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Thursday, December 31, 2009

Mutual Fund - Hidden Expenses (Expense Ratio)

Free. The word evokes a different kind of feeling than what it actually means in today’s world. Make no mistake about it, absolutely nothing is free today. Even things that are said to be free have a hidden cost to them. Wherever you read that four-letter word, the omnipresent ‘conditions apply’ will be there as well. You always pay for what you get, one way or another. A price for every product and a charge for every service. A doctor charges you for his services, a consultant charges you for telling you what you probably already know and in the same vein, a mutual fund charges you for managing your money.

The Expense Ratio is also known as Annual Recurring Expenses. This basket of charges comprises the fund management fee, agent commission, registrar fees and the selling and promotion expenses. The expense ratio is disclosed every March and September and is expressed as a percentage of the fund’s average weekly net assets. A fund’s expense ratio states how much you pay a fund in percentage terms to manage your money.

For example, let’s assume you invest Rs 10,000 in a fund with an expense ratio of 1.5 per cent. This means that you pay the fund Rs 150 to manage your money. The expense ratio affects the returns you get as well. If the fund generates returns of 10 per cent, what you will get is just 8.5 per cent after the expense ratio of 1.5 per cent has been deducted. Hence, this makes it necessary for investors to know the expense ratio of the funds he invests in.

Since the expense ratio is charged every year, a high expense ratio over the long term can eat into your returns massively. For example, Rs 1 lakh invested over a period of 10 years would grow to Rs 4.05 lakh if the fund delivers returns of 15 per cent per annum. But when we deduct the expense ratio of 1.5 per cent per annum, then your returns come down to Rs. 3.55 lakh, down by almost 14 per cent over the period of 10 years.

Different funds have different expense ratios. However to keep things in check, the Securities & Exchange Board of India (SEBI) has stipulated an upper limit that a fund can charge. The limit stands at 2.50 per cent for equity funds and 2.25 per cent for debt funds.

Expense Ratio Structure:
1) The largest component of the expense ratio is the management and advisory fees.
2) Then there are marketing and distribution expenses and
3) All those involved in the operations of a fund like the custodian and auditors also get a share of the pie.

Interestingly, brokerage paid by a fund on the purchase and sale of securities is not reflected in the expense ratio. Funds state their buying and selling price after taking the transaction cost into account.

Now that you know everything about expense ratios, let’s see if it really matters. The answer is yes, it does, especially in the case of debt funds. Debt funds generate about 7 – 9 per cent returns and any percentage of expense ratio becomes a substantial amount in the case of such low yields. On the other hand, in the case of actively managed equity funds, the issue of expenses is more complicated. The wide divergence of returns between ‘good’ and ‘bad’ funds makes the expense ratio secondary. However, if you are stuck between two similar funds, the expense ratio can be a good differentiator. But keep in mind, expense ratio is charged even when the fund’s returns are negative.

Overall, before you invest in a mutual fund, it is imperative that you check out the fund’s expense ratio. But remember that a low expense ratio doesn’t necessarily mean that the fund is good.

A good fund is one that delivers good returns with minimal expenses.

Tax saving tools to maximise returns


An Individual can claim a deduction up to Rs 1 lakh U/S 80C of the Income-Tax Act, 1961 ('Act') by incurring a certain expenditure or making specified investments. Few of the popular schemes which are generally availed of by the individuals, inter-alia, include the following:

Expenditure-Related Deductions

Broadly, the expenditure-related deductions include tuition fees and home loan payments.

   Tuition fees for full-time education in any Indian university, college, school, and educational institution, for any two children is eligible for deduction. However, development fees or donations are not considered.

   The principal amount re-paid against a home loan to banks or certain category of employers is also eligible for deduction. Stamp duty, registration fees and other expenses incurred for the purpose of acquisition of such a house property are also eligible for deduction.

   It should, however, be noted that the cost of renovation/house repairs after the completion certificate is issued or after the house is occupied, is not eligible for deduction.

Investment-Related Deductions

Equity Instruments

The most popular one here is the Equity-Linked Savings Schemes (ELSS) offered by mutual funds. These have a three-year lock-in period and individuals who have a risk appetite may consider this option.

