Category Archives: Investment

Volatility to stay here for some more time
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Posted on May 7, 2012 by PankaajMaalde

Budget has neither given direction to economic growth of the country nor has also attempted to restore the confidence of the investors in stock market. Even though there is announcement of reduction of 20% in STT for delivery of shares, we have witnessed selling pressure in the market and this is likely to continue for some time looking at present economic conditions. Hike of 2% in service tax and excise duty will also add to the negativity in the market. BSE sensex has again broken the important level of 17,000 marks and this volatility is likely to disturb and confuse the investors. Investors have either stopped investing in equity or have made withdrawals from equity investment. Mutual Fund schemes are also facing redemption pressure. Some people have discontinued their SIPs in equity schemes. This volatility in the market will once again force people to play safe and park their hard earned money in Insurance, F.D.’s and small saving schemes, which are unlikely to beat inflation.

The RBIs recent announcement of repo rate cut of 50 bps has also failed to boost the sentiment of the market. Looking at present economic and political conditions in India, it is for sure that this volatility is likely to remain for some more time into the future. There are both internal and external factors confirming the same trend.
1) Crude oil price is still hovering above $ 100 per barrel which will not ease the inflation pressure.
2) Rupee has again crossed high of 53 against dollar and experts predict that it may touch 55 in coming months.
3) The GDP growth forecast for year 2012-13 is 7.6% but experts feel that it may go below 7%.
4) The situations in USA and European markets may lead to more selling pressures from FIIs.
5) Budgetary deficit is also an area of concern and we have to see how the disinvestment targets are met
6) We have not seen major economic reforms in the UPA II regime. The Government has missed this opportunity while presenting the 2012 budget.
7) The next budget is likely to be populist budget looking at the fact that the general elections are to be held either at the end of 2013 or early 2014.
8 ) Loss of congress in UP and other major states will force them to compromise on economic issues.
9) There is lack of political will and unless we see major reforms volatility is likely to continue.

Than what should average investors do in the current market situation? Before coming to solution one must try to understand equity as an asset class before investing. You cannot expect overnight profit from equity. You must invest as per your asset allocation. Your time horizon for investing in equity should be more than 5 years. You must also review your investment portfolio periodically and rebalance the portfolio. Never try to time the market and “always stay invested is the success mantra” for investing in stock market. If you understand the basics than this volatility in stock market will never affect you. Equity has always out performed against all other asset class in the longer run. One can expect 15% plus return from equity, which the equity has already delivered over long period.

SIP in mutual fund is the best solution for investing in equity for the long term in a volatile market scenario. By investing through SIP you reap the advantage which is known as rupee cost averaging. , This lowers the average cost of your holding. Secondly if you invest through SIP, you do not have to worry about daily volatility of the market and thus do not have to time the market. Since SIP can be done with as small an amount as five hundred rupees you can start with a small saving also and get the advantage of power of compounding.
It is also advisable to get a financial plan made from professionals who is not bundling the same with execution. The financial plan will tell you which of your investment is long term and which is short term. Once you are confident that your investment is for longer period of time, this volatility will not affect your decision to continue your investment and SIPs in equity.

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FMP is better than bank fixed deposit.
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Posted on April 17, 2012 by PankaajMaalde

Traditionally almost around 85% of the people in India invest their surplus funds in Bank Fixed Deposits, Postal Schemes etc. This clearly indicates that safety and security of the principal amount is the first priority when it comes to investment. Nobody cares whether the accretion on such investment is taxable or not. Also people do not evaluate whether the post tax returns will be able to beat inflation or not. Nobody can certainly deny the importance of safety but one has to always search for and evaluate the options which are equally safe but can give help you generate better returns or can give tax advantage over other equally safe investment avenues. It is important to have debt in your investment portfolio but it should be limited to certain percentage of total assets depending on time horizon and your risk profile.


