidation, is that debt consolidation is a method to manage multiple debts. On the other, hand debt refinancing is usually used to manage one debt at a time.

Stick to a budget

When you’re trying to pay off debts when stuck in a debt trap, sticking to a budget can help you reach your goals in a much more faster and efficient manner. You will be able to cut back on nonessential expenses and redirect that saved money to credit card and loan payoff. You can even set up monthly transfers so debt payoff happens automatically without much hassle.

A budget also lets you concentrate on debt repayment while ensuring you don’t ignore other important financial priorities. It gives you structure, a method to allocate money to emergency savings, and a clear way to reward yourself for making progress.

Bottom Line

It can be challenging to break the chains of a debt trap. But by following these strategies, you can start making strides toward getting out of debt and improving your overall financial health. Just be sure to understand why you initially got into debt and modify behaviors to prevent yourself from repeating the same cycle once your balances are paid in full.

After a roller coaster journey which 2022 was, it ended with middling returns for investors of all classes. As we kick off the new year, investors may be thinking about what will shape their investing journey in 2023. Here are five big investing themes that may dominate the year.

What will inflation look like in 2023?

The return of inflation was one of the biggest scares of 2022. Global consumers were coping with price increases the likes of which they hadn’t seen for many decades. So it’s only natural for people to be nervous about what’s in store for them on the inflation front in 2023.

After decades of relative quiescence and financial stability, prices surged to levels last seen during “the Great Inflation” of the late 1970s and early 1980s. The consumer price index or CPI peaked in June 2022 above 9%, although the key measure of U.S. inflation has slowly drifted lower since then.

While CPI remained relatively elevated in October—up 7.7% year over year—observers have dared to hope that the downward trend could continue as we enter the new year. A few have even argued that we’ve reached peak inflation, thanks in part to the Federal Reserve’s campaign of interest rate hikes.

The Fed has raised interest rates six times in 2022, significantly higher than past hikes and the rates were hiked once again in December. After two modest rate increases in March and April, the Fed implemented four massive 75 basis point (bps) rate hikes in the second half of the year.

The federal funds rate may have gone from zero at the start of 2022 to nearly 5% by year’s end, but experts expect the Fed to pivot on policy—with major implications for inflation in the year 2023.

Covid Scare

Worries about the spread of a new variant of Covid have substantially dented market sentiment, worrying investors in recent weeks. But investors are growing concerned that the fresh wake in North Asian countries like China and Korea will result in a sharp selloff. This factor will, however, add to the anxiety of investors, who are already on the edge.

There’s no certainty that new variants will emerge that have an effect on the scale of delta or omicron variants, but it is possible. Should this occur, it’s important that plans are in place to respond in the context of personal finance. Keeping rising covid cases in mind, financial plans should be made to counter these effects. A good practice would be to keep a substantial emergency fund in place and keep a relatively covid proof portfolio.

Re-emergence of bonds as an asset class

The year of 2022 has been challenging for debt markets and investors alike as the Reserve Bank of India (RBI) took the rate hike route due to high CPI inflation and aggressive/repetitive hikes by US Federal Reserve. The ten-year yield has moved drastically up, from 6.75 % to 7.30%.

The cash liquidity of the banking sector in general has come down significantly and credit growth continues to be robust at 17% levels. Further, deposit growth has picked up with nationalized banks increasing their deposit rates aggressively. This, as per experts, may make them incremental buyers in government securities and corporate bonds in the upcoming financial year in the short and medium end of the yield curve.

Probability of a recession

Consumers and governments across the world are worried about the ‘R’ word or recession. The current set of macro-economic conditions is a result of a confluence of multiple factors and events that we all experienced in 2022 — starting with the Russia-Ukraine war driving the energy and commodity prices higher to the rate hikes and sticky inflation. Consumers have tightened their purse strings in anticipation of a downturn in 2023.