Provident Fund (PF) / Public Provident Fund (PPF)

In India, there is no comprehensive social security scheme; therefore, individuals have to rely primarily on their own savings/retirement funds. In this context, PF and PPF are two of the most popular and effective tools to create a pool of funds to meet long-term financial requirement. Employees contribution towards PF is eligible for deduction. In case of self-employed individuals, in the absence of a PF, a contribution could be made to the PPF. It is important to note that in case of PPF, the maximum amount of contribution is restricted to Rs 70,000 per annum under the PPF rules.

Life Insurance Policies (LIP)

There are different kinds of life insurance policies, which include term insurance, money back, endowment, etc. Term insurance is particularly advisable, wherein by paying a small sum of premium, a large sum could be assured by an individual.

Post Office Schemes

Investment avenues under the post office schemes include National Savings Certificate (NSC), Senior Citizen Savings Scheme (SCSS) and the Post Office five-year time deposits. Post offices in India have a good coverage and the interest rates do not vary frequently in comparison with banks/other deposits schemes. Therefore, these schemes are also quite popular amongst individual tax payers.


Term deposit with a scheduled bank for a period of five years or more is also eligible for deduction. Fixed deposits with banks have been quite popular, especially in the last year due to substantial increase in term deposit interest rates. Similarly, investments made in bonds issued by the National Bank for Agriculture and Rural Development (Nabard) and debentures issued by specified companies are also eligible for deduction.

To Sum-Up

Every individual tax payer should consider the various expenditure/investment deductions available under the Act and also have a good mix of various schemes to ensure good reasonable returns and accumulation of funds over a period of time to meet his mid/long-term financial requirements. After all, our age-old mantra of 'regular savings' irrespective of income/expenditure levels helped India and Indians sail through the global economic turmoil.

ELSS: Tax gain with returns

During the last few weeks of the year, accounts departments of companies start asking employees to give documents to back up their section 80C declaration made at the beginning of the financial year.

And for ones, who have not completed their investment, this could be the time to invest quickly. Otherwise, the portion that has not been invested will be deducted from the salary in the next three months.

No wonder, this is also the time when mutual fund houses and distributors aggressively push equity-linked savings schemes (ELSS) because one gets tax relief under section 80C for investing in these schemes. In fact, some fund houses pay higher upfront fees to distributors for promoting ELSS.

Returns from these schemes have been at par with the Sensex returns in the last three-five years. According to data from Value Research, a mutual fund rating agency, these schemes have returned almost 83 per cent in the last one year, as against 76 per cent by the Sensex. In the last three and five years, while these schemes have returned 9 and 21 per cent, the Sensex has returned 8 and 22 per cent, respectively.

To qualify as an ELSS and get section 80C benefits, a scheme has to have at least 65 per cent of its corpus in equities. It also comes with a lock-in period of three years.

There are other tax-saving options such as Employee Provident Fund (EPF), Public Provident Fund (PPF), National Savings Certificate (NSC), unit-linked insurance plans (Ulips), various insurance policies and principal repayment on home loans.

As compared to ELSS and Ulips, most of the other instruments are safer because of their lower exposure to equities. That is why many experts recommend other instrument over ELSS and Ulips.

First recommend EPF, PPF and insurance term policies over ELSS However, many felt ELSS had twin-advantage: Besides giving tax benefits, it also leads to 'forced savings' because of the lock-in period. This allows investors to earn market-based benefits over a longer period of time.

While ELSS, NSC and PPF offer tax benefits, the advantage of ELSS is that it offers equity market exposure and shorter lock-in period as compared to NSC and PPF. Tax benefits are quite impressive. For a person in the highest income tax bracket, investing the entire Rs 1 lakh (section 80C limit) will give them a benefit of Rs 30,000.

For an ELSS investor, there are two options lumpsum investment or investment through systematic investment plans (SIPs). For employees, who have still not invested to meet their section 80C commitments, it could be a good idea to invest the entire lumpsum. Experts said starting an SIP only for the last four months did not make much sense. If you want to have a disciplined approach, opt for SIPs from April 2010 onwards.

