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Thursday, February 11, 2016

Balanced Funds for 2016

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Investors can improve tax efficiency by shifting part of their equity & debt funds to balanced funds
 
While equity mutual funds are expected to beat other fund classes in the long term, shortterm volatility is a major bugbear. Investing in the stock market through balanced funds is a better option for this class of investors. Mainly because the equity exposure will be restricted between 65% and 75% for these funds, and a debt portion of 25%-35% cuts down volatility significantly . Though the returns from balanced funds will be lower than that of equity funds in long term, the volatility will also be lower. So on a risk-adjusted basis, it should give better return on 5-7 year holding period.

Both debt and equity are expected to do well in future. This is because an expected fall in interest rate will benefit both the asset classes. Balanced funds make immense sense in a period like this when equity and debt are expected to do well," .

There are also experts who believe that balanced funds can beat equity fund in return in absolute terms too over the next three years. Equity market performance in near future will depend on interest-rate movements. Since the debt (or the debt portion in balanced fund) will be the first beneficiary of a rate reduction, bal anced fund may do better than the equity funds on absolute basis in the next three years.

Another advantage of balanced funds is the tax treat ment. Since these equity oriented balanced funds keep more than 65% of their assets in equities, they are eligible for equity type taxation benefits. While the gains from debt funds become long term capi tal gain only after three years, the same from balanced fund become long term capital gain after one year's holding. While you have to pay 20% capital gains tax after indexation for debt funds, long-term capital gains from bal a n c e d f u n d s a r e t a x f r e e.

Balanced funds make the debt part also tax free after a year's holding.

So, can we create a balanced fund strategy to reduce tax and risks?

Yes, but investors need to understand the nitty-gritty first. Usually investors tend to look at the performance of an individual scheme and not at the overall portfolio performance. This is investor psychology.

To implement a balanced-fund strategy , investors need to come out of this block.An investor needs to treat balanced funds not as a single scheme, but as a combination of two schemes: you have invested 70% in equity funds and the remaining 30% in debt funds.

Once we understand this concept, it is easy to create equity allocations using balanced funds and debt funds (See Table).

For example, assume that A is a high risktaker and wants 80% of his allocation to equity. Instead of investing 80% in equity funds and 20% in debt funds, the same objective can be realised by 33.3% in equity funds and the 66.7% in balanced funds. And unlike the normal allocation (80% equity + 20% debt where the 20% debt will be taxed separately), 100% of the portfolio will be taxed as equity under this strategy .

Now, consider the case of B, who is risk averse and wants to make only a very small equity allocation of, say, 10%. The same strategy can be replicated for him by investing 85.7% in debt fund and the remaining 14.3% in balanced fund. This is much better compared to the traditional way of putting that money into monthly income plans (MIP) with low equity exposure.

While the entire 100% will be taxed as debt in the MIP strategy (even your equity exposure) in the traditional strategy, 14.3% balanced funds will be taxed as equity funds in the new strategy. In addition to tax disadvantage, MIPs also have high expense ratio.

Some investors may not be comfortable with multiple products. If they insist that you need to go only for one product, they should consider algorithm based products like ICICI Prudential Balanced Advantage Fund, Edelweiss Absolute Return Fund, among others.

Investors with low risk appetite should go with algorithm based funds, since they will do better in a downward spiral

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Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds

Top 10 Tax Saving Mutual Funds to invest in India for 2016

Best 10 ELSS Mutual Funds in india for 2016

1. BNP Paribas Long Term Equity Fund

2. Axis Tax Saver Fund

3. Franklin India TaxShield

4. ICICI Prudential Long Term Equity Fund

5. IDFC Tax Advantage (ELSS) Fund

6. Birla Sun Life Tax Relief 96

7. DSP BlackRock Tax Saver Fund

8. Reliance Tax Saver (ELSS) Fund

9. Religare Tax Plan

10. Birla Sun Life Tax Plan

Invest in Best Performing 2016 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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Invest in Equity Fund via STP

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Investing in an equity fund via STP

When you are transferring a fixed amount from a liquid fund fund to an equity fund, it is a redemption in the liquid fund and a purchase in the equity fund

 

Suppose you have a large amount to invest and you want to invest it gradually in stocks. How would you do it? One, you can park the money in a bank savings account and start a monthly Systematic Investment Plan (SIP) to invest a fixed amount every month in an equity scheme. Another way is to park the lumpsum in a liquid fund and transfer a fixed amount from it to an equity fund through an STP. The idea behind this exercise is to earn earn a slightly better return from the lumpsum investment.

