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Wednesday, August 5, 2015

Monetizing gold

 

The scheme 

Just as we deposit money in our savings account with the bank and get interest, similarly as per this scheme we can deposit gold with the bank (in our metal accounts) and get interest for the same. 

Households at large are expected to be the depositors and the jeweler (see Note below) community is the prospective borrower who can get gold as loan in their metal accounts. 

According to the scheme, people who are interested in depositing gold under this scheme can get their gold tested for purity in any of the 350 hallmarking centres (see Note below) across the nation. Here the depositor will get to know the approximate value/purity of the gold. If they still wish to proceed, the centre would then melt the gold in their presence. After the gold is melted, the depositor can chose to either pay the melting fee and keep the gold or deposit the gold with a bank, in which case the fee will be borne by the bank. 

The deposit has to be made for at least one year and the interest will be paid in cash or gold units (as per the choice of the depositor) after every 30 or 60 days. At the time of redemption, the depositor can withdraw either cash or gold units.   

Objectives of the scheme

1.    Reduce dependence on imported gold
India is one of the largest consumers of gold with annual demand of 800-1000 tonnes and approximately 97% of that demand is met through imports. Thus, gold imports are a huge drain on forex reserves, leading to higher current account deficit.This scheme intends to put a check on these imports and thus strengthen India's economic position. As per some experts, the scheme can reduce imports by as much as USD 10 billion

2.    Convert savings into investment and thus foster economic growth
The huge reserves of gold with Indian households represent enormous wealth, but these hoards do not contribute to growth. This proposal is an attempt to scoop out the estimated idle reserves of 20,000 tonnes of gold from the lockers, which will lead to investment of about 5.5 lakh crores into the economy.

3.    Give the much-needed push to the Indian gems and jewellery sector
Small jewellers have to rely on the big jewellers/gold importers for their raw material, which leads to concentration of supply in a few hands. The easy availability of gold in a jeweller' smetal account from a legal authority (bank) will ensure proper quality at competitive prices in the country.

Proposed Goodies 

1.    The interest earned from this scheme will be exempt from income tax, wealth tax and capital gains tax.

2.    To garner banks' interest, the scheme is proposed to include the deposits under the cash reserve ratio requirements. Banks can also sell the deposits to generate foreign exchange, convert it into coins, use it on commodity exchanges and lend tojewellers. 

3.    The minimum deposit is a meagre 30 gm, which makes the scheme attractive for a broader section of the society. 

Moment of truth 

1.    The biggest challenge is the emotional and ornamental value attached to gold. For Indians it is not just a precious metal or any form of investment, it is the jewellery that is worn to adorn the beauty and gifted to the daughters in marriage (and even before marriage) that makes it emotionally valuable. The thought of parting with their jewellery may not go down well with most Indian women.

2.    A major portion of the jewellery bought in our country is not declared, then how can we expect people to deposit their gold in a government scheme? Will they risk the principal and a lot more just for the sake of earning interest?  Hence, we must not expect a very huge response from the households in particular.


Nonetheless, the scheme will be of great interest to all the major temples receiving insane amounts of gold as offerings tovarious deities. . They can surely take advantage of this scheme as they have nothing to fear the government and have no attachment to the ornaments.

People who have invested in gold ETFs are also likely to show some interest in the scheme. As their investment can now earn them an extra interest, apart from the capital appreciation sans the risk of custody. However, the procedural formalities will have to be sorted out.

The scheme is ambitious and very much needed. Attempts have been made to keep something for all which is appreciable. Whether or not this scheme actually clicks will largely dependon how the households react to it. 

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1.ICICI Prudential Tax Plan

2.Reliance Tax Saver (ELSS) Fund

3.HDFC TaxSaver

4.DSP BlackRock Tax Saver Fund

5.Religare Tax Plan

6.Franklin India TaxShield

7.Canara Robeco Equity Tax Saver

8.IDFC Tax Advantage (ELSS) Fund

9.Axis Tax Saver Fund

10.BNP Paribas Long Term Equity Fund

You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds

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For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

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Invest in NFO or existing MF scheme

 

Many educated professionals have burnt their hands (suffered losses) investing in mutual funds. On my interaction with few of my professional friends on their past investments, I noticed that there were a few common patterns that went wrong with most of their investments. They were either victims of mis-selling or had invested at a time when the markets were in a frenzy!