Like all equity schemes, these schemes come with both growth and dividend options. In case, one opts for the growth option, he/she will not get any returns till the time he/she is holding the investment. But returns at the end of three years will get the benefit of compounding along with being tax-free because there aren't any long-term capital gains tax on equities after one year.

In case of growth option, the investor gets the advantage of compounding. Of course, there is a risk element when one invests in equities. However, over long term (three-five years), returns are more likely to beat the inflation unlike some of the other tax-saving schemes.The dividend option makes sense for people who are close to retirement or have retired because it allows them to get some profits every year.

Happy New Year 2010

Wish you and your family a very happy, successful and prosperous new year ahead 2010. Have a wonderful weekend.

Reliance MF Files Liquid ETF Offer


Reliance Asset Management Company has filed an offer document with the market regulator, the Securities and Exchange Board of India (SEBI), for the launch of a new fund Reliance Liquid Exchange Traded Fund (ETF). 

ETFs can be bought or sold like any other stock on the National Stock Exchange (NSE) through terminals spread across the country. After the closure of the new fund offer (NFO), if and when it is cleared, the Units of the Scheme will be listed on the Capital Market Segment of the National Stock Exchange of India Ltd (NSE) or any other stock exchange.


After Liquid Benchmark ETF, this is the second such fund in the entire industry which might see the light of the day, if the market regulator approves it. It is an open ended exchange listed fund, which aims to provide high liquidity to the investors. 



The fund would invest short term government securities, money market instruments and short term debt securities. It will have daily dividends, but a compulsory re-investment of dividends is enforced.
The fund would be managed by Anju Chhajer, a 37-year-old Chartered Accountant. She has been a fund manager, managing investment for debt schemes, with Reliance Capital Asset Management since October, 2007. She earlier worked at the National Insurance Company. 

The NFO price will be Rs 1,000 per unit and the minimum application amount will be Rs 5,000. The fund has been benchmarked under Crisil Liquid Fund Index. 


ICICI Prudential Debt Fund NFO - Banking & Public Sector Undertakings Debt Fund



ICICI Prudential Mutual Fund has launched the Banking & Public Sector Undertakings (PSU) Debt Fund. This is the only open-ended debt fund in the fund house which would focus on these two segments of the market.
The fund would invest in debt, money market instruments and securities issued by banks or PSUs. The fund can also invest in fixed income securities issued by the government, corporates and multilateral agencies.

The fund would allocate up to 100 per cent of its asset in debt and money market instruments (including securities issued by banks and PSUs) while for debt entities, other than banks and PSUs, it would allocate up to 35 per cent. 


The fund would be managed by Chaitanya Pande who has a 14-year industry experience and holds a PGDM from IMI, Delhi, and a B.Sc degree from St Stephen's College, Delhi.  


The fund has both growth and dividend options. There is no exit load applicable. The minimum application amount is Rs 5,000 while minimum additional application amount is Rs 1,000. 

The NFO opens on December 28, 2009 while it closes on December 29 this year.The fund has been benchmarked against CRISIL Short Term Bond Fund Index.

How to market your business with Facebook

An Art Meets Commerce, a New York marketing firm, has struck up a never-ending conversation with fans. The company uses Facebook as a crucial part of its publicity campaigns for theatrical productions. Its Facebook page for the show "Rock of Ages," for example, has more than 13,000 fans.

Staff members constantly update the page with new photos, videos and quotes from the cast. They've also learned what not to do: Once they posted a video of Paris Hilton plugging the show and got negative feedback from fans who professed to be sick of her.

But it's not just about marketing or, at least, it's not just about selling. "You end up moving away from being an Internet marketer and go into almost customer service," said Jim Glaub, creative director at the agency. "A lot of times people use Facebook to ask questions: What's the student rush? How long is the show? Where's parking? You have to answer." Some basic rules: Buy-buy-buy messages won't fly. The best practitioners make Facebook less about selling and more about interacting. Engage with fans and critics. Listen to what people are saying, good and bad. You may even pick up ideas for how to improve your business. Keep content fresh. Use status updates and newsfeeds to tell fans about specials, events, contests or anything of interest.