However, should remember that STP may attract capital gains tax. When you are transferring a fixed amount from the liquid fund fund to an equity fund, it is a redemption in the liquid fund and a purchase in the equity fund. If investments in liquid funds are sold before three years, the gains are added to the income and taxed as per the income tax slab applicable to the investor. If investments are sold after three years, you can pay a long-term capital gains tax of 20 per cent with indexation benefit.

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Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds

Top 10 Tax Saving Mutual Funds to invest in India for 2016

Best 10 ELSS Mutual Funds in india for 2016

1. BNP Paribas Long Term Equity Fund

2. Axis Tax Saver Fund

3. Franklin India TaxShield

4. ICICI Prudential Long Term Equity Fund

5. IDFC Tax Advantage (ELSS) Fund

6. Birla Sun Life Tax Relief 96

7. DSP BlackRock Tax Saver Fund

8. Reliance Tax Saver (ELSS) Fund

9. Religare Tax Plan

10. Birla Sun Life Tax Plan

Invest in Best Performing 2016 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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Leave your comment with mail ID and we will answer them

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You can write to us at

PrajnaCapital [at] Gmail [dot] Com

OR

Leave a missed Call on 94 8300 8300

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Insurance is not Investment

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Insurance is not investment

Insurance is a key part of every individual's financial planning but far too many people are thinking of it as an investment

 

'I invested R2 lakh last year, out of which R80,000 was in insurance.' The genesis of the article you are reading was this one single sentence in an e-mail that was sent to Value Research recently. There was nothing unique about this e-mail--we get many every day asking us for investment advice. The fact that the writer, without any hesitation, considered insurance to be investment was also not unique. What has really caught our eye is that we are seeing more and more of this attitude.

An ever-increasing number of people are 'investing' in insurance, driven, no doubt, by the sharply higher amount of insurance advertising and marketing that they are exposed to. Over the years, we have been bombarded by insurance pitches at a rate that is far higher than used to earlier. This is a natural by-product of the competition in the insurance industry and by itself there is nothing wrong with this.

Whereas earlier, insurance marketing was driven solely by competition between insurance agents and agents' own drive to make more money, today the marketing hype is driven by insurance companies competing with each other. Insurance advertising in the mass media, which was almost non-existent once, has grown hugely. By some measures, mass media advertising of insurance products is around eight times what it used to be three years ago. On the face of it, there's nothing wrong with this. After all, it's an uncertain world and most people sleep better at night knowing that they're well insured. Actually, there is something deeply wrong about the way the whole activity of insurance is evolving.

Here's the problem: a bulk of the money that flows into the insurance companies' coffers is not payment for insurance but for what are essentially investment products. Generations of Indian have been brainwashed by insurance agents into thinking that buying term insurance is a stupid thing to do.

Here's how it works. An insurance agent chases you, usually referred to by someone just to get rid of him (insurance agents serve a useful purpose but hardly anyone in this world is ever able to talk to one without instantly developing an urge to get rid of him). When he finally traps you, he never mentions term insurance on his own and if you bring up the topic, he immediately warns you that you will not get anything back. 'No benefit' is the phrase he normally uses. Since you certainly don't want to do anything that carries no benefit, your thinking veers towards policies that supposedly carry a benefit.

They do carry a benefit of course, but this benefit is largely for the agent and the insurance company. The reason for this is a secret of the psychology of insurance-buying that every agent understands but few insurance buyers (or 'life', as they are called in the insurance business) do. Here's the secret: the 'life' thinks in terms of the cover he or she gets, while the agent and the insurer make money in terms of the premiums that the life pays. The 'life' will come to a purchase decision that is something like, 'If I die, R20 lakh ought to be adequate for my family'. Once such a number has been put to what the life's life is worth, it's in the agent's interest to steer the life's thoughts away from the cheaper term insurance policies and towards more expensive policies.

You can easily verify this by conducting a little experiment. Call a life insurance agent, pretending to be a 'life'. Tell him that you would like to insure yourself for R20 lakh and ask him to suggest a policy. Now, call another agent and say that you would like to spendR3,000 a month on insurance and ask him to suggest a policy. In the first case, the agent will either never mention a term insurance or will talk you away from it. In the second case, once the agent is sure that you really are not willing to spend more than R3,000 a month, he will be just as glad to sell you a term insurance.

This combination of factors--the business model of insurance selling plus the insurance buyers' hunger for 'benefit' has resulted in a situation where too many otherwise money-savvy Indians are not thinking clearly about what insurance is, how it is different from investment and how they should best go about insuring themselves.

To be sure, there are many superficial similarities between insurance and investment, and this is what causes the confusion. Loosely speaking, both involve giving money to a financial service provider in exchange for a future benefit but there the similarity ends.