IMF recently predicted that a third of the global economy will be hit by recession this year and warned that ‘world faces a tougher year in 2023 than the previous 12 months’. The evolving COVID situation in China is likely to be a drag on the worldwide economic growth for the first time in 40 years.

However the situation plays out, it is say to assume that we are living in an increasingly uncertain world and thus should remain cautious of what is to come next.

Bottom Line

Investing in general will always come with some level of risk. There are no guarantees of profits when attempting to make a return on your money. The goal is to become knowledgeable about different market conditions, to identify recession-proof industries and continue to invest in companies and opportunities you believe in.

In 1993, the first Exchange Traded Funds (ETFs) were introduced in the USA. Since then, they have become increasingly well-known worldwide, not just in America. The first ETF to be introduced in India was Nifty BeEs in 2002. It has increased since then by 1914.15%. (absolute returns). Nifty BeEs follow the “Nifty” benchmark index. Stocks and mutual funds are familiar concepts to many investors. However, the investor community needs to be more knowledgeable about Exchange Traded Funds.

In this blog, we’ll provide you with an introduction to Exchange Traded Funds.

What is an ETF?

A mutual fund with a few minor differences is an ETF. An ETF gathers money from investors, has a fund manager, and will have a NAV, just like a mutual fund (net asset value). However, the two characteristics described below set them apart from standard mutual funds. As follows:

• Regular mutual funds are not traded on the stock exchange, but ETFs are.
• Exchange Traded Funds are passive mutual funds that typically track prestigious indices like the Sensex or the Nifty.

The fund managers of Exchange Traded Funds make sure that the returns of the ETFs closely resemble the returns of the benchmark indices by purchasing equities that make up those indices.

Exchange Traded Funds are listed on stock exchanges, just like stocks are. Using their stockbrokers, investors can trade or invest in them.

How is an ETF operated?

When you purchase a mutual fund, the AMC receives your money, buys the securities, and announces the NAV at the end of the day. Similarly, AMC sells the securities and refunds your money when you redeem your mutual funds. This is a really simple matter. However, because most buying and selling occurs on stock markets, you rarely deal with the AMC when you purchase an ETF. Just a simple unit transaction between buyers and sellers.

Exchange Traded Fund Categories

Exchange traded funds are separated into four groups. As follows:

Equity ETF

These ETFs attempt to follow the performance of stock indices or a collection of equities from a certain sector or industry. These ETFs aim to replicate the performance of their respective sector or benchmark index.

Gold ETFs

Investing in gold is an effective approach to safeguard against currency fluctuations and economic downturns. On the other hand, real gold investment has several disadvantages, including security, quality, resale, and taxation. Exchange-traded funds, or gold ETFs, enable investors to include gold in their portfolios without buying physical gold. Gold ETFs invest in gold bullion.

ETFs with International Exposure

Certain Exchange traded funds imitate the performance of international stock indices. They give investors access to global markets and allow them to participate in particular economies’ success stories.

Debt ETFs

Debt ETFs can be used to buy fixed-income securities. On the NSE, these are traded often. Debt mutual funds are more expensive than debt exchange-traded funds (ETFs).

Benefits of Exchange Traded Funds

A fantastic way to diversify your stock assets is with an ETF. Based on the size of your investment portfolio, you can only buy a limited number of stocks when you invest in stocks.

Choosing the right supplies becomes crucial as a result. The exposure to a wider variety of assets you gain by investing in an ETF that tracks a sector or asset class, however, diversifies and improves your portfolio. The following are some benefits of ETFs:

• ETFs can be easily exchanged on stock markets, just like shares.
• Exchanges of ETF units take place at market rates. Therefore, you may profit if market perception favors the industry or market that the ETF tracks.
• Units can be bought and sold at any time of day.
• An ETF’s expense ratio is often lower than most conventional mutual funds (especially actively managed mutual funds).

How to Select an ETF for Yourself?

