As always, April is the month of annual review.

We would be sending your portfolio reports along with our notes and inputs.

We plan to complete the task by end of April.

This review is in addition to our meetings and interactions during the year.

Though we’ve given you online access, it would be good if you see your portfolio once a year. Lesser the frequency better would be the results.

Sensex has delivered 11.3% for the financial year 2017-18.

As far as debt is concerned, yields have hardened resulting in subpar performance.

Those of you who have invested during the recent past would see average to poor results.

For those who have been investing for long, the results continue to be good.

Short term is like weather. Not predictable. Long term is like seasons. Reasonably predictable.

Based on our experience and expectation, we are confident of good long term results. Those of you who have been with us for many years have been experiencing it through portfolio performance.

Emotions and liquidity influences short term performance. Fundamentals influence long term performance. Always focus only on long term. For equities, the long term is not less than 10 years. For hybrid like MIPs and balanced funds, long term ranges between 3 to 6 years.  Only for liquid funds, we can expect all time performance.

You’ll start seeing changes in the name of the funds you hold. This is being done by fund houses in line with latest SEBI guidelines. For the funds we’ve recommended, there has been no major changes in fundamental attributes and it is only change in nomenclature. So you need not worry about this.

Expense ratio for funds are being brought down by 15 bps by SEBI. In our view, this is only beginning and we may see more in coming years. Also as we wrote last year, due to TRI benchmarking and reclassification, we expect alpha to come down in the next few years. We would see more passive funds and ETFs coming into the being. We are keenly watching the developments and would suggest suitable changes at the appropriate time.

It is markets which give you results and not us. We are there to ensure you stay the course to receive the long term benefits offered by markets.

I’ve no new message to offer except asking you to stay the course.

As you are aware, your debt fund investments like MIPs and liquid funds are subjected to both short and long term capital gains tax (LTCG tax).

For equity, there has been tax only on short term capital gains. Long term capital gains have been exempted from taxation for the last 13 years.

This has been changed by the budget presented yesterday.

Henceforth, long term capital gains on shares and equity oriented funds would be subjected to a tax of 10%.

For the purpose of calculation of long term capital gains, the NAV or share price would be taken as on 31’st January 2018.

Let us assume, you invested in an equity fund in 2010 at NAV of Rs.100. The NAV as on 31’st January 2018 is Rs.300. In 2020, when you redeem this fund, the NAV is at Rs.400. For calculating long term capital gains, your cost would NOT be taken as Rs.100 but only at Rs.300. This has been done to ensure that investments made till 31’st January 2018 does not suffer long term capital gains tax. Any investment from February 1’st 2018, would be subjected to long term capital gains tax of 10%.

There has been strongly divided opinion whether the taxation is correct or not. That debate would continue. But what matters to us is the fact that this tax has to be paid for equity investments made from now on.

We’ve to wait and see how this impact markets in the short term. I would not be surprised if markets react adversely in near future. These things are difficult to predict and does not affect the long term growth trajectory. Earnings have started picking up from last quarter and structurally corporate India is expected to deliver robust growth over next few years. In the long run, only earnings matters and sentiments which are so prominent in near term dissolve.

In 2014, I shared with you a tweet of Ben Carlson.

https://twitter.com/awealthofcs/status/542520113933864960

Start with a $1 investment that doubles in value year.

1) Sell the investment at the end of the year, pay the tax and reinvest the proceeds.

Do the same thing every year for twenty years.

End up with $25,200 clear profit.

(Or)

2) Don’t sell anything.

At the end of twenty years, end up with $692,000 after-tax profit.

See the difference in long term wealth creation when there is no churning.

We advised no churning even when there was no tax on long term capital gains. It now becomes all the more important to keep the churn very minimum.

Equity as an asset class delivers superior returns over all other asset classes in the long run. This was true when there was no tax and continues to be true when there is a 10% tax.

Currently there has been no indexation benefit for LTCG on equity. This is because the cost price of previous years has implied indexing as only the price as on 31’st January 2018 would be taken from now on.

Till 2004, long capital gains from equity was taxed either a flat 10% or 20% with indexation. I would not be surprised, if in the coming years, both the options are again provided to investors.

Now that you are aware of the changes, what you need to do?

Nothing. Just continue to stay the course, as always.