For most of these investors, NFOs (New Fund Offers) were one of the highly mis-sold products, showcasing them as low cost investments.

My worry is that despite being educated, many investors believe NFOs give them the opportunity to invest at low cost. This prodded me to write an article to clear the misconception and check for myself if investing in NFOs was actually an opportunity or a trap for retail investors.

First, let us understand NFOs and discuss how an investor should deal with them.

What is an NFO?

A New Fund Offer (NFO) is the first time offer for subscription to a mutual fund scheme launched by an Asset Management Company (AMC). NFOs are offered by AMCs only for a stipulated period and are launched at a fixed per unit price (offer price) that is generally Rs 10 per unit. So, does buying NFOs mean buying cheap?

 

NFOs are Cheap! - The Biggest MYTH:

Most of the investors think NFOs are cheap as compared to the existing schemes with a higher NAV. Here's a simple example: let's say an AMC launches an NFO in equity diversified category at Rs. 10 per unit, and the same AMC also manages an equity diversified scheme whose current NAV is Rs. 20 per unit. Does this mean the NFO is cheaper than the existing scheme? It's a big NO. Remember, the money collected through NFO or an existing scheme is going to be used to allocate MF units for the amount you paid. The only difference in this example is, you will receive more units in the NFO as compared to the existing scheme, but that doesn't mean there would be any difference in returns.

The returns of a fund solely depends on the performance of the stocks the fund holds and not on the NAV price. Therefore, never consider low NAV as a reason to invest in NFO. 

Are NFOs launched only when the markets are euphoric?

By and large, we have seen most NFOs being launched when the markets are gung-ho. It is a common behaviour of most of the investors that they tend to enter in rising markets.

To study this, we considered last 10 year period for our analysis. During this period, the Indian markets have witnessed 5 years of euphoria (bull period) and 5 lull years (including both bear and flat market conditions). 

To keep our study focused, we analyzed NFOs that were launched under the open ended equity (diversified, large cap and mid/small cap) categories during this period.
 

Mutual fund, NFO, existing MF, Fundoo


From the above chart, we could deduce that 117 new funds were launched in last ten years, out of which 65% of the NFOs were launched when the markets were in euphoria! However, despite 2008 being a lull period (market tumbled around 62%) 14 NFOs still hit the market.

Post 2010, due to lull market conditions and SEBI's clampdown on new funds, there has been a decline in the NFO numbers.


NFOs Performance - Decoded:

The performance of the NFOs launched in last 10 years are disappointing. Just 42% of these funds have outperformed their category average. 

 

The infographic below decodes the NFOs' performance.
 

Mutual fund, NFO, New Fund Offer


Key Insights:

1.    61% of the funds launched during bull markets have failed to out perform their category average. On the other hand, 54% of the funds launched during bear markets have failed to outperform their category average.

2.    Among the NFOs launched during bull run, diversified category funds have performed better than large cap and mid/small cap category funds.
(Diversified>Large cap>Mid/Small cap)

3.    On the other hand, among the NFOs launched during bearish trend, mid/small cap category funds have performed better than large cap and diversified category. 
(Mid/Small cap>Large cap>Diversified)

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1.ICICI Prudential Tax Plan

2.Reliance Tax Saver (ELSS) Fund

3.HDFC TaxSaver

4.DSP BlackRock Tax Saver Fund

5.Religare Tax Plan

6.Franklin India TaxShield

7.Canara Robeco Equity Tax Saver

8.IDFC Tax Advantage (ELSS) Fund

9.Axis Tax Saver Fund

10.BNP Paribas Long Term Equity Fund

You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds

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For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

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DCB ZIPPI - Online fixed deposit Scheme

 DCB Bank  has launched DCB ZIPPI, an online fixed deposit scheme for non-DCB Bank customers. The customer can receive interest and maturity amount in their existing bank account in other banks. This is a first as all other online banking platforms require you to have an account with the bank to open an FD online.The tenure of ZIPPI deposits ranges from 14 days to 10 years with a minimum deposit of `10,000 and a maximum of `10 lakh.