Before making an ETF investment, there are four things to look into. As follows:

Category of ETF

The different types are equity, gold, international exposure ETFs, and debt. The industry in which you intend to invest deserves research. Find the subcategories after choosing the category. For instance, the subcategories for equities would be based on capitalization, industries, etc., if you were to invest in the equity ETF category.

Trading Volume of ETFs

Investors in ETFs had liquidity problems in the past. But today, things have changed. Due to the increased popularity of Exchange traded funds and their high levels of liquidity, buying and selling ETF units has become simpler. A few ETFs do, however, have lower trading volumes than others. Due to a lack of liquidity, it may be challenging to sell your current units or purchase new ones in such ETFs. Therefore, always select an ETF with a healthy trading volume.

Expense Ratio

The expense ratio may reduce your returns. It would help if you chose an ETF with a lower expense ratio than its competitors to earn better returns.

Tracking Error

These are frequently developed to follow a specific index. They invest in index-related securities so that the returns “closely match” the indices. The returns of the index and the ETF always differ from one another as a result. Make sure to pick an ETF with a small tracking inaccuracy.

Conclusion

• ETFs are comparable to conventional mutual funds but can be exchanged on stock exchanges.
• ETFs are actively managed passive products with lower expense ratios than traditional mutual funds.
• ETFs often follow a benchmark index or a specific industry.

The Indian market offers a wide range of financial assets for investment. They are separated into different categories based on a variety of variables. Equities and fixed income securities make up most of the market’s instrument types. Equities are market-dependent, whereas fixed-income securities offer modest but reliable and timely returns.

In this article, we will take a plunge into the world of Fixed Income Securities and learn the benefits and risks of Fixed Income Securities.

What are Fixed Income Securities?

Fixed income securities are a type of debt instrument that guarantees returns in the form of stable and predictable interest payments or coupons that eventually return the invested principal at maturity, regardless of market fluctuations.

Fixed income securities’ payments are predetermined, in contrast to variable-income securities, whose payments fluctuate depending on some underlying factor, such as short-term interest rates. The final value at maturity is determined before the fixed-income security is issued. During the investment process, it is made known to the investor.

For instance, if an investment guarantees a 5% annual rate of interest and one’s deposit is Rs 1000, then the user will earn Rs 50 on their deposit every year, irrespective of market volatility.

Types of Fixed Income Securities

• Bonds: Debt security offered by the government.
• Money market instruments: Short-term security convertible to cash.
• Treasury Bills: Issued by the Central government to raise money with short-term maturity periods (91 days, 182 days, 364 days).
• Fixed Deposits (FDs): One-time investment with a fixed interest rate for a fixed short- and long-term period.
• Recurring deposits: Periodic investment done with a fixed interest rate for a fixed short- and long-term period.
• Public Provident Fund (PPF): Long-term savings scheme in which the principal amount and interest are tax-free.
• National Savings Certificate (NSC): Investment for the future done through the post office with a tenure of 5 years.
• Senior Citizen Saving Scheme (SCSS): Lump sum investment up to 15 lacs to get quarterly interest amount for people above 60 years of age.
• Sukanya Samriddhi Yojana (SSY): Savings scheme for girl child.

Benefits of Fixed Income Securities

Capital security 

Unlike stocks or equities, the investment in the plan isn’t exposed to price swings and is, therefore, at a lower risk. Due to the government’s backing of most assets, it is extremely unlikely that interest or principal payments will be missed.

Guaranteed returns

Fixed income securities offer predictable returns by charging a set interest rate. They are a good substitute for bank savings accounts, which provide low-interest rates on deposits because the returns are unaffected by market performance.

Tax benefits

Investing in fixed income securities allows you to save up to Rs 1.5 lakh in taxable income under Section 80C. In some cases, such as PPF, the interest earned is tax-free.

Suitable for financial goals

A safe passage to opt for long-term and short-term financial planning with very few hazels and fixed returns.

