Tagged: Debt

ATM :: Pick the best NPS funds

Babar Zaidi | May 8, 2017, 03.15 AM IST | Times of India


Though it was thrown open to the public eight years ago, investors started showing interest in the National Pension System (NPS) only two years ago. Almost 80% of the 4.39 lakh voluntary subscribers joined the scheme only in the past two years. Also, 75% of the 5.85 lakh corporate sector investors joined NPS in the past four years. Clearly, these investors have been attracted by the tax benefits offered on the scheme. Four years ago, it was announced that up to 10% of the basic salary put in the NPS would be tax free. The benefit under Section 80CCD(2d) led to a jump in the corporate NPS registrations. The number of subscribers shot up 83%: from 1.43 lakh in 2012-13 to 2.62 lakh in 2013-14.

Two years ago, the government announced an additional tax deduction of `50,000 under Sec 80CCD(1b). The number of voluntary contributors shot up 148% from 86,774 to 2.15 lakh. It turned into a deluge after the 2016 Budget made 40% of the NPS corpus tax free, with the number of subscribers in the unorganised sector more than doubling to 4.39 lakh. This indicates that tax savings, define the flow of investments in India. However, many investors are unable to decide which pension fund they should invest in. The problem is further compounded by the fact that the NPS investments are spread across 2-3 fund classes.

So, we studied the blended returns of four different combinations of the equity, corporate debt and gilt funds. Ultrasafe investors are assumed to have put 60% in gilt funds, 40% in corporate bond funds and nothing in equity funds. A conservative investor would put 20% in stocks, 30% in corporate bonds and 50% in gilts. A balanced allocation would put 33.3% in each class of funds, while an aggressive investor would invest the maximum 50% in the equity fund, 30% in corporate bonds and 20% in gilts.

Ultra safe investors
Bond funds of the NPS have generated over 12% returns in the past one year, but the performance has not been good in recent months. The average G class gilt fund of the NPS has given 0.55% returns in the past six months. The change in the RBI stance on interest rates pushed up bond yields significantly in February, which led to a sharp decline in bond fund NAVs.

Before they hit a speed bump, gilt and corporate bond funds had been on a roll. Rate cuts in 2015-16 were followed by demonetisation, which boosted the returns of gilt and corporate bond funds. Risk-averse investors who stayed away from equity funds and put their corpus in gilt and corporate bond funds have earned rich rewards.

Unsurprisingly, the LIC Pension Fund is the best performing pension fund for this allocation. “Team LIC has rich experience in the bond market and is perhaps the best suited to handle bond funds,” says a financial planner.

The gilt funds of NPS usually invest in long-term bonds and are therefore very sensitive to interest rate changes. Going forward, the returns from gilt and corporate bond funds will be muted compared to the high returns in the past.

Conservative investors
In the long term, a 100% debt allocation is unlikely to beat inflation. This is why financial planners advise that at least some portion of the retirement corpus should be deployed in equities. Conservative investors in the NPS, who put 20% in equity funds and the rest in debt funds, have also earned good returns. Though the short-term performance has been pulled down by the debt portion, the medium- and long-term performances are quite attractive.

Here too, LIC Pension Fund is the best performer because 80% of the corpus is in debt. It has generated SIP returns of 10.25% in the past 3 years. NPS funds for government employees also follow a conservative allocation, with a 15% cap on equity exposure.

These funds have also done fairly well, beating the 100% debt-based EPF by almost 200-225 basis points in the past five years. Incidentally, the LIC Pension Fund for Central Government employees is the best performer in that category. Debt-oriented hybrid mutual funds, also known as monthly income plans, have given similar returns.

However, this performance may not be sustained in future. The equity markets could correct and the debt investments might also give muted returns.

Balanced investors
Balanced investors who spread their investments equally across all three fund classes have done better than the ultra-safe and conservative investors. The twin rallies in bonds and equities have helped balanced portfolios churn out impressive returns. Though debt funds slipped in the short term, the spectacular performance of equity funds pulled up the overall returns. Reliance Capital Pension Fund is the best performer in the past six months with 4.03% returns, but it is Kotak Pension Fund that has delivered the most impressive numbers over the long term. Its three-year SIP returns are 10.39% while five-year SIP returns are 11.22%. For investors above 40, the balanced allocation closely mirrors the Moderate Lifecycle Fund. This fund puts 50% of the corpus in equities and reduces the equity exposure by 2% every year after the investor turns 35. By the age of 43, the allocation to equities is down to 34%. However, some financial planners argue that since retirement is still 15-16 years away, a 42-43-year olds should not reduce the equity exposure to 34-35%. But it is prudent to start reducing the risk in the portfolio as one grows older.

Aggressive investors
Aggressive investors, who put the maximum 50% in equity funds and the rest in gilt and corporate bond funds have earned the highest returns, with stock markets touching their all-time highs. Kotak Pension Fund gave 16.3% returns in the past year. The best performing UTI Retirement Solutions has given SIP returns of 11.78% in five years. Though equity exposure has been capped at 50%, young investors can put in up to 75% of the corpus in equities if they opt for the Aggressive Lifecycle Fund. It was introduced late last year, (along with a Conservative Lifecycle Fund that put only 25% in equities), and investors who opted for it earned an average 10.8% in the past 6 months.

But the equity allocation of the Aggressive Lifecycle Fund starts reducing by 4% after the investor turns 35. The reduction slows down to 3% a year after he turns 45. Even so, by the late 40s, his allocation to equities is not very different from the Moderate Lifecycle Fund. Critics say investors should be allowed to invest more in equities if they want.

Source: https://goo.gl/oUp9FP

ATM :: How to save and invest for your child’s education

By Sanket Dhanorkar, ET Bureau | 25 Apr, 2016, 08.00AM IST | Economic Times


The class of 2018 of the Indian Institute of Management-Ahmedabad will pay Rs 19.5 lakh for the two-year course. This is 400% higher than what the premier B-school charged in 2007. If the fees of the two-year management course continues to rise by an average 20% every year, it will cost roughly Rs 95 lakh in 2025.

Even undergraduate courses have not been spared. The tuition fee for engineering courses in the Indian Institute of Technology (IIT) has been hiked from Rs 90,000 to Rs 2 lakh per annum. This is just the tuition fee—the total cost is much higher. At an average running inflation rate of 10%, a four-year engineering course that costs Rs 8 lakh today is likely to set you back by Rs 17 lakh in another eight years’ time.

By 2030, the same would cost more than Rs 30 lakh. If you have not planned well, you could get a rude shock, falling way short of the required corpus when your kid is ready for college. In fact, for engineering and medical aspirants, the costs start even while the student is in high school. Coaching institutes charge anywhere between Rs 80,000-1 lakh a year for preparing the student for the entrance exam.

This sharp spike in fees is a wakeup call for parents saving for the higher education of their children. “Higher education costs have the highest inflation rates in the country. Parents need to realise it is going to be an expensive affair,” asserts Nitin Vyakaranam, CEO, Arthayantra.

This week’s cover story is aimed at parents who are saving for their children’s education. The investment options before them will depend on the age of the child. If the child is 3-4 years old, the investment choices and strategy will be different than for a parent whose child is 15-16 years old. Our story lists the most appropriate investment options for three broad age groups and the strategies to be followed at each stage. Choose the one that fits your situation to achieve your dreams for your child’s higher education.

How to save and invest for your child's education

Higher education costs may be rising at a fast clip, but Delhi-based Balbir Kaur is not perturbed by the projections of future costs. Balbir and her husband Puneet are saving for their son Jivvraj’s higher education. They started small last year with SIPs totalling Rs 5,000 in three mid-cap equity funds.

If they continue with that amount and their funds earn 12% a year, the couple would have roughly Rs 20 lakh by the time 4-year-old Jivvraj is ready for college in 2029. But Balbir has a neat strategy in place. “From this year, I have increased my SIP amount to Rs 10,000 a month. We plan to keep increasing this every year as our income goes up,” she says. If they hike the SIP amount by 20% every year, they will accumulate over Rs 1 crore in 13 years.

How to save and invest for your child's education

The benefits of an early start cannot be stressed enough when you are saving for a long-term goal. If your child is 3-4 years old, you have a good 13-14 years to save. Starting early helps you amass larger sums that may not be possible later in life. Tanwir Alam, MD, Fincart, points out, “The multiplier effect in the power of compounding comes from the investing time horizon; longer time horizons have a higher multiplier effect.”

Starting early also put lesser burden on your finances because it requires a smaller outflow. For instance, if your target is Rs 25 lakh, you need to save only Rs 5,004 a month if you start now. But if you wait for six years, you will have to invest Rs 9,195 a month to reach the target. Wait for three more years and the required amount jumps to Rs 23,875. Worse, you may not be able to invest in certain assets if the time horizon is too short. “If you delay investing, not only do you have to invest a higher amount every month, but it also reduces your ability to take risks,” says Vidya Bala, Head-Mutual Fund Research, FundsIndia.

How to save and invest for your child's education

The investment strategy changes if your child is a little older. Since you have only 5-9 years to save, the risk will have to be lowered. The ideal asset mix at this stage is 50% in stocks and 50% in debt. Instead of equity funds that invest the entire corpus in stocks, go for balanced funds that invest in a mix of stocks and bonds.

If your risk appetite is lower, monthly income plans (MIPs) from mutual funds can be a good alternative. These funds put only 15-20% of their corpus in equities and are therefore less volatile than equity or balanced funds. However, the returns are also lower than those of equity funds. In the past five years, equity funds have delivered compounded annual returns of almost 12%, while balanced funds have given 10.5% and MIPs have given around 8.85%. Investors should also note that the returns from equity and balanced funds are tax free after a year, while the gains from MIPs are taxed at 20% after indexation benefit.

How to save and invest for your child's education

For the debt portion, start a recurring deposit that would mature around the time your child is scheduled to apply for college. If you are in the highest 30% tax bracket, avoid recurring deposits and start an SIP in a short-term debt fund. These funds will give nearly the same returns as fixed deposits but are more tax efficient if the holding period is over three years.

It is also important to review the progress of your investment plan. “You should check every year if you need to step up your contribution towards the higher education kitty,” says Bala. “At times, you may put in a lump sum investment even if you have a SIP running.” Keep monitoring the cost of education on a yearly basis and accordingly adjust your investment requirement.

How to save and invest for your child's education

For parents of teenaged children, the investment strategy should focus on capital protection. With the goal barely 1-4 years away, you cannot afford to take risks with the money accumulated for your child’s education. The equity exposure at this stage should not be more than 10-15%. Kolkata-based Sanat Bharadwaj started investing in a mix of mutual funds and bank deposits for his son Siddhant’s college education almost 12 years ago. But now that the goal is just one year away, he has shifted 75% of the corpus to the safety of a bank deposit.

This shift from growth to capital protection is critical. The 3-4 percentage points that equity investments can potentially give is not worth the risk. A sudden downturn in the equity markets can reduce your corpus by 5-6% and upset your plans. “As you come closer to your target, you should stop SIPs in equity funds and shift to a short-term debt fund,” says Kalpesh Ashar, CFP, Full Circle Financial Planners & Advisors.

How to save and invest for your child's education

As mentioned earlier, the cost of higher education is shooting up. Many parents who started late or chose the wrong investment vehicles may find themselves woefully short of the target. If you face a shortfall, don’t be tempted to dip into your retirement corpus to fill the gap. This is a mistake. “Your retirement should be given priority over your kids’ education,” says Rohit Shah, CEO of Getting You Rich. Instead, you should take an education loan with the child as a co-borrower.

Apart from keeping your retirement savings intact, it will inculcate a savings discipline in your child after she takes up a job. The repayment starts after a 6-12 month moratorium when she completes her education. Banks offer loans of up to Rs 20 lakh for courses in Indian institutes. If your child is keen on a foreign degree, it would require a larger corpus. While banks are willing to lend up to Rs 1.5 crore for foreign courses, they insist on part funding in the form of scholarship or assistance.

How to save and invest for your child's education

When saving for your child’s education, do remember that the whole fianncial plan depends on regular contributions by you. But what if something untoward happens to you? The entire plan can crash. The only way to guard against this is by taking adequate life insurance. A term plan does not cost too much. For a 30-35 year old person, a cover of Rs 1 crore will cost barely Rs 10,000-12,000 per year. That is too small a price for something that safeguards your biggest dream.

Source : http://goo.gl/uTf5qh

ATM :: Best ways to use your bonus

Chandralekha Mukerji | Apr 25, 2016, 05.13 AM IST | Times of India


It is the time for annual appraisal letters and the bonus. Many of you might have got your tax refunds too.

While you may be happy to have some extra cash, handling it can be tricky. You need to juggle multiple aims and concerns to maximize your yearly perk. Here are suggestions for getting the most from that extra money .

OPTION 1: Reduce your debt burden
Before you start investing your surplus, pay off your debt. It could be outstanding credit card payments, car loan, personal loan, etc. Start settling your debt in the order of interest rates. The ones with no tax benefits and higher interest cost should be paid off first. Loans that offer tax benefits should be the last on your list.

OPTION 2: Invest in National Pension Scheme (NPS)
Upto Rs. 50,000 invested in the NPS, under Section 80CCD (1b), can be claimed as deduction, over and above the Rs1.5 lakh investment deduction limit under Section 80C. At the highest tax bracket of 30%, this could mean a savings of Rs 15,000 on your next tax bill. Under NPS, it is mandatory to buy an annuity plan with 40% of the corpus at maturity . The remaining 60% can be withdrawn. The Finance Minister has made withdrawals up to 40% of the corpus tax exempt, adding to NPS’ appeal.

OPTION 3: Increase equity exposure
The Sensex has fallen around 12% in the past year, and this provides an opportunity for long-term buyers. You can invest your lump sum in a debt fund and use a systematic transfer plan to move the money into equity funds. You could also earmark this corpus for a goal that is 5-10 years away. For instance, you can use the money towards increasing your down payment for an asset purchase and reduce your future loan burden.

OPTION 4: Invest for your daughter
If your daughter is less than 10 years old, Sukanya Samriddhi Yojana (SSY) is the best debt option to invest in for her future. At 8.6% yearly compounded rate, this is among the highest paying small savings schemes. Investment in SSY is tax deductible under Section 80C, and you can invest up to Rs1.5 lakh per financial year. The principal invested, the interest accumulated and the payout are all tax-free. However, you have to stay invested till your child turns 21.

OPTION 5: Build corpus to buy a house
An extra Rs. 50,000 in tax break has been introduced for first-time home buyers where loan amount is less than Rs 35 lakh and the property’s worth is not more than Rs 50 lakh. Use the bonus to increase the size of your down payment. It will bring down your loan requirement, which means lower EMIs and, if it falls below Rs 35 lakh, there’s the extra tax benefit as well. Put the bonus in an income fund if purchase is less than a year away.

OPTION 6: Build an emergency corpus
If you do not have an emergency fund, you should use your bonus to build one.You should invest the money in highly liquid options such as short-term debt funds. The corpus will help you manage sudden, unplanned expenses.

Source : http://goo.gl/QPXcFx

ATM :: Financial planning in new year: Start it now

Don’t tinker with your long-term investment plan. But it is always better to make some critical changes, based on new tax laws and instruments
Sanjay Kumar Singh | April 3, 2016 Last Updated at 22:10 IST | Business Standard


The start of a new financial year is a good time to review your financial plan and take stock of where you stand in relation to your goals. If new goals have emerged, this is the time to make fresh investments for these. While having a steady approach is a virtue here, make some adjustments in the light of developments that have occurred over the past year.