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1.ICICI Prudential Tax Plan

2.Reliance Tax Saver (ELSS) Fund

3.HDFC TaxSaver

4.DSP BlackRock Tax Saver Fund

5.Religare Tax Plan

6.Franklin India TaxShield

7.Canara Robeco Equity Tax Saver

8.IDFC Tax Advantage (ELSS) Fund

9.Axis Tax Saver Fund

10.BNP Paribas Long Term Equity Fund

You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds

Invest in Tax Saver Mutual Funds Online -

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

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UTI Children Career Balanced Fund

UTI Children Career Balanced Fund
 imggallery
 

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1.ICICI Prudential Tax Plan

2.Reliance Tax Saver (ELSS) Fund

3.HDFC TaxSaver

4.DSP BlackRock Tax Saver Fund

5.Religare Tax Plan

6.Franklin India TaxShield

7.Canara Robeco Equity Tax Saver

8.IDFC Tax Advantage (ELSS) Fund

9.Axis Tax Saver Fund

10.BNP Paribas Long Term Equity Fund

You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds

Invest in Tax Saver Mutual Funds Online -

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

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Birla Sunlife 95 fund

 Volatility in equity market, possible rate cuts in the near future, and consistent track record make Birla Sunlife 95 fund a good bet.
 
 It is a proven fact that in the long run, equities deliver better performance than any other asset class.In the short-term, though, they may be volatile. Are you an investor who cannot endure short-term volatility? Does this inability make you stay away from participating in equity? If yes, balanced/hybrid funds are for you.
 

In a Balanced Fund, the asset manager has the flexibility to invest in a combination of stocks and bonds.  
•    Exposure to stock aims in generating long-term growth of capital.
•    Presence of bond cushions the volatility.

From the taxation perspective:

Capital gain in mutual fund is the profit that results from selling mutual fund units. Capital gain tax rate differs according to the type of fund. The table below briefs you about the capital gain tax rates on different types of mutual fund investments for an Indian resident.

 

Balanced fund with debt exposure limited to 35% is subject to equity taxation. This makes balanced fund more lucrative.

Another fascinating feature in this type of fund is that it rebalances its portfolio automatically. For example, if the asset manager of a balance fund allocates 65% in equity and 35% in debt for all times. In case of rising markets the equity allocation rises to 70% naturally. This automatically makes the asset manager sell stocks and buy bonds to maintain 65:35 levels.

 
 
 

However, you might still be wondering how well balanced funds would perform in the long run.

The chart below compares the performance of Thefundoo's equity oriented Balanced Bund category to Large Cap Equity category.

ThefundooBalanced Fund (equity oriented) category has managed to outperform the Equity Large Cap funds category by over 110 bps over a 5-year period, that too by taking less risk.

Birla Sunlife '95 Fund – A 20-Year Legacy

In the equity oriented balanced fund category, the 20-year veteran Birla Sunlife '95 fund stands out well because of its consistent performance. Check more details about the fund below:

The above chart explains the growth of Rs.10,000 in the Birla Sunlife '95 fund, in balance fund category and in Nifty over a five-year period. 

Birla Sunlife '95 fund has consistently outpaced its category average and Nifty. It has also topped in the ranking board not only on the basis of returns but also on the basis of risk-adjusted return.

Portfolio Construction:

Birla Sunlife '95 fund invests in a mix of equities, bonds, and money market instruments. This fund has the flexibility to maintain equity exposure between 50% and 75%. However, in the last five years the fund has maintained 70% exposure in equity and the rest in bonds and cash. 

The chart below shows the asset allocation in different time periods.

Equity for Growth

The fund boasts of an impressive long-term record. It benefits from Mahesh Patil's investment strategy of picking stocks based on the bottom up approach and uses thetop down approach for sector allocation.

