S&P BSE Sensex*	Re/US $	Gold Rs/10g	Crude ($/barrel)	FD Rates (1-Yr)
38,645.07 |393.27 1.03%	71.42 |-1.13 -1.61%	30,099.00 | 569.00 1.93%	77.03 |2.75 3.70%	5.00% - 7.00%

 

Demonetisation was an ill-thought-out and poorly implemented strategy to tackle the problem of black money and counterfeit currency.

[Read: Surgical Strike On Black Money, Really?]

When Modi Sarkar demonetised Rs 500 and Rs 1,000 notes from the midnight of November 08, 2016, it thought crooks and black money hoarders won’t return their illegitimate money to banking system.

But contrary to its expectations, 99.3% of the discontinued currency (in value terms) has returned to the system, as reported by the Reserve Bank of India (RBI). 

Soon after RBI divulged this crucial data, Mr P. Chidambaram, a former finance minister and one of the prominent faces of the UPA government, took a pot-shots at the Modi government.

He alleged that the government caused the country to suffer a dreadful shock, “So, government and RBI actually demonetised only Rs 13,000 crore and the country paid a huge price. Over 100 lives were lost. 15 crore daily wage earners lost their livelihood for several weeks. Thousands of SME (small and medium enterprise) units were shut down. Lakhs of jobs were destroyed.”

Rebutting such arguments, a spokesperson of BJP claimed that demonetisation helped in formalising Indian economy. “In 2017-18, the net collection of direct taxes increased by 18%. Collection for 2016-17 was also higher than the previous year. More than 3 lakh shell companies have been closed. Another 50,000 are in the pipeline. This is a big step towards formalisation of Indian economy.”

The Economic Survey 2017-18 had highlighted that the number of taxpayers has increased post demonetisation. It claimed, "Taking seasonality into account it is found that there is a 0.8 per cent monthly trend increase in new tax filers (annual growth of nearly 10 per cent). The level of tax filers by November 2017 was 31 per cent greater than what this trend would suggest, a statistically significant difference.  This translates roughly into about 18 lakh (1.8 million) additional taxpayers due to demonetisation-cum-GST, representing 3 per cent of existing taxpayers.” 

The critical question is: Was demonetisation the only remedy to eradicate black money and shell companies; or would have rigorous regulatory checks produced the same results?

If the objective of demonetisation was to toss away black money, it’s failed big time. Besides, it also disrupted economic growth of India.

[Read:   How Demonetisation Move Instils Speed Breakers For India’s GDP]

But if the objective was also to nudge people to change their spending and saving habits, it has achieved some success. Again, the question is, was demonetisation the only option left to make India a ‘less-cash dependent’ economy?

Let’s look at the impact of demonetisation on citizens’ routine life in detail …

Impact of demonetisation on spending habits of Indians

The only tangible benefit of demonetisation is the growing popularity of digital payment options.

According to the RBI, non-cash retail payment volumes increased 56.6% and 44.9% respectively in FY 2016-17 and FY 2017-18. The volume of Immediate Payment Service (IMPS) transactions rose 3.6 times between FY 2015-16 and FY 2017-18. The volume of transactions executed using credit cards, debit cards, and digital wallets have increased 78.8%, 184.9%, and 362.4% respectively.

And the impact on saving habits…

A slosh of liquidity in the banking system helped many banks build a base of low cost deposits, post demonetisation. As a result, banks slashed interest rates on term deposits considerably. Cash sitting in bank accounts showed some stickiness initially.

However, soon after the system got adequately remonetised, bank deposits became extremely unpopular with households.

As revealed by RBI data, in the financial household savings chart above,‘shares and debentures’ have increased over the last two financial years. But, the growing share of currency with households and falling share of deposits in the financial savings is unnerving. Moreover, the share of financial liabilities is on the rise which is a cause for concern. Overall, net financial savings of households are dipping.

Household savings are moving away from conventional bank deposits in search of better returns. Increasing participation of retail investors in equity mutual funds and aggressive hybrid funds confirms this shift. From 5.06 crore in September 2016, the count of mutual fund investor accounts grew to 7.46 crore in June 2018—a massive surge of 47.4%.

Data as on June 30, 2018
(Source: www.amfiindia.com)

Demonetisation would be a burning issue until India votes its next prime minister in 2019.

Therefore, instead of getting into politically motivated debates and heated arguments, wouldn’t it be wise to increase your financial discipline based on these findings?

It seems lower interest rates post-demonetisation prompted many borrowers to borrow more. Are you one of them? Did you apply for a cheap car loan, or bought a car just because you were getting a cheaper auto loan?

If ‘yes’ is the answer, it’s time to rethink!

Here’s what you could do to inculcate financial discipline …

• Borrow less

• Use digital payment options for convenience but don’t become an impulsive buyer due to convenience they offer

• Save more (but don’t hoard cash, invest wisely)

• File your tax returns on time

• Create a contingency reserve (at least equivalent to 6 months of household expenditure)

• Set your financial goals and clearly define a time horizon to achieve them

• Assess your risk appetite

• Based on your financial goals, time horizon and risk appetite, chalk out a personalised asset allocation

• Invest in various asset classes such as equity, debt, gold, and real estate as per your personalised asset allocation chart

• Don’t move your money away from any asset class abruptly just because it looks unattractive in the short-term

Mutual funds can help you achieve your financial goals and facilitate disciplined saving habits as well. Equity-oriented mutual funds can help you create a long-term wealth. If you want to experience their effectiveness, you should start a Systematic Investment Plan (SIP) in the right mutual fund scheme.