These interactions can take a vast amount of time the "Rock of Ages" page has 300 to 600 interactions every week but they can also provide a big payoff. Facebook is one of the show's top sources of new ticket sales.

Last year, Art Meets Commerce introduced a Facebook ad campaign to promote an Off Broadway run of the musical "Fela!" The campaign aimed at Facebook users with interests like theatrical shows or Afro beat. According to the company, it generated 18 million impressions, more than 5,700 clicks and $40,000 in ticket sales all for $4,400 spent on advertising.

"We can advertise all day, but if we don't give them what they want they will not be a fan anymore," said Mark Seeley, a marketing associate at Art Meets Commerce. "Even though we represent the shows as marketers, we don't want to constantly tell people to buy tickets. You talk to them like you talk to your friends on Facebook." Some guys use Facebook to find single women. Chris Meyer used it to find women who are already engaged.

Meyer, a wedding photographer in Woodbury, Minn., had had little luck with traditional advertising. A full-page ad in a bridal magazine generated zero leads and a trade show yielded only four bookings, barely covering the cost of his booth. But Facebook proved adigital bonanza.

Meyer aimed at women ages 22 to 28 who listed their marital status as engaged in the Minneapolis-St. Paul metropolitan area. He estimates that he has spent about $300 on Facebook ads in the last two years and has generated more than $60,000 in business. He says about threequarters of his clients now come to him through Facebook, either from ads or recommendations from friends.

"I'd be out of business if I didn't have Facebook," Meyer said. "Especially with this economy, I need to stretch each marketing dollar as much as I possibly can." Facebook enables small businesses to engage in targeted marketing that they only could have dreamed about a few years ago. Facebook users fill out profiles with information like hometown, employer, religious beliefs, interests, education and favorite books, movies and TV shows all of which can help advertisers deliver messages to specific demographic slices.

As you create an ad, you can add demographic criteria and keywords and see how many Facebook users fall into your target audience and modify it accordingly to get the most bang for your buck. Advertisers can elect to pay per impression or per click, set maximum budgets and schedule the ad to run on specific dates.

Thus a coffee shop in San Francisco can display advertisements only to local people whose profiles or group affiliations suggest they like coffee. According to Kendall, Facebook's director of monetization, ads can also aim at people based on social exchanges, like a person who sends a message to a friend, "let's get together for coffee" or who posts a status update about just having awakened and needing some java.

"We can help you find customers before they even think about searching for you," Kendall said. "We're very, very well-positioned to generate demand, based on the fact that we know a tremendous amount about a user." The Facebook ad system provides instant feedback with metrics like the number of impressions and clicksthrough. This reporting allows Meyer to improve his advertising; if one ad doesn't generate enough hits within 24 hours, he pulls it and tries something new.

Wednesday, December 30, 2009

Make a Choice - Good product or good advice?

What does the retail investor do in choppy markets being seen now?
YES, the current markets are in a bearish phase on account of several global and domestic factors. High crude prices are, however, the single biggest factor for the meltdown. It is hard to predict when the markets will stabilise. Investors who invested in equity markets at the peak time are anxious to know how they can protect their investments. Also, there are several investors who are interested in entering the markets and are keen to understand what should be their strategy.

Firstly, let us understand that the current behaviour of the stock markets is not unprecedented. If you go back in history, both domestically and globally, the stock markets have moved in various directions over a short period of time. So do not panic.

Let us assume that there are two investors: investor A and investor B. Investor A invested in equity mutual funds at the peak of the markets in January 2008 and has now witnessed erosion of his capital. Investor B, however, was more risk averse and preferred to keep his money mostly in fixed deposits.

What should investor A and investor B do in this choppy market? If investor A has balanced his investments across different asset classes such as equity or equity funds, fixed deposits or equivalent and liquid cash or liquid funds, in my opinion, he has less to worry. Asset allocation as a disciplined activity must always precede investments.