Thumb rule says debt must constitute minimum equal to one’s age in percentage terms but it is advisable to allocate funds in debt depending on time horizon of your particular financial goal. If time horizon for a particular goal is just 1 year to 1.5 years than 100% of such corpus in debt makes sense. Most of the investors invest their funds in bank fixed deposit for time horizon of 1 to 1.5 years. But there are other alternatives available in the market which can give you better post tax returns compared to bank FDs and are equally safe. Mutual Funds FMP (Fixed Maturity Plans) are the better alternative for time horizon of around one year investments compared to bank fixed deposits which not only gives higher return but are also tax efficient. FMPs are closed ended schemes with the maturity period ranging from 370 days to 390 days which are commonly known as 1 year FMP. The maturity period of FMPs may vary from 90 days to three years but most prevalent and tax FMPs are one year FMPs.


Here we will discuss the pros and cons of only 1 year FMPs. These schemes invest 100% of their corpus in debt portfolio which consists of corporate and government bonds or Certificate of deposits issued by banks which are safe and rated. The funds thus invested are relatively safe compared to income funds as the volatility in the interest rates will not affect returns of the fund as the entire corpus collected in the scheme is invested for the fixed term which is almost equal to the tenure of the fund. These funds are closed ended in which investment can be made only during the NFO period. The schemes get listed at recognised stock exchanges but effectively these are not traded and volumes are negligible so one has to hold this till maturity for all practical purposes. Thus they are almost at par with bank FDs as far as tenure of investment and risk is concerned. The only difference is that in case of bank fixed deposit you know what return you will get at the time of making the deposit itself. Whereas in case of FMP the returns are not guaranteed it is market linked and returns will depend on the return of the portfolio. However one can find out as to what will be the indicative investment return from a particular FMP. The returns on this are higher than bank fixed deposit because they are floated for identified borrowers and as the volume size is big, they can easily negotiate for better deal. Moreover income arising out from this will be taxable under the head long term capital gain as the same is held for more than one year and investors get benefit of indexation. Please note that the benefit of indexation and concessional tax is not available in case of bank FD.


Since the FMP looks better than bank FD and if one wants to invest in FMP what one should look for while investing in FMP?


The one most important thing an investor needs to check before investing is the ratings of the portfolio in which the fund is likely to be invested. The investors should invest only in the schemes which will invest their funds in AA+ and above rated papers or bonds. The funds which invest in AA- papers or bonds or lower rated are more risky and one should be aware of risk involved in such schemes. For past one year of 1 year FMP is around 10% and above as compared to bank fixed deposit rate of 8.50%. Needless to say an FMP not gives higher return compared to fixed deposits but also has added tax advantage.

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Small Savings Schemes interest rates to rise by 0.20% – 0.50%
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Posted on March 27, 2012 by Ronak Morjaria

The interest rates on Small Savings schemes like National Savings Certificate, Public Provident Fund, etc. by 0.20% to 0.50% from 1st April,2012. According to the budget estimates, there is likely to be a net outflow of Rs.12,000 Crore from small savings scheme from the current fiscal. This hike in interest rate may attract small investors.

Scheme | Current Interest Rate | New Interest Rate|

PPF | 8.60% | 8.80%|
5 yr NSC | 8.40% | 8.60%|
10 yr NSC |8.70% |8.90%|
Recurring Deposit |8.00% |8.40%|
Monthly Income Scheme | 8.20% |8.50%|
1 yr Time Deposit | 7.70%| 8.20%|
2 yr Time Deposit | 7.80%| 8.30%|
3 yr Time Deposit | 8.00%| 8.40%|
5 yr Time Deposit | 8.30%| 8.50%|

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Financial Planning – turn your dreams into reality
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Posted on March 21, 2012 by PankaajMaalde

