Category Archives: Mutual Funds

SIP Insure – Does it make sense to mix investment and insurance
1 Star2 Stars3 Stars4 Stars5 Stars (1 votes, average: 4.00 out of 5)
Loading ... Loading ...

Posted on May 14, 2012 by PankaajMaalde

Recently ICICI Prudential Mutual Fund has launched “SIP insure” in its all equity and balanced schemes. SIP insure is nothing but life insurance cover given with the monthly SIP investment. The insurance cover offered is not individual cover but its group insurance cover in which terms and conditions of insurer will apply while settling the claim. Reliance was the first to launch such scheme. We also have ULIP plans which give life insurance cover and also investment options just like mutual fund schemes. These SIP insure will give insurance cover with investment option on the same line as ULIP provides. However in SIP insure you do not have to bear heavy charges like allocation and policy admin charges which are levied in ULIP.

But before going ahead one need to understand the broad features of this product and compare it with what is offered by the Reliance Mutual Fund. The ICICI is better than Reliance as it offers higher life cover, life cover continues after investment of 3years SIP and discontinued thereafter. The highlights of the ICICI Pru’s SIP insure are as under:

 The plan is offered to all major individuals whose age at entry is below 46 years and will continue till age 55 years.

 Insurance cover will be available to first/sole unit holder and not to second and third unit holder.

 The minimum SIP amount is Rs. 1,000 per month.

 The 1st year cover will be 10 times of monthly SIP, 2nd year it will be 50 times of monthly SIP and 3rd year onwards, life cover will increases to 100 times of monthly SIP. 100 times means less than 9 times of yearly SIP. Reliance calculates life cover differently. In case of Reliance the Amount of life cover available at any time is equal to the aggregate balance of unpaid instalments. So practically this wants to ensure that the investor at least get the amount equal to his principle investment planned anytime in case anything happens to the investor.

 Maximum sum assured offered to an individual across all funds is 20 lakhs. Reliance gives maximum cover of Rs. 10 lakhs sum assured across all funds.

 Life cover ceases if SIP for 3 years are not paid. After 3 years of SIP the life cover will continue but sum assured will come down to value of accumulated units subject to 100 times of monthly SIP instalment and also subject to maximum of 20 lakhs.

 The Insurance cover will cease in case of redemption or switch out of units whether partial or full before completion of SIP insure tenure.

 There is exit load of 2% in case of Reliance for premature redemption whereas the same is mentioned at 1% in ICICI Pru SIP insure if redeemed with in 1st year. The exit load of 1% is applicable even to SIPs without insurance. One needs to check how the charges of insurance will be recovered. Will it be charged on the basis of insurance cover provided to each unit holder or will be charged to the scheme.

 In case of death of the first/sole holder, the fund value with the sum assured will be paid to nominee. But in case of Reliance the no money is paid immediately on the death. Instead the sum assured is added to accumulated investments under the scheme and maturity value is paid at the end of tenure opted.

 In case of ICICI pru the death claim will not be paid in case of death due to suicide in the first year of cover. However Reliance has a permanent exclusion in case of death due to suicide.

 The death claim will also be not paid in case of death within 45 days from the commencement of the SIP instalments except for death due to accident. The said period is 90 days in Reliance.

 Death claim has to be submitted to Life Insurance Company directly and AMC will not entertain any request for claims. Therefore it is important for you to know who life insurer is.

 There is a separate form where in investors have to give additional details required for life insurance cover. One has to be very careful and it is always advisable to disclose all the material facts in the form.

As a matter of principle we strongly advise our clients against mixing investment and insurance. The major drawbacks in SIP insure is risk cover stops in case of withdrawal or switch (partial or full). Review of investment performance is always an integral part of financial planning and should be done once in a year. You may have to book partial profit to switch to debt or may have to withdraw your fund for any reason. If risk cover stops in such situations then it has no meaning. That’s why we advise our client to go for online term plan for insurance need and keep investment need separately.

Processing your request, Please wait....
Posted in Financial Planning, Life Insurance, Mutual Funds | Leave a comment

Volatility to stay here for some more time
1 Star2 Stars3 Stars4 Stars5 Stars (1 votes, average: 5.00 out of 5)
Loading ... Loading ...

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.

Processing your request, Please wait....
Posted in Investment, Mutual Funds | Leave a comment

FMP is better than bank fixed deposit.
1 Star2 Stars3 Stars4 Stars5 Stars (1 votes, average: 5.00 out of 5)
Loading ... Loading ...

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.