I would advise him to invest in the liquid fund of a few select mutual funds. And then instruct the fund house to switch a fixed amount into the equity fund through a ‘systematic transfer plan’ (STP) over a minimum of three-year period. This could be done monthly, weekly or even daily. Why liquid fund? Given the high interest regime prevalent now in the light of high inflation rates, investing in a liquid fund would provide market-related returns, which is better than keeping money in a savings account.

Why STP? By instructing the fund house to switch a fixed amount of fund to the equity scheme at regular intervals, it is possible to reap the benefits of being present in the fixed income market and entering equity at a relatively attractive valuation.

The fall in equity markets by over 35% provides a good opportunity to enter the markets through a regular, disciplined manner over a period of time. This allows taking advantage of the market upside over a medium term perspective. The fall in value of equity investments since January 2008 can be raised to the desired level of asset allocation through this strategy. Mutual funds are very convenient and efficient vehicles to execute this type of investment strategy.

If investor A is over-invested in equity mutual funds but does not need immediate liquidity, I would advise him to stay invested. He should not keep moving in and out of markets. This would further erode his wealth, apart from higher incidence of taxes and increasing his transaction costs through entry and exit loads.

As and when he receives additional cash through salary or other sources, he should remain invested in liquid, safe instruments and not increase his equity exposure for the time being. He should not be tempted to invest in equity as he is already over exposed.

Another fund that one might like to consider is the fixed maturity plan (FMP). A 12-month FMP can potentially offer higher post tax returns than fixed deposits in the current interest rate regime. Again, the diversified portfolio of the mutual funds, low expense ratio coupled with tax benefits offer a very attractive way to enhance the overall return on investments.

Investor B should consult his financial advisor who can assist him in allocating his investible surplus in an efficient manner. He must ask questions and be satisfied about the process. If there is a choice between ‘good products’ and ‘good advice’, choose the latter.

Several newspapers have advised readers about the benefits of investing through SIP. I would reiterate the importance of investing regularly either through SIP or STP. Given the attractiveness of the short-term interest rates, one might like to consider switching one’s investments in fixed deposits into liquid funds and then open a STP account, as explained earlier. In the case of investor A, I would advise putting around 30% of his total investments into liquid fund and transfer this money through a daily/ weekly STP account into an equity fund. In the present market, my advice would be to choose a diversified multi-cap equity fund that has higher weight age on large cap, well established blue chip companies.

Mutual funds are affordable, allow diversification and are convenient to invest regularly. Like in every decision in life, seek the right kind of advice and choose a trusted brand.

Home loans - Low interest rates

Low interest rates in the initial period of the home loan do not necessarily mean low interest outflow. In view of the prevailing home loan schemes


BAFFLED by the mumbo-jumbo of home loans when you are already lost on the choice of home? Don't want to be trapped by the gobbledygook in agreements? We ran through a host of offers made by mortgage lenders in the last few weeks, mainly from the outgo point of view over the lifetime of the loan. And it showed, the best deal for you, is from the nation's biggest, State Bank of India.

 Most of the schemes discussed below offer home loans at fixed rate in initial years and switch to floating interest rate in later years, which matters the most for total interest outflow. The schemes differ from each other in terms of the spread once it become floating, prepayment charges, and in terms of other qualitative factors like the speed of processing the application, documentation requirements and time taken to disburse funds. But what matters above all is saving a few lakh rupees by paying lower interest. For the current analysis our focus is on the overall interest outflow.


State Bank of India offers Easy Home loan scheme under which the interest rate is fixed at 8% for first year and 8.5% for next two years for a home loan above Rs 5 lakh and upto Rs 50 lakh. Most of the public sector banks are currently offering home loan scheme on similar lines.

   Till a week back it was only the PSU banks that were offering fixed rates but now, even private banks have joined the fray. HDFC, the largest housing finance company, is now offering loans where interest rate is fixed at 8.25% till Dec 31, 2012, irrespective of the loan amount.

   Post 2012 this will be subject to floating rate prevailing at that time which is hard to guess even for experts. The catch is that no fixed spread is assured for the later part of the loan tenure and the time frame for making a loan application is also just about a month.