Equity funds
Large-cap funds have fared worse than mid-cap and small-cap ones over the past one year (see table). Over this period at least, the conventional wisdom that large-cap funds tend to be more resilient than mid-cap and small-cap ones in a declining market was overturned. Nilesh Shah, managing director, Kotak Mahindra AMC, offers three reasons. “For the bulk of the previous year, FIIs were sellers of large-cap stocks, whereas domestic institutional investors (DIIs) were buyers of mid- and small-caps. Large-cap stocks are also more linked to global sectors like metal and oil, whereas mid- and small-caps are linked to domestic sectors. The latter has done better than the former, leading to stronger performance by mid- and small-cap stocks. Large-cap stocks’ earning growth decelerated or remained subdued throughout last year while mid- and small-caps delivered better growth,” he says.

Despite last year’s anomalous performance, investors should continue to have the bulk of their core portfolio, 70-75 per cent, in large-cap funds for stability, and only 20-25 per cent in mid-cap and small-cap funds. Large-caps could also fare better in the near future. Says Ashish Shankar, head of investment advisory, Motilal Oswal Private Wealth Management: “IT, pharma and private banks, whose earnings have been growing, will continue to do so. Public sector banks and commodity companies, whose earnings have been bleeding, will not bleed as much. Many might even turn profitable. FII flows turned positive this month and FIIs prefer large-caps. With the US Fed saying it won’t hike interest rates aggressively, global liquidity should improve. If FII flows continue to be stable, large-caps should do better.” Valuations of large-caps are also more attractive.

Financial planning in new year: Start it now

Debt funds
Among debt funds, the category average return of income funds and dynamic bond funds was lower than that of short-term, ultra short-term and liquid funds (see table). Explains Shah: “Last year, while Reserve Bank of India (RBI) cut policy rates, market yields didn’t soften as much. The yield curve became steeper. The short end of the curve came down more than the long end, which is why shorter-term bonds did better than longer-term gilts.”

Stick to funds that invest in high-quality debt paper, in view of the worsening credit environment. Shankar suggests investing in triple ‘A’ corporate bond funds. “Today, you can build a triple ‘A’ corporate bond portfolio with an expected return of 8.5 per cent. Many of these have expense ratios of 40-50 basis points, so you can expect annual return of around eight per cent. If bond yields come down, you could end up with returns of 8.5-9 per cent. If you redeem in April 2019, you will get three indexation benefits, lowering the tax incidence considerably.” Investors who have invested in dynamic bond funds should hold on to these. “A rate cut is expected in April. Yields will drop and there may be a rally in the bond market,” says Arvind Rao, Certified Financial Planner (CFP), Arvind Rao Associates.


  • Fixed deposit rates from banks will be better than returns from the post office deposits in the new financial year
  • Choose your tenure first and then, do a comparison of bank fixed deposit rates before making the final choice
  • Invest in the yellow metal via gold bonds


  • If your liabilities have increased, revise term cover upward
  • Revise health cover every three-five years to deal with medical and lifestyle inflation
  • Revise sum assured on home insurance if you have added to household assets

Tax planning

  • Conservative investors should invest in PPF at the earliest
  • Those who can take some risk should bet on ELSS funds via SIP
  • Invest Rs 50,000 in NPS

Traditional fixed income
The recent cut in small savings has jolted conservative investors. The rates on these have been linked to the average 10-year bond yield for the past three months. These will be revised every quarter now, make them more volatile. “People who want to invest in debt and want sovereign security should continue to invest in Public Provident Fund (PPF). No other instrument gives a tax-free return of 8.1 per cent with government security,” says Rao.

As for time deposits, financial planner Arnav Pandya suggests, “From April, fixed deposits of banks will give better returns than those of the post office. Decide on your investment tenure, see which bank is offering the best rate for that tenure, and invest in its deposit.” Lock into current rates fast, as even banks are expected to cut their deposit rates.

Tax-free bonds are another good option. Nabard’s recent issue carried a coupon of 7.29 per cent for 10 years and 7.64 per cent for 15 years. Beside getting tax-free income, investors stand to get the benefit of capital appreciation if interest rates are cut.

“People who have some risk appetite may also look at debt mutual funds and fixed deposits of stable companies,” adds Rao.

The sharp run-up in gold prices over three months, owing to the rise in risk aversion globally, took most people by surprise. The sudden spurt emphasises the need to stay diversified and have a 10 per cent allocation to the yellow metal in your portfolio. However, instead of using gold Exchange-traded funds (ETFs), which carry an expense ratio of 0.75-1 per cent, invest via gold bonds, which offer an annual interest rate of 2.75 per cent. The Budget made gold bonds more attractive by exempting these from capital gains tax at redemption.

Tax planning
Start investing in tax-saving instruments from the beginning of the year. “Don’t leave tax planning for the end of the year, otherwise you may have to scramble for funds,” says financial planner Ankur Kapur of ankurkapur.in. For those with the money, Pandya suggests: “Invest the entire amount you need to in PPF before the April 5. That will take care of tax planning for the year and you will also earn interest on your investment.”

Investors with a higher risk appetite could start a Systematic Investment Plan (SIP) in an Equity Linked Savings Schemes (ELSS) fund, which can give higher returns. “If you invest early in the year via an SIP, you will reap the benefit of rupee cost averaging,” says Dinesh Rohira, founder and Chief Executive Officer, 5nance.com. Pankaj Mathpal, MD, Optima Money Managers suggests linking all tax-related investments to financial goals.

If you live in your parents’ house and pay rent to them to claim House Rent Allowance benefits, which is perfectly legal, get a rent agreement prepared.

With 40 per cent of the National Pension System (NPS) corpus having been made tax-free at withdrawal in this Budget (the entire corpus was taxed earlier), this has become more attractive. “Open an NPS account if you have not done so already and enjoy the additional tax deduction of Rs 50,000,” says Anil Rego, CEO & founder, Right Horizons. In view of the low returns from annuities, into which 60 per cent of the final corpus must be compulsorily invested, don’t invest more than Rs 50,000.

Tax deduction under Section 24 is available on the interest repaid on a home loan. “Buying a property to avail of the benefit is not advisable if the family has a primary residence,” says Rego.

While reviewing your financial plan, check if the term cover is adequate. A family’s insurance cover should be able to replace the breadwinner’s income stream. Financial planners take into account household expenses, goals like children’s education and marriage, and liabilities like home loans when deciding on a person’s insurance requirement. “If goals have changed or liabilities have increased, raise the amount of cover,” suggests Mathpal. Kapur says the premium rate is likely to be lower if you buy the term plan before your birthday.

Your health insurance cover might also need to be raised to take care of medical inflation. The same holds true for household insurance if you have reconstructed your house and the structure has become more expensive, or if you have added expensive assets. Rohira suggests buying add-on covers like accidental insurance and critical health insurance for comprehensive protection.

Source: http://goo.gl/iZ3KSx

ATM :: How to know if you need help with your debt

By Rishi Mehra | 20 Jan, 2016, 10.17AM IST | Economic Times


It is common to have debt in some form or the other and it is not bad to have them. However, there may come a time when runaway debt may cause problems and you may need professional help. A look at some scenarios that can indicate you need help to tackle your debt.

Caught in minimum payments – This is especially true for credit cards. When your credit card is generated there are two payment terms in that statement. One would be total amount due, while the other is the minimum amount, which is about 1 % of the principal amount outstanding. Minimum amount, being a small percentage of the total amount due, largely consists of interest and fees. This would mean if a person pays only the minimum amount outstanding on the card every month, it would take him decades to pay the entire amount. If you find yourself caught in the trap of minimum payments, it may be time to get professional help to get out of the situation.

Over reliance on credit cards – Being caught in the minimum payment trap may not be the only indicator that your finances may be off track. When debt increases, servicing it may lead to over reliance on your credit card. Having to use the credit card for daily expenses may be proof that your finances are not in shape. However, paying by credit card because you chose to and not because you have cash crunch is okay. Similarly, if you are making payments by credit cards to earn points, rewards or cash back, it makes perfect sense. However, when you start feeling your cash drying up and having to resort to credit cards to fund your monthly need, it may be time to talk to a financial advisor to get your finances in order.

Getting a loan to tackle debt – Unless it’s a credit card debt, or the new loan has substantially lower interest rates, taking a loan to settle another loan defeats the purpose. This can be very counterproductive, especially in cases when you increase the tenure of the loan to ensure you pay lower EMIs. The very idea of taking a loan should be to reduce your debt at the earliest and most frugal manner. By increasing the tenure you may be making things easier for yourself, but the interest outgo will be much higher. You also run the risk of being under debt for a longer time. If you have any debt, your first priority should be to pay them off at the earliest. If you find yourself in a situation where you think you may need a loan to settle another loan, it is best you consult an expert first to get an opinion.

Little or no savings – When your entire income goes on servicing your debt and catering to your daily expenses, it may be time to get help. When you start your career you may not be able to save immediately, but as you progress in life, you should start having some form of saving. What products appeal and suit you can differ, but it is imperative to save money, especially for periods after retirement. However, if your savings are negligible or you have no products that help you save money, you may be in a tricky situation. Get help on what products will be ideal for you and start saving diligently. Failure to do so may be painful when you grow old or during an emergency.

Difficulty in drawing or sticking to a budget – To build some sort of order and responsibility between what you earn, what you spend and what you need to set aside to cater to your debt, it is important to draw up a monthly budget. This helps you come to grips with the regular expenses every month and the special ones that may creep in. This also helps you realize when you are overspending and the need to put money aside as savings. When you have difficulty in drawing a monthly budget or sticking to it despite having one, you may need to get help to figure out ways to correct your situation.

Consistently overshoot payment deadlines – This may be an early and a potentially important indicator to know if you are having problem with your finances. If you miss payment deadlines on your bills because you do not have the requisite money and have to wait for your next payday, things may be tight for you. Servicing your existing debt may be taking its toll and you should get help to see what can be done to address your financial situation.

(The author is co-founder of deal4loans.com)

Source : http://goo.gl/vehEzi

ATM :: Do auto-switch funds give better returns?

While long-term returns of these funds may be subdued compared to diversified equity MFs, they are less volatile
Kayezad E. Adajania | Last Modified: Thu, Oct 15 2015. 08 19 PM IST | LiveMint


How do you make money in a market that goes up, say, 9% (2013) one year, then shoots up 30% (2014) in the next, and then comes crashing down the following year (by 2.42% so far this year)? The tried and tested way is to allocate assets properly; and invest in equities and debt as per your risk profile and market movements. But that’s easier said than done, isn’t it?

Let’s see how balanced funds—these invest across equities and debt—have performed. Between February 2014 and January 2015, the category returned 42% on an average. But since February 2015 till date, the category lost 1.12%.

But there’s another animal that does asset allocation more efficiently than balanced funds. They’re called dynamic asset allocation (AA) funds. As against balanced funds, which maintain a steady balance of equity and debt split, or even diversified equity funds, which always remain invested in equities, dynamic AA funds switch between equities and debt completely; they can invest zero to 100% in equities, depending on how markets behave. But does such dynamism help?

Version variety

Although all dynamic AA funds switch between equity and debt, not all behave the same way. Funds such as Franklin India Dynamic PE Ratio Fund of Funds (FDPE) and Principal Smart Equity Fund (PSEF) switch based on the price-equity ratio (P-E) of the CNX Nifty index. A P-E ratio, to put it simply, indicates if equity markets are overvalued or undervalued. Higher the P-E, more the markets are considered overvalued; and lower will be these funds’ equity allocation.

DSP BlackRock Dynamic Asset Allocation Fund (DBDA) looks at the yield gap formula. It is calculated by dividing the 10-year government security’s yield by earnings yield of Nifty. The numerator is a proxy for debt markets, and the denominator is a proxy for equity markets. So, the ratio looks at how cheap or expensive equities are when compared to debt markets. If the number is high, it means expected returns from equities are low, and so a higher allocation to debt is necessary.

While PSEF invests directly in equities and debt, funds such as FDPE and Kotak Asset Allocator Fund (KAAF) are fund of funds (FoFs); they invest in other MF schemes. All these FoFs invest in in-house schemes. In cases like FDPE, the schemes are sacrosanct. But schemes like KAAF have earmarked multiple schemes for their debt and equity allocation. “Once the quant model decides the equity-debt split, the fund management team decides which funds (large-cap, mid-cap and so on) the FoF will invest in,” said Lakshmi Iyer, chief investment officer (debt), Kotak Mahindra Asset Management Co. Ltd.

Have they delivered?

Of all the dynamic AA funds, only three have been around for a significant period of time— FDPE, launched in October 2003; PSEF and DHFL Pramerica Dynamic Asset Allocator Fund (DPDA), both launched in December 2010. In rising markets between February 2014 and January 2015, FDPE and DPDA returned 33.27% and 26.68%, respectively, finishing in the bottom quintile of the moderate allocation category, as per data provided by Morningstar, a global MF research firm and data tracker. Morningstar classifies all schemes where equity allocation is between 30% and 75% in this category.

Fortunes changed in 2015, when markets started to fall. KAAF (3.51%), DBDA (2.06%) and FDPE (1.30%) finished in the top quintile between February 2015 and 12 October 2015. But on an average, the category lost 1.12% in the same period.

“There is a myth that people come to mutual funds for high returns. If that were the case, then so much money wouldn’t be invested in fixed deposits. Investors want a good experience. Returns are important, but if a fund is able to give a solution, like rebalancing, and return decent money over long periods of time, investors are happy,” said Kanak Jain, mentor, Ask Circle Mutual Fund Round Table India, one of the country’s largest MF distributor association.

Most of the funds are new in this space so we don’t have long-term data on whether these models have worked or not.

For instance, DBDA, which uses the yield-gap model, was launched only in February 2014. The good news is that months after its equity allocation being static at about 12% since launch, it moved up to 29% in August earlier this year when markets sank sharply, and to about 38% in September, when the Reserve Bank of India cut interest rates.

“The formula did exactly what it was supposed to do, and at the right time,” said Ajit Menon, head-sales and co-head-marketing, DSP BlackRock Investment Managers Pvt. Ltd. Menon admitted it was unnerving that the formula didn’t budge all of last year and most part of this year as well. “But last year, the equity rally was a ‘hope’ rally; there wasn’t much change on the ground,” he said.

While long-term returns may be subdued as compared to that of diversified equity funds, these funds are less volatile. We looked at standard deviation, a measure of a fund’s volatility.

According to Morningstar, average standard deviation of moderate allocation, flexi-cap and large-cap funds together was 11.94, while that of all dynamic AA funds was between 1.95 and 7.19; which is among the lowest.

“The risk-return combinations are important. These funds help significantly reduce volatility in your portfolio,” said Janakiraman R., portfolio manager-Franklin Equity, Franklin Templeton Investments–India.

Mind the tax gap

One drawback that dynamic AA funds have is in terms of taxation. On account of being FoFs, they are classified as debt funds and taxed accordingly, even if they are equity-oriented.

If you sell your debt funds within three years, you pay taxes as per your income tax rates on your gains. The threshold to claim tax benefit on long-term capital gains is three years, and even then, long-term capital gains tax is 20% (with indexation benefits).

That’s one reason why KAAF changed its objective, in October 2014, from being just an equity FoF to one that dynamically allocates its money to debt and equity, based on a certain formula.

“Earlier, all our investments were going in equity funds and yet KAAF was considered a debt fund. A dynamic asset allocation model, therefore, is superior,” said Iyer, adding that an “unfavourable tax structure” has been one of the biggest impediments to this product becoming popular with investors.

Should you invest?

Not all financial planners recommend dynamic AA funds because they feel it is their prerogative to do their client’s asset allocation. But quite a few planners have warmed up to such funds.

