Reliance Nippon Life Asset Management- Information Note

Reliance Nippon Life Asset Management- Information Note
IPO
by Nikita Bhoota 23/10/2017

This document summarizes a few key points related to the issue and should not be treated as a comprehensive summary. Investors are requested to refer the Red Herring Prospectus for further details regarding the issue, the issuer company and the risk factors before taking any investment decision.

Please note that investment in securities is subject to risks including loss of principal amount and past performance is not indicative of future performance. Nothing herein constitutes an offer of securities for sale in any jurisdiction where it is unlawful to do so.

This document is not intended to be an advertisement and does not constitute an invitation or form any part of any issue for sale or solicitation of an offer to subscribe for or purchase any securities and neither this document nor anything contained herein shall form the basis for any contract or commitment whatsoever.

Issue Opens: October 25, 2017

Issue Closes: October 27, 2017

Face Value: Rs 10

Price Band: Rs 247-252

Issue Size: Rs 1,542 cr (612 lakh shares)

Public Issue: 12.47 cr shares (at upper price band)

Bid Lot: 59 Equity shares

Issue Type: 100% Book Building

% shareholding Pre IPO
Promoter 96.0
Public 4.0

Source: RHP

Company Background

Reliance Nippon Life Asset Management (RNLAM) is one of the largest asset management companies (AMC) in India, managing total AUM of Rs 3.6 lakh crore as of June 30, 2017. The Company is involved in managing mutual funds (MF, including ETFs); managed accounts, including portfolio management services, alternative investment funds (AIFs) and pension funds; and offshore funds and advisory mandates. According to ICRA RNLAM (is/was/has) -

  • Ranked the third largest AMC, in terms of MF quarterly average AUM (QAAUM) with a market share of 11.4%, as of June 30, 2017.

  • Ranked the second most profitable AMC in India in FY16.

  • Highest total MF monthly average AUM (MAAUM) among all AMCs in India in beyond top 15 (B-15) locations as of June 30, 2017.

  • Second highest retail MAAUM in India as of June 30, 2017.

  • 18.6 Lakh SIP accounts with monthly inflows of ~Rs 510 Cr (June 30, 2017).

Objects of the Issue

The offer consists of fresh issue of up to 244.8 lakh shares aggregating up to 605/617Cr at lower/upper end of the price band and Offer for Sale of up to 367.2 lakh shares by selling shareholders Nippon Life Insurance Company and Reliance Capital Limited.

Key Points

1.RNLAM has strong presence across India, has set up subsidiaries in Singapore and Mauritius and a representative office in Dubai. In India, the company has a pan-India network of 171 branches, of which 132 branches are located in B-15 locations and approximately 58,000 distributors as of June 30, 2017. Its distributors comprise IFAs, foreign banks, Indian private and public sector banks, broking companies, national distributors and digital platforms.

2.RNLAM is the third largest AMC in India, in terms of MF QAAUM, as of June 30, 2017, according to ICRA report. It has strong relationships with distributors and investors, consisting of individual (retail and HNIs) and institutional investors. Report further states, RNLAM has a diversified investor base wherein it manages asset for 70.1 lakh investor folios, which comprised 67.2 lakh retail folios. The MAAUM of retail investors managed by it was the 2nd largest (with a total market share of 13.6%) among asset management companies in India, according to ICRA. Furthermore, its branches are spread across 145 districts in India.

Key Risk

Macroeconomic conditions in India are likely to affect the performance of funds managed by the company, which may in-turn affect AUM managed by it, its management fees and revenue.

Research Disclaimer

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Goal-based investing: How does it work?

Goal-based investing: How does it work?
by Nutan Gupta 05/11/2017

Goal-based investing is just a new way of approaching wealth management. It focuses on investment from a more goal-oriented outlook. You have specific goals in mind that you want to achieve at the end of your investment tenure. And all your investment would channelize in a direction that leads you to that particular goal. There could be a variety of goals you would want to invest for. This could be saving for your child’s education, buying a new home, gifting your spouse on your silver jubilee or saving for retirement.

How does it work?

Traditional form of investing involved people who used to invest their hard-earned money for returns. But, they were not sure about the returns and their investment plan was designed to be risk-oriented. This means their investments had the potential to perform better than the market but wouldn’t be enough for meeting a goal.