Financial Planning plays a very important and crucial role in our life. Financial Planning can be described as “Long Term Process of Wisely Managing Your Finances so that you can achieve your Financial Goals & Dreams”.  We all see many dreams for Our Children’s for their higher education, marriage and their future prospects and also set many goals for us, like buying a Dream home, new car, and vacation abroad. Retirement planning is also important as we are moving from joint family to nuclear family. We surely know our Goals and Dreams but never make serious attempt to fulfill the same. In reality all our Goals and Dreams remain on paper only. Financial Planning can solve many problems if we take it seriously and start working on it. Generally it is seen that when time comes for any function or occasion people redeem their money from investment which was planned for some other purpose. Actually we become helpless when some emergency comes and take some instant decision which can definitely spoil our financial freedom. Today it is the need of the hour that one should make his financial plan as household, education and other personal expenses are going up and we don’t know impact of inflation in the longer run. Secondly loans and credit cards has become the part of life as they are easily available. We never calculate the impact of interest which takes away major part of our income. In other words our resources are limited but our wants are much more.

Financial Planning brings discipline in our saving and expenses. It helps us to set realistic goals and also priorities the goals. We can easily reach to our destination safely and timely if we set some basic rules for investment and act accordingly. Most of us are not aware of priorities in our life. We all Invest but without understanding our financial goals, risk involved and time horizon. The lack of proper Financial Planning will add to the problems rather solving it. Life Insurance, Health Insurance and Disability Insurance are the basic of Financial Planning. In India today also less than 10% are insured and even those who are insured are also underinsured. Living Short is always a major problem for the Family but nowadays living long is also becoming more and more problematic. The average life of an Indian is 67 yrs. at present and is increasing because of the advancement of science and technology. Retirement Planning and Estate Planning will also form part of Financial Planning which is also been not planned. Less than 1% prepares their WILL and this leads to litigations in Court of Law for the years. We have to think very seriously for all this aspects in our life if we want to live happily.

There is also other side of every investment which a common man does not understand like, Economic Growth, Equity as Asset Class, Inflation, Tax implications and Asset Allocation. Today we are surrounded by many Agents/Advisors who come to SELL the particular product such as Life Insurance, Mutual Funds, P.P.F, N.S.C., Postal Schemes, F. D.’s and Direct Trading Account. The most of the sells happens without understanding the needs of the Clients. We all buy one or other product which may or may not fulfill our desired financial goals. No product is good or bad but more important is, it should match with our financial expectations. Financial Planning is the process where product comes after the need analysis. This is the recent trend in India, where in Planner charges fees for making the Financial Plan and does not push the product to earn the higher commission.

Financial planners offer unbiased fee based advice which really can help to achieve financial goals. A CERTIFIED FINANCIAL PLANNERCM is “An individual who is Qualified, Certified and Licensed” to give unbiased Financial Planning advice, free of conflict of interest. They take care of all finance related matters just the way a doctor takes care of all health related matters. They look at all realistic financial goals, reviews current insurance and investments and then give road map to achieve financial goals. They make written financial plan with future recommendations in the best interest of client. They educate their clients and update them with recent changes in the tax and other investment laws. They follow a set ground rules of ethical standards and are governed by a neutral body – Financial Planning Standards Boards India (FPSB India). It is also a mandatory requirement to have ‘Continuous Education’ and to be updated with the changes of the finance industry throughout the lifetime of practice as a Certified Financial Planner. Financial Planning does not only help you in achieving your dreams but it also gives peace of mind.

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BUDGET 2012 – Opportunity Missed
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Posted on March 19, 2012 by PankaajMaalde

The Hon’ble Finance Minister Mr. Pranab Mukhrjee presented union budget in the parliament. The budget is neither reform looking nor favorable to common man. The GDP growth for 2011-12 is estimated at 6.9% as compared to 8.4% in preceding two years. India’s GDP growth in 2012-13 is expected to be 7.6% +/- 0.25%. The disinvestment target is set at Rs. 30,000 crores for the 2012-13.  The budgetary deficit is estimated at 5.1% of the GDP i.e. around Rs. 5 lakhs crores which is a big concern. On one hand he has given some direct tax benefits and on the other hand indirectly increased the burden on common man by increasing and widening the service tax base. He has preferred to play safe looking at present political situation.