Liquidity

Redeem the bonds as required. In the worst-case scenario, investors who hold the issuer’s corporate bonds, if the issuer files for bankruptcy, have priority over those who own equity or are stakeholders.

Portfolio diversification

A concentrated portfolio of equities can benefit from the diversification provided by investments in fixed-income securities because they lower the overall risk of the portfolio’s ability to generate stable returns.

Risks of Fixed Income Securities

Credit risk

It occurs when the bond issuer neglects to pay the security at maturity. The investor may forfeit the right to future payments or even their principal in the event of a default. It is less of a problem with government debt instruments like bonds or treasury bills.

Interest rate risk

Changes in interest rates have an impact on bond prices, which then affect debt mutual fund returns.

Inflation risk

The effective return is worth less if inflation exceeds the interest rate paid by the security. Rising price levels put investors at risk because they reduce the purchasing power of cash flows from fixed-income securities.

Spread risks

It may occur from the risks emerging from the changing value in the financial asset market due to fluctuations in credit spread.

Liquidity risks

The likelihood that a seller of a fixed-income asset will be unable to find a buyer is known as liquidity risk.

Reinvestment risks

The bond issuer reserves the right to “call” the bond before maturity and settle the debt in the case of callable bonds or if the interest rate drops.

Conclusion

An investor may have difficulty selecting the appropriate investment instrument, so it is highly advised to invest according to personal and financial conditions. The benefits and risks discussed above can help you broaden your understanding. Even if you have high-risk tolerance, investing in fixed income securities can help diversify your portfolio.

To many investors, inflation is like a monster under the bed which is suddenly becoming very real. For over 30 years we have been able to ignore its raging menace. But now, with prices rising by more than 10 percent a year and the best fixed-rate savings accounts delivering less than 5 per cent return on investment, your cash is on track to half of it original value in 14 years. We just cannot close our eyes and pretend it is not there.

We had discussed the effects of inflation on our investments and return on investments. But in this article, we will go over 4 thing one can do to stay ahead of inflation by investing :

Diversify, diversify and diversify

Diversification not only means investing in different stocks or investing in a single industry but also the allocation of assets in different asset classes such as, equities, mutual funds, bonds, real estate, etc. But it is also important to understand that too much diversification is also a problem because investing in multiple assets with a limited asset pool will not allow you too reap significant rewards. By investing in different classes one can reap rewards from other industries when one of their investments are down.

Diversification also allows you to invest in riskier investments with higher interest rates, while also investing in safer investments at the same time to safeguard your assets. This can help you grow your assets in no time and keep them secure at the same time.

Drip feed your money in

A way to minimize losses in uncertain times is to drip-feed your money slowly into the markets – a process known as rupee-cost averaging. By investing small amounts of money at regular intervals you will sometimes invest when the market is up, getting fewer shares for your money, but you will sometimes invest when it is down, meaning you will get more.

This is likely to smooth out the ups and downs of the market compared with investing a lump sum amount in one go, which could suddenly plummet in value if you bought just before a crash.

The counter argument is that the smaller your investment the smaller your gain if markets soar, but in the long run the aim for every investor is to reduce volatility and end up with higher returns overall. Drip feeding your money will thus, give you a smoother growth curve and an overall better chance of beating inflation.

Look for investments with high pricing power

Not all investments opportunities are deemed to be equals in the face of inflation. The key differentiator in these uncertain times is their pricing power. Pricing power describes the ability of a company to increase the prices of its services without impacting the demand for the service or losing market share to competitors. In an inflationary environment, margins are always under pressure because companies “import” inflation, whether they want it or not.

Overall costs for the companies increase through 3 major factors : labor, supply or energy. The only tool to mitigate the impact of inflation on margin is to increase the prices. Companies with a high pricing power will be able to do so the most efficiently, creating tailwind versus competitors.