Goal-based investing works towards compensating for this. It aims to outperform the market keeping in mind your threshold for risk. For example, you are 30 years old when you decide to start saving for your retirement. You intend to retire when you complete the age of 60 years. Let’s assume you are currently earning Rs. 65,000 and you are willing to invest Rs. 12,582 towards your retirement plan. Even if you calculate the expected inflation at 5% per annum and expected return on investment at 7% per annum, you would have saved a massive corpus. At the end of the tenure, you would have saved for yourself a sum of more than Rs. 1.6 crore.

In goal-based investing, all your individual asset pools are stitched together to focus on your specific goals. To explain this with an example:

Goal

Retirement

Education

Asset Allocation

10% equity, 90% fixed deposits

50% equity, 50% fixed deposits

As you can see, goal-based investing would provide you an asset allocation that supports your goals and helps you achieve them in real time. The risk here is viewed in terms of out-performing the market. It is instead viewed in proportion to how short you would fall in achieving your goal. It will help you get back on track to meet your goals in time.

A short-term goal must have investment in safer options like debt funds. Long term goals like retirement or college education of your new-born kid can have investments in high-risk-high-return type of investment assets. Once you are clear about your goals, a goal-based investment plan can be made. This could be customized according to your risk profile and time taken to achieve your goal. Since, this can be different for different goals, you need to plan this very meticulously.

How should you respond to this?

The best way to tackle this is to know exactly what you need. Be clear and define your goals. Do you know how much amount would you need to renovate your home? Do you know what would be the cost you would have to spend for your child’s marriage? Do you know how much savings you would need after retirement?

Think about all these questions and take into consideration all the factors affecting it. This could involve taking into account the economic condition as well as the inflation among other factors. A good goal-based financial planning would help you answer all of this. This would help you see tangible progress towards your goals. Avoid making impulsive decisions as per market conditions.

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How do I set up a goal and invest?

How do I set up a goal and invest?
by Priyanka Sharma 05/11/2017

Shoot for the moon. Even if you miss, you'll land among stars! While this is true for many cases, this is not what you would want to do when you are planning your finances. There is a chance that you might not land among the stars; improper planning could land you back to square one or worse in a ruined financial state.

Before you start investing, you need to define your goal for which you are saving for. This is because to save for the future, you are cutting back on your spending now. This sacrifice must not be in vain; you need to get an appropriate reward for this sacrifice. Goal-based investing is just what would help you.

Type of goals

No matter how different and unique your goals are, you are bound to find the correct financial instrument. However, the first step of successful planning is to set the goal. What are the common goals that many of you could relate to?

  • Build sufficient amount for retirement

  • Buy a vacation home/Save a down payment for a home

  • Create an income stream after retirement

  • Start a new business

  • Pay for your wedding

  • Save for your children’s education/marriage

  • Take a special vacation

  • All of the above

Timeline to achieve the goal

Setting a goal is important as they help you define the timeline in which you need to achieve the goals. For example, paying for your vacation, creating a constant income stream post-retirement, or your wedding could be a short-term goal while planning for your retirement could be a long-term goal.

Risk Tolerance

Your goals will also help you determine your risk tolerance. Your age will also play a factor in determining your risk tolerance. If you are in early stages of your career, you can afford to take more risks as you might not have been married. However, if you are a businessman and have a family dependent on you, you might not want to be too adventurous.

Liquidity Requirements

Your investment goals will also determine your liquidity requirements. If you are investing post having an emergency fund, you might want to invest in an investment option that would not provide you instant liquidity such as real estate. However, if you do not have an emergency fund, you might want to invest in mutual funds to gain while having the option of quick liquidity.

4 Tips to set your goals

Setting appropriate goals can be difficult. Consider the following tips before setting up your goals.

1. Know why you are investing.

  • You can set the right goals if you can point to a specific reason for investing.

  • This will also provide you with a way to stay motivated.

2. Be realistic:

  • Do not grandly proclaim that you can invest Rs.5000 while you aren’t even sure of the groceries.

  • Consider your financial situation and set achievable goals.

3. Break it down:

  • Chip down your investment goals into easy milestones.