Yogin Sabnis, managing director, VSK Financial Consultancy Services Ltd, is a fee-based planner who still manages a motley group of investors from his early days when he didn’t charge fees. Such investors, he explains, either don’t require much financial planning or hesitate to shift to paying fees. Such clients, he said, are advised to invest in dynamic AA funds. “I don’t recommend this product to my fee-based clients because I do their asset allocation. But if someone wants a one-off advice, this is one of the first recommendations because with these funds, even if the customer doesn’t consult an adviser, the fund automatically does the rebalancing,” said Sabnis.

Jain, who has systematic investment plans going on in some of these funds on behalf of two children, feels advisers and distributors should focus more on the long-term goals of clients and their servicing, and leave rebalancing to such funds. Added Janakiraman, “Usually, we do asset allocation only in extreme situations. We don’t do it all the time, which we are supposed to. These funds monitor asset allocation at all times.”

The category does not have many schemes. And the ones that are there, don’t have long-term track records. But the ones that come with a track record have largely worked so far. The yield gap model, for instance, shows promise though DBDA lacks a long-term track record.

It’s best to stick to larger fund houses and also with those that are FoFs, despite their inherent tax disadvantage. If the underlying funds come with a good track record, then the only thing you need to watch out for is the asset allocation model.

Source : http://goo.gl/dgFHiL

ATM :: Mutual Funds: Keeping an exit strategy ready is as crucial as making the investment

Written by Adhil Shetty | Published:Sep 18, 2015, 2:59 | Indian Express
The important factor in judging the performance of a mutual fund is the investment horizon. One needs to look at longer periods to assess the performance.


Investment literature is full of ‘how to buy’, ‘how to invest’, and ‘when to buy’ theories. However, very little focus, if at all, is given to the selling part of the investment cycle. After all, you make money only when you sell. This makes selling as important as making the investment, if not more.

There are four major aspects that help one decide when to sell your mutual funds.

Analyse the past returns of the mutual fund.

The performance of a mutual fund is the most important criteria of an investment decision. If the mutual fund does not perform well, it is time to sell. However, one should be realistic about assessing the performance. The most important way to judge a fund on its performance is to compare it with similar types of funds. For example, a midcap equity fund should be compared with other midcap equity funds. A sectoral fund from a fund house should be compared with other similar sector funds. Similarly, a bond fund or balanced fund should be judged against the performance of other bond funds or balanced funds.

The other important factor in judging the performance of a mutual fund is the investment horizon. One needs to look at longer periods to assess the performance. For example, many investors invest based on just the one-year performance of mutual funds. Even fund houses and brokers focus on the previous year’s performance. A fund’s supernormal returns in the previous year might have been supported by macro-economic factors that may not reoccur this year. A fund must be evaluated based on 5-10 years’ CAGR. Longer investment horizon minimises the impact of external factors and presents a better picture.

Study the market levels

When the market is at a high, it is time to liquidate an equity mutual fund. One can find out how sustainable future growth is by looking at the overall Price-to-Earning (PE) ratio of the market. PE ratio is a fairly good indicator of the market’s position.

A PE ratio of 22 or higher is a sign that market may not sustain its upward momentum for much longer.

At the same time, it is very difficult to say when the market will start falling from the high. Hence, instead of waiting for the market to touch its peak and get a few rupees more, one should make an exit. It is impossible to time the market.

Many fund houses offer dynamic funds that work on a similar principle. When the market is high, they reduce the equity holding and increase the bond holding. Similarly when market PE is low, the equity holding increases and bond holding decreases.

Monitor the interest rate before taking a decision on bond funds

Bond funds are funds that invest in fixed income securities such as government bonds, corporate bonds, and bank deposit schemes. Return on bond funds is inversely proportional to the prevailing interest rate. When the rates go down, the bonds prices appreciate and vice versa. Hence, in cases where the interest rates have already bottomed out, one should redeem bond funds and find other investment choices unless one is very risk-averse.

Determine whether the portfolio still supports one’s investment needs

Over time, the portfolio may no more be right for one’s investment needs. This happens when the expectation from investment changes and the current mutual fund does not serve one’s purpose anymore. For example, suppose you had invested heavily in equity funds in your 30s. The investment may have given fabulous returns in your 40s too. However, is it wise to remain heavily invested in equity in your 40s? This is a question you have to answer, especially if you cannot afford to take much risk. Hence, this could be the time to sell a few of your equity mutual funds and divert the proceeds to debt or balanced funds.

Careful and systematic investments in mutual funds can yield high returns. However, one must be canny not just while selecting the right time and type of fund to invest in, but also while choosing the right time to exit the investment to get maximum benefits.

The writer is the founder and CEO of BankBazaar.com

Source: http://goo.gl/GeaxUA

ATM :: Stick with SIPs through markets’ ups & downs

K V Vardhan | Aug 11, 2015, 06.07 AM IST | Times of India


I’m 40 years old and work as an insurance adviser . I want to build a Rs 1 crore corpus through SIP in equity mutual funds over the next 20 years.Kindly guide me about how much I have to invest monthly and the type of funds I should invest in. –Sathish Kumar D, Chennai


The first step to wealth creation comes from planning and one needs to have the conviction to stick to the plan through the journey. Like the ups and downs associated with investing in the stock market, SIP investments using the mutual fund route is also expected to give you volatility . However, investors who have the conviction to remain invested and continue with their SIP investments through these ups and downs, are bound to achieve their financial goals.

In the past decade, the average yearly sensex return was 13.9%, while well performing mutual fund schemes have returned between 13.4% and 22.7%, and SIPs in the same funds returned between and 13.7% and 25.3%. Hence SIP ,a rupee cost averaging method in a volatile market, has the potential to deliver better return than lump sum investments.

Case 1: Let us considering you require of Rs 1 crore equivalent to today’s value, after 20 years.At 6% per annum rate of inflation, on an inflation-adjusted basis, after 20 years you will require approximately Rs 3.20 crore. To achieve this corpus size, you may consider investing Rs 35,000 per month in equity mutual fund SIPs with an expected annual return of 12%.Alternately , you can invest Rs 24,000 per month in mutual fund SIPs with an expected annual return of 15%. If we have to do asset allocation and create a financial plan for the above case with 70% of your investments going into equity funds and 30% nto debt funds, you may have o invest Rs 44,000 per month. In case you plan to have a 50%-50% ratio with equity and debt mu tual funds, you may have to invest Rs 50,000 per month.

Case 2: Let us considering you require of Rs 1 crore at the end of 20 years. In that case you may consider investing Rs 11,000 per month per month in equity mutual fund SIPs with an expected annual return of 12%. Alternately , you can consider investing Rs 7,500 per month in equity mutual fund SIPs with an expected annual return of 15%. With asset allocation of 70% equity and 30% debt you may have to invest Rs 14,000 per month, while with a 50%-50% equity and debt allocation, you have to invest Rs 15,500 per month.

Here, we assume that annually SIPs in debt funds would return 6% post tax, and equity returns are expected at 12%, also post tax. For an equity investor who is aggressive and has higher risk taking ability , 40% of the corpus should be in midand small-cap funds, 30% in multi-cap funds and the balance in large cap investments.For moderate risk taking ability, the combination should be 30% in midand small-cap funds, 35% in multi-cap funds and the balance in large cap investments. And for a conservative investor, with low risk-taking ability, it should be 20% in midand small-cap funds, 30% multicap funds and the balance in large cap investments.

K V Vardhan is CEO, Ultimate Wealth Managers, Bengaluru

Source : http://goo.gl/FILYlm

ATM :: Six best investment avenues in the current scenario

By Sanjeev Sinha | 7 Jul, 2015, 12.38PM IST | ECONOMICTIMES.COM


Markets in 2014-2015 have been rife with fluctuations. The run up to the elections and its aftermath were great for the stock market. There was new optimism about the economy, industry, and business. Oil prices went down and inflation subsided.

A year later, there are prospects of less than normal monsoon, a world economy belabouring its way to marginal growth, and industrial production showing sluggish to incrementally better performance month by month. Markets too have reacted similarly and have gone down by around 6% from their record high hit in March. In such a situation, investors tend to get confused about how and where to invest. In this article, we will look at 6 avenues of investment that can still give you good returns. Here they go:

1. Equity mutual funds (especially comprising blue chip companies)

Though the market has gone down, there is not much downside in blue chip companies and mutual funds comprising of these companies. The government is clear about manufacturing and is providing faster clearances for factories to be set up, production to start, and energy to be given to the industry.

“This may take a few months to operationalize, but the trend is clear. The projects that were in limbo for the last couple of years have started getting approved. This will create significant momentum and wealth for large firms and their investors. Blue chip equity funds are offered by HDFC Mutual Fund, Birla Sun Life, Reliance and many more,” says Adhil Shetty, founder & CEO of BankBazaar.com.

2. Balanced fund (funds made up of equity and debt)

Many investors are not comfortable with pure equity funds because of high risk associated with the fund. Hence, they look for an avenue that is less risky and also takes advantage of market movements partially. Balanced fund is a good choice for such investors.

“Balanced funds invest a part in equity and a part in debt. The equity part moves up and down as per the market and the companies they represent, while the debt part is relatively consistent in returns. The overall return is determined by the weighted average return of equity part and debt part,” informs Shetty.

3. EPF (Employee Provident Fund) and PPF (Public Provident Fund)

EPF and PPF are risk-free investments offering returns of about 9%. There are many advantages of investing in EPF and PPF. They are risk free because they are backed by the Government of India. Moreover, the interest earned is also tax free. You can also save taxes on PPF and EPF investment, subjected to the limit of Rs 1.5 lakh under 80C.

Generally, EPF is done by your employer, and you and your employer both pay equal amount towards your EPF account.

Apart from the post office, PPF account can now be opened in any bank. Walk down to the nearest branch of BoI, Bank of Baroda, ICICI Bank or any other bank to open your PPF account. The maximum amount that can be invested in PPF in a year is Rs 1,50,000. This can be done in a maximum of 12 deposits in a year, and not necessarily each month. The minimum amount required is Rs 500. PPF has a tenure of 15 years, though you can withdraw it before 15 years, subject to certain conditions.

According to financial experts, conservative investors can still bank on EPF for creating their retirement corpus, but for investors with low or moderate risk profile and limited or no other retirement benefits, PPF currently appears to be the best option as returns are to a large extent guaranteed and the withdrawals after the mandatory holding period are tax-free.

4. Bonds offered by the Government and Corporates

Bonds are another avenue that is risk free. The bonds offered by the government are risk free because the government usually doesn’t default on the payment. If everything fails, they can always print new notes and pay the bond holder (at the cost of inflation though).

As far as corporate bonds are concerned, bonds offered by large firms with sound business models are preferable. There is a small risk in corporate bonds in case the company goes bankrupt. However, bonds by Tata, Mahindra, Reliance, L&T etc. are almost risk free.

“The best way to identify a good bond offering is to look at the rating. All the bonds offerings have to go through a mandatory rating by a rating agency. The rating agency decides the rating based on the company’s ability to honour its obligations to bondholders, i.e. whether it can pay the interest and principal on time. A high rating is an indication that the risk is low,” says Shetty.

5. Real Estate

For the last couple of years, the real estate sector has disappointed investors. The market is not showing any discernible trend in this sector. Additionally, the real estate sector is mired in many controversies, corruption, and injurious practices. However, the main contributing reason for the prevailing widespread scepticism was low economic growth and even lower expectation of future growth.

However, with the new government focused on economic growth, the real estate sector will bounce with the first hint of an uptick in growth. Moreover, projects such as smart cities will provide ample opportunities to investors in the real estate sector. But investors should be careful of a few companies which are embroiled in controversies and legal battles with the government and consumers.

6. Foreign or overseas mutual fund

This is another area that investors usually don’t consider due to minimal or zero awareness about foreign companies and markets. However, many mutual fund companies such as DSP Black Rock, Franklin Templeton and others offer mutual funds focused on foreign countries.

These funds invest in many countries based on the nature of the fund. For example, an emerging market fund may invest in China, Indonesia, Vietnam and Brazil, while a fund focused on oil exploration may invest in US shale oil companies, Saudi oil field companies, among others.

A brief overview of returns offered by the above-mentioned entities:

Six best investment avenues in the current scenario
Important points to consider

While investing is important, assessing your investment periodically is vital for your wealth. Even if you don’t check stock prices or mutual fund NAVs every week or every month, it is vital to take a comprehensive look at all your investments every 6 months or a year. During such assessments, it is important to avoid impulsive decisions to sell or buy. The purpose of assessing your investment is to find new avenues of investment and discard an existing one if things have gone bad.

“You also need to know a few key parameters of any asset that you want to invest in. For example, if you are considering a particular mutual fund, look for annualized returns for the last 5 – 10 years instead of just the previous year’s returns. Look for the expense ratio, which is the percentage of investment charged to you. Look for sectors and companies where the mutual fund is investing. All these data is available on any of the numerous financial websites that give out such information,” says the CEO of BankBazaar.com.

Finally, don’t wait for the right time. The most important thing in investing is to start it, no matter how small your investment is. Begin with a small amount and grow the investment, thereby gaining in experience about the markets.


ATM :: How to avoid debt traps: All you wanted to know

By: CreditVidya | April 8, 2015 9:12 am | Financial Express
Not all loans are bad. If the loan is used to create an asset and is productive in nature, it can be termed as a good loan. Home, business and educational loans fall in this category.

On the other hand, if the loan creates no asset or is of very little productive use, it can be termed as a bad loan. A personal loan to go on a vacation or a heavy credit card swipe to buy an asset that would depreciate and an auto loan will fall in the bad loan category. They can create debt traps.

Lack of financial knowledge and discipline goes a long way in preventing people from getting into debt traps. It is important to educate people on loans, bad Cibil credit score and other issues in the personal finance space. While personal loan or any other form of non-collateral loan seem to be the most convenient option, not everyone knows the gravity of the problems one might get into.

The following table explains the different types of loans and also weighs your pros and cons:

Debt Trap
Here are top good practices to manage your finances better:

Save and then splurge: ‘Pay yourself first’, in other words, make the habit of saving a part of your income before spending. This goes a long way in keeping debts at bay.

Budget:If you go into debt, it’s an indication that you are living beyond your means. Without planning, it can be hard to know just when you are overspending. Drafting a budget for short, medium and long term expenses and tracking it allows you to see in black-and-white where your money goes.  Trim your expenses so that the total outflow is less than the income.

Use debit cards: Debit cards are tied directly to your bank account. If you don’t have money you can’t spend on your debit card. Since no credit is extended, you can’t go into debt using your debit card.

Pay off balances monthly: One way to avoid overcharging on your credit card is to allocate money from your bank account before you make any charges. As soon as the charges hit, use the reserved money to pay them off.

Invest smartly: A well researched investment can yield great returns. Keeping abreast with the latest happenings in the financial world also helps one to make smart investments.

By following the above steps, people with bad financial habits can get out of debt traps. By constantly educating oneself and by inculcating financial discipline one can successfully prevent falling into debt.

Source : http://goo.gl/WkpvF9

ATM :: Use mutual funds to diversify with small amounts

TNN | Mar 23, 2015, 03.17PM IST | Times of India
Investors and even some of the financial advisers often talk of a mutual fund as an investment product, as if that is an asset class in itself. They hardly realize the fact that mutual fund schemes are actually tools to invest in several other asset classes. So on a standalone basis, a mutual fund scheme is never an asset class.

