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When Is A Good Time To Exit Your Mutual Fund Investment? – Forbes

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When it comes to mutual funds, diligent investors can find plenty of information in the public domain that can help them make their investment decisions. There is information on how to invest, when to invest, which funds to choose, how to choose funds, the risk involved in mutual funds and much more. However, there’s not much to be found on exit strategies for mutual funds, typically making this the biggest challenge for investors. Having conviction around an exit strategy becomes especially relevant whenever markets are correct; without it, investors panic and exit based on sentiment rather than a well-planned strategy. 

Many times investors try to time the markets by exiting their investments with a hope to re-invest at lower levels. This is a classic case of “market timing”. Also, at times, investors tend to treat mutual funds like stocks. A stock can be underpriced or overpriced and hence, there could be a case to exit an expensive stock vis a vis a mutual fund. A mutual fund, on the other hand, is a basket of investment products and the price of each unit reflects the value of the products in the basket. Hence, the question of over-valuation or under-valuation does not arise.

Knowing how to exit from a mutual fund is as important as knowing when to exit and can make or break your wealth building process. Exiting from a fund should not be done based on market swings, except in case of emergencies. One must do it thoughtfully, with a plan of action. 

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Here are a few instances when an investor should consider exiting from the scheme. 

1. Achieved or Nearing Financial Goals? Exit from the Scheme and Invest in Less Risky Assets

When you are nearing your financial goal sooner than expected, your focus should be on preserving the corpus. When you are nearing your goal, your ability to take risks reduces. Remaining invested in an equity fund once the goal is reached could be counterproductive at times. 

If you have achieved your financial goal earlier than planned, you can exit from the scheme and shift your corpus to a liquid fund or even a bank fixed deposit to preserve the accumulated amount.

Either way, to protect the corpus you have amassed, when you are one or two years away from your goal, switch to less risky funds where the equity component is negligible. 

2. Want a Regular Income from your Mutual Fund Investment and Seek to Preserve your Capital? Do Systematic Withdrawal Plan (SWP)

If you want a regular cash flow from a mutual fund scheme, do not switch the same to a dividend option. It will be more efficient if you follow a SWP. This is an excellent facility, offered by mutual funds and it is also extremely tax efficient. 

When you choose a SWP plan, it allows you to redeem your investments in a phased manner. You can direct your mutual fund investments to your savings account. In a SWP, the value of a mutual fund reduces by the number of units you withdraw. 

Let’s look at the example given below to understand better. If you have your desired corpus of INR 1,000,000 in a fund, assuming that you redeem only 7% per month (INR 5,383) for a year, the amount will be taxed as per short term capital gains at 15% for withdrawals upto one year and long-term at 10% for above 1 year. Also every year the value of the fund would reduce due to withdrawal and increase/decrease due to market movements.

The total withdrawal as per this illustration is approximately INR 70,000 and if you had invested this in a dividend option, the tax liability would have been approximately INR 21,000 (assuming a 30% slab) whereas in the growth option your capital gains tax is INR 2,500.

3. A Shift in Fundamentals? Review and Rebalance

When a fund undergoes a fundamental change, the risk profile also shifts. This could be on account of a change in the fund manager, a change in the fundamental attributes of the fund or a change due to regulatory norms.

If the fund manager changes, his unique management style could affect the fund’s performance. Some of his decisions might deliver good returns while others may not, even though his decisions are well within the mandate.

Do track the fund performance over six to 12 months after the fund manager changes. If it underperforms drastically then you need to review the entire portfolio and you may need to re-align your investments in that fund. 

Some fundamental attributes of a scheme are its structure, investment pattern, etc. An example of a change in fundamental attributes could be if a banking fund changes its mandate to also include non-banking financial company (NBFCs) in its portfolio. If the changes are not in line with your investment objective, you may consider an exit option.

Regulatory changes include instances like SEBI introducing a 25% cap on large cap, mid cap and small cap each for multicap fund portfolio holding. This had caused quite an uproar and SEBI had to introduce a category called flexicap. 