The main highlights of the budget relating to personal finance are:

► The Income Tax limit in general category is raised from 1,80,000 to 2,00,000, giving nominal benefit of Rs. 2,000 per annum for individuals having income less than 8 lakhs.

► The tax slab of 20% is revised from 5 lakhs to 8 lakhs, to 5 lakhs to 10 lakhs. Individuals having income more than 8 lakhs will benefit from this proposal. Maximum benefit shall be Rs. 22,660.

► The senior citizens are exempt from paying advance tax if they have their income other than business or profession.

► New benefit up to Rs. 5,000 under section 80-D is provided for preventive health check up within the existing limit of Rs. 15,000.

► Proposal to allow individual/H.U.F.’s, a deduction of up to Rs. 10,000 for interest from savings bank accounts.

► New Rajiv Gandhi Equity Savings Scheme is announced which will allow for income tax deduction of 50% for new retail investors, who invest up to Rs. 50,000 directly in equities. The same however is available only to individuals whose income is below Rs. 10 lakhs. The scheme will have a lock in period of 3 years.

► The deduction of Rs. 20,000 for infra bond u/s 80-CCF is not extended.

► For Insurance Policies purchased after 1st April’2012 benefit u/s 10(10)(D) of Income Tax Act, in respect of maturity proceeds of life insurance policies, will only be available if premium paid during any year does not exceed 10% of the sum assured.

► Service tax on traditional life insurance plans raised from 1.54% to 2.06%.

► TDS of 1% in levied on all transaction of property except agricultural land above 50 lakhs in specified cities and Rs. 20 lakhs in other areas.

► ELSS scheme benefit u/s 80-C will continue next year also. DTC proposes to withdraw this benefit.

► The limit for audit raised from 60 lakhs to 1crore for business man and from 15 lakhs to 25 lakhs for professionals.

► The Service tax rate is hiked from 10.30% to 12.36%. Standard Rates for excise duty also raised from 10 to 12%.

► The STT is reduced from 0.125% to 0.1% for delivery of equity shares.

► Customs duty on standard gold raised from 2% to 4%.

► The GST to be rolled out from August’ 2012. DTC postponed for another one year.

Budgetary deficit, Inflation, higher interest rates and political uncertainty still a concern for double digit growth. The coalition dharma politics has taken away the opportunity available to the finance minister. Hike in oil prices in coming days is inevitable.

 

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LIC Jeevan Vriddhi – Is it a good investment option?
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Posted on March 12, 2012 by Harsh Roongta

It is the tax season again and single premium plans are being sold as a tax saving instrument that provides a good combination of insurance and investment. One of the major products is the single premium plan from LIC – Jeevan Vriddhi.

Now LIC Jeevan Vriddhi is definitely a much better single premium plan than its predecessor single premium plans such as Jeevan Astha because of the fact that Life cover is standardized at 5 times the premium value across all ages and the same sum assured continues during the entire 10 year duration of the plan. This at least ensures the fact that the maturity proceeds of the policy will be exempt from tax irrespective of the quantum as long as there is no additional premium payable due to health conditions. If you are asked for any extra premium due to health conditions then you should not go for this plan at all because the maturity proceeds will become taxable.

If you treat life insurance as free then the guaranteed returns from the plan will vary depending on your age, but ranges from 6.91% (for a 20 year old) to 4.67% (for a 50 year old). This goes up to 7.47% (for a 20 year old) to 7.27% (for a 50 year old) if you consider the insurance as valuable and take its cost into account. So the return though still lower than comparable safe investment options such as PPF is still okay only if  you consider the insurance cover as valuable. The insurance cover will be valuable only if you take care to fill the proposal form fully and completely so as to ensure that the death claim, if any, actually gets paid.