For example, shares are an asset class. So are bonds, gold, real estate, commodities, etc. Now if you want to invest in shares, you can directly invest in the market through a broker and after opening a demat account. An almost similar process is followed if you want to invest in bonds and commodities. And different approaches are taken when one wants to invest in gold or property.

While investing in stocks, rather than investing directly through a broker, you can also invest through the mutual fund route by buying units of equity mutual funds.

Similarly, to invest in bonds and other debt instruments, you can buy units of debt funds, and for gold you can buy into gold funds or gold exchange traded funds (ETFs). Even if you want the liquidity that cash offers, you can avail of the same by investing in liquid funds or ultra short-term funds. Although not yet available in India, but in most of the developed countries you can also invest in real estate and commodities through the mutual fund route.

So you can see that a mutual fund scheme can work as a bridge to investing in various asset classes. This is because such a scheme is more like a pass-through vehicle for your investment in an asset class, but that scheme itself is not an independent asset. This characteristic also brings in flexibility for investor to diversify even with a small amount of money. “Mutual funds offer simplicity, affordability, risk diversification along with professional management,” says Sanjay Mehta, associate financial planner, Sanjay Mehta Financial Services.

In short, according to Mehta, for cash you can use liquid and/or ultra short-term funds which are very close to bank deposits. For investing in debt, you can use medium- and long-term debt funds, income funds or fixed maturity plans. They give you a steady income and tax efficiency too. For investing in gold, you can go through a gold fund of funds or take the ETF route. And for investing in stocks, depending upon your risk-taking ability, you can invest in diversified equity funds, or large-, mid- or a small-cap fund and also in sectoral funds or index ETFs.

Financial planners and advisers also say that other than just being an investment vehicle, mutual funds also offer a variety and choice to investors. As an investor, one can choose to invest his/ her money in funds from over thousands of funds managed by about 40 fund houses. “When an investor chooses to go with equities, he/she can opt for a growth fund or a value fund or even a fund which combines both. For those who prefer dividends, he/she can select income funds. The opportunities are limitless,” says a financial planner.

One can also use mutual fund schemes for asset allocation. For example, allocation funds include equity funds and debt funds simultaneously by investing in equity and fixed income instruments in different proportions. And since Indian investors have a fascination for gold, fund houses have smartly tapped into this long-standing fascination by introducing funds that can simultaneously invest in equity, fixed income and gold (via the ETF route), the financial planner added. Although here the fund manager decides in what proportion the allocations would be made to various assets while remaining within the broad contours of the scheme, “in effect, such funds are a one-stop shop for asset allocation”, the financial planner says.

The last but not the least is the tax efficiency that mutual funds offer. If one invests in debt instruments directly, he/ she may not enjoy all the tax benefits that can (indirectly) come to him/her if he/she takes the mutual fund route. In equity funds, however, the scope for tax advantage is limited compared to direct investing.

Source : http://goo.gl/bzbkl3

ATM :: Best ways to invest for your child’s education

Sanjay Kumar Singh, TNN | Feb 2, 2015, 06.42AM IST | Times of India
Inflation may be down but a major expense of the average Indian household is growing at a fast clip. The cost of higher education is already high and rising at 10-12% a year. Children’s education is one of the biggest cash outflows that families must plan for. A four-year engineering course costs roughly `6 lakh right now.In six years, the cost is likely to touch `12 lakh. By 2027, it would cost `24 lakh to get an engineering degree.

Lifestyle inflation, too, has affected the cost of children’s education. “As your standard of living rises, it affects the decision about where you send your children for higher education,” says Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisors.

The question worrying Indian parents is: will they be able to fund their children’s higher education? They can, if they plan ahead and take the right steps. We look at the challenges parents face while saving for their child’s education and how they can be overcome.

Be an early bird

One obvious solution is to start saving early. The individual will not only be able to amass a larger sum, but the money will also gain from the power of compounding. A corpus of `1 crore may seem daunting, but it’s possible to save this amount with an SIP of `9,000 for 18 years in an equity fund that gives a 15% return. “Since the rate of education inflation is so high, you need compounding to work for you over a longer period,” says Vidya Bala, Head of Research at Fundsindia.com.

A delayed start not only yields a smaller corpus but can also jeopardise other financial goals. If you start investing for your child’s education in your 40s, you are likely to fall short of the required amount. Often, parents dip into their retirement savings to fill the gap, but this can be a risky move.

Choose the right option

Parents must also invest right to get optimum resturns. Equity mutual funds, for instance, have delivered average annualised returns of 16.5% in the past 10 years. However, equity investment is not everybody’s cup of tea. This year’s DSP BlackRock Investor Pulse survey shows that though Indians have a high propensity to save and invest, they still seek safety. Almost 52% of the 1,500 respondents said they wanted guaranteed returns from investments.

However, if you have 15-18 years left before your child starts college, equity funds should be the preferred invest ment for you. Over such a long period, the volatility in returns is flattened out.If you have the risk appetite, your allocation to equities can be as high as 75%. The balance 25-30% of the portfolio can be in safer options like the PPF, bank deposits and tax-free bonds.

Play it safe in the short term

If you have a time horizon of less than five years, you will have to rely primarily on fixed income instruments, which are likely to offer a lower rate of return. However, these offer guaranteed returns and safety of capital. In the short term, these factors become very important.

Investment Options Available
How much time you have will define your investments and asset allocation
Age of Child Time Available Instruments to choose from Cost of Education Investment Required
0 – 2 years Over 15 years 1. Diversified Equity Funds 2. Low cost ULIPS 3. Stocks MBA Degree to cost 75lacs in 2033 SIP of 9800 in equity fund will grow to 75lacs
3 – 6 years 12 – 15 years 1. Diversified Equity Funds 2. Low cost ULIPS 3. Stocks Medical course to cost 35lacs in 2030 SIP of 7550 in equity fund will grow to 38lacs
7 – 10 years 8 – 11 years 1. Diversified Equity Funds 2. Equity oriented balanced funds 3. Debt Oriented balanced funds Law degree to cost 9.3lacs in 2023 SIP of 6300 in balanced fund will grow to 9.3lacs
11 – 14 years 4 – 7 years 1. Debt Oriented balanced funds 2. Debt funds 3. Recurring Deposit Engineering course to cost 8.8lacs in 2020 Recurring Deposit of 11600 in balanced fund will grow to 8.8lacs
Over 15 years Less than 3 years 1. Recurring Deposits 2. Debt funds 3. MIP funds MBA Degree to cost 20lacs in 2018 SIP of 48500 in debt fund will grow to 9.3lacs

Review the portfolio

Once your portfolio is in place, you need to review it at least once a year.You should also check whether the amount required for meeting the goal has changed. “Education goal has two components: tuition fee and cost of living. Any of these could rise faster than anticipated. You need to find out whether the 12% inflation rate that you have assumed is realistic,” says Dhawan.

Next, check whether your portfolio is on track to meet the goal. Bala suggests using step-up SIPs. “Raise the amount invested in line with your salary increments,” she suggests.

If a fund is lagging, do not sell it immediately. Stop your SIP in that fund and start it in another better performing fund. Watch the performance of the laggard for 3-4 quarters and only then decide to sell it. Rebalance your portfolio at the end of each year. Rebalancing essentially entails selling an outperforming asset and investing the proceeds in one that is underperforming. By doing so, you curtail the risk that your portfolio could face due to over-exposure to a particular asset class.

Approaching the goal The investment process is never static.We have suggested equity funds for those with an investment horizon of over 12-15 years. However, five years before your goal, you should start shifting money out of equities to the safety of debt. Start a systematic transfer plan from your equity fund to a short-term debt fund (average maturity of 1-3 years).

Keep in mind that the date of your child’s admission to college is fixed.You can’t let a downturn in the stock markets jeopardize your child’s college education.

Source : http://goo.gl/RnnnlC

Interviews :: ‘India to witness lower rate cycle, equities to benefit’

January 22, 2015 11:52 pm | Financial Express

Despite equity markets touching new high valuations of many stocks turning expensive, A Balasubramanian, CEO, Birla Sun Life Asset Management Company (AMC) says that one should stay invested in equities and even conservative investors should have some exposure to equity mutual funds. In an interview with Chirag Madia, Balasubramanian also says India will enter a lower interest rate regime driven largely by falling inflation and fiscal consolidation. Excerpts:

We saw a surprise cut in interest rates recently by the Reserve Bank of India (RBI). What is your outlook on debt market? Do you think we may see a ‘secular bull run’ in debt funds going forward?

We believe that directionally we will see a lower interest rate regime driven largely by falling inflation and fiscal consolidation. As a result, the bond market will continue to do well and we stay bullish on actively managed debt funds. While one cannot call this as a secular bull run,it is for certain that we are in a good period in the interest rate regime.

What are your expectations from the next RBI policy?

Bond yields and bond derivatives do reflect a significant rate cut as we move forward. We believe RBI will cut rates in a phased manner, as there are too many moving variables to track including developments in the global economy. But macro variables are favourable now for a continuous rate cut.

Where do you think the benchmark bond yield, currently close to 7.7%, will settle?

Our house view on benchmark bond yields is positive. We see intermittent volatility and movement in the range of 7.35-7.85%.

What are the key risks for debt funds in 2015?

The first risk could be a lack of improvement in the fiscal situation, second is that crude prices again start rising. In the past few months we have seen a crude price high of $110 and a low of $45, so there are chances that it might spike going forward. I don’t think there will be any major impact of hike in interest rates in the US. If that happens we might see some minimal outflows from Indian markets. But overall I don’t see any major risks which can have a big negative impact on Indian debt funds going forward.

What is your advice to investors now? Should they start investing in long term bond funds?

Investors should continue to have large exposure to debt mutual funds as they offer better returns than bank fixed deposits over time. While it offers better tax adjusted return, liquidity of such investments is also far superior. Having said so, debt mutual funds capture the real market yields on a continuous basis to provide return to investors. In terms of asset allocation, even the most conservative investor should have some exposure to equity mutual funds. I don’t think this is a time to ignore equity as it is an asset class which will help investors beat inflation over the longer period. A lot of investors have invested in chit funds for high returns. I advise them not to make the same mistake, and invest instead in equity (mutual funds) and debt mutual funds.

Birla Sun Life MF is launching an equity fund known as Manufacturing Fund. What is the basis premise of this funds? What will be the investment strategy?

The focus of this fund is investing in companies that only cater to demand in India, especially where there is supply-demand gap. Contribution of the manufacturing sector globally is around 25-28% of gross domestic product (GDP), but in India the sector still contributes only 16% of GDP. The govt is looking at a contribution of 22-25% from the manufacturing sector to GDP over the next five years. Our investment strategy will be fundamentals driven, because most of the manufacturing investments are largely driven by their own balance sheet strength. We will adopt a bottom-up approach while picking stocks for this fund. We will follow multi-cap strategy, across market capitalisation and have a diversified portfolio. I think manufacturing as a theme is a continuous one. While there may be ups and downs in domestic manufacturing, as a base it is a very sustainable theme. Given its potential to generate employment, this sector has to get a boost from the government’s point of view. There are after all over 20-22 sectors which fall within the purview of manufacturing in India.

Do you think this fund will add value to investor’s portfolio?

Birla Sun Life Manufacturing Equity Fund is a diversified equity fund and can certainly add value to the investor’s portfolio. Any investor – existing or new, should have some equity exposure. This scheme gives investors a diversified portfolio with a focus solely on the manufacturing sector. The investment principle remains the same – delivering better returns than the index. With a strong focus on this robust, sustainable manufacturing theme, this scheme provides investors a fairly sound and attractive vehicle for long term wealth creation.

Source : http://goo.gl/B4DNKi

ATM :: Dual advantage

– Make equity and debt your big bets this investing season, says A. Balasubramanian
A. Balasubramanian | 12th Jan 2015 | The Telegraph India
The election results in May last year brought about a lot of change in the capital markets and India Inc’s expectations. The outlook towards India is now of hope and optimism, which not only drives everyone to deliver the best, but also helps to improve the situation. And whenever the hope of economic revival rises combined with optimism, equity as an asset class does well.

Ultimately, it is the consumer sentiment that fuels economic growth. This along with the focus on stepping up capital allocation towards building infrastructure helps to create opportunities for jobs, more demand for raw materials, increased labour activities and so on.

Such factors drive the profitability of companies operating in the market, which in turn improves the confidence of companies to either reward the shareholders or look at making fresh commitments to expand to the next level. India Inc today is at the cusp of such a level. I would imagine a phase of consolidation where we should prepare ourselves for greater growth as we move forward.

Mood upbeat

There is a widespread belief that Indian companies will do far better than the last few years. It’s generally being said India had grown despite the challenges. Now, with the focus back on reforms and their execution, there will be a greater need to believe in a strong outcome.

The probability of an earnings upgrade for Indian firms is very high. Under such circumstances, the markets remain firm with less volatility combined with higher predictability.

If government finances improve on the back of a moderation in inflation, the overall growth momentum will further get a fillip through monetary policy action in the form of interest rate cuts. In such a situation, it is necessary to allocate capital in various asset classes.

Asset watch

Just as companies allocate capital in various businesses on an ongoing basis, investors, too, have to look at allocation in various asset classes to generate better risk-adjusted returns on their investments.

One asset class that does badly in a rising economic growth and falling inflationary scenario is gold. Gold as an asset class does not carry any big merit to be part of the investment portfolio of investors. Any investment in this class needs to be made keeping in mind the future needs for specific purposes, such as marriage.

Real estate as an investment has delivered the best possible returns in the last decade or so. While the government looks to lift the economy, it may focus on a) increasing the supply of housing projects b) increasing the revenue to state government in the form of tax and stamp duty, and c) setting up a real estate regulator to bring in uniform treatment across the country. The government has to make investors look at this asset class more on a need basis rather than only as an investment opportunity.

This leaves two other asset classes that can be made part of the investment portfolio – equity and fixed income. It is believed that both the asset class should do well in the future.

The earnings of companies are likely to rise on the basis of an improved economic condition, both globally and locally. Moreover, efforts to control inflation will result in the lowering of interest rates. This obviously makes a compelling case for investing in both these asset classes.

The minimum tenure for long-term capital gains has been extended from one to three years (other than equity-oriented funds) in the Union budget for 2014-15. This means investors will have to remain invested for at least three years if they want the benefit of lower tax on long-term capital gains. This change in the tax rule has changed the outlook towards these asset classes.

While one needs to look at both debt and equity asset class in the portfolio, the lower exposure to equity needs to be corrected by increasing the allocation to diversified equity mutual fund schemes.

Diversify to gain

Most of the time, investors have questions or confusion about how to go about choosing a scheme.

One should remember that no one asset class performs in a linear fashion, that is in a single straight upward graph. Taking into account the non-linear performance of various equity products, one needs to have an exposure to large cap, multi-cap, mid-cap and balanced funds.

Each of these categories focuses on a certain segment of the market and all of them are poised to deliver long-term return to shareholders/investors. Therefore, one should invest in a basket of schemes, either within the same mutual fund or across multiple schemes.

In the case of fixed income, given the interest rate view, you may consider open-ended fixed income schemes, from short-term to medium-term funds. The provision of extending the minimum holding period for capital gain benefit on debt funds to three years from one year has brought debt mutual fund schemes on a par with traditional instruments such as fixed deposits.

Hence, it makes sense to increase the allocation towards open-ended fixed income schemes, such as liquid plus, short and medium-term plan and dynamic funds for short-term goals.

Debates around valuation, should I invest now or later, should I invest in instalments or in lumpsum, can be addressed by first making a beginning and then continuing the discipline of investing at all periods.

