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ICICIdirect Posted on 10:17am 03-Jan-2020

Introducing ETF Intelligent Portfolios (EIP) - Investments on autopilot!

A new revolutionary way to invest!

 Multi-asset Investment

Invest the way world does! With ETF Intelligent Portfolios (EIP), you get to invest into multi assets – Equity-Large cap, Equity-Mid cap, Debt & Gold – through Exchange Traded Funds, in a single click. And with an investment amount as low as Rs.1,000. The performance of every asset class varies between one year and another and hence having a multi-asset investment ensures you don’t miss out on the returns from the best asset class in any given year and also helps you diversify your risk.

The table below shows the calendar year returns of various asset classes over the last 15 years.

Year Equity-Large Cap Equity-Mid Cap Debt Gold
2004 8.80 22.60 -4.82 0.30
2005 36.46 35.15 3.79 21.19
2006 39.96 29.10 5.07 21.67
2007 54.40 76.38 6.34 17.15
2008 -51.84 -60.23 27.19 27.04
2009 71.71 95.21 -8.42 22.97
2010 17.95 19.16 3.00 22.62
2011 -24.68 -31.07 1.90 32.82
2012 27.53 38.91 10.64 8.63
2013 5.95 -6.19 -1.06 -18.41
2014 31.54 55.28 14.34 2.13
2015 -4.09 6.19 7.55 -7.24
2016 2.80 6.01 14.72 11.80
2017 28.74 47.41 -0.06 5.24
2018 4.10 -15.36 6.08 7.88

 

• All the returns are point-to-point (1st Jan to 31st Dec of the year)

• For Equity-Large Cap, NIFTY50 Index has been considered. For Equity-Mid Cap, NIFTY Midcap 100 Index has been considered. For Debt, Crisil 10 Yr Gilt Index has been considered. For Gold, Gold-London AM (INR) has been considered

Source: ACE MF

 

Looking at the table above, clearly no asset class has delivered the highest returns for any period of 3 or more consecutive calendar years. This strengthens the need of having different asset classes in your portfolio and what better way than investing in a multi-asset investment avenue like “ETF Intelligent Portfolios”. EIP is ideally suited for your long-term & core goals like retirement, children higher education, etc.

With EIP, you also have the flexibility to customize your allocation at any point of time, on your own.

 

 Re-balancing

Re-balancing your portfolio, based on the market movements, is absolutely vital to ensure you maintain the portfolio risk at the same level, as intended. Re-balancing will also help you buy a specific asset class at its lower level and sell it at its higher level. What’s more! EIP does the re-balancing of your portfolio without your intervention. Just invest & forget it…we shall take care of it.

Studies have shown that asset allocation is the primary determinant of a portfolio's return variability, with security selection and market timing (together, active management) playing minor roles. For investors, the appropriate asset allocation strategy is dependent on their investment objectives and risk appetite. If your primary objective is long term growth of your investments, there needs to be more allocation to growth oriented but riskier assets like Equity. If the primary objective is stability and income, then the allocation needs to be higher in Debt. Similarly, your risk profile also plays an important role in in determining how to distribute your portfolio among the various asset classes.

Re-balancing helps to minimize the overall risk level of your portfolio over a period of time. Let’s say Mr. A decides his asset allocation between Equity : Debt as 60% : 40%. Over a period of time he finds that the equity allocation has increased to 68% of his portfolio due to bullish market conditions. Leaving the portfolio as it is will mean that his portfolio carries higher risk now, compared to the chosen allocation due to the increase in equity exposure. Portfolio re-balancing will ensure Mr. X sells the excess 8% in Equity (68 less 60) and reinvest the same into Debt to bring the current portfolio back to target asset allocation, thereby restoring the risk to desired levels. Similarly, in a scenario where Equity allocation reduces to 50%, he has to sell his debt investments and invest into Equity to bring the portfolio back to 60% : 40% allocation. This practice helps Mr. X to book profits in outperforming assets at higher prices & invest more into underperforming assets at lower prices.

With EIP, performance of each ETF in your portfolio is monitored and an re-balancing is triggered, if the allocation percentage of any ETF deviates by +/-2.50% or more from the target allocation percentage. After setting up SIP for the desired amount, you need not worry about short term market trends; just leave the portfolio to grow with time. No more headaches to review your portfolio regularly!