Don’t forget this:

• Be careful while selecting a mutual fund

• Pay attention to the track record of the scheme. And assess its performance on various quantitative and qualitative parameters

• Don’t forget to review your portfolio at least once a year

 [Read: Investing In Mutual Funds Can Help You Achieve Your Financial Goals]

Always make it a point to assess mutual fund schemes based on various quantitative as well as qualitative parameters for a comprehensive selecting process.  

Read about the comprehensive mutual fund rating methodology followed by PersonalFN, here.

Watch this short video on selecting mutual fund schemes:

Happy Investing!

Holding Popular Mutual Funds May Not Give You A Blissful Retired Life…

Can you plan your retirement with mutual funds?

Yes, you can.

Over the past two decades equity mutual funds and aggressive hybrid funds or balanced hybrid funds, have created huge wealth for investors.

And these days, individuals, particularly retail investors, are increasingly becoming aware of the benefits of investing in mutual funds. Mutual Funds Sahi Hai campaign has helped and so have several other investor awareness initiatives in making mutual funds popular.

As a result, investors are increasingly investing in equity mutual funds and aggressive hybrid funds to build a corpus for a peaceful retirement.

To read more, please click here.

Why Short-Term Investing In Mutual Funds Is A Strict NO!

Are mutual funds getting more popular in India?

Looks like, going by the data.

Between July 2017 and July 2018, the Assets Under Management (AUM) of the Indian mutual fund industry has grown to Rs 23.96 lakh crore from Rs 20.42 lakh crore—17.3% growth.

The growth in new investor accounts is more encouraging. From 5.82 crore unique accounts in June 2017, the count has improved to 7.46 crore in June 2018—a growth of 28.2%.

Investors are going gung-ho on equity mutual funds in particular.

[Read: Does AUM Size Affect Mutual Fund Performance? Here’s What You Must Know…]

As revealed by CAMS, India’s premier mutual fund transfer agency, new SIP (Systematic Investment Plan)registrations increased nearly 92% in FY 2017-18 as compared to that in FY 2016-17.

Over the last couple of financial years, the average SIP contribution has grown from Rs 3,546 per account to Rs 3,850.

To read more, please click here.

Will SEBI Shut Down The Close-ended NFO Factory?

It’s evident that the capital market regulator—SEBI (Securities and Exchange Board of India) is on a mission to protect the interest of mutual fund investors.

At the  Association of Mutual Funds in India (AMFI) summit that concluded recently, SEBI chief, Mr Ajay Tyagi hinted at framing a new policy for close-ended schemes. Perhaps for the first time, the capital market regulator acknowledged that investors of close-ended schemes are more vulnerable to mis-selling.

How are the close-ended schemes promoted?

• Mutual fund houses pay hefty commissions to distributors

• They make a convincing sales pitch to investors by describing close-ended schemes to be a perfect choice for long-term investors since these don’t have easy exit options.

• Arguably, the close-ended nature of these mutual fund schemes offers a fund manager time and flexibility to take long-term bets.

But in reality, the close-ended mutual fund schemes are one-sided deals; meant to benefit the mutual fund house, not you, the investor.

To read more, please click here.

Tata Is Back With A Multicap Fund. Should You Invest?

Tata Multicap Fund is the latest offering from Tata Mutual Fund. Launched under the muticap funds category, it aims to generate medium to long term capital growth by investing in a diversified portfolio of equity and equity related instruments spread across market capitalization.

After the rationalisation and categorisation of mutual funds, mutual fund houses have begun filling in the gaps through New Fund Offers (NFO's). Through this NFO, Tata Mutual Fund aims to fill the multicap strategy that is currently missing in its bucket of open ended schemes. Tata Multicap Fund is an open-ended equity scheme with a mandate to invest across large cap, midcap, small cap stocks.

To read the complete note, click here.

Should You Shun ICICI Prudential Value Discovery Fund?

Value investing is a long term strategy, which may be boring; especially for those category of investors looking to make some quick gains. It really requires a lot of courage and discipline to follow value investing. And thus many investors shy away from value investing.

ICICI Prudential Value Discovery Fund is one such fund that follows the principles of value investing. As the name suggests, the fund aims to discover stocks that are trading at a discount to their intrinsic value. This value-oriented scheme has lived up to its name, picking undervalued stocks that have helped it deliver noticeable gains over the long term. ICICI Pru Value Discovery Fund has retained its value style and has been categorized under Value Funds. It follows bottom up approach to pick fairly discounted stocks that have potential to deliver exceptional returns over long term.

With a corpus of over Rs 16,650 crore, ICICI Pru Value Discovery Fund is the largest fund in the value funds category. With growing corpus and rising valuation in the mid cap space, the fund transformed itself from a mid-cap oriented fund, to a multi cap fund with a large cap bias. To reflect its multi-cap character, the fund also changed its benchmark (in November 2015) from the CNX Midcap Index to S&P BSE 500 Index. ICICI Pru Value Discovery Fund has a stable fund management at the helm, with Mr Mrinal Singh managing the fund for over 7 years now and has steered the fund through multiple market cycles. With value style being out of favour in the growth oriented overvalued markets, true value style funds have been going through a rough phase for quite some time.

To read the complete note, click here.

How Using Your Debit Card Can Infuse Financial Discipline?

Here's How HUFs Can Invest In Mutual Funds…

Monetary Base: A monetary base is the total amount of a currency that is either in general circulation in the hands of the public or in the commercial bank deposits held in the central bank's reserves. This measure of the money supply typically only includes the most liquid currencies; it is also known as the "money base".

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