How to enhance your 7% returns to around 10%

This part of the blog is for only and only those who have appetite for some risk on equity investing. Investing in high demand IPOs using ASBA and selling on listing is another way to enhance savings accounts returns with some measured risk.

So, your surplus funds are now earning 6-7% compared to 3.5% earlier (if not, read more on this here – https://blog.multipie.co/2021/01/18/how-to-enhance-your-liquid-idle-fund-returns/).

Now, how do we move to around 10% in 2021 ? We assume here that there will be IPOs happening in 2021 (pre-requisite)

Invest money in IPO’s using ASBA (Application Supported by Blocked Amount). You may convert existing savings account to an ASBA account thus ensuring that you continue to earn interest on the entire amount bid in IPO.

The amount is only blocked and does not leave your account. It only leaves your account in case you get allotted shares in the IPO. The more oversubscribed an IPO is the less likely you are to get allotted shares. Hence for IPOs already highly oversubscribed, you can put bigger amounts on last day.

So, how do we execute this strategy?

We suggest the following steps before investing in an IPO:

Below is the list of IPOs in 2020 which cumulatively generated a return of 4.3%.

Listing gains above are calculated on amount bid. % Gains on amount actually allotted are higher as amounts allotted are low.

Immediate IPOs are

Indian Railway Finance Corporation (Jan 18th -20th) : We do not have a positive view.

Indigo Paints (Jan 20th – 22nd) : We are positive. Check the multipie blog on Jan 22 for final view after we factor in last grey market premium and updated level of oversubscription

Home First Finance (Jan 21 to Jan 25) : We are positive. Check the multipie blog on Jan 25 for final view after we factor in last grey market premium and updated level of oversubscription

Brookfield REIT (later this month) : Currently, we are positive. Final view will be there on last date of IPO on multipie blog on last day of IPO

Again, do this only if you have some appetite for equity risk.

Note : SBI Cards above gave minus 13% returns on listing. An investor would have – 13% / 44 = minus 0.3% on amount bid for as it was oversubscribed 44 times. Markets crashed in March 2020 in the one week gap between application date and listing date

If you had bid for 10 lacs in Reliance Power in Feb 2008 using above strategy, you would have got an allotment of 10 lacs / 190 equal appx 5,000 rupees only as it was oversubscribed 190 times. It had listing gain of 21% and you would have made 1000 Rs. if you sold on listing. If you held on, the 5000 Rupees allotment would become close to zero very soon.

In general, if done in below disciplined way

Ia) IPOs chosen well (high grey market premium, high oversubscription)

b) sold immediately on listing (basically one week risk)

This strategy should give a return enhancement on the savings a/c return for those having some short-term equity risk appetite.

Do let us know in the comments section what you think about this strategy and any other topics on investing you’d like us to cover.

How to enhance your liquid/idle fund returns from 3.5% to 7%

Is this how you feel when you look at your returns from liquid funds?

Let’s change that feeling!

So what are Liquid Funds ?

Liquid Funds are Mutual Funds schemes that invest in very short term and safe debt instruments. Liquid Funds have a low risk of default but they give a low pre-tax return of 3.5%.The post tax returns are far from optimal as your return is lesser than the inflation rate.

There are low risk ways to enhance this 3.5% returns to up to 7% while meeting your considerations of liquidity and risk.

Sounds interesting? Multipie tells you how

Moving money from liquid funds to Savings account

Assuming you have no loans (else retiring them might be superior option),

Select Savings bank accounts can offer you higher rates of interest compared to Liquid Funds and also provide full liquidity when required.

Savings bank accounts of the following 2 scheduled commercial Banks operating under RBI licenses: AU Small Finance Bank and IndusInd Bank offer higher interest rates and a very low risk of default. Additionally, there are some other well managed private sector scheduled commercial banks that both offer good rates and safety. Thus investor has several options.

 Au Small Finance BankIndusInd Bank
INR 1L- INR 5L5%5%
INR 5L-INR 10L6%5%
INR 10L and above7%6%
Indicative rates offered by these banks

But what about risk of this strategy?

In India, depositors have not lost money in a scheduled commercial bank since Independence in 1947.

Points to note:

People lost money recently in PMC Bank which was a co-operative bank and not a scheduled commercial bank under RBI.

Yes Bank and earlier Global Trust Bank (GTB) were scheduled commercial banks that had asset quality and other problems. Depositors were fully bailed out by the Government and RBI. Failure of a scheduled commercial bank has a negative effect on entire banking system.

AU and IndusInd are well managed scheduled commercial banks and have been chosen after understanding their detailed financials and loan book quality. Investors could choose other scheduled commercial banks also based on their personal comfort and research but should avoid co-operative banks.

Some of the parameters for their safety are:

 Au Small Finance BankIndusInd Bank
Credit RatingAA-/StableAA+/Negative
Capital Adequacy  Ratio21.50%16.55%
Capitalization (INR Cr)28,03873,416
Price to Book Ratio*5.222.16
*A higher Price to Book ratio indicates that stock markets have a good view on the company

Above is a way to improve your 3.5% return to 7% in a low risk way.

What if we told you that with some short-term equity risk this 7% return can be enhanced to up to 10%. To know more about the same, read the second part of our blog

(https://blog.multipie.co/2021/01/22/how-to-enhance-your-7-returns-to-around-10/)on this subject provided you have appetite for short-term equity risk.

The path for 7% to 10% is riskier and more complex than from 3.5% to 7% but for people with some appetite for short-term equity risk, this should make sense.