  • Start out small and increase gradually.

4. Start simple:

  • If you are unsure whether you can really stick to the plan, start with a simple plan.

  • Also, begin with simple SIPs and do not assume that you know everything about equities.

To sum it up

Having an aim in life is important. However, having a goal while financial planning is furthermore important. If you follow the above-mentioned tips, you could better align your goals with your needs.

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5 Types of Mutual Funds

5 Types of Mutual Funds
by Nutan Gupta 05/11/2017

To put it simply, a pool of money by people with similar risk tolerance, managed by a manager and being invested in a pre-defined financial instrument is known as mutual fund. They do not all necessarily invest in stock market. For example, some mutual funds also invest in gold. One of their advantages is the quick liquidity that they provide. There are various other types of mutual funds. Let us have a glimpse through the various types of mutual funds:

Money Market Funds: Mutual funds that invest in short-term fixed-income securities such as government bonds, treasury bills, bankers’ acceptances, commercial paper and certificates of deposit are known as money market funds. These funds are generally safe; however, their rate of returns is generally lower than those of other funds. These funds are usually open-ended. They are widely considered as safe as bank deposits yet providing a higher yield. Thus, their typical returns are slightly more than what you get with a savings account.

Equity Funds: Equity Funds are funds that invest in stocks. These funds usually grow faster than money market funds. However, the risk involved with these funds is slightly higher as they may be affected by market volatility. It is advisable to invest for long duration in equities. The case is same for equity funds. It is advisable to invest for a long-term even with equity funds. There are various sub-types of equity funds like sector funds, which invest in a particular sector of equities, index funds, which aim to mirror the performance of a particular index, and so on.

Balanced Funds: These funds are basically a hybrid of the above-mentioned two funds. They get you the best of both money market and equity funds. They can be open-ended or interval funds. They tend to negate the effects of the volatile market by investing in fixed-income debt market instruments. Asset allocation fund is a similar type of fund. These funds do not hold a specified percentage of any asset class.

Commodity funds: These are mutual funds that invest neither in money market nor in equities; they invest in commodities. The most common type of commodity fund is Gold Funds. Any commodity fund can be further classified as commodity ETF and commodity sector fund. These funds are usually short-term funds. Commodity funds are essentially a sub-part of specialty fund. The other types of specialty funds are real estate funds, socially responsible investing funds and so on.

Fund of Funds: Funds that invest in other well-performing funds, expecting to mirror their performance, are called fund of funds. They pre-specify the mutual funds that they will buy or the kind of schemes they intend to invest. These are usually open-ended funds.

In a nutshell

Mutual funds, while subject to market risks are very good options when it comes to investing. You get to choose from an array of funds. They have the potential to generate great returns in the long-term.

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Understanding FMP and its benefits

Understanding FMP and its benefits
by Nutan Gupta 05/11/2017

Fixed Maturity Plans, or commonly known as FMP is a close-ended mutual fund scheme with a fixed maturity. FMP usually invests in instruments that are equal to its own tenure. This means an FMP with a tenure of 1126 days would invest in an instrument that matures within 1126 days or less.

Why people invest in FMPs?

Fixed Maturity Plans offer returns that are risk adjusted. You can also get tax benefits on it. Mutual funds invest in securities that are not easily offered to retail investors. Thus, you can get better credit quality. The interest rate risk is also managed by the securities with the same maturity plan as that of the scheme.

What do investors get from FMP?

Protection from capital: FMP invests in debt instruments. Hence, the risk of loss of capital is relatively lower than that in equity funds.

Ideal for long-term FMPs: Investments that are greater than 36 months are often ideal due to minimum exposure to market risk, ability to park funds to achieve long-term goals, and potential to earn steady returns on investment in FMPs.

Better taxation benefits: FMP offers better returns as compared to FDs and ultra-short-term debt funds. This is possible due to the indexation benefit. Since indexation lowers capital gains, it translates into lower tax.

If you choose ‘Dividend’ option, there may be no tax for you as investors as you are getting the returns in dividends. However, the mutual fund companies would have to pay the Dividend Distribution Tax (DDT) along with surcharge and cess.