Most fund houses did change their names as they did not want to rearrange their portfolios. Some funds like ICICI Pru Multicap Fund, Invesco India Multicap Fund, and Nippon India Multicap Fund realigned their portfolio as per the capping norms. 

If such changes occur and you are not comfortable with their impact on the scheme, as it does not align with your objectives, then you can exit from the scheme and rebalance your investment portfolio.

4. Consistent Underperformance of a Scheme? Switch to a New Fund

It is observed that not all schemes perform consistently and that past performance of the scheme shouldn’t be the only criteria used to invest in a scheme. But while redeeming it is vital to note the consistent underperformance of a scheme for a prolonged period.

Check for returns across various time periods and compare rolling returns of a fund that is performing poorly compared to its peers and the benchmark returns to see how inconsistent the fund’s performance has been. At times like this, an investment advisor plays a pivotal role, specifically for an investor who is not aware of the nuances of finance. 

Do research and try to understand the reason for its underperformance. Explore whether the entire scheme category has fared poorly or if the scheme is holding beaten down stocks in its portfolio, or if a fund manager has changed or if a particular sector is hit by any regulatory changes and the fund manager took undue risk. In short, find out why the scheme has performed poorly and gauge whether it is a one off case or the adverse factors will persist. This will help you in taking a call on whether you should exit or not.

If an equity scheme is underperforming continuously for three years or more as compared to its peers, you could consider exiting the scheme and transferring your investment to a similar fund that has a proven track record. But before investing in a similar fund, do a quantitative and qualitative research of the scheme. 

5. Change in Asset Allocation? Rebalance Portfolio

A change in asset allocation of your portfolio sometimes occurs due to market movements. At other times, a change in your personal situation, such as a change in age profile, necessitates a change in your asset allocation. In such cases, you could consider rebalancing your portfolio. Asset rebalancing will help you even out investment returns and could even force you to “sell high” and “buy low”.

For example, if your asset allocation is 65% equities and 35% debt. If equity markets go up and the equity allocation goes up to 70%, you may need to consider reducing your equity allocation by redeeming investments. It is important to maintain your asset allocation because it keeps your tolerance for risk at the most comfortable level. 

6. Demerger and/or Merging of Asset Management Company (AMC)? Review and Rebalance

Let’s consider the rare event that the AMC whose schemes you have invested in is sold to another fund house and the scheme gets merged with a similar scheme of the latter. Then evaluate the scheme’s performance, objective and holdings to see if they have changed or not. 

AMCs are sold for different reasons; however, it is unlikely that the objective of the merged scheme would differ from the one you initially invested in. If the performance of the merged scheme continues to be satisfactory, stay invested but if it is unsatisfactory, replace it with a similar new scheme from a different AMC.

7. There is an Emergency? Exit from the Scheme or Pause your Systematic Investment Plan (SIP) 

In case of any emergency, when your emergency fund is insufficient to deal with the situation, you can consider exiting from a scheme. If you are not able to continue to pay your SIP instalments you can also pause the monthly SIP for a while.

Most AMCs do offer an option to pause SIPs, if you find it difficult to continue because of any unforeseen emergency. Stopping your scheme investment will stop you from growing a bigger corpus and it could become difficult to start an SIP again.

The other option is to withdraw the previous SIP amounts and re-invest to continue with your investments but do not stop your SIP investment. If withdrawal is imminent, ensure you withdraw funds which are non-performing first and then the performing funds; even in performing funds first look at redemption from long-term and then short-term.

Bottom Line

Patience is the most important attribute needed in investments and specially when there are sharp dips. It is however, important to check your emotions and not get carried away by the buzz in the markets. Stay on your path of asset allocation and avoid market timing. 

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Lenders Rally After India’s Central Bank Eases Investment Curbs – BNN Bloomberg

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(Bloomberg) — Indian banks and shadow lenders rose Thursday after the country’s central bank eased capital requirements for a unique type of investment, a move that may free up more funds for loans.