The overall outlook towards better days ahead has increased strongly, supported by commitment to take the Indian economy to the next level of growth. This warrants us to put belief on the table on our asset allocation to benefit reasonably well on such investments.

The author is CEO of Birla Sun Life Asset Management Company

Source : http://goo.gl/Rm8ta7

POW :: Multi-asset funds make sense only for long term

If you can re-balance your portfolio once a year, separate equity and debt funds are better
Priya Nair  |  Mumbai | November 12, 2014 Last Updated at 21:59 IST | Business Standard
It’s raining returns on mutual fund investors with both equity and debt funds seeing good growth. In a bid to take advantage of this, fund houses are launching funds that invest across asset classes: equity, debt and gold. But should investors go for such funds or is it better to invest separately in equity and debt funds? Franklin Templeton India’s Multi-Asset Solution Fund’s new offer closes on November 21. The fund will invest in existing schemes of Franklin Templeton and ETFs.

“We believe investors need to stay invested across asset classes at all points in time, irrespective of whether one asset class is doing well or not. To this extent, there is no sanctity behind timing a multi-asset fund now. Those investors who can do an occasional re-balancing, say annually, might as well hold separate equity and income funds, says Vidya Bala, head of mutual fund research, FundsIndia.com.

A pure equity or a pure fixed income fund may give better returns if seen from one point to another. But in a portfolio, investors need dynamic allocation and they should be able to move between asset classes smoothly. A multi-asset fund will allow this automatically, says Harshendu Bindal, president, Franklin Templeton Investments (India).

For retail investors, re-balancing portfolios, that is, shifting from equity to debt funds will involve transaction costs and can also be time consuming. But investing in a multi-asset fund can give diversification across asset classes and automatic asset re-balancing with exposure to a single fund. “But the disadvantage is that they are mostly fund of funds and, hence, receive only debt status for tax purposes and not too tax efficient,” says Bala. This means that if you stay invested for three years, you will be taxed 20 per cent with indexation. Unlike this, in a pure equity fund, there is no tax after one year. The expense ratio, too, could be higher due to the fund of fund structure, since expenses will be over and above the expenses charged by the underlying schemes.

Another disadvantage is that being a fund of fund, only funds from the same fund house will be available. Hence, the best fund in each category or asset class may be lost, Bala adds.

Explaining the rationale behind investing in gold in the current market Bindal says gold is a traditional hedge against inflation, which is useful given India’s high inflation rates.

R Sivakumar, head-fixed income, Axis Mutual Fund says that multi-asset funds are meant for long-term investors, who are not investing in a particular asset because of the cyclical returns from that asset. “In any asset allocation pattern, you will always have a certain amount in all assets. The advantage of doing this through a fund is that fund will always sell the asset that is over-performing and buy the asset that is under-performing,” he says.

According to data provided by Value Research, Axis Triple Advantage Fund, which invests in equity, debt and gold is the largest fund in this category with assets under management of over Rs 500 crore. It has given returns of 14.64 per cent over one-year period. The fund invests in direct equities and fixed income and in gold exchange-traded funds.

Some other multi-asset funds are Canara Robeco InDiGo, which has given returns of 1.06 per cent over one-year, Birla Sun Life Financial Planning (Aggressive Plan) – 39.46 per cent and Union KBC Asset Allocation Fund Moderate Plan – 15.62 per cent.

Ideally, such funds should have a minimum investment horizon of at least three years. Investors can have a multi-asset fund for the base asset allocation and use separate equity and diversified funds for incremental investment, Sivakumar adds.

Source : http://goo.gl/mcN848

ATM :: What stops you from getting rich

TNN | Oct 20, 2014, 07.08AM IST
You are a diligent saver, a careful investor and a meticulous planner. Yet, you have not been able to build wealth even as everyone around you seems to be wallowing in money. What’s stopping you from getting rich? If you really want to get to the root of the problem, you need to assess where you are going wrong in your investments. It could be the lure of penny stocks or the tantalising potential of the futures and options segment. Small investors often lose their shirts (and nearly everything else) when they enter these high-risk arenas.

But mistakes can happen even if you play ultra safe. If a fixed deposit offers 9%, the posttax returns for someone in the 30% tax bracket will be barely 6.3%. That’s not too bad until you factor in 8% inflation. So even though the investor does not feel it, his money is losing value. here are a few common hurdles that prevent investors from getting rich.

Trapped by value and price in stocks

Buy low and sell high is the ultimate winning strategy in the stock market. But some investors take this literally and buy very low-priced stocks. Since the market cap is low, these penny stocks are easily manipulated by operators who lure unsuspecting investors and dump worthless shares on them. They first create a buzz around a stock, indulge in circular trading to push up the price, and then nudge investors to buy at high prices. A penny stock is never a good investment, because you are buying it only in the hope of ‘finding a bigger fool’ who will buy it at a higher price. If a share is priced low, it is because the market does not see value. Study the fundamentals of the company. That will give you enough reasons to avoid the junk shares.

Buying overvalued stocks

One can go wrong even with the blue chips. Small investors often get carried away by the market euphoria ignoring the ‘value’ of the stock. A good stock at a very high price is not a good investment. This overvaluation can happen even at the broader market levels. We studied the Sensex PE and its returns over the past 20 years and found that when the market was overvalued, the one-year average returns were very poor (see graphic). Pay attention to valuation when you buy a stock. Even if the company is growing very fast, avoid investing in it if the stock—or the market—is overvalued.

Falling into value traps

Buying a stock just because the price has fallen 50% from its peak is not always a good proposition. You may end up in a value trap. Investors who go hunting for bargains in the initial phase of a bear market also get into the value trap. They compare the current price and PE multiples with the earlier peak and start buying because the stock is available ‘at a discount’.

However, the price may continue to fall and losses could mount. Most all-time peaks are scaled during extreme euphoria in the market and, therefore, do not represent the real value of that stock. Similarly, it is not fair to judge the current valuation of a stock by comparing it with its all-time high valuations. Instead, compare the current valuation with average valuations for the past 5-10 years.

Buying risky futures & options

Be greedy when they are fearful is what stock gurus advise. But some investors are greedier than they can afford to be. They get into the high-risk arena of futures and options (F&O) even though they don’t have the financial muscle or the acumen. The F&O segment allows an individual to buy up to five times the margin kept with the brokers. This means that with a margin of Rs 50,000, one can take a position in shares worth Rs 2.5 lakh. But while your gains can be five times greater, so can your losses. Whether it is the F&O market or the cash segment, don’t bite off more than you can chew.

F&Os are meant for hedging and retail investors should get in there only for hedging their existing portfolio. They can get into the speculative part later, but only after learning enough about the F&O market and the risks involved.

Overinvesting in safe options

Most investment portfolios are skewed in favour of debt. Investors want stable returns, even if they are low. But this ‘safety first’ attitude can hamper long-term goals because the returns from debt instruments lag inflation.

Even investors who are careful about their asset allocation can get it wrong. Very few salaried professionals take into account their Provident Fund (PF) when drawing up an asset allocation plan. The 12% of their basic pay that flows into the PF every month and a matching contribution from their employer is actually enough to take care of the debt portion of their portfolio. The rest of their investible surplus can flow into equities and other lucrative investment classes.

Not exploring other options

Bank deposits and Post Office schemes are the favourite investment options when it comes to debt. But these are not very tax efficient. The entire income from fixed deposits is taxable at the normal rate. For a person in the 30% tax bracket, the post-tax returns from a fixed deposit that offers 9% is actually 6.3%. Given the prevailing inflation rate, the investor is actually losing money. Factor in the post-tax yield when evaluating an instrument. Go for tax-free options like PPF or tax-free bonds. For salaried taxpayers, the Voluntary Provident Fund is a tax-free haven with no limits on investment.

Though the recent budget has reduced the tax advantage for debt mutual funds, FMPs still score better than FDs if the tenure is more than three years.

Choose consistency over great returns

Investing in the stock markets can be tricky. Even when you invest through a mutual fund, the timing of your entry into the market has a huge bearing on the return. Suppose you receive Rs 2 lakh as bonus from your employer, the stock markets are on an upswing, and you decide to park the entire sum in a high-performance equity fund. Subsequently, some bad news emerges that brings down the market by 40% over just a few weeks. Your fund also takes a hit, leaving you poorer by Rs 80,000. Here, the choice of fund was not at fault, nor was your decision to invest in the stock market. You should stagger your investment over a period of time. This way, you take a hit only on the initial investments. As the market begins to revive, you can invest the remaining sum. This will yield a healthy return on the overall investment once the market regains its previous level. SIPs, therefore, are a better option than a lump-sum investment.

Ignoring fund expenses

People may drive a hard bargain when buying fruits and vegetables but ignore the expense ratios of their mutual fund investments. The expense ratio of equity funds typically ranges between 2.5% and 3%. Over the long term, even a small difference in cost can make a considerable difference to your returns (see graphic). Check the fund expenses before you invest. There are enough good quality funds with low expense ratios. Another option is to buy direct plans that charge a lower expense ratio.

Life cover is not an investment

Chosen well, a life insurance policy can protect the financial future of the entire family. But, if bought for the wrong reasons, the same policy can become a drain on resources and prevent the policyholder from meeting crucial financial goals. These wrong reasons include tax savings under Section 80C, investment for retirement and gifts for children. Traditional plans are the biggest culprits, combining low life cover with poor returns. The life cover offered is 10-20 times the annual premium while the returns are at best 6-7% (see graphic). Yet, life insurance is a favoured investment option because investors see triple benefits: tax savings, long-term savings and life insurance. Since the premiums of endowment policies and money-back plans are very high, buyers are not able to take a very high cover. For instance, a life cover of Rs 1 crore for 30 years would cost a 30-year-old roughly Rs 20,000 a month if he buys a traditional insurance plan. But, if he buys a term plan, the same cover would cost him about Rs 1,000 a month. Traditional insurance plans suit ultra-highnet worth investors who are looking for tax-free income under Section 10(10d). Small investors should not combine insurance and investment.

Instead, a combination of a term plan and Public Provident Fund works better than an insurance policy. If you have a higher risk appetite, you could invest the savings on the premium in mutual funds which have the potential to give higher returns—though they carry some level of risk.

Source : http://goo.gl/tOB17m

ATM :: Do not over-complicate your investment portfolio

Uma Shashikant, TNN | Oct 13, 2014, 07.11AM IST | Times of India


It is not easy to convince an investor that asset allocation is the best way to build long term wealth. It is really tough to tell even a dear friend that she should not seek out products, but take a more holistic view.There is simply no time to worry about these things, and as long as the product seems good, it should be fine. Whenever she calls, it is about investing some spare money. Sometimes, she provides me with a list of names and asks me to vet them for her. She is actually not interested in any conversation beyond this. Why should it matter?

There are no investors, at least none that I know of, who have all their money in a single product. Even those that buy property have some balance in the bank, their Provident Fund (PF), tax-saving funds and insurance policies, and some gold in the locker. Yes, that is asset allocation for you. Except that it is not to any specific design, but mostly built by default. How much you hold where will affect your financial lives the most–in terms of risk, return and all else that you care for. Investment products are but minor details in this big picture. What is wrong with asset allocation by default?

The assets that we hold should ideally match our needs, and we should know what we intend to do with them. This is the gist of the financial planning framework. Since all money is not earned and consumed today, and since tomorrow might hold needs that require funding, and since some of these needs would be much larger than our small monthly incomes, we all need financial planning. This activity can get as elaborate as you wish, or as simple as the allocation between assets that earn an income and assets that grow in value over time. Why is this distinction important?

Assets that provide an income stream are meant to serve short-term needs. They will typically feature low and steady return, mostly matching inflation rates, and preserve the invested capital. Assets that grow in value are meant to serve long-term needs. They will grow at a rate that beats inflation, but feature higher short-term risks to the invested capital. These are like batsmen and bowlers in a cricket team–and every team needs a combination of both to win. How tough is this to implement?

There are three broad combinations. An investor who primarily needs growth, should have 70% in growth assets and 30% in income assets.Investors, who have a steadily increasing income stream that takes care of most needs, should look at this combination. Investors who primarily need income should have 70% in income assets and 30% in growth assets. Retired investors are classic examples. Without the 30% in growth assets they will lose any edge to fight inflation. Those that are unable to decide one way or the other, or think they need both should do a 50:50 in income and growth assets.

My friend can use equity for growth and debt for income. An equity index fund and two diversified equity funds are more than enough.The index fund is her protection against selecting wrong funds and suffering as a consequence.The diversified equity funds provide the midcap, small-cap, sector stock and all such additional benefits. There is no need to buy one of each kind, assemble them all together and find that the return is about the same as a diversified equity fund. The safest income asset she can buy is debt issued by the government. The Public Provident Fund represents a fairly simple option with a good return. Its limitation is that it is not too liquid. The same is the case with PF. She can add some bank deposits to earn a bit more as interest, and two debt funds to earn any additional market income and enjoy some liquidity . One all-purpose debt fund called dynamic, flexible or any such name should serve her purpose. Any cash she has will be in the bank or in a liquid fund. That makes it five income products. But, my friend feels buying different products is nice, doing a few things over and over again is boring. Why is she wrong? The more the products she piles on, the higher the possibility that her return will be just about average. She now buys a different tax-saving fund each year. She obliges her advisor by buying a few New Fund Offers. Then she gets worried investing in the same thing and seeks new names when she has the money to invest. The end result is that she holds more than 15 different equity mutual funds. It is very likely that her return is just about the return on a broad equity market index, which she could have bought at a fraction of the cost she is paying for all the funds she holds. Investors fail to see how diversification works. If you hold too many choices, you are unlikely to benefit majorly from a good choice–or be hurt badly by a poor choice. You will stay at the average. So what should she do?

She should stick to an investment plan that assigns money to these options every year.There is no need to book profits, time the markets and sweat about what is going wrong. She has to do two things though. First, check, at least once a year, if the products she has chosen are still good. Second, switch from 70:30 to 50:50 and to 30:70 as her needs change. She can do this herself. If she finds that bothersome, she can ask her advisor to do it for her. Every investor’s core portfolio can be constructed in this manner. Rest is pure adventure!

Source : http://goo.gl/5HYbc6

ATM :: Dussehra Festival: Four Financial Planning Lessons You Can Learn

Creditvidya.com | Updated On: October 05, 2014 18:31 (IST) | NDTV Profit


In Hindu tradition, the Dussehra festival that calls for big celebrations is regarded as the time to take a fresh perspective of life and marks the beginning of new things. If you look closely, the festival also offers some precious financial lessons you can implement. So, how about looking at your finances in a whole new way this year?

Dussehra or Vijayadashami – the festival that marks the victory of good over evil in Hindu mythology – is celebrated with much pomp and fervor in India by burning large effigies of Ravana. The festival also brings with itself a few important lessons you can implement to your financial plans to have a better grip on your finances and plan for a better future.

Here are four financial planning lessons you can learn from Dussehra:

1. Cast away your bad debt

Dussehra, as we mentioned earlier, is the time when good conquers evil. So if you have too much of credit card debt and are perilously close to reaching your credit limit, focus all your energies towards the repayment of this kind of debt. This is a debt of the worst sort and can be the real enemy of a financial plan. Not only is it a high cost debt, as you pay a steep rate of interest on it, it will also impact your credit score negatively over the longer term.

2. Live with financial self-discipline

Lord Rama is believed to have lived a life of ‘Dharma’, meaning one has to be upright and responsible in life. The same principles should be made applicable to your finances as well. If you are an important earning member of your family, you must apply financial discipline in a manner that you take care of your family’s needs not just at present but provide for the future as well.