Processing your request, Please wait....
Posted in Fixed Deposit, Investment, Mutual Funds, Taxation | Leave a comment

BUDGET 2012 – Opportunity Missed
1 Star2 Stars3 Stars4 Stars5 Stars (1 votes, average: 4.00 out of 5)
Loading ... Loading ...

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.

 

Processing your request, Please wait....
Posted in Investment, Life Insurance, Mutual Funds, News, Regulations, Taxation | Leave a comment

Budget 2012 –Not Bad!
1 Star2 Stars3 Stars4 Stars5 Stars (1 votes, average: 2.00 out of 5)
Loading ... Loading ...

Posted on March 16, 2012 by Harsh Roongta

Not Bad !! I think that about sums up the reactions to the annual light and sound show – The Budget. Given the financial constraints under which the Government was operating, the market was expecting some big taxation measures. The increase in service tax and excise duty from 10% to 12% was more or less expected and the absence of any other significant taxes provided the sigh of relief. It will soon be back to business as usual.

If the Finance Minister sticks to his words, we are soon going to see an increase in fuel prices as well. So expect a general rise in prices due to the increased excise duties and service tax. This way a quick respite from inflation is unlikely and interest rates are unlikely to drop in a hurry.

The FM announced a deduction of upto Rs. 25,000/- for investment in a yet to be notified Rajiv Gandhi Equity Savings Scheme. This is probably a case of bringing back the equity linked savings scheme (ELSS) through the back door since the DTC is slated to remove ELSS from the list of eligible deductions. While the details of the scheme are awaited, there is a significant term “new retail investor” used in the speech which seems to point to the deduction being available to only individuals not yet investing in the equity markets, as well as the deduction being available only once in a life time. If such conditions are there in the scheme, then it is unlikely to have much of an impact.

A good announcement was setting up of the central registry for KYC requirements which should provide relief from the multiple and painful KYC process that investors have to go through every time they decide to invest in a new asset class or with a new intermediary.

The doubling of the limit for tax-free bonds makes it clear that this asset class is here to stay and will become increasingly important for the high tax paying individuals and corporate bodies.

But the biggest take away for me from the Finance Minister’s speech was the announcement of setting up of the Credit Guarantee Funds for ensuring flow of credit to consumers buying affordable homes and students for higher and vocational education. Finally, it has dawned on the government that what consumers are looking at is access to credit rather than cheap credit. This Credit Guarantee Fund makes the affordable home buyer and the students taking education loans  bankable and they may actually be perfectly willing to pay market rates for the loans. Let’s hope that these guarantee funds are capitalized adequately and are set up quickly. Moreover it is important that the process of providing guarantees to the banks/lenders is streamlined for these important sectors get a big boost.

On the Income tax front, there is a relief in terms of the re-adjustment of slabs which will lead to tax savings upto a maximum of Rs. 22,660/- for individuals earning more than Rs. 10 Lakhs. In another good move, the definition of senior citizen has been changed to 60 years (from 65 years) across most of the important purposes like higher exemption limit, higher deduction for health insurance premium, etc.

In another relief, a separate deduction for savings bank interest upto Rs. 10,000/- per year has been introduced. The interest rate on savings bank accounts have climbed to 5.50%-7% in some cases post deregulation.  This deduction will improve the return for individuals for temporary liquidity kept in savings bank accounts. This will also facilitate the scheme where an individual need not file income tax returns subject to certain limits.

In a blow the finance minister has not renewed the extra deduction of of Rs. 20,000/- available for Infrastructure bonds. The exemption for the maturity proceeds of life insurance policies will now be available only if the insurance cover is at least 10 times the yearly premium. Thankfully, the wordings seem to be clear that it will apply only to policies issued after April 1, 2012 and exemptions of existing policies till March 31, 2012 have been clearly protected. This is a step in the right direction (the DTC provides for minimum 20 times protection ) though the life insurance industry is unlikely to agree.

There is a rather convoluted clause providing exemption of capital gains arising from the sale of residential property, provided you invest the proceeds in a company that invests in plant and machinery. This is supposedly to provide a fillip to entrepreneurs who start a manufacturing unit after selling off residential property. The process seems to be quite convoluted so the impact of any such clause remains to be seen.

A sub-limit has been created for preventive health check up of Rs. 5,000/- within the existing limit for health insurance deduction.