The gains came after the Reserve Bank of India issued Wednesday modified rules on lenders’ required provisions for exposure to alternative investment funds, or AIFs, that invest in the lenders’ borrowers. Under the new policy, a lender needs to set aside capital only for the amount the AIF invested in the debtor company, and not the entire investment of the lender in the AIF.

Shares of Piramal Enterprises Ltd., which reported among the biggest provisions for such investments, closed 1% higher after rising as much as 6% during the day. A gauge of financial services firms climbed 1%, the most since March 1.

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Lenders led the rally in the broader market, with the NSE Nifty 50 Index registering its best day since beginning of the month.

The RBI’s softening stance came after industry players raised concerns over clarity and uniformity after it announced in December restrictions on lenders’ exposure to AIFs that hold stakes in their borrowers. The latest move will likely help firms including Piramal, HDFC Bank Ltd. and IIFL Finance Ltd. reverse some of their relevant provisions made previously, according to analysts at Citigroup Inc. and Jefferies Financial Group Inc.

Read more: India’s Crackdown on Financial Risks Puts Industry on Watch

“Select private banks and NBFCs like Piramal had provided for their entire AIF exposure during 3Q and could see some write-backs in 4Q if they decide to reverse the excess provision,” Jefferies analyst Bhaskar Basu wrote in a note.

Regulators introduced a flurry of new rules last year to prevent a buildup of financial stress at a time when India’s economy remained resilient in the face of rising interest rates, slowing global growth and unabated geopolitical tensions.

©2024 Bloomberg L.P.

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What is Islamic halal investment and why is it on the rise?

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The global Islamic halal economy is set to reach a market value of $7.7 trillion by 2025, more than double the $3.2 trillion it reached in 2015 and significantly higher than the $5.7 trillion it was valued at less than three years ago in 2021, according to industry experts.

A report by the General Council for Islamic Banks and Financial Institutions revealed last year that the global Islamic funds market has grown by more than 300 percent over the past decade, with nearly $200bn now under management globally.

The statistics depict a rise in both demand for halal – or “sharia compliant” – investments and opportunities.

Investing is permitted under Islam, but certain aspects of investment practice – such as charging or paying interest – are not. This has traditionally meant a lack of opportunities for Muslim savers and investors in the past.

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What is halal investment?

Halal is an Arabic term meaning “permitted” and stipulating that:

  • Transactions cannot involve “riba” (interest).
  • Investments must not be made in “haram” (unlawful) assets or commodities such as pork products, alcohol or military equipment, among others.
  • Investments cannot be made based on “gharar”, which has been described as “highly uncertain transactions or transactions that run contrary to the idea of certainty and transparency in business”.

“Halal investment is basically managing your money and finances in line with your faith,” Omar Shaikh, director of Islamic Finance Council UK (UKIFC), told Al Jazeera. “Muslims believe that earning money in a way which is halal is better than earning money (even if that is more) in a way that is harmful to society and against the morals of the religion.”

Umar Munshi, co-founder and managing director of Islamic finance group Ethis, said sharia compliance is key, but institutions and investors looking for ethical investments need to go even further to ensure a business is completely ethical.

“The actions of a business must not have a negative impact on society or the environment,” Munshi told Al Jazeera. “So it’s not only compliant, but refraining from having a negative impact. Investing in a tobacco company, for example, may be sharia compliant, but it’s not good for society.”

How does halal investment work?

One example of halal investment is Islamic business financing, which works using new models of profit-sharing, sharia-compliant insurance and sukuk, an Islamic financial certificate that represents a share of ownership.

Unlike with conventional bonds – a form of IOU that investors can buy in order to receive interest payments – sukuk investors receive partial ownership of a business and then receive profit payments, which are generated over time. These payments are made instead of interest in order to ensure sharia compliancy.