This means you need to save wisely. Just like Lord Rama did not deter in living a life of frugality when it was required of him, you must also learn to live in less than what you earn in order to save enough for your future needs like childrens’ education, health-related and other emergencies, and most importantly, a comfortable and stress-free retirement for yourself.

3. Protect your finances

Dussehra is a time when the Hindu faith is renewed in the divine promise that whenever there is evil prevailing on Earth, a saviour will be born to protect humanity. You too should take a cue from this message and learn to protect your finances. You should have enough life, health and asset-related insurance. People often get so caught up with growing their portfolio that they keep insurance at a minimum. On the contrary, it should be the other way around. You should first assess the insurance needs of your family and then invest in the surplus in other instruments to maximise your gains.

4. ‘It’s time for new beginnings’

Dussehra also signifies doing away with the old and getting a new lease of life. Apply this principle to your finances as well. If you do not have a proper financial plan chalked out according to your short-term and long-term financial goals, there isn’t a better time to begin.

Disclaimer: All information in this article has been provided by Creditvidya.com and NDTV Profit is not responsible for the accuracy and completeness of the same.


ATM :: Make most of your EPF

Babar Zaidi | Sep 15, 2014, 06.27AM IST | Times of India


A recent survey by global professional services firm Towers Watson says that saving for retirement is a big concern for Indian employees, with 71% of the respondents worried that they are not saving enough. In another survey conducted by ET Wealth last year, respondents listed volatility of returns (32%), low savings rate (26%) and lack of reliable financial advice (25.4%) as their biggest retirement worry.

That’s surprising, because a majority of the respondents of both surveys were already investing in a product that takes care of all these concerns.The Employees’ Provident Fund (EPF) managed by the Employees’ Provident Fund Organisation (EPFO) ensures that an individual puts away enough for retirement every month. With 12% of his basic salary and a matching contribution by his employer, a subscriber to the EPF should be able to accumulate a decent amount by the time he retires. If someone started working at the age of 25 in April 2000 at a basic salary of `10,000 a month and got a raise of 10% every year, he would roughly have accumulated `16 lakh in his PF account by now. If the trend continues, he would have saved about `1.23 crore by the time he is 55 years old (see graphic) and more than `1.7 crore of tax-free money on retirement at 58.

Despite the tremendous opportunity, most contributors to the EPF won’t reach the `1 crore milestone. More than 13% of the respondents to the ET Wealth survey withdrew their PF balance each time they changed jobs. Withdrawing from the PF can be counter-productive on two counts. One, the withdrawn amount is usually blown away on discretionary expenses and retirement savings are back to square one. Two, if the individual withdraws his PF balance before completing five years, the amount becomes taxable.

Another 20% of the respondents to our survey said they dipped into the PF corpus for other needs.The EPFO allows an individual to withdraw from his PF account for specific needs, such as constructing or buying a house, children’s education and marriage or a medical emergency.

Should EPF invest in stocks?

The other concern about volatility of returns is also not an issue with the PF. The EPF invests in debt instruments that deliver stable returns. EPFO rules allow the EPF to invest up to 15% of its corpus in stocks but the Central Board of Trustees has steadfastly ignored suggestions to this effect.

Many financial experts, including Finance Ministry officials, have castigated the EPFO for this aversion to stocks. They say the EPF is a low-yield debt-based scheme that can never beat inflation.At a recent meeting of the EPFO, it was pointed out that the returns offered by the EPF since 2005, when adjusted to inflation during the period, were in the negative. The `100 put into the EPF in 2005, when marked to inflation, were worth only `97 now.Experts argue that the only way the EPF can beat inflation is by investing some portion of its gargantuan corpus in the stock markets. But while the inflow of fresh investments will be good for the equity markets, they may not have the same impact on investor returns. The New Pension System (NPS) funds for central government workers are allowed to invest up to 15% of their corpus in Nifty-based stocks in the same proportion as their weightage in the index. We looked at the SIP returns of these funds in the past 5-6 years and found that they were not significantly higher than what the 100% debt-based EPF has churned out. In fact, two of the funds have actually given lower returns. This despite the fact that these funds have invested right through the bear phase of 2008-9 and the markets are at all time high levels right now. Our calculations are not based on point-to-point returns but on SIP returns. We took into account the NAVs of the first reporting day of each month and then worked out the internal rate of return.

Don’t shun equities altogether

Having said that, we must add that a certain portion of your retirement savings should certainly be allocated to equities. It’s only that this equity exposure need not be through the EPF. Any retirement plan has to be a combination of several investments. Keep the EPF as the debt portion of your retirement plan and invest 5-20% in equities through a diversified fund.

Interestingly, though the pension fund managers of these NPS funds can invest up to 15% of the corpus in equities, they have allocated less than 8% to stocks. “Pension fund managers have been conservative because markets have been volatile.The negative impact of equity is magnified in the short term so they have shied away from maxing the equity exposure to 15%,” says Manoj Nagpal, CEO of Mumbai-based wealth management firm Outlook Asia Capital.

Compulsory and linked

The third concern about the lack of reliable advice is also laid to rest by the EPF. It is compulsory and an individual has no option but to contribute to it.What’s more, it ensures regular savings. According to estimates by HR firms, the average hike this year was 10.5%. How much was your hike? More importantly, did you increase your SIPs by the same proportion? Not many people care to do that. They spend more, buy more, party more but keep investing the same amount.

The EPF is different. Your contribution is linked to your income, so when you get a pay hike, your EPF contribution will go up in the same proportion.If your basic salary is `30,000 a month, you will be contributing `3,600 plus a matching contribution by your employer. If you get a 20% hike and your basic becomes `36,000, your contribution will automatically increase to `4,320. This is a great way to build a corpus in the long-term.

The icing on the cake is that you can invest more than 12% of your basic salary. Millions of Indians welcomed the move when the budget hiked the annual investment limit in the PPF to `1.5 lakh. But Delhi-based PSU manager Naveen Parashar was not one of them. “I can’t understand why salaried taxpayers are so excited about this development.They have always had the option to invest in the Voluntary Provident Fund (VPF) and get the same tax benefits offered by the PPF,” he says nonchalantly. Parashar puts an additional `14,700 into the VPF every month, taking his overall contribution to the EPF to `31,700 a month. This forced saving has helped him build a sizeable corpus in the past 15 years.

Central Provident Fund Commissioner K.K.Jalan echoes Parashar’s views. “The VPF is an ideal saving instrument for high-income earners looking to build a tax-free corpus. Unlike the PPF, there is no limit to how much one can invest,” he says.

The new look EPFO

The EPFO is fast shedding its dowdy image and using technology to turn into a more professional and nimble organisation. It has made several other investor-friendly changes in the past 12 months.Last year, it introduced the online facility for transferring the balance to a new account. This year, it has made it possible to check the account online.Going forward, all members are expected to have a Universal Account Number and this will be portable across employers and cities. In fact, UANs have already been allotted to 4.17 crore active contributors to the EPF. In the first four months of this financial year, the EPFO settled nearly 43 lakh claims. Of these, more than 68% were settled in less than 10 days.

Source : http://goo.gl/ag49rJ

Integra’s Take: If you are salaried, use Voluntary Provident Fund (VPF) smartly as there is no annual limit unlike PPF. Never withdraw your EPF balance, always chose to transfer on changing your job. 

NTH :: LIC likely to invest Rs 3.5-lakh cr in FY15

Of this, it is expected that Rs 40,000-50,000 cr will be put into the equities market
M Saraswathy | Mumbai June 14, 2014 Last Updated at 00:36 IST | Business Standard


Life Insurance Corporation of India is reportedly looking to invest up to Rs 3.5 lakh crore in FY15 in debt and equities. Of this, it is expected that Rs 40,000-50,000 crore will be put into the equities market.

The government-owned giant had booked profits of Rs 21,000 crore in the stock market during 2013-14.

Sources said a plan of investing Rs 3.2-3.5 lakh crore in 2014-15 will be discussed by the board of directors in a few days. In FY14, it had invested Rs 2.25 lakh crore, including about Rs 40,000 crore in the equity market.

Apart from the regular investment activity, LIC participated in the government divestment of Bharat Heavy Electricals Ltd, the Specified Undertaking of UTI stake sale in Axis Bank and the Central Public Sector Enterprises’ exchange-traded fund.

In 2013-14, LIC collected Rs 41,441 crore of individual premiums and Rs 48,682 crore of group premiums, totalling to Rs 90,124 crore.

With the new product guidelines for traditional products taking effect from January, several of LIC’s popular products had to be withdrawn, to make way for newer ones. Officials said there a resulting slide in premium collection for January to March, due to less products for customers, down to about 20 at present, from 54 earlier.

LIC sources say there is not enough incentive from the market to launch unit-linked insurance products (Ulips).

They might look into doing so if the Sensex hits 28,000.

Source : http://goo.gl/raj1eE

ATM :: SIP mode best suited for investors struggling with tight budgets, EMIs

Priyadarshini Dembla | Dec 10, 2013, 05.54AM IST | Times of India


The importance of saving and investing cannot be overstated. And, it is never too early to start investing. Rather, it is a case of sooner the better. However, with rising costs and tight budgets, the question is how one should go about with investments? In addition, there is the market scenario to consider. For instance, if the equity markets have recently scaled new highs or have corrected sharply, the dilemma is would it make sense to invest or should one hold off for a while?

This is where the systematic investment plan (SIP) method of investing in mutual funds comes into the picture. SIP is a simple and proven investment strategy which can help investors in accumulating wealth in a disciplined manner over a longer time frame. In an SIP, instead of investing a lump sum, a fixed amount (which can be as small as Rs 100) is invested at regular intervals in mutual funds. Some of the key benefits of SIP investing are listed below.

No need to time the market:  At no point of time, should the current market level deter a long-term investor from making a beginning. One cannot always be the best buyer or the best seller. Timing the market is a time-consuming and a highly risky strategy for investors. Not many investors can claim to have the ability to consistently time the markets accurately. This is the reason why several investors end up losing out on market opportunities in pursuit of trying to time the market in vain.

Rather, investors should focus on meeting their investment objectives and deciding where they should invest. With an SIP, one does not have to worry about what the market levels are. All one needs to do is to identify the right funds and get invested. In the process, investors do not have to delay their investments either.

A convenient investment mode: The SIP mode of investing is more convenient than making lump sum investments. Typically, an SIP entails investing a smaller sum every month vis-a-vis larger amounts in lump sum investments. This, in turn, makes the SIP mode apt for investors who are struggling with tight budgets and EMIs. Often, lack of adequate funds is an excuse for delaying investments. An SIP enforces discipline in investments by ensuring that a fixed sum is invested every month, and is convenient on account of the small ticket size.

Using rupee-cost averaging:  The benefits of investing via an SIP become apparent in times of market volatility. When the net asset value (NAV) of the mutual fund unit drops during a downturn, each SIP installment invested results in more units being credited to the investor. This, in turn, results in averaging out the cost of purchase. In effect, in times of volatility, investing via the SIP route becomes more lucrative. This is further explained through the table given here.

A disciplined approach to creating wealth
2013 SIP Amt (Rs.) NAV (Rs.) N o. Of Units
Jan 1 1000 10 100
Feb 1 1000 12 83.3
Mar 1 1000 14 71.4
Apr 1 1000 16 62.5
May 1 1000 18 55.6
Jun 1 1000 20 50
Jul 1 1000 22 45.5
Aug 1 1000 24 41.7
Sep 1 1000 20 50
Oct 1 1000 22 45.5
Total 10000 17.8 605.5
Note: Avg Cost = Total cash outflow/Total no of units, i.e. Rs.10000/605.5=Rs.16.5. Whereas, Avg Price=Sum of all NAVs at which you have invested/Number of months of your investment, i.e. Rs.178/10=Rs.17.8. Therefore the Avg Cost is Lower that the Avg Price.

It is also noteworthy that SIP helps an investor avoid a knee jerk reaction of selling his/her investments during a bear market, thereby helping him/her realize the full value of his investments.

(The writer is research associate, Morningstar India)

Source: http://goo.gl/B5UPBn

POW :: Bond with the best

K. VENKATASUBRAMANIAN | Business Line | November 30,2013|

See-sawing interest rates have led to fluctuating fortunes for bond funds. Here are the funds that have been the most consistent. Park your one-year money in them.

Barely three months ago, bond funds, particularly those that invest in long-term government securities, were the flavour of the market. Many of them sported double-digit returns and were attracting retail investors in droves.

But Fed taper fears and the RBI’s sledgehammer measures in July to hike the cost of money have taken the fizz out of this party. One-year returns on bond funds may today look better than that on equity funds, but they have taken a hard knock from three months ago.

Long-term gilt funds have been the worst hit by the unexpected spike in rates, with their returns at 5 per cent for one year. Short-term debt funds now average 6.5-7.5 per cent for one year. Short-term gilt funds, benefiting from the spike in short- term interest rates and tight liquidity, are topping the category at 7.5 per cent.

So what should investors in bond funds do now? Funds, especially with a short maturity profile of one-two years, remain a good investment option, with interest rates still at high levels and liquidity remaining relatively tight.

Short term gilt funds

Short-term gilt funds, of which there are about 20, have navigated the recent see-sawing interest rates well.

The sharp spike in short-term borrowing rates after RBI measures in July created good opportunities for these funds to buy into high-yielding government bonds.

The subsequent decline in rates has also allowed these funds to gain from some price appreciation too (when interest rates fall, bond prices gain and gilts are among the securities to respond the most to interest rate changes.) Short-term gilt funds have generated averaged returns of 7.5 per cent over the past one year.

The benchmark for short-term gilt funds, I-Sec Si-Bex, has delivered returns of 7.6 per cent. But a few funds have delivered 2-3 percentage points more, with a couple of schemes delivering double-digit returns as well.

Sundaram Gilt, Religare Invesco Gilt Short Duration and IDFC GSF Short Term delivered 12-19 per cent returns over the past one year. Birla Sun Life Gilt Plus Liquid, DSPBR Treasury and UTI G-Sec managed 9 per cent or more. Funds that fared well invested mainly in 91-day treasury bills and sovereign debt with two-three months maturity profile. However, the above returns have a one-off component that may not be replicated over the next one-two years. The current yield to maturity is 8.5-9 per cent for many of these funds. In the last five years, the category has generated a 6.4 per cent return compounded annually.

Where to invest: Though returns from short-term gilt funds are likely to moderate as interest rates subside from recent highs, they will remain attractive for investors seeking safety over a one to two-year horizon.

Religare Invesco Gilt Short Term, Birla Sun Life Gilt Plus Liquid, IDFC GSF Short Term and SBI Magnum Gilt Short Term are funds that investors may consider. They have outperformed their benchmark 75-80 of the time over the past three years on a rolling basis and have a five-year track record in the category.

Long -Term Gilt Funds

Long-term gilt funds (43 funds) delivered just a 5.1 per cent average return over the past one year and 6.8 per cent over the past three years. Even over a five-year timeframe, these funds have delivered a modest 5.8 per cent annually.

From a low of 7 per cent earlier this year, yields on the 10-year government bond have spiked to nearly 9 per cent now. The sudden spike in yields over the past few months has caused erosion to their NAVs.

This is the category that suffered the most in the debt markets carnage as medium and long-term gilts hold more long-term bonds. The ICICI Composite Gilt Index delivered 6.2 per cent over the past one year, while the I-Sec Li-Bex managed just 4.7 per cent. Both indices delivered about 7.8 per cent returns over a three-year period.

The best funds in the category have delivered more than 9 per cent over the past three years. Long-term gilt funds across the board have reduced their average maturity profile from over 13 years in some cases to about 10-12 years, while medium term schemes had a profile of 4-8 years. Investments in long-term gilt funds carry high interest rate risk and it is best to take exposure to them at the peak of an interest rate cycle.