 

The actual return will be higher by around 0.60% if non-guaranteed loyalty additions (payable on maturity of the policy) are taken into account. But even after taking the non guaranteed loyalty additions into account , you can do much better by taking a separate term insurance policy and investing the balance amount in Public Provident Fund (though money is locked in for 15 years versus the 10 year term of this plan). PPF currently provides a tax free return of 8.60% p.a.

 

To summarise Jeevan Vriddhi makes some sense only if you value the life insurance (and do not treat it as free) and that too if you get it at normal premium after disclosure of full facts in the proposal form. If extra premium is charged then the annual premium will become higher than 20% of the sum assured and hence the maturity proceeds will become taxable. For those of you who can’t be bothered to fill in the insurance proposal form carefully, staying away is the best advice. Also do not invest if asked for an additional premium due to health condition since that will make the maturity proceeds taxable.

Single Premium Paid Rs.50,000/-

Guaranteed Benefit
Including assumed 6% Loyalty Addition

Age
Treating Insurance as free
6.91%
7.53%

20 years
After taking into account the cost of Insurance
7.47%
8.09%

Age
Treating Insurance as free
6.83%
7.45%

30 years
After taking into account the cost of Insurance
7.45%
8.08%

Age
Treating Insurance as free
6.36%
6.98%

40 years
After taking into account the cost of Insurance
7.50%
8.13%

Age
Treating Insurance as free
4.67%
5.28%

50 years
After taking into account the cost of Insurance
7.27%
7.90%

 

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Save tax and earn higher interest with Bank Fixed Deposits
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Posted on February 20, 2012 by Balwant Jain

Earn higher rate of return and get tax benefits as well on your bank Fixed Deposits
Balwant Jain,  CFO apnapaisa.com

Fixed Deposits have become flavor of the season due to high rate of interest offered on them. Only a few of you would be aware that in addition to earning high interest, you can save tax also by investing in bank FD. Like other items of investments qualifying for deduction under Section, fixed deposits with schedules banks also qualify for deduction under Section 80C. For investment in Equity linked saving schemes,  the returns on your investments are not fixed and depend on performance of the equity market, you can lock your return for five years by investing in fixed deposits. Moreover you do not have to lock your investment for very long period like in the case of PPF if you invest in Bank FD.

Let us understand how the scheme of deduction under Section 80 C works in case of investment in bank fixed deposit.

Who can invest and how much?

Any individual or an HUF can invest upto Rs. 1 lac under this scheme. The investment has to be made in the form of a fixed deposit with any scheduled bank for a minimum period of 5 years. The maximum amount upto which a person can invest under this scheme is capped at Rs. 1 lac. The minimum amount is also capped at Rs. 100. You can invest further money in multiple of Rs. 100/-.

For making investment in FD you need to have PAN which shall be mentioned on the FDR with other details like name and  address of the person making the deposit.

The fixed deposit under this scheme can either be opened in single name or in joint names of not more than two persons – one of whom can even be a minor. However one point of caution here. The benefits of tax deduction under Section 80 C shall be available to the person who is named first in the bank FD, so ensure that the person making investment is named as the first holder on the FD.

You can appoint one or more persons as nominee to receive the money in case of death.  The  nomination form can be filled either at the time of making the deposit or any time thereafter. However in case the deposit is made for and on behalf of a minor, no nomination can be made in respect of such deposits. In case of death of the deposit holder the nominee can claim the money from the bank on the basis of death certificate of the original holder. In case the nomination is made in favor of more than one person, all nominees will have to sign the necessary documents in order to claim the money from the bank in respect of the deposits held in the name of the deceased.

Can you take loan against such bank FD or encash prematurely?