If a company does not have a high pricing power, an increase in their prices would lessen the demand for their products. A company that has substantially high pricing power is one that provides a rare or unique product with few rivals in the market. In this case, if the company raises its prices, the increase may not affect demand because there are no alternative products on the market that consumers can choose instead, still maintaining the companies stronghold over the market share they possess.

Focus on equity based investments

Historically speaking, stock returns have outperformed inflation rates. Considering the rising prices of goods and services can generally mean higher profits for businesses. Better prices of the products can lead to higher share prices. However, there may be times when this is not the case, but in the long run, the stock market has historically provided returns that outperform inflation.

Stock markets have outperformed inflation in the long run but there are many ups and downs and volatile situations, in the short term. For the people who don’t want to track all the stocks they have invested in periodically, they can invest in equity based mutual funds after determining which fund appears to be best suited to their specific needs and expectations.

Bottom Line

Inflation is a long-term socioeconomic phenomenon that has a huge cascading effect on individuals. To beat inflation, various market strategies have evolved over time. Inflation is primarily caused by cost-push or demand-pull situations. It is completely possible to outperform inflation with the help of investments, but it is also necessary to realign the portfolio regularly to readjust to current inflation levels.

Our DMAS Portfolios are the heart of what we do here. At Daulat, we are constantly looking for ways to deliver exceptional investment results for our clients in a manner that will help them reach their financial goals faster. One of the ways to do that is by lowering costs.

Our portfolio changes are conducted well within the original asset allocation and we do not  take frequent active calls to beat the market. Instead, the reviews and changes are methods to enhance the efficiency of the portfolios thereby improving the expected long-term expected returns.

For the equities exposure of the DMAS portfolios, we are proposing the following changes:

Lower fees with passive large-cap exposure   

• Replacing the Axis Bluechip Fund with UTI Nifty50 Index Fund: Research has shown that it has become increasingly difficult for active fund managers in the large-cap space to generate alpha. This is because of the limited investible universe i.e. top 100 stocks by market cap and the fact these companies tend to be usually well-covered by analysts which leaves little if any, scope for information asymmetry.

Axis Bluechip Fund has a 60% portfolio overlap (source: Morningstar Advisor Workstation) with UTI Nifty50 Index Fund thereby providing the former’s fund manager with limited levers to pull.

UTI Nifty50 Index Fund’s fund-level feel is just 0.30% compared to Axis Bluechip’s 1.59%. This directly translates to a yearly cost savings of 1.29% which will have a positive bearing on the client’s overall return.

The lower cost and similar market exposure make it a clear winner.

Adding a dedicated mid-cap allocation

• Adding allocation to the PGIM India Midcap Opportunities Fund: We are taking a dedicated exposure to the mid-cap space by initiating a fresh position in the PGIM India Midcap Opportunities Fund. The fund has been a consistent top performer with a 3-year average rolling return of 29.28%.

Mid-cap funds are mandated to invest a minimum of 65% of their assets in mid-cap companies i.e. 101^st– 250^th companies in terms of market cap. Nifty Midcap 150 TRI has outperformed Nifty 50 TRI, 88% times on a 5-years rolling basis in the last 10 years with median outperformance being 2.64%.

While this category tends to be a bit more volatile than large-cap, they also recover quickly as and when the economy revives.

How to accept the recommended changes

Whenever we make any modifications to the DMAS portfolios, a Daulat client partner will reach out to you to explain the necessary changes. We understand that every client can also hold independent views on their personalized portfolios and thus can choose not to accept the suggestions – and we respect that.

If you do choose to accept it, the portfolio will be rebalanced accordingly. This means there will usually be subsequent additional purchases of either new funds or existing funds. All the purchases shall be met with the corresponding redemptions to adjust the portfolio to its intended asset allocation.

We do not anticipate having a very high-churn portfolio. This also ensures that the portfolios are tax-efficient and we are only making changes when our views on a particular sub-asset/asset class have evolved significantly from our original point-of-view.