If you choose the ‘Growth’ option, you may be eligible for capital gains tax. For short-term capital gains of less than 36 months, you may be charged according to your own income slab rate. If you opt for long-term capital gains of more than 36 months, you would be taxed at 10% and 20% without or with indexation respectively. For example, if you take a 36-month FMP in May 2017 that is FY17-18, it would mature in May 2020 that is FY20-21. Since the purchase and sale years are in different financial years, you can enjoy the benefit of double indexation. This would help you reduce your tax liability to a great extent.

What does an FMP comprise of?

It comprises of the following:

Sr. no.

Debt-market securities

1

Non-Convertible Debentures(NCDs)

2

Government Bonds

3

Highly rated securities like AAA rated Corporate Bonds

4

Treasury Bills (T-bills)

5

Commercial Papers(CPs)

6

Certificates of Deposit (CDs)

7

Bank FDs and other money market instruments

Points to remember before investing in FMPs

It is essential to know where the FMP is investing. This is because the credit worthiness of the fund’s assets is directly dependent on the quality of the portfolio.

Ensure that you read the Scheme Information Document (SID) carefully. It would give you an idea about the fund manager’s capabilities.

Are there any downsides of FMP?

Like every other thing, FMP too has its own share of shortcomings. Since it is a close-ended scheme, you may not be able to redeem it before maturity or expiry of its term. All FMPs are mandatorily listed on the stock exchange. If you still wish to redeem it, you might have to sell it on the stock exchange on which the units are listed. Since these units are rarely traded, it could make your FMPs illiquid in times of need.

In conclusion

FMPs are great investment tools if you are looking for good returns and tax benefits. The close-ended schemes can only be redeemed after the term. So, once the term is completed, all the capital along with the interest earned is credited back to the investors. The taxation in FMPs would depend on the investment option chosen by you. This could be either dividend or growth. Thus, FMP is an ideal investment option for all those investors who wish to have stable returns from a debt investment.

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How do I modify my existing SIP?

How do I modify my existing SIP?
by Nutan Gupta 05/11/2017

Investing in a Systematic Investment Plan (SIP) is considered to be most favorable as you can invest as low as Rs. 500 in it. This makes it affordable for almost everyone, even those who have recently started working. But is this enough? Inflation rises every year and hence, it is only fair that you increase the amount you invest.

Instead of having your money just lying idle in your savings bank account, you can invest it in Systematic Investment Plan (SIP). This would facilitate the habit of regular saving and also earn you interest.

Doing a SIP top-up

When you get a hike in your work or you have surplus money flowing in, it’s best to invest it. Channelizing your money in mutual fund can be a good option to invest and earn some good profits on it. However, the risk with investing lump-sum is that you might have to time the market. Hence, it is advised to invest in SIPs instead. SIPs offer steady monthly investments and you don’t have to time the market for it. You can increase the amount you invest in SIPs and get better returns on it.

Can top-up be done in an existing SIP?

Ideally, this may not be possible. You fill an Electronic Clearing System (ECS) mandate form when you apply for a new SIP. According to this mandate, you tell your bank to transfer a fixed amount on a fixed day towards your SIP investment every month. Since you have already submitted this mandate to the bank, you may not be able to change it now. Most fund houses also do not allow this change yet.

Is there a way out?

Yes, definitely. You can apply for a top-up at the time of applying for an SIP. While taking a new SIP, you can opt for a periodic top-up of your investment amount. Mutual fund houses allow you to increase your investment amount either every six months or on a yearly basis if you wish to. This, however, should be specified at the start.

How does the periodic top-up work? (IG content)

  • You start investing with Rs. 500 per month.

  • And ask for a yearly top-up of Rs. 500 in your investment amount.

  • After the first year, your SIP amount will go up to Rs. 1,000 per month.

  • After the second year, it would increase to Rs. 1,500 per month.

  • This keeps increasing till the tenure of your SIP.

  • You can stop this by canceling your SIP and starting a new one.

To sum it up

You can top-up your SIP if you specify in the mandate in the start of your investment. You need to choose the amount and frequency of your top-up. Mutual Fund houses prefer the top-up of minimum Rs. 500 onwards. You can check with your SIP distributor if there is any option to modify your existing scheme. Or, you can stop this and start a new one with the mandate to top-up your investment at regular intervals.