   Recent entrants in this price war are ICICI Bank and Kotak Mahindra Bank. ICICI is also offering home loan at fixed rate of 8.25%. But this is for first two years and then it will be 3.5% below its prevailing Floating Reference Rate (FRR). This is applicable for loans above Rs 20 lakh and upto Rs 50 lakh. Kotak Mahindra Bank meanwhile launched fixed-to-floaty loans where interest rate is fixed at 8.49% in first 30 months (2.5 years) and floating rate thereafter, which is relatively higher compared to its peers. Nevertheless, a spread of 5.5% below PLR is assured. But since its current PLR of 14% is at a higher end amongst the group, it does not look an attractive bet. Thus not considered for the detailed analysis.


Historical trend suggests one interest rate cycle lasts for about six years. Considering this, three interest rate cycles would be witnessed over a 20-year tenure of the loan. So post the fixed interest rate regime (3 years for most schemes), we have assumed two years as buffer for the peak interest rate. Assuming rates may peak in 2012 so for HDFC it could be 15.5% from the current 13.5% (25 basis points increase in every quarter starting June'10 till March'12). Hence floating rate (FR) would be 13% for the fourth and fifth year (based on past track where FR is 2.5% less than PLR). Similarly for SBI, this would be about 10.75% for the interim two years.

   Hence, sixth year onwards, we have considered these factors while arriving at the floating rate average range of 10.25-11.25% for the later part of the loan tenure. For loans above Rs 30 lakh, the interest rates charged are 50-75 basis points higher and are also subject to lower spread once the rate becomes floating.


One should not opt for a scheme based on the rates offered in initial years. An important factor to note here is the total interest outflow over the life of the loan, although sales pitch could be on "customer service" and other subjective issues. These calculations may differ when it is done on daily reducing balance as compared to quarterly reducing balance, however broad numbers will remain the same.

   For a Rs 30-lakh loan, the maximum interest outflow is Rs 42.5 lakh under HDFC's scheme as against Rs 42 lakh under ICICI's scheme. Besides ICICI, SBI's offer is the cheapest with just Rs 38.3 lakh interest outflow over 20-year period. On a monthly basis the difference in SBI and HDFC and ICICI's EMI is just Rs 468. But this is only in the first year.

   As HDFC has not specified the spread in latter part of the tenure, additional EMI more than makes up for the initial lower interest rate. Though ICICI comes little lesser than HDFC, if you include the implicit cost of prepayment charges and convenience of service, the difference become insignificant.

   Similarly for Rs 60-lakh loan, SBI's 'Advantage home loan' is a notch over other schemes. The next best option in this category is ICICI's dual rate product. SBI results in interest saving of Rs 3.49 lakh over ICICI scheme.


Based on the given analysis, SBI's 'Easy Home loan and Advantage Home loan' look better than other schemes in both the Rs 30 lakh and Rs 60 lakh category. Though private players are offering lower interest rate for first three years, they make up for the lost money in the later part of the loan.

   So, before applying for any offer one must verify the details and not just go by absolute numbers in order to avoid agonising over the decision in the future.

BSE to introduce MF advisors certificate module

BSE has announced the introduction of AMFI Mutual Fund (advisors) certification module through the BSE Training Institute, to enable members and sub-brokers to build a cadre of MF advisors and disseminate knowledge about working of Mutual Fund to investors

Tuesday, December 29, 2009

BSE to allow MF brokers to place orders through mobile

BSE would allow brokers to place orders through mobile phones in its mutual funds transaction platform in the next 15 days. The exchange hopes the facility would enhance the accessibility of traders to the BSE STAR MF. The exchange is also planning to extend the equity back-office software, Spark, to the brokers transacting in the STAR MF platform.

Mortgage: Foreclosure right of mortgagee

Some conditions that enable a mortgagee to enforce this right to recover his dues

A right of foreclosure is a right available to a mortgagee to recover his outstanding money. This right of foreclosure can be exercised by a mortgagee only if certain conditions are met.