Based on the criteria of long-term track record and consistency in returns, the following funds may be suitable for investors: IDFC GSF Investment, SBI Magnum Gilt Long-term and L&T Gilt Investment have a maturity profile of over 10 years and have delivered quite well over the past three years.

Dynamic bond funds

Dynamic bond funds have the flexibility to shift between government and corporate bonds based on where opportunities lie. They invest in corporate bonds, certificates of deposit, commercial paper and debentures, in addition to gilt investments.

In the last one year, the category delivered 6.2 per cent returns on an average, while on a three-year basis the returns are at 7.9 per cent. In the last five years, the dynamic bond funds as a category has delivered an average annual return of 7.4 per cent. Initially caught unawares by the RBI’s move to hike rates, these funds have quickly adjusted to the changes by reducing the average maturity profile across schemes. The medium-term schemes reduced their average tenure by about two years to 1.5-4 years, while the long-term funds have cut their holding periods to 8-10 years.

These funds have used the opportunity provided by the spike in short-term rates to buy commercial paper and certificates of deposit of quality companies offering double-digit coupon rates. As a result, the yield to maturity of most dynamic bond funds is in the 9-11 per cent range. Good options in this space are Birla Sun Life Medium Term, Templeton India Corporate Bond Opportunities and HDFC Medium Term Opportunities which have average maturity profile of 1.5-4 years and yield to maturity of 9.5-11 per cent.

These funds have a consistent track record and have beaten standard benchmarks across timeframes. Some of these funds invest in bonds, commercial paper and debentures of HDFC, PFC, Tata Motors, India Bulls Housing Finance, Tata Sky, M&M Financial Services and Aditya Birla Finance, among others. They take slightly higher risks by investing in A or AA rated instruments as well, but are compensated for it with higher yields.

There are also other dynamic bond funds that have a higher average maturity profile. Investors need to have a slightly longer term horizon of four-five years for such investments to give adequate returns.

Birla Sun Life Dynamic Bond, Templeton India Income Opportunities, Canara Robeco Dynamic Bond and IDFC Dynamic Bond may be quality investment avenues for investors based on their sustained performance record. Investors can choose one or two funds from the above categories as a part of their debt investments, so that the total number of debt schemes invested in does not go beyond three or four.

Source: http://goo.gl/bV6AmF

POW :: Investment focus: Go tax-free with NTPC bonds

Anand Kalyanaraman | Business Line Research Bureau | November 30,2013|


If you did not invest in the tax-free bonds issued earlier this year, here is another good opportunity to do so. NTPC, the country’s leading power generator, is offering attractive rates on its bond issue, which opens on Tuesday.

Retail investors (those who invest up to Rs 10 lakh) will get 8.66 per cent annually on the 10-year bonds, 8.73 per cent on 15-year and 8.91 per cent on the 20-year instruments. Investors having a long-term horizon and looking for safe instruments can consider buying.

The returns on NTPC’s bonds are higher than the after-tax returns on bank deposits. Currently, the best rate on five-year bank deposits is 9.25 per cent, which compounded quarterly works out to 9.58 per cent. But after considering taxes, the return falls to 8.6 per cent for depositors in the 10 per cent tax slab, 7.6 per cent for those in the 20 per cent tax slab and a mere 6.6 per cent for those in the 30 per cent slab.

NTPC’s bonds thus, offer a superior alternative to bank deposits for investors. Interest on the bonds will be paid out annually and will not be subject to tax.

The rates on tax-free bonds issued by public institutions are linked to those prevailing for Government securities (G-secs). NTPC is able to offer attractive rates because G-sec yields have been quite buoyant in recent times. The yield on the 10-year G-sec is currently around 8.7 per cent. This may moderate in the coming months, and so, future tax-free bond issues may not be able to match rates being offered by NTPC. So, it is a good time to invest in the bonds now.

NTPC’s bonds are rated ‘AAA’, indicating the highest degree of safety for investors. This is a notch higher than the ‘AA+’ rating for the tax-free bonds being issued by housing financier HUDCO from Monday.

Though HUDCO is offering 10 basis points (0.1 percentage point) more than NTPC, the latter provides more investor comfort, thanks to its higher bond rating and regular disclosures as a listed company.

NTPC’s business model, based on regulated returns, is also more stable and provides better long-term visibility on profits. Its revenues from operations have grown at an annual average of around 13 per cent in the four years to 2012-13 while its profits have grown at nearly 12 per cent annually.

Before investing in tax-free bonds, keep aside funds for your public provident fund (PPF) investment. With good tax-free returns (8.7 per cent currently), PPF provides tax deduction on the initial investment up to Rs 1 lakh, making it a superior investment.

Source : http://goo.gl/RMyWN7

ATM :: Your first investment

First-time investors often find it difficult to choose the right option.
Sanket Dhanorkar, ET Bureau | Nov 18, 2013, 05.59AM IST | Economic Times


First-time investors often find it difficult to choose the right option. Sanket Dhanorkar helps you navigate the unchartered waters.

It is not an easy time to be an investor. Even though you may be spoilt for choice, there is a high degree of volatility across asset classes. This means that one has to be extra cautious while choosing investments. Whether you are opting for equity, fixed income, property or gold, the current environment will punish you for rash or untimely decisions. For those who have just started saving, taking the initial steps into the world of investing is even more daunting.

For first-time investors, identifying the right initial investment can be a challenge. Where should I begin? Should I play safe and invest in a fixed-income instrument that offers guaranteed returns? Should I go for high-growth investments like stocks or equity mutual funds? You have to be careful with your choice to ensure that you begin on a solid footing and build a stable foundation. It should provide a sense of confidence as you move ahead. As Lao Tzu, the Chinese philosopher, said, ‘A journey of a thousand miles begins with a single step.’ Here’s a helping hand as you take your first step.


For some, investing in stocks is akin to gambling in a casino. However, people have also made fortunes from stocks. Some of your friends, relatives or acquaintances will recount their experiences of doubling or trebling their money within a short span of time. Naturally, this gets you thinking. Should I try my hand at the stocks game? How can I make handsome gains from equities? More often than not, you take the plunge. You open a demat and trading account, and make your initial purchase—possibly a strong blue-chip company that you admire, or an emerging company you have heard a lot about. Either way, this may not be the ideal route for everyone.

Why to invest

When you invest in stocks, make sure you do so for the right reasons. If you are looking to make quick gains and exit, then you are setting yourself up for long-term pain. Unless you are able to time your entry impeccably, you cannot earn good returns consistently. Equity is an asset class that rewards you the most if you stay invested for a reasonably long period of time. Hemant Rustagi, CEO, Wiseinvest Advisors, urges investors not to treat it as a source of excitement. “Stock investing is not a gamble. It is a serious investment opportunity,” he says.

Where to begin

Test the waters before jumping into the deep end of the pool. Mutual funds are the ideal starting point as these take care of the problem of picking the stocks yourself. Neeraj Chauhan, CEO, Financial Mall, insists, “For those just starting out, it is better to leave stock-picking to a professional fund manager.” Within mutual funds, first-time equity investors can opt for hybrid funds to get a taste of equities. Debt-oriented hybrid funds typically invest a chunk of the money in debt instruments, with a dash of equity thrown in. An equity-oriented balanced fund will take you on a learning curve. Those who can take on some risk can even opt for a diversified equity fund or an ETF. Srikant Meenakshi, director, FundsIndia, says, “Those who are easily discouraged by market volatility, but want a flavour of equity in their portfolio, should consider a balanced fund.”

If you are keen to dabble in stocks, be ready for some heartburn. The first few picks will give you an understanding of the market. Even if you make mistakes, you will learn from the experience. However, put in only small sums initially. If your stock picks turn out to be winners, don’t be tempted to throw in your entire money in search of more such gains. The market has a way of bringing you down just when you start to think that only the sky is the limit.


Most people prefer to play it safe while making their first investments. They usually put their first savings in a fixed deposit with their bank. Debt instruments offer assured returns, are easy to understand and do not require as much homework as equities or real estate. This asset class offers multiple options to the investor, each with its own unique features. This may lead to confusion for the newbie investor.

Why to invest

Fixed-income products are the cornerstone of an individual’s investment portfolio. Whether it is the humble bank fixed deposit, the PPF or a government bond, these provide stability to your portfolio. Experts concur that any asset allocation plan should include fixed income or debt. Pankaaj Maalde, financial planner, Apnapaisa .com, says, “Every portfolio should have an allocation to debt to ensure a solid foundation.” Even the most sophisticated, risk-savvy investors would do well to put a part of their money in debt, which would protect their portfolios from a sudden fall in the riskier asset classes.

Where to begin

Be clear about what you want when you invest in debt. If you are looking for a regular stream of money and the preservation of capital, then a simple fixed deposit that pays interest every month or quarter makes sense. If you do not need the regular inflow, choose the cumulative option of the fixed deposit or go for NSCs. The PPF is a long-term investment that locks up your money for 15 years. Simply leaving your money in safe, fixed-income instruments is not a productive long-term solution. You will be lucky if you beat inflation with these investments.

The tax incidence is another important point to consider. Chauhan argues, “For those in the higher tax brackets, it makes more sense to invest in instruments that give higher post-tax returns. For those in the lowest tax bracket, investment in fixed deposits is a good idea.”

However, to get more out of fixed income, you will need to move a bit higher up the risk ladder. Bond funds and FMPs provide a good alternative to traditional instruments as these can offer decent capital appreciation, even though the returns are not guaranteed.


With gold prices going through a multi-year rally, investors have started looking at the metal as another asset class in their portfolio. However, many people have given undue importance to gold as an investment. First-time investors are at risk of putting their savings in the asset for all the wrong reasons.

Why to invest

Gold is seen as one asset whose prices can never go down. If you have also been led to believe this, you need a reality check. True, gold provides a good hiding place when there is turmoil all over. However, only recently, we saw gold prices tank by more than 20% in a matter of weeks. Invest in gold because it has little correlation with other asset classes, such as equities and debt, which helps diversify the portfolio. Jayant Manglik, president, retail distribution, Religare Broking, agrees. “Gold adds an element of diversification to the portfolio,” he says.

Where to begin

“Make a clear distinction about buying gold for consumption purposes or as an investment,” insists Maalde. If you are considering your first investment in gold, go for paper gold. Buying physical gold entails high making charges, with concerns about its purity. On the other hand, gold ETFs offer investors the triple benefits of security, convenience and liquidity. Investors are also assured transparency in pricing and can liquidate their holdings quickly at the prevailing market prices. You would need a trading account and a demat account to invest in gold ETFs. If you do not want the hassles of opening a demat account, you can consider gold funds, which are essentially funds of funds that invest in gold ETFs. This avenue offers the convenience of investing through the SIP route. However, keep in mind that you will pay the fund management fee to the gold fund and bear the expense ratio charged by the gold ETFs in its portfolio.

Real estate

Having your own house provides a sense of security and an elevated social status. However, home buyers have to tackle a long list of issues. “Real estate as an investment can be very tricky if you do not know what you are doing,” says Suresh Sadagopan, founder, Ladder 7 Financial Services.

Why to invest

The low volatility in real estate prices lends stability to the investment. The prices rise gradually over time, compared with other asset classes, which may see wide fluctuations. It also provides a steady stream of income through rentals, even during a lull in the economy. Even if you do not intend to live in the house, you can partly finance your mortgage payments and other expenses through the rental income. Besides, it provides several tax benefits by allowing you to claim tax deduction on repayment of principal and interest on the housing loan, as well as repairs and maintenance. Most importantly, it provides the much-needed diversification to your portfolio. But keep in mind that there are different considerations when you buy real estate for investment and for self use.

Where to begin

Investing in real estate isn’t a cakewalk. Finding a good property with decent amenities in a good neighbourhood, which is close to your place of work, school and markets is a huge challenge. However, a little homework can help you zero in on a good deal.

You first need to work out a budget to finance the down payment for the house and subsequent EMI payments. Remember that you will have to meet the EMI obligation month after month. Also, factor in the expenses you are likely to incur after the purchase. These expenses are anything but ancillary. Painting, furnishing and maintenance can add up to a huge sum. Shopping for a home loan is another aspect requiring homework for first-time home buyers. Lenders will have marginal differences in interest rate, processing fees, margin money, prepayment options, etc. Go through the fine print carefully before signing on the dotted line. “First-time buyers should opt for a ready-for-possession property. There are too many hassles involved in one under construction,” says Sadagopan.

Top rules for stocks

  • Invest only what you can afford to lose.
  • Avoid investing large amounts at one go. Buy small quantities at regular intervals and try to get a feel of the market.
  • Avoid trying to time your entry.
  • Even professional investors find it difficult to catch a stock at its lowest price. Buy a stock in which you have strong conviction.
  • Ignore tips and hot trends.
  • Often, first investments are driven by friendly tips or prevailing hot trends. Traders love beginners as they chase the hot trends and drive prices higher. However, the traders bail out, leaving beginners in the lurch.
  • Have realistic expectations of returns.
  • Stocks can create enormous wealth, but don’t expect to hit the jackpot early on. You might not earn good returns initially and may, in fact, suffer losses.
  • Don’t succumb to emotions.
  • Stocks are inherently volatile. Even a good stock can fall if the market turns bearish. Don’t let fear and greed drive your investment decisions.

Top rules for debt

  • Consider the reinvestment risk.
  • Be clear how you will deploy the money when the instrument matures and you get the money back along with the interest or capital gain.
  • Check the tax efficiency of investment.
  • The interest from FDs and NCDs is taxed at the rate applicable to your income slab. The income from debt funds is treated as capital gain if the investment is for over a year.
  • Match investments with cash-flow needs.
  • Match investments with cash-flow requirements. If you need money in three years, invest in an FD or FMP. If you can wait, go for instruments with longer terms.

Top rules for gold

  • Invest purely for diversification.
  • Invest in gold for diversification and stability of your portfolio. Don’t be misled into believing that gold prices will only rise over time.
  • Limit your exposure to 10-15 %.
  • Do not try to get rich with gold. Contrary to belief, investing in gold carries a high degree of risk. Up to 15% of the portfolio is enough to gain a meaningful exposure to the asset.

Top rules for real estate

  • Move fast.
  • Think before finalising the deal, but once you zero in on an option, move quickly. Good properties get snapped up fast and waiting may result in diasappointment.
  • Work out your budget.
  • Secure your finances before the deal. Avoid taking on an EMI obligation that takes up more than 40% of your monthly income.
  • Take professional help.
  • Don’t get carried away by tall claims and leave nothing to chance. Whether it is inspecting the property or arranging proper documentation, take the help of professionals.

Source : http://goo.gl/eS7m7G

ATM :: Should you invest in Tax-Free Bonds?

Prof. Bajaj | 25 September 2013 | caclubindia.com

“Ohh Man! I did my tax saving investments 2 months back only. Otherwise I would have invested in these tax-free bonds. But now I can’t invest in them.” said Mahesh Kuntal, a 34 year old executive, working with a leading pharma company. He was having a casual discussion in tea-time with his colleague Kapil.

Kapil: What does tax saving investments have to do with this?

Mahesh: We can only invest Rs. 1 Lakh in tax-free right?