The most regressive move is the requirement to deduct tax @ 1% from the sale consideration of high value properties (Rs. 50 lakhs in major cities) after October 1, 2012. This is clearly a move to check tax evasion rather than a tax collection tactic. This is logically not needed since the registrars are supposed to file an Annual Information Report with the tax department, giving full details of the high value transactions. Of course, the tax department has very little control over the registrars who are state government employees and they may be either not filing these returns on time or perhaps not filing at all. For this singular failure, look at the amount of complication that the Government is subjecting property buyers to.

An individual is required to deduct and pay this tax before the property can be registered and there is no provision for refund if the deal does not go through for any reason. Thankfully, the individual is not required to get a Tax deduction account number but he will need to file quarterly statements to the tax deduction officer. But if he delays in filing this statement, he is subjected to pay the fee of  Rs. 200 per day, additionally he may have to pay a penalty as well. Now most people approach their chartered accountants to file returns after the year has ended and which is when they will discover the requirement to file statements and the fee payable will be a massive Rs. 60,000 to Rs. 70,000 plus the chances of a penalty payable. The existing provision requiring purchasers to deduct tax at source where the seller of a flat is a NRI has already resulted in purchasers avoiding  buying a flat from a NRI. Instead of removing this irksome and painful process it has been tagged on for purchase from resident individuals as well.

Clearly a completely unworkable and regressive move considering the fact that  the tax information network was created to free us from such process. This provision will either be dropped even before its enactment or if it is enacted, it will be meeting the fate of Banking transaction tax or the fringe benefit tax and get dropped in a years time. Hopefully it will not get enacted at all since it will damage the demand in the already dampened real estate market.

 

Processing your request, Please wait....
Posted in Car Loan, Education Loan, Fixed Deposit, Health Insurance, Home Loan, Life Insurance, Mutual Funds, Personal Loan, Provident Fund, Regulations, Small Savings, Taxation | Tagged | 2 Comments

SIP BY SIP TAKE BIG LEAP
1 Star2 Stars3 Stars4 Stars5 Stars (1 votes, average: 5.00 out of 5)
Loading ... Loading ...

Posted on December 7, 2011 by admin

As a rational investor, we always want to invest in those instruments from where we get maximum returns with minimum risk. Unfortunately there is no such instrument available in the world, that is why we get attracted to risky instrument like equity to get maximum returns. Actually to earn maximum returns with maximum risk doesn’t mean you win all the time and earn that return. As risk attached with such an instrument is risk of default, which is the biggest risk as compared to the returns we earned.

So now what is the solution to this problem? Does it mean that we should avoid such good return instruments?

Hold on…
…I know we all are anxious to know the answer!

Of course it is not a good idea to avoid such risk associated instruments because ultimately they may give good returns.

Hence to over come this situation and get the best returns, you can invest in such instruments by the way of SIP (Systematic Investment Plans) in Mutual Funds. It does not mean that with SIP in Mutual Funds you win all the time or SIP gives me more return than direct equity.

Wait…
…Definitely SIP may not give higher returns as happens in case of direct equity, but certainly SIP will give returns and you will not lose money. Lets see how. So my advice to you is that don’t play with your hard earned money because though at the time of investing we accept the risk, but it is upsetting to lose money when it actually happens. This way even SIP may not give us absolute highest return but as compared to the risk (we are taking through SIP) returns are good, provided you choose good Mutual Fund and your holding period is for the long-term.

So it is like if you want healthy investment then you must complete the full dose of SIP ( your entire tenure ) to reduce the symptoms of market fluctuations.

Our in-house research at Apnapaisa for Nifty reveals that if we have invested in Nifty through monthly SIP for 10 years at any time between January 1995 to November 2011, the lowest return was 9.02% and for Mutual Fund the lowest return was 16.98%. So does it mean we can earn this much return? No, we may earn more return than that because for Nifty’s 10 year monthly SIP average is 17.97% and for Mutual Fund it is 27%.

We may earn such handsome returns in long-term provided that while choosing Mutual Fund we have taken professional advice and have got it reviewed by a professional. So what is the advantage of investing long term? Investment should be made for a longer tenure only because we do not know index will move in which direction. Every economy goes through its ups and downs and markets move accordingly, and it is not a short term phenomenon. To overcome such market movements, our investment cycle should be long term.

This way like for our body’s fitness, regular exercise is important and not just exercising once in a while. For youngsters, heavy exercise instruments like equity Mutual Funds may work well but for not so young yoga like instruments say Debt Mutual Funds, MIP and FMP are good.

Still if you want to invest through direct equity for higher returns then “Best of Luck” but if you start investing through SIP then Party to banti hai dost!

Processing your request, Please wait....
Posted in Mutual Funds | Tagged , , , | 273 Comments