 

 Low Cost

ETF Intelligent Portfolios consist of only Exchange Traded Funds (ETFs). The expense ratio of ETFs is in the range of 0.04% - 0.70% p.a., as compared to 1.50%-2.25% charged by actively managed mutual funds. ETF Intelligent Portfolios suggested based on your risk profile has an overall average expense ratio in the range of 0.08% - 0.13% p.a. only, based on the allocations for various risk profiles.

What’s more! There is no brokerage for any buy and re-balance transactions, triggered through EIP platform. Other statutory charges, demat charges and taxes will be levied as usual. We charge only a nominal fee of 0.15% per quarter on the quarterly average Asset Under Advice (AUA), plus GST, for this service.

 

Why ETFs?

Exchange Traded Funds or ETFs are essentially the same as Mutual Funds but they trade like individual stocks on an exchange. Unlike regular open-end mutual funds, ETFs can be bought and sold throughout the trading day like any stock.

There are various types of ETFs like index ETF, gold ETF, gilt ETF, liquid ETF, sector based ETFs, international ETF, etc.

Benefits of investing into ETFs:

Real Time Trading: Investors can place orders in ETFs during market hours, thus trying to take advantage of sudden price fluctuations, instead of transacting at day end NAV in case of MFs

Expense Ratio: ETFs have a lower expense ratio as compared to index funds and actively managed mutual funds

Diversification: Investments in ETFs are widely diversified as indices are construed to represent performance of the stock market as a whole

Tracking Error: As ETFs do not have to worry about meeting sudden redemption requests, and have lower expense ratio, annualized tracking error is lower than an index fund

Portfolio Disclosure: Unlike mutual funds which disclose their portfolios monthly, ETF’s portfolios are disclosed daily

 

 Returns

With ETF Intelligent Portfolios, you are assured that the return earned by you will not be lower than the return generated by the market (index). This is largely because ETFs essentially invest in the indexes (benchmarks). ETFs mirror the index and hence, your returns are always similar to that of the index, but for the tracking error.

Investing into actively managed mutual funds requires you to constantly review your portfolio to check if your fund is outperforming its benchmark and its peers. And take necessary action if it fails to deliver. At times, your active fund might underperform if any of the fund manager’s call goes wrong; the fund manager might hold some portion of the AUM as cash as well sometimes, which may affect the return of the fund. You do not have all these concerns with ETFs & EIP. With EIP, you can now forget reviewing your portfolio & worrying about the performance of your fund manager and be assured that your return will not be lower than that of the market.

 

Get Started: https://secure.icicidirect.com/research-advisory/advisory/etf-intelligent-portfolios

  • Community User
    So there will be two charges in this
    1) ETF buying/selling cost
    2) icicidirect charge
    Is that correct?
    Will there be charges by the ETF when rebalancing? As you would be selling from one and buying another or only when we decide to alter the allocation by selling ourselves?

    04:19pm 06-Jan-2020

  • Community User Hi team
    How often is a rebalancing done on an EIP and what is the process for doing it. Please do let me know. Thanks

    06:20pm 06-Jan-2020

  • ICICIdirect Research @VIKRAM DUDANI - Our Product Manager would like to inform you that the rebalancing feature in EIP is not periodic. It is based on any deviation of +/- 2.50% or more in the current allocation of any ETF from the initial target allocation set by you. During re-balancing, units in the overexposed ETFs will be sold up to the excess % and units in underexposed ETFs will be bought with such sale proceeds, to restore you back to the initial target allocation. Whenever such deviation occurs, we shall help you rebalance your portfolio by placing the required rebalancing orders without your intervention. Once you invest into EIP, you can just leave it to us to monitor daily & rebalance on deviations.

    12:36pm 07-Jan-2020

  • ICICIdirect Research @MANOJKUMAR DIVAKARAN - Our Product Manager would like to inform you that for all buy transactions & re-balance transactions (both buy & sell) made through the EIP platform, there will be no brokerage charged. Other statutory charges like SEBI turnover charges, stamp duty and taxes will be levied as usual. However, if you buy or sell any of our recommended ETFs from the Equity section, the brokerage will be levied as per your brokerage plan.

    Re-balancing will be triggered if there s any deviation of +/- 2.50% or more in the current allocation of any ETF from the initial target allocation set by you. During re-balancing, units in the overexposed ETFs will be sold up to the excess % and units in underexposed ETFs will be bought with such sale proceeds, to restore you back to the initial target allocation. Rebalancing can also be triggered if you change your target allocation at any point in time. There are no separate charges levied for rebalancing. The fee for the entire service is 0.15% on the quarterly average Asset Under Advice (AUA), plus GST, per quarter.

    12:39pm 07-Jan-2020