Kapil (smiling): I think this is the most common problems with most of us. We call ourselves educated but we hardly have financial literacy. Let me clear few things here:
1. Tax Saving Investments and Tax-free investments are entirely different from each other.
2. In tax saving investment, you get a deduction on the amount invested. Let’s say, if you invest Rs. 1 Lakh in any of PF, PPF, ELSS, Insurance Premium, NSC, Tax Saving Bank FD etc, you would get a tax deduction upto Rs. 1 Lakh u/s 80C. But that does not mean that the returns would also be tax free. For example, the interest earned on Tax Saving Bank FD and NSC are taxable.
3. In Tax Free Investment, you don’t get a deduction on the investment made. However, the returns generated are tax free. i.e. they are not clubbed with your taxable income.
4. There is a limit of Rs. 1 Lakh for investment in tax saving products. However, there is no limit on investments in tax-free products.

Mahesh: I am understanding to some extent. But I have few more queries. If I don’t get a tax deduction, does it make sense to invest in a tax-free investment?

Kapil: Well, it will depend on your tax slab.
Let’s say, you are in a 10% tax slab, you would get a 9.25% interest rate in a Bank FD (Pre-tax). The post-tax returns would be around 8.3%. Thus, it would be better to invest in a tax-free bond giving a yield higher than 8.3%. Currently you are getting around 8.5-8.6% on tax free bonds.
Likewise if you are in a 20% tax slab, then even if a Bank FD pays you 9.5% (pre-tax), your post tax returns will be 7.54% only. Thus, any tax free bond giving you returns higher than that would be beneficial for you.
And in case you are in a 30% tax slab, even a bank FD paying you 10.5-11% returns (pretax), your post tax returns will be 7.6% only. Again, a tax free bond will score over it.
Only if you are in a NIL tax slab, you may go for a bank FD or a taxable interest instrument as tax-free bond won’t be much beneficial for you.

Mahesh: O Wow! Never thought it that ways !! So now I am in 20% tax slab, and tax free bonds are giving yields closer to 8.6% these days. So they would definitely be a better choice than Bank FD. But I have one more query. How do these tax-free bonds compare with PPF?

Kapil: Good Question! Since you are a Football Fan, I will explain you this way. PPF loses the match with Tax-free bonds by 1-4.

Mahesh: Sounds interesting! Please elaborate.

Kapil: Sure. PPF scores over Tax free bonds in only one aspect i.e. investments made in PPF would qualify under Sec 80C and investments made in tax-free bonds won’t qualify. However, Tax – Free Bonds score over PPF in 4 parameters:
No Limit on investment: Suppose you have Rs. 10 Lakhs to invest. You can’t invest them in PPF. But you can invest them in tax-free Bonds.
Better Liquidity: Since the tax-free bonds are listed, you can liquidate them anytime. Whereas for PPF, you have lot of restrictions for liquidity.
Opportunity of Capital Gains: If in future, there is a fall in interest rates (which is quite likely), you have an opportunity of earning capital gains from tax-free bonds. Let’s say there is a fall of 1% in interest rates in the next one year, then you can expect a capital gain of 13-14% in a tax free bond. This capital gain would be in addition to the tax-free interest offered. This means you have an opportunity to earn a return of 21-22% from a debt instrument through tax free bonds.
Fixed returns: As we know that PPF interest rates are linked to 10 Year G Sec yield, there is a chance that we may get less returns from PPF in future. Lets say if the Gsec Yield falls, then in future you might get only 6.5-7% interest on PPF. However, in case of tax free bonds, the interest being paid will be fixed i.e. if you buy a tax-free bond paying 8.6%, it will keep paying you 8.6% for the next 15 years (tenure of the bond). Also, On the contrary, fall in 10 year G Sec yield will earn us better returns in Tax-Free Bonds in the form of capital gains explained above.

Mahesh (happily): So all in all, tax free bonds score over several investment avenues. Especially people who are having taxable income. And in my case, I am already done with my tax saving investments. So this would in effect work like a tax saving investment for me, as I do not need to pay tax on the interest earned. Thank you so much for sharing all this info, Kapil. I will see that I break my FDs which are earning 8-9% taxable and invest in tax free bonds to earn 8-9% tax free. Even if I move Rs. 5 Lakhs from my taxable FDs to Tax Free Bonds, I will be able to save Rs. 5,300 every year for the next 15 years i.e. saving of Rs. 79,500 in the next 15 years. Plus, if I want to sell these bonds, I can make capital gains too. Thanks again!

The Author Prof. Saurabh Bajaj (BE, MBA, FRM) is Chief Investment Planner with Nidhi Investments. He may be contacted us on [email protected] if you have any questions. (The views mentioned in the article are personal opinion of the author)

Source : http://goo.gl/sBJHrs

ATM :: NaMo, Ram the new mantra on Dalal Street!

By ECONOMICTIMES.COM | 14 Sep, 2013, 01.12PM IST


The Reserve Bank supposedly pushed back its policy meet to September 20 in view of the US Federal congregation scheduled two days ahead of this date, on September 18.

What transpires in the US is widely expected to have a significant, if not huge, impact on emerging markets, especially the Indian stock market. What happens in America on September 18 no-one knows, as is the case with what RBI’s new chief Raghuram Rajan does at the policy meet two days later. The Indian stock markets are palpably cautious ahead of these two pressing meetings, which is apparent given the way the markets have been behaving over the past two sessions.

As far as the US is concerned, that it will announce something on QE tapering is almost a given, but then the amount of withdrawal of easy money is anybody’s guess. “One school of thought believes that the Fed would try its level best to reassure the markets that the accommodative stance would stay till it is required for its economy … For emerging markets like ours, if it’s early unwinding then it would mean a fall in our currency and continuity of high interest rates leading to further slip in economic expansion,” says DK Aggarwal, CMD, SMC Investments and Advisors.

“On the other hand, if the US Fed takes baby steps it would provide some more time to emerging markets to take steps to build confidence and try and correct the home-grown problems,” Aggarwal adds.

How will, or could, Raghuram Rajan react? Experts too are pondering. “As far as the rate action is concerned, much of it is dependent on the outcome of FOMC (Federal Open Market Committee) . I will be watching the RBI policy more in terms of the stance it takes. It will give us a very good idea regarding the contours which the monetary policy is going to take as we go along. Part of it has been explained. The forex stability is at the top of the agenda of the new governor followed by inflation management. These are positive for the bond markets per se, but I hope to be able to read more into the mind of the new governor so that we get a better idea as to how he is going to calibrate the monetary policy. From the non-rate action point of view, I will be watching the policy a little more closely than usual,” says Killol Pandya, Senior Fund Manager-Debt, LIC Nomura Mutual Fund.

Most probably the US is likely to go for a tapering to the tune of $10 billion. What if the US tapering is in line with expectation; will it mean a bull run of sorts for the market? “Fed will get into tapering by sensitising the markets. They have already made some statements in that regard. I think it will be a ‘taper light’ situation … you might see that as a little bit of rejoicing, which already has been in the emerging markets, that might continue for some more time,” says Vikas Khemani of Edelweiss Securities.

Even if it’s a little bit of joy for the market, will it last? “Tapering is more or less priced in. If the tapering is light, emerging markets will rejoice in the short term. Currencies will recover, but that would be a short-term phenomenon,” says Vikas Khemani adds.

And if it’s $10 billion, how would Raghuram Rajan react? “It is to be seen what Mr Rajan comes out with … he needs to basically determine what the FOMC minutes are saying, what the Fed chairman is saying to determine the course of his action in terms of either withdrawal of the plans that the earlier governor had imposed on banks which got a huge amount of liquidity crunch for the system and increase the borrowing cost for most of the bankers on the wholesale side,” says Mayuresh Joshi, VP-Institution, Angel Broking.

What if the US Fed delays the tapering to a later date? Will there be a euphoria-like situation on Dalal Street, at least for some time? “After the recent run-up that we have seen on the market, obviously the key points remain on the events in the coming week. What the FOMC will come with possibly on Wednesday in its meetings is a key event that not the just emerging markets but all markets across the globe are tracking … The markets have already factored a $10 billion kind of a drawdown happening from September, but if for some inevitable reason based on data and analytics if the Fed chairman decides to delay the said event to a later date, the markets may take that little bit more positively,” adds Mayuresh Joshi

Source : http://goo.gl/uXC0dX

ATM :: 6 financial planning tips for those starting out

ArthaYantra.com | Updated On: August 01, 2013 13:53 (IST) | NDTV Profit


Today, the people in their 20s are in a world where they are forced to make more financial decisions than ever. When we actually observe the trends among the current professionals, most of the financial mistakes are committed during the early part of their career. The impact of these mistakes has a significant downside on their future financial well-being. The following steps ensure that they imbibe the much needed financial discipline and lay a foundation for their secure financial future.

1. Avoid cash-starved month-ends
The most common phenomena observed among the young professionals are the variations in their lifestyle in a given month. Their lifestyle starts on a high note with frivolous spending and as the month progresses, it trends downwards. Planning the expenses and differentiating expenses and committed and non-committed expenses would help them in stabilizing their life style. The long term impact of such financial habits is also significant. Minimize your non-committed expenses and ensure that you save enough for your future financial well-being.

2. Differentiate between needs and wants
Differentiating between needs and wants ensures that you spend your hard earned money wisely. Needs are something which you have to have; wants are something you would like to have. For example, while your monthly household or utility charges are a need, buying an expensive cell phone is a want. You can postpone your wants but not the needs. Always ensure that your money is not disproportionately allocated among needs and wants. Do not let your wishes spoil your saving routine.

3. Cover all bases of risk management first
Every individual on an average faces three emergencies in life. These emergencies can range from a potential job loss to a major health scare. One has to take necessary steps to ensure that such unforeseen emergencies do not cause chaos in their financial life. Especially, the young professionals lack enough savings to counter these situations. They need to make sure that they an emergency fund which account for three to six months of their expenses, adequate life insurance and medical insurance. The decisions of insurance should be need based rather than tax based.

4. Get that piggy bank back
Most of the people in their twenty’s, who just started their first job experience a sense of financial freedom. It is during this time, one has to get back to the roots and inculcate the habit of saving even if it is a small amount. Savings is one of the toughest things to start. It’s the most common resolution everyone makes and skips. Start with the modern day grown up man’s piggy bank: SIP. Start saving at least 500 a month. You can accumulate substantial amount even with minor savings.

5. Start preparing yourself for the biggest vacation of life
Retirement, is perhaps the longest vacation of a professional’s life. People generally kick start their career in 20’s and often think it is too early to save for their retirement. However, the financial intelligence has a different story to tell. Early stage of the career is the ideal time to start retirement planning. Especially in case of retirement savings, if you start at a young age you can enjoy the benefits of compounding and ensure that you have a financially secure retirement.

6. Avoid unnecessary tax related baits
Often we tend to buy products or make investments without doing the due diligence on our total tax structure. Having a tax plan in place by the start of financial year will help you make better decisions, and even reduce the burden on financials during the end of financial year. Also, analyze whether you need to make tax saving investments or not. Even if you have to make them, remember tax saving investments generally have a longer time horizon or lock in periods. This might impact your liquidity needs in the near future and often your long term ability to achieve your goals. Never consider tax planning in isolation. It should be an integral part of your holistic financial plan.

ArthaYantra.com provides personal financial advice online.

Disclaimer: The opinions expressed in this article are the personal opinions of the author. NDTV Profit is not responsible for the accuracy, completeness, suitability, or validity of any information on this article.

Source : http://goo.gl/FmQkYU

ATM :: Balanced funds emerge good bets in volatile markets

M Allirajan, TNN | Aug 6, 2013, 06.37AM IST | Time of India


Balanced funds, which invest in a combination of equity and debt instruments, have emerged as a good bet in volatile markets. The Crisil-Amfi balanced fund performance index has outperformed the Nifty over the three, five and 10-year time frame.

Balanced funds also witnessed lower capital erosion when equity markets declined and enabled investors to capitalise on gains by delivering returns higher or similar to those of the Nifty. These funds were also less volatile and had annualised volatility of 17% over a five-year period compared to almost 25% for the Nifty.

While equity investments have the potential to deliver superior long-term returns, debt instruments provide stability to the portfolio. “This diversification protects the portfolio from downside risks if either equity or debt enters abearish phase,” analysts at Crisil said.

The Crisil-Amfi balanced fund index declined 35.9% during the subprime crisis between January 2008 and March 2009. The Nifty fell 43.4% during the period. Similarly, they gained at a faster pace during the bounce-back that followed the sub-prime crisis. Balanced funds surged 51.7% between April 2009 and December 2010 compared to the 48.8% gains made by the Nifty.

These funds have also managed to hold their ground when markets started their losing streak in the aftermath of the crisis in Euro-zone countries. Balanced funds managed to stay in the green during the period.

Though it is important for investors to look at an asset allocation approach, the way it is executed is also equally important, analysts said. “Investors often tend to re-allocate assets based on market sentiments which may not be in their best interest,” they said.

In contrast, balanced funds, which invest 65%-80 % into equity and the balance in debt instruments, follow a well-defined asset allocation approach that offers a higher degree of protection on the downside but preserves much of the upside thereby serving investors well, analysts said.

Source : http://goo.gl/cdTuae

ATM :: Investors can benefit from expertise of seasoned fund managers

Vicky Mehta | Aug 6, 2013, 05.37AM IST | Times of India


I was recently watching a television show wherein an investment expert was taking questions from callers who dialed into the show. The expert was making a rather strong case for asset allocation and exhorting callers to invest in diverse assets classes. His constant rhetoric was, “Diversify your portfolio by investing in various asset classes such as equity, fixed income, gold and mutual funds.” That line got me thinking. Here was an investment expert who believed that mutual funds are an asset class by themselves, much like equity or gold.

In reality, mutual funds are investment avenues that can help you invest in a variety of asset classes, rather than it itself being a distinct asset class. For instance, if you wish to invest in equity, then you can select a large-cap, a small cap or a mid-cap fund. Likewise, a bond fund or a government bond fund can help you take exposure to the fixed income asset class. Hence, it is important that mutual funds be seen as a “means to an end” rather than an “end” in itself.

Mutual funds are multifaceted avenues given the choices they offer. To better understand this, let’s take the case of an investor in his 20’s, and whose investment objective is long-term wealth-creation. His portfolio can be constructed as follows: 40% in large-cap mutual funds forming the core of the portfolio, 25% in small/mid-cap funds, 5% in sector funds to provide an impetus to the portfolio, 15% in short-term bond and gilt funds for fixed income exposure, 5% in money market funds to keep the portfolio liquid and to allocate a portion to gold, 10% in gold funds. This example demonstrates how one can build a robust and diversified portfolio that has exposure to multiple asset classes despite being invested only in mutual funds.

It is noteworthy that some mutual funds are inherently tools for asset allocation. For instance, allocation funds such as balanced funds and monthly income plans simultaneously invest in equity and fixed income instruments in different proportions. Fund companies have smartly tapped into the Indian investor’s long-standing fascination for gold by introducing funds that can simultaneously invest in equity, fixed income and gold (via the ETF route). The portfolio manager decides the allocation to be made to each asset class within the broader limits mentioned in the scheme information document. In effect, such funds are a one-stop-shop for asset allocation.

Finally, let’s not overlook the significance of portfolio managers who are responsible for running funds. Managers are seasoned investment professionals who understand the nitty-gritty of the asset class they operate in, and are better equipped to deliver returns compared to retail investors investing on their own.

So what should you as an investor do? For you, the key lies in determining the right asset allocation mix — that is which asset classes you should be invested in and in what ratio, and then selecting the right funds. It would help to engage the services of an investment advisor or a financial planner. Clearly mutual funds can make for excellent asset allocation tools and you would do well to exhaustively use them while constructing your portfolio.

(The writer is senior research analyst, Asia-Pacific research team)

Source : http://goo.gl/4Gibfk