“Islamic finance as a sector is barely 30 years old, with the past 15 years seeing the most development,” Shaikh from UKIFC said. “It takes time to educate and create awareness and as this has happened, more banks have focused on servicing the demand for halal investing. This in turn helps to create more products, which then creates more demand.”

Stock markets used to be the traditional modes of investment for many [Marcin Nowak/Anadolu via Getty Images]

A Goldman Sachs report published in December 2022 estimated that by 2075, five of the world’s 10 largest economies – India, Indonesia, Nigeria, Pakistan and Egypt – will have Muslim populations amounting to more than 850 million people.

As the population rises, so does its demand for financial products. According to the State of the Global Islamic Economy Report 2023, published by research group DinarStandard, some $25.9bn was invested into sharia-compliant investments in the financial year 2022-23, marking a 128 percent year-on-year growth.

“In general, it [halal investment] is on the rise. People are a lot more educated and more aware of how their dollar impacts the socioeconomic landscape globally,” said Siddiq Farid, co-founder of SmartCrowd, a real estate investment platform based in Dubai.

“They are a lot more cautious, too, hence leading to more ethical investing, which halal investing is a big component of. It’s on the rise, particularly around the younger generation. The millennials, they are a lot more aware socially. People realise exactly where their money is going and how it’s being used.”

An increase in opportunities for halal investing and their ease of access are also cited as reasons driving the rise in demand.

Israel’s war on Gaza and its impact

More recently, the rise in demand for halal investments has received an additional boost as consumers boycott brands seen as supporting Israel and its war on Gaza.

The war, which has seen more than 32,000 Palestinians killed by Israeli attacks in Gaza, has “adjusted” the mindset of these investors, Farid said.

“Halal investment has been increasing steadily and it has accelerated further in the past six months, mostly among millennials and people under 40,” he said.

“But in the past, it’s more of these people just looking for something halal. As long as it’s not haram, it’s fine. Now, there’s more awareness of not only halal, but halal aligned with values and faith. All these boycott movements have got people much more aware that something may be halal, but you might not necessarily want to use it, be associated with it or invest in it.”

bds
The Boycott, Divestment and Sanctions (BDS) movement has made many people consider where their money goes before they spend or invest it, say experts [Martin Pope/SOPA Images/LightRocket via Getty Images]

How has technology contributed to the rise of halal investing?

FinTech Magazine reported in December last year that while Muslims make up nearly a quarter of the world’s population, barely one percent of financial assets qualify as sharia compliant. This is set to change, say experts, with the arrival of “fintech” – financial technology that can make investing much more accessible for ordinary consumers and individual investors.

“Muslims are generally not as well educated when it comes to investing, and this is partly due to a lack of available options for them as Muslims. Even basic information pertaining to sharia-compliant investments is often not available to most of the Muslim population,” said Ibrahim Khan, co-founder of the online financial platform Islamic Finance Guru, in an interview with FinTech Magazine.

However, the rise of social media has contributed to an increased awareness and significant growth in sharia-compliant finance. In addition, fintech has made halal investment options, which are often much more convenient and easy to use with a smartphone or laptop, more accessible.

Consultancy group McKinsey & Company published research in January this year showing that “revenues in the fintech industry are expected to grow almost three times faster than those in the traditional banking sector between 2023 and 2028”.

“Your phone is often physically the closest thing to you. Fintechs are able to start from this paradigm and build solutions that are efficient and enhance transparency and choice for retail customers. This is where a lot of the action is at. Many banks are now creating fintech-based solutions or acquiring fintech players,” said UKIFC’s Shaikh.

Munshi added the selling point for fintechs is the age of the target audience.

“The younger generation is more open to investing online,” said Munshi, whose company operates an online platform and community for alternative finance and investment opportunities.

The same research by McKinsey & Company showed that the fintech industry raised record capital in the second half of the 2010s. Venture capital funding grew from $19.4bn in 2015 to $33.3bn in 2020, a 17 percent year-over-year increase.