The changes, if any, are effected at the end of every quarter.

Experience financial freedom with Daulat

The new DMAS Portfolios continue to be well-diversified across different market caps, regions, and styles of investing. Both of these changes combined will further reduce TER, improve diversification, and provide higher expected risk-adjusted returns.

We at Daulat here continually monitor your portfolios and look for opportunities to improve them. We understand the challenges and complexities of investing and meeting one’s financial goals and thus strive to always stay on top of it – so that you have one less thing to worry about!

Nobody should make hasty decisions because investing is a major decision. An impulsive decision might lead to a loss that will affect your funds and be mentally upsetting. Instead of making money, you can experience losses and lose your peace of mind.

Let’s study more about these items before analyzing the more advantageous and secure investment possibilities available from the two well-liked options: bonds vs stocks.

Bonds vs. Stocks

The equity instrument known as a stock, sometimes capital stock, represents ownership in a corporation. On the other hand, bonds are financial products emphasizing loans from the government or any firm.

Stocks are considered riskier investments in the near term in the bond vs. stock investment comparison because of the volatile stock market. The set interest that bonds pay off makes them a safer investment in the short term. Stocks are typically sold on the stock market, whereas bonds are usually traded over the counter. Lets see the difference on bonds vs stocks

What are bonds?

In plain English, bonds are loans from an investor known as a bondholder to a firm that issues bonds. Governments or business entities issue bonds to raise money from the market and satisfy their requirement for cash. Typically, each bond has a face value of at least Rs. 1000. In exchange for the money borrowed from an investor at a predetermined interval, the bonds issuer guarantees to pay a fixed coupon rate (interest). The frequency of interest payments might range from monthly to quarterly to biannual to annual.

Bonds typically have a face value, a maturity date, and a fixed rate of interest. Since it is not market-linked, the bond issuer must return the due principal and interest to the bondholders at maturity, regardless of the state of the market.

How To Invest In Bonds?

You have a few alternatives on where to purchase bonds:

Broker– Bonds can be bought via a broker online. This is a method of purchasing from other investors who want to sell their holdings.

Exchange-Traded Fund (ETF): An ETF is a great choice for individual investors since it offers a diversified portfolio and eliminates the need to purchase each bond in increments of $1,000.

Government– Investors can purchase products directly from the Treasury Direct website without using a broker or mediator.

What are stocks?

You can acquire ownership in a company through stocks. You become a part-owner and can vote at some corporate meetings when you decide to purchase shares. If a corporation does well over time, the stock price will increase and vice versa. Your stock investment could result in greater returns, losses, or a complete loss. A stock, often known as equity, is a type of instrument that denotes your ownership interest in the company that issued the stock. A shareholder or stockholder is another name for a stockholder.

How To Invest In Stocks?

You must first create an online investment account to begin investing in stocks on the stock market. Your investing strategy is the first thing you need to consider. You have two choices for your approach to investing:

1. You desire to handle your investment management.
2. You desire a manager of investments to oversee your account.

Once you’ve made your choice, you can either open a Robo-Advisor account or a brokerage account, depending on whether you want to handle your investments or hire a professional.

Pros and Cons of Bond Investing

Investors’ money is safe in bonds. Debt holders are prioritized over shareholders, so it is a less hazardous option than stocks. Debt holders are paid back before shareholders in the event of bankruptcy of the company. Government bonds have zero risk because you can never lose your initial investment. Bonds provide fixed interest yields that are predictable. Buying bonds is the ideal choice for those who want stability and regularity in their investments. Additionally, bond returns are typically higher than banks’ interest rates on savings accounts. Bonds should be your choice if you seek a long-term, low-risk, safe investment alternative.