Let's take a systematic, back-to-the-basics look at what insurance is and how it should be bought and compare this to investment. The purpose of insurance is to cover the financial aspect of risk. The risk can be of property, life, health, legal liability and of many other kinds. The only logical kind of life insurance that makes sense is term insurance because only in that case are you are insuring against a risk that is insurable. The moment you buy any other kind of insurance, you are actually making an investment that is disguised as insurance.

The problem with buying investment disguised as insurance is that there are many characteristics of insurance that are most undesirable in investments. Here are some major problems.

Illiquid: Investments ought to be liquid. After all, it's your money and if you really need it, you should be able to get your hands on it. However, the investment part of your insurance policy is locked in for enormous periods of time. Sure, there are investments like public provident fund and other tax-saving investments which we recommend. However, those offer a far better deal in some other way, either in tax exemptions, or in sovereign guarantees or in the relatively short period of lock-in and often a combination of these. The investment part of insurance offers moderate returns and decades-long lock-in. This just doesn't make sense.

Lack of transparency: We believe that transparency should be followed like a religion in every kind of financial service, most of all in insurance on which people depend so totally. Malpractices, inefficiency and poor performance in any kind of financial service are almost always rooted in lack of transparency.

In this regard, the insurance industry in India just doesn't measure up to the standards that are followed by the mutual fund industry. There is absolutely no valid reason why you, as an investor, should have less knowledge about what your insurer is doing with your money than you have about what your mutual fund is doing with it. Daily NAVs, change in personnel, procedural rules about justifying investment decisions and the myriad other rules that funds follow need to be imposed on insurance companies as well.

Cost: Compared to what agents selling mutual funds, Reserve Bank of India and other bonds and Post Office deposits get, the commissions received by insurance agents are a scandal. The commissions are enormous, generally around 15 per cent of first year premiums and 7.5 per cent in the second and 5 per cent from the third year onwards. For a financial product that is supposed to be an investment, this is a shocking level.

At the end of the day, these commissions are probably the strongest argument against investing with an insurance company. Given what safe investment earns these days, this commission alone ensures that this 'investment' is an incredibly bad deal.

The only way to go about it is to calculate how much cover you need and then find a good, low-cost, term insurance.
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Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds

Top 10 Tax Saving Mutual Funds to invest in India for 2016

Best 10 ELSS Mutual Funds in india for 2016

1. BNP Paribas Long Term Equity Fund

2. Axis Tax Saver Fund

3. Franklin India TaxShield

4. ICICI Prudential Long Term Equity Fund

5. IDFC Tax Advantage (ELSS) Fund

6. Birla Sun Life Tax Relief 96

7. DSP BlackRock Tax Saver Fund

8. Reliance Tax Saver (ELSS) Fund

9. Religare Tax Plan

10. Birla Sun Life Tax Plan

Invest in Best Performing 2016 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

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

Cash and Inflation

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1. What is a `negative' interest ?

If a bank keeps interest negative, de positors need to pay regularly to keep money with the bank instead of earning return on deposits.

2. What do central banks aim at by this move?

Banks keep excess re serves with central banks. Keeping interest rate negative is a typical central bank strategy to push banks to buy alternate assets or explore profitable lending opportunities, instead of keeping the money idle with the central bank.This gained currency after the global financial crisis, when money market interest remained very low, prompting commercial banks to hold higher balances with central banks.

3. Have central banks actually turned rates into negative zone?

The Bank of Japan has pushed policy rates into negative zone last week in an attempt to lift growth. Last year, major central banks in Europe, such as the Danish National Bank, the Swedish Riksbank, the Swiss National Bank, cut short-term policy rates below zero to encourage lenders to lend instead of keeping the money with the central banks.In 2014, the European Central Bank cut its policy rate below zero.

4. What is the impact on inflation?

As negative interest rate encourages banks to buy alternate assets or lend more, it is expected to create some pressure on prices lifting inflation from very low levels.

5. How effective is it as a money supply tool?

The short-term in terest rate acts as the benchmark in most economies. Any change in rate impacts the money supply in the economy.

6. Has such a step been contemplated in India?

In India, repo rate acts as the bench mark for short term rates. This is the rate at which Reserve Bank of India lends money to banks. So, lowering of repo rate signals an accommodative monetary stance of the central bank.

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Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds

Top 10 Tax Saving Mutual Funds to invest in India for 2016

Best 10 ELSS Mutual Funds in india for 2016

1. BNP Paribas Long Term Equity Fund

2. Axis Tax Saver Fund

3. Franklin India TaxShield

4. ICICI Prudential Long Term Equity Fund

5. IDFC Tax Advantage (ELSS) Fund

6. Birla Sun Life Tax Relief 96

7. DSP BlackRock Tax Saver Fund

8. Reliance Tax Saver (ELSS) Fund

9. Religare Tax Plan

10. Birla Sun Life Tax Plan

Invest in Best Performing 2016 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

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

ELSS for Senior Citizens

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For senior citizen with taxable income, ELSS funds are an excellent option for tax-saving

 

A popular misconception is that ELSS of mutual funds are not suitable investment options for senior citizens and retired persons. this comes from the widespread notion that equity-backed investments in any form are unsuitable for older and/or retired people. The reality is to the contrary.