In order to obtain any loan you can pledge your NSC with government, banks including co-operative bank or cooperative credit societies but this facility is not available in case of bank FD. Even you cannot go for premature encashment of these deposits before completion of the five years.  However in case the first holder or the sole holder dies during currency of the term deposit, the second holder or the legal representative or nominee of the deposit can request for premature withdrawals of deposit under this scheme.

What if your shift from one place to other place? In case you are shifting from one city to another city, you can make a request for transfer of this bank FD from one branch of the bank to the branch of the bank where you are moving to. Please note this portability is not available across bank but is only available across branches of the same bank. So your fixed deposit can move with you.

Rate of interest

These fixed deposit schemes fare better than National Saving Certificates where the rate of interest is only 8.4% whereas these  FDs presently offer  you interest upto 9.75 % though lock in period of both the instruments of saving is five years now. Since rate of interest for both the schemes are fixed for the tenure, it always makes sense to invest in the these FDs as these give you higher return. These FDs are even better than deposits under Senior Citizen Scheme where the interest being offered is 9% whereas some banks offer 9.90%  rate to senior citizen.

The rates of interest currently offered by major banks on these deposits are given in the table:

Rate of interest on Tax Saving Bank FD

Name of the bank———-Rate of Interest (Normal)———-For Senior Citizen

Bank of Baroda———-9.00———-9.50

Central Bank of India———-9.09———-9.09

Union Bank of India———-9.40———-9.90

State Bank of India———-9.25———-9.75

Axis Bank———-8.25———-9.25

HDFC Bank———-9.25———-9.75

ICICI Bank———-8.75———-9.25

Unlike the PPF interest which is tax free, interest on such bank FD is taxable like interest on NSC and deposits under Senior Citizen Scheme. The bank will deduct tax at source on the amount of interest given to the investor.

Since the term of the Fixed deposit is fixed for five years it helps you in planning your future cash flows more accurately to meet your future cash requirements. This is particularly important for you in case you need to have access to your money for any short-term goal in the near  future like buying a house or providing for children’s education or marriage expenses. Since the rate of return is also fixed for the entire tenure, it insulates you against risk associated with return on your investments.

Other features:

You should be careful about preserving these  FDRs because in case you lose it or it is destroyed, you will have to follow an elaborate procedure for issue of duplicate FDR. This involves furnishing indemnity bonds and getting either sureties or bank guarantee for issue of such duplicate FDRs.

I hope you are able to make up your mind in favour of long term Fixed Deposits.

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Plan first, invest later !!!
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Posted on February 20, 2012 by Ronak Morjaria

Do you plan and invest or you invest and then plan? Sounds confusing, but after a little introspection, you get the answer. I am sure most of you would be implementing the second option i.e. invest first and then plan accordingly to meet your future goals. People invest in different asset classes and investment options; and then plan to allocate those investments for achieving their goals. This is the most common mistake investors make. The right strategy and option is to plan for your future goals and then invest accordingly for achieving it successfully.

Like Shekhar who is keeping all his savings in a fixed deposit which, he plans to utilise for his daughter’s marriage after 10 years. But do you think his investment will suffice for his daughter’s marriage. Will this amount after 10 years beat the inflated cost of marriage?

That is the reason why you need to plan first and then invest.

Why do you need to plan?

It is very important and necessary to plan before investing because you need to know the exact asset allocation required for achieving your goals. You need to know when and where your money needs to be invested. Asset allocation depends on the duration earmarked to achieve your goals and your risk appetite. For your short-term goals, you should invest in debt instruments, while for long-term goals you can have an exposure to equity depending upon your ability to take risk. Asset allocation also helps you to diversify your portfolio.

Your investment should be able to beat inflation. It means that investments made by you should fetch you higher returns than the rate of inflation so that the future investment value helps you to achieve the inflated (raised) cost of your goals. Your investments should not be eaten up by the rising inflation.

You should also know that whether your existing investments will bear fruits in future and how can these be allocated to achieve any of your goals. Most of the people invest by taking advice from their friends, relatives, colleagues or agents.