Pros and Cons of Stock Investing

Due to the stock market’s volatility, stocks have the biggest potential return but carry the highest risk level. Although unpredictable, the rewards are larger regarding dividends and capital growth. Starting with just $10, you can begin stock market investing. The value of your investment could quickly increase to $50 if the business you invested in performs successfully. Your gains can be maximized by investing in stocks. Stocks are your best option if you want larger profits and are willing to assume the risk that comes with them.

Conclusion

Bonds vs Stocks may continue to compete. They are inversely related to one another. You can achieve your profit and return objectives in the current climate by choosing a well-diversified portfolio of equities and bonds.

MLD, or market linked debentures, have recently captured investors’ attention. They help many people reach their financial goals by integrating effectively with their portfolios. But to many, this can appear like another difficult investing option. Here, we dive deep into Market Linked Debentures to help you make an informed choice.

What is a Market Linked Debenture (MLD)?

Market-linked debentures, or MLDs, are governed by SEBI and have returns linked to investments in a particular security or market index (also known as the underlying index) such as government security, gold index fund, or Nifty Index fund, among others. The underlying instruments are picked based on the mandate and market performance, as stated in the scheme investment details. These structured fixed-income products only have one periodic payment at maturity. The funds’ holding period could be between one and five years. The principal and accrued returns are paid out upon maturity for these assets, and the returns are accrued. People are attracted to it due to its favourable tax treatment and often prefer it over tax-saving instruments like 54EC tax savings bonds.

Features of MLDs: 

• The minimum investment in MLD is INR 10–25 Lakhs
• Typically, licenses are given out for one to five years
• Market regulation is carried out by SEBI (The Securities and Exchange Board of India)
• MLDs only make payments at maturity, in contrast to bonds, which do so at regular intervals with a fixed interest rate
• They may be listed or unlisted, secured or unsecured. Issuers can always buy these assets back.
• Because it serves a sophisticated investor base (generally HNIs or big corporates), it can be customisable
• Rated by independent credit rating agencies

Types of MLDs:

1. Principal protected: It offers financial security to investors in the event of an accident and shields investors from the negative aspects of the underlying market sector. The capital or principal amount is guaranteed despite market turbulence. You might not get any returns if the market declines, but you will still get your money back, plus a market-linked coupon. If the market turns in your favour, you’ll probably make a similar amount.
2. Non–principal protected: As the name suggests, these MLDs do not reimburse investors for their principal in the event of a loss or accident. Because the principal is not protected, investing in them is riskier.

Benefits of MLDs

• Hybrid exposure: It makes it possible for someone to gain from the growth of other markets without directly investing in them, like equity or government-bonds
• Countless Options: An investor can choose from a wide variety of issuers depending on their individual risk profile and tolerance
• Protection against risks: It guards against capital erosion and protects the investor’s principal investment from the decline of the underlying market.
• Great returns: Investors benefit similarly from it because it enables them to take advantage of a market’s improving performance and is tax-efficient, with taxable income at 10% plus surcharge and cess after a year of holding.

Risks of MLDs

• Market risk: Since the returns depend on a particular market index, they could be negatively impacted and fall below the predetermined levels in the event of unfavourable market conditions like a recession, domestic economic growth, inflation, foreign economic conditions, and so on.
• Credit risk: If a company performs poorly, it might not be able to pay back bondholders. Hence, the company’s financials and risk mitigation plan should be carefully reviewed.
• Liquidity risk: Due to the payoff being only available at the end of the tenure, getting interim liquidity is a challenge
• Complexity risk: MLDs are usually complex products and must be carefully reviewed to understand the underlying risks and asset classes.

How do MLDs work?

If a company issues MLD with a 10% annual coupon that matures in 16 months, the coupon is only paid if the index is not declined by more than 25%. Only the principal is paid if it collapses (principal-protected). The entire investment is lost in non-principal protected schemes.

Who can buy MLDs?

• Usually sold to High-Net-Worth Investors (HNIs)

Conclusion

MLDs are complex products that are advantageous to those aware of the dynamics, have a high-risk tolerance, and desire tax benefits.