Everyone who has taxable income should invest in ELSS. The idea that equity is risky and therefore suitable only for young people actually pushes many old, retired people towards financial problems. The culprit, of course, is inflation. And that's a problem that may abate, but will not go away to any substantial degree for a long time.

Equity investment maybe risky over the short term, but the long-term is an entirely different story. For investment periods of three to five years or longer, equity investments are actually low in risk and high in returns.

In fact, when you take inflation into account, it is bank FDs and similar deposits generate returns that are barely higher than the inflation rate and in effect, you lose value or barely maintaining it. The purchasing power of your money reduces at abuot the same rate as its value increases in a fixed deposit.

There are also some other points you should consider:

  1. The returns you will earn from ELSS will also be tax-free because there is no long-term capital gains tax payable on equity. On FDs, the returns are taxable and TDS is deducted yearly. The yearly deduction of TDS further reduces returns by making less money available for long-term compounding.
  2. ELSS is more liquid because the lock-in is three years. In tax-saving FDs, the lock-in is five years.
  3. Unlike other kinds of FDs, tax-saving FDs are completely illiquid. Not only can you not break them prematurely, you cannot take a loan against them either.

Of course, like all equity investments, the best way of investing in ELSS funds is through monthly SIPs throughout the year. However, a smaller number of evenly spaced investments are also suitable.

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Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds

Top 10 Tax Saving Mutual Funds to invest in India for 2016

Best 10 ELSS Mutual Funds in india for 2016

1. BNP Paribas Long Term Equity Fund

2. Axis Tax Saver Fund

3. Franklin India TaxShield

4. ICICI Prudential Long Term Equity Fund

5. IDFC Tax Advantage (ELSS) Fund

6. Birla Sun Life Tax Relief 96

7. DSP BlackRock Tax Saver Fund

8. Reliance Tax Saver (ELSS) Fund

9. Religare Tax Plan

10. Birla Sun Life Tax Plan

Invest in Best Performing 2016 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

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

ICICI Pru Elite Life

 

ICICI Pru Elite Life II is an insurance cum investment plan. You may read more about the plan, here: Go for a Term Cover instead of a ULIP.

 

To know your fund value, you have to call the customer care number. We do not recommend such policies because they offer very little cover and they also have higher expenses. If you are looking to save taxes, you can consider buying a term plan and investing in Equity Linked Savings Scheme (ELSS) or tax planning mutual funds. A term plan will provide you an adequate coverage at nominal rates. And an ELSS will help you to create wealth over along period. While ULIPs have a lock-in period of five years, ELSSs have a lock-in period of only three years. However, you should invest in ELSS with at least five-year investment horizon.

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Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds

Top 10 Tax Saving Mutual Funds to invest in India for 2016

Best 10 ELSS Mutual Funds in india for 2016

1. BNP Paribas Long Term Equity Fund

2. Axis Tax Saver Fund

3. Franklin India TaxShield

4. ICICI Prudential Long Term Equity Fund

5. IDFC Tax Advantage (ELSS) Fund

6. Birla Sun Life Tax Relief 96

7. DSP BlackRock Tax Saver Fund

8. Reliance Tax Saver (ELSS) Fund

9. Religare Tax Plan

10. Birla Sun Life Tax Plan

Invest in Best Performing 2016 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

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

UTI Transportation and Logistics

Invest UTI Transportation and Logistics Online
 
 
 

UTI Mutual Fund has announced dividend under the following schemes:

SchemeDividend (R/unit)
UTI Transportation and Logistics-D3
UTI Transportation and Logistics Direct-D3
UTI SPrEAD-D0.065
UTI SPrEAD Direct-D0.065
 
 
 
 
 
 
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Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds

Top 10 Tax Saving Mutual Funds to invest in India for 2016

Best 10 ELSS Mutual Funds in india for 2016

1. BNP Paribas Long Term Equity Fund

2. Axis Tax Saver Fund

3. Franklin India TaxShield

4. ICICI Prudential Long Term Equity Fund

5. IDFC Tax Advantage (ELSS) Fund

6. Birla Sun Life Tax Relief 96

7. DSP BlackRock Tax Saver Fund

8. Reliance Tax Saver (ELSS) Fund

9. Religare Tax Plan

10. Birla Sun Life Tax Plan

Invest in Best Performing 2016 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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