In terms of sector allocation, as on 31st March 2015, the fund manager has given highest weightage to financial services, which is 36% of the total equity portfolio. Other sectors such as IT, automobile, and consumer products together hold 22% weight.

The fund is widely diversified by owning 71 different stocks across all market caps. HDFC bank ltd, ICICI Bank Ltd, Reliance industries, Axis Bank Ltd, and L&T are the top 5 holdings and togetherhold 21% of the equity portfolio.
 

   

Debt for Safety:

In debt portfolio, heightened exposure to corporate debentures offers attractive yields. The fund's current YTM is 8.68% and its modified duration is 3.98 years. This significantly helps the portfolio reap benefits from falling interest rates.

Attribution Analysis:

Allocating sectors in the right proportion and picking good stocks are the major skills of a fund manager. These skills help a fund in generating alpha (returns more than index returns). The attribution analysis segregates the alpha of a fund based on the fund manager's decision on sector allocation and stock selection.

From the above, it is evident that the fund manager's decision on stock selection and sector allocation has rewarded the fund well.

Key Take Away

Equity market might witness volatility in the short-term because of disappointing corporate earnings, possible US interest rate hike, and other global tensions. On the other hand, bond prices are expected to increase further because of disinflation, which triggers further interest rate cuts. This helps Birla Sunlife '95 fund in performing well by rebalancing its portfolio dynamically on every rise and fall in the market. 

Having such a consistent track record, Birla Sunlife '95 is a good bet for the investors.

 

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1.ICICI Prudential Tax Plan

2.Reliance Tax Saver (ELSS) Fund

3.HDFC TaxSaver

4.DSP BlackRock Tax Saver Fund

5.Religare Tax Plan

6.Franklin India TaxShield

7.Canara Robeco Equity Tax Saver

8.IDFC Tax Advantage (ELSS) Fund

9.Axis Tax Saver Fund

10.BNP Paribas Long Term Equity Fund

You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds

Invest in Tax Saver Mutual Funds Online -

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

---------------------------------------------

Leave your comment with mail ID and we will answer them

OR

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

OR

Leave a missed Call on 94 8300 8300

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Invest Mutual Funds Online

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Tuesday, August 4, 2015

Baroda Pioneer Growth Fund

 

Baroda Pioneer Growth Fund - Invest Online

The Diversified fund has been performing consistently over the past few years. Scores well both on stock selection and sector allocation skills.

 

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1.ICICI Prudential Tax Plan

2.Reliance Tax Saver (ELSS) Fund

3.HDFC TaxSaver

4.DSP BlackRock Tax Saver Fund

5.Religare Tax Plan

6.Franklin India TaxShield

7.Canara Robeco Equity Tax Saver

8.IDFC Tax Advantage (ELSS) Fund

9.Axis Tax Saver Fund

10.BNP Paribas Long Term Equity Fund

You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds

Invest in Tax Saver Mutual Funds Online -

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

---------------------------------------------

Leave your comment with mail ID and we will answer them

OR

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

OR

Leave a missed Call on 94 8300 8300

---------------------------------------------

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Tata AIA Life Fortune Guarantee

 Tata AIA Life has launched Fortune Guarantee, a non--participating product that offers guaranteed return. A limited premium payment plan, it allows policyholders to pay premiums for five years. Maturity proceeds are made available to the policyholder after the tenth year.

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1.ICICI Prudential Tax Plan

2.Reliance Tax Saver (ELSS) Fund

3.HDFC TaxSaver

4.DSP BlackRock Tax Saver Fund

5.Religare Tax Plan

6.Franklin India TaxShield

7.Canara Robeco Equity Tax Saver

8.IDFC Tax Advantage (ELSS) Fund

9.Axis Tax Saver Fund

10.BNP Paribas Long Term Equity Fund

You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds

Invest in Tax Saver Mutual Funds Online -

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

---------------------------------------------

Leave your comment with mail ID and we will answer them

OR

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

OR

Leave a missed Call on 94 8300 8300

---------------------------------------------

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now
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