A thorough understanding of the issuer’s underlying business, diversification, financial ratios, assigned credit rating, and other factors should be made before investing, as previously stated.

Investment decisions demand thorough investigation and analysis to guarantee that one’s portfolio contains the ideal mix of investments. When managing or making investments in a portfolio, the most common approaches are active vs passive investment, with each participant arguing that their system is superior. Their comparison continues to be one of the most polarizing topics in the world of investing, whether one agrees with them.

Active Investment

In layman’s terms, investment is actively made to outperform the market index and profit from short-term market swings to provide the highest returns to investors, i.e., more than the standard returns, through a comprehensive understanding of markets.

Investments that are actively managed include hedge funds and a stock portfolio that the investor manages through an online brokerage account.

There are two categories of active investment strategies:

• In investing in actively managed funds, the fund managers make all the decisions (such as mutual funds).
• Self-investment based on in-depth market investigation and evaluation.

Pros and Cons of Active Investment

Pros:

• Potential to outperform the index by trading more options.
• Possibility of using hedge funds to reduce the risk.
• The potential for an early exit if the stocks don’t do well.
• The capacity to decide on stock management.
• Better tax administration by getting rid of underperforming assets.

Cons:

• Bets on high-performing indexes may cause the index to underperform.
• High transaction fees associated with active asset acquisition make it generally expensive.
• Because they must pay high annual taxes on their net gains, active managers are typically less tax efficient.
• High-risk investments can make you rich or a pauper.
• Because it demands a significant level of skill and knowledge of wealth management, even a minor detail can cost a loss.

Passive Investment

The goal of passive investment, a long-term investment strategy, is to duplicate and match the performance of index funds. Passive investors limit the amount of buying and selling within their portfolios because there is no pressure to outperform the market and produce higher returns.

This makes it a cost-effective investment with modest retention, flexible asset allocation, well-defined investment outlooks, and a longer-term goal in mind, such as retirement plans.

Exchange Trading Funds (ETFs) and index funds are two examples of passive investments.

Pros and Cons of Passive Investment

Pros:

• Minimal transaction costs as the investment team have a limited impact on stock selection and timing of investments.
• Generates consistent average returns as it involves investing in long-performing indexes.
• Transparency in investing and ease of using and understanding an index as it’s obvious which assets are in an index fund.
• Tax efficiency, as the buy-and-hold strategy, typically results in a low tax bill on the funds each year.
• The benchmark indices are diversified as they are created to represent the entire market.

Cons:

• They are confined to a specific index or placement setting of investments with little variation, so investors are locked in regardless of market conditions.
• Fund managers make most decisions, so you have less control.
• Since their core assets are fixed to track the market, potential returns are reduced.
• Managers cannot respond to market changes because they are locked of their passively managed funds.

Things to keep in mind while choosing Active vs Passive Investments

• Depending on appetite, a person may choose to invest in a low-yielding index fund or a high-risk hedge fund, which both the fund manager and the investor must actively manage.
• Making an informed investment decision can be aided by considering the past performance of the funds.
•  The budget has a say as active calls for betting on large portfolios for quick gains, whereas passive directly affects low-cost schemes to run a little longer.
•  Control over the investment can only be considered valid when someone thoroughly understands the markets, which implies active investment. A beginner needs to trust the passive investment framework.
•  Investment choices are influenced by transparency and diversification because active investments need more clarity than passive investments despite providing excellent fund diversification.

Differences

Conclusion – What to pick?

Characteristics serve as the basis for separating active investments from passive ones. Additionally, the investors’ profile, risk tolerance, timeline, and objectives influence it. A combination of actively managed and passively managed funds in one’s investment portfolio might be the best choice to produce the highest returns and cost-effective investment. 

Because active fund managers find it difficult to outperform key indices during bull markets, passive investments generally perform better. Active investing, however, frequently excels during bear markets because it gives investors a wider selection of options.