People usually mix investment and insurance by buying ULIP’s or traditional plans. You need to separate your insurance and investment requirements as both serve different purposes.

Generally, people mindlessly buy insurance policies, but they don’t know whether they really require that amount of life cover or is it just inadequate. Insurance should also be an important part of your plan. You should have an adequate insurance so that in case of your untimely death, your family doesn’t suffer. The family need not compromise in their lifestyle or their goals even when you are not there. The insurance proceeds are helpful in fulfilling the goals. As a thumb rule, a person should have insurance of 10 to 12 times of his annual income. But need-based insurance approach is always suitable, since it takes all your assets, liabilities and goals into consideration. You also need to see that you have adequate health insurance coverage as well.

You also need to take into account tax aspect of your investments. You have to take care of the taxes applicable on your investments. Generally people open their eyes at the end of the financial year and hurriedly invest to save tax. It is better to take care that you do not invest in excess in tax- saving instruments, which unnecessarily lock your money, nor in deficit that you end up paying more tax.

Thus, it is necessary to plan before investing for successfully achieving your goals. If you think it is difficult for you to plan, then nowadays a lot of financial planners are available, known as Certified Financial Planners, who specialize in making customized financial plans keeping your income and goals in mind. Accordingly, he suggests you suitable investments which are good enough to successfully achieve your goals.

As it is said “you should think before you act”, you also “need to plan before you invest.”

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Why “playing safe” becomes unsafe? – Harsh Roongta, CEO, Apnapaisa.com
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Posted on December 22, 2011 by admin

I would like to discuss case of an old friend who was also a client, whom we were assisting (him and his spouse) in doing a comprehensive review of all their assets, liabilities, insurance policies, goals as well as a detailed financial plan to achieve their goals.

The said client is an NRI couple who had intuitively made several good moves. They owned a house in Mumbai, had no liabilities and enough life and health insurance. Moreover they have also accumulated reasonable amount of savings over the years. Being a childless couple, their only goal is to build a substantial kitty for their post retirement lives . My friend being only 46 years old, his retirement was still a good 12 years away. The only issue in their case was that all their savings were invested in bank fixed deposits. They were continuing to save a reasonable amount every month which he was willing to invest through a monthly SIP in an equity mutual fund. I pointed out to him that this clearly was not going to be enough and their existing savings needed to provide better returns if they were to meet their retirement needs fully.

One of our recommendations was to systematically shift a substantial portion of the bank fixed deposit into balanced mutual funds. My friend was very uncomfortable with this recommendation. He liked the safety that the bank fixed deposits offered even though a large part of the interest was being deducted as TDS which he had to claim back as a refund by filing tax returns in India. I explained to him that balanced mutual funds provide a mix of debt and equity instruments with returns being completely tax-free. Of course it carried larger risks especially on the 70-80% equity component but I shared our research which showed that a systematic monthly investment in equities over 10 years started at any time in the last 16 years had yielded a return of not less than 9.02% p.a. He was still uncomfortable so I decided to use an analogy drawn from cricket for his better understanding.

I told him to think of his retirement as a cricket match. He had been scoring conservatively so far ( investing in bank FDs). Now with 12 overs ( 12 years for retirement) left and a lot of runs more to get,  it was not enough for him to let his partner accelerate (invest fresh savings in better yielding assets) but he himself had to accelerate as well (shift his existing savings from bank deposits to better yielding assets). History was also on his side as it showed that in all earlier matches on the same pitch,  the batsman had not lost their wickets if they took well calculated risks (systematic investments spread over long period had always given good returns). In any case if he decided to play at the same pace as earlier he was sure to loose the match (not have enough to money on retirement) whereas if he followed the acceleration strategy he at least had a good chance of winning the match.

Well the cricket analogy and our research reports on returns from systematic investment in equity plans won the day and he got convinced to implement our recommendations.

How about you ? Are you convinced ?

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