As of July 2023, publicly traded fintech companies had a combined market capitalisation of $550bn, double that of 2019, the research said.

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Amazon completes $4B Anthropic investment to advance generative AI – About Amazon

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Amazon concludes $4 billion investment in Anthropic.

Customers of all sizes and industries are using Claude on Amazon Bedrock to reimagine user experiences, reinvent their businesses, and accelerate their generative AI journeys.

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The work Amazon and Anthropic are doing together to bring the most advanced generative artificial intelligence (generative AI) technologies to customers worldwide is only beginning. As part of a strategic collaborative agreement, we and Anthropic announced that Anthropic is using Amazon Web Services (AWS) as its primary cloud provider for mission critical workloads, including safety research and future foundation model development. Anthropic will use AWS Trainium and Inferentia chips to build, train, and deploy its future models and has made a long-term commitment to provide AWS customers around the world with access to future generations of its foundation models on Amazon Bedrock, AWS’s fully managed service that provides secure, easy access to the industry’s widest choice of high-performing, fully managed foundation models (FMs), along with the most compelling set of features (including best-in-class retrieval augmented generation, guardrails, model evaluation, and AI-powered agents) that help customers build highly-capable, cost-effective, low latency generative AI applications.

Earlier this month, we announced access to the most powerful Anthropic AI models on Amazon Bedrock. The Claude 3 family of models demonstrate advanced intelligence, near-human levels of responsiveness, improved steerability and accuracy, and new vision capabilities. Industry benchmarks show that Claude 3 Opus, the most intelligent of the model family, has set a new standard, outperforming other models available today—including OpenAI’s GPT-4—in the areas of reasoning, math, and coding.

“We have a notable history with Anthropic, together helping organizations of all sizes around the world to deploy advanced generative artificial intelligence applications across their organizations,” said Dr. Swami Sivasubramanian, vice president of Data and AI at AWS. “Anthropic’s visionary work with generative AI, most recently the introduction of its state-of-the art Claude 3 family of models, combined with Amazon’s best-in-class infrastructure like AWS Tranium and managed services like Amazon Bedrock further unlocks exciting opportunities for customers to quickly, securely, and responsibly innovate with generative AI. Generative AI is poised to be the most transformational technology of our time, and we believe our strategic collaboration with Anthropic will further improve our customers’ experiences, and look forward to what’s next.”

Global organizations of all sizes, across virtually every industry, are already using Amazon Bedrock to build their generative AI applications with Anthropic’s Claude AI. They include ADP, Amdocs, Bridgewater Associates, Broadridge, CelcomDigi, Clariant, Cloudera, Dana-Farber Cancer Institute, Degas Ltd., Delta Air Lines, Druva, Enverus, Genesys, Genomics England, GoDaddy, Happy Fox, Intuit, KT, LivTech, Lonely Planet, LexisNexis Legal & Professional, M1 Finance, Netsmart, Nexxiot, Parsyl, Perplexity AI, Pfizer, the PGA TOUR, Proto Hologram, Ricoh USA, Rocket Companies, and Siemens.

To further help speed the adoption of advanced generative AI technologies, AWS, Anthropic, and Accenture recently announced that they are coming together to help organizations—especially those in highly-regulated industries including healthcare, public sector, banking, and insurance—responsibly adopt and scale generative AI solutions. Through this collaboration, organizations will gain access to best-in-class models from Anthropic, a broad set of capabilities only available on Amazon Bedrock, and industry expertise from Accenture, Anthropic, and AWS to help them build and scale generative AI applications that are customized for their specific use cases.

Deepening our commitment to advancing generative AI, today we have an update on the announcement we made to invest up to $4 billion in Anthropic for a minority ownership position in the company. Last September, we made an initial investment of $1.25 billion. Today, we made our additional $2.75 billion investment, bringing our total investment in Anthropic to $4 billion. To learn more about the broader strategic collaboration between Amazon and Anthropic, of which this investment is one part, check out the stories below:

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