Here are some conditions to exercise this right:
  • The money should have become due for payment
  • There should be no condition in the mortgage deed waiving the right
  • The mortgagor should not have a decree of redemption of the mortgaged property

The remedy depends upon the nature of mortgage. In case of a simple mortgage, the right of foreclosure is not available. The remedy is either to proceed against the mortgagor personally or for sale of the mortgaged property. This is also the same in case of an usufructuary mortgage. In this case, the mortgagee is in possession of the property and continuous to be in possession until the debt is repaid in full.

The relevant provisions are contained under Section 67 of the Transfer Property Act. This right can be enforced on failure of the mortgagor to repay the money borrowed on the due date. The mortgagee has a right to obtain from a court a decree that the mortgagor be absolutely debarred of his right to redeem the property, or a decree that the property be sold. A suit to obtain a decree that a mortgagor be absolutely debarred of his right to redeem the mortgaged property is called a suit for foreclosure.

In case of anomalous mortgage, the remedy depends upon the terms of the mortgage. In the case of an English mortgage, the mortgagee may bring a suit for sale of the property. In case of conditional sale, the mortgage matures into sale on the failure of payment of the debt. In case of mortgage by deposit of titles deeds, the remedy is to sue for personal decree or for sale of the property.

A person interested in only a part of the mortgage money may institute a suit relating only to a corresponding part of the mortgaged property. However, this is subject to the condition that the mortgagees have severed their interests under the mortgage with the consent of the mortgagor.

Sometimes, a mortgagee may hold two or more mortgages executed by the same mortgagor. In respect of each of such mortgages, he may have a right to obtain a decree of foreclosure. In case he sues to obtain such decree on any one of the mortgages, he will be bound to sue on all the mortgages in respect of which the mortgage money has become due.

ICICI PRU Lifetime Maxima Ulip Plan


Plan Aims To Fetch You Maximum Returns Even Amidst Fluctuations If You're Ready To Hang In There

ICICI Prudential Life Insurance has launched a ULIP plan called ICICI Pru LifeTime Maxima, which follows two different portfolio strategies — fixed and trigger portfolio. The first strategy provides an option for you to choose from any of the seven funds — Opportunities Fund, Blue-chip Fund, Multi-Cap Growth Fund, Multi-Cap Balanced Fund, Income Fund, Money Market Fund and Return Guarantee Fund. But the company bets on the trigger portfolio strategy to generate good returns in volatile market conditions.


Initially, your investments will be distributed between two funds: Multi-Cap Growth Fund and Income Fund — in a 75:25 ratio. The company will rebalance the portfolio when the fund allocation gets altered due to market movements based on a trigger event. The insurer defines a trigger event as a 15% upward or downward movement in NAV of Multi-Cap Growth Fund, since the previous rebalancing. On the occurrence of the trigger event, any fund value in Multi-Cap Growth Fund, which is in excess of three times the Income Fund fund value is considered a gain and transferred to the money market fund by cancellation. The idea is to make investors realise their notional gains and protect them from future equity market fluctuations. At the same time, the fund manager maintains the asset allocation between the Multi-Cap Growth Fund and Income Fund at 75:25.


The premium allocation charge is 7.5% for the first year, 3% for the second and third years and 0% from the fourth year onwards. The fund management charge is in the range of 0.75-1.35%, depending upon the choice of funds. The policy administration charge is 0.8-0.9%, which is charged for the first five years. It allows four free switches every year and the subsequent switches would cost Rs 100 each. The mortality charges vary from Re 0.72 to Rs 40.51 (per Rs 1,000), depending upon the age and gender of the investor.


You can change your portfolio strategy once a year free of cost. There is a top-up option and the minimum amount is Rs 2,000. The policy allows partial withdrawals from the sixth year up to a maximum of 20% of the fund value. The minimum withdrawal amount is Rs 2,000. On maturity, you can choose to take the fund value as a systematic withdrawal plan on a yearly, half yearly, quarterly or a monthly basis. At any time during the settlement period, you can withdraw the entire fund value.


The trigger portfolio strategy works in a volatile market. Equity markets tend to be volatile if one looks at a time horizon of 10-15 years. Also, a professional fund manager has the expertise to understand the vagaries of the stock market.

You have to stay invested for more than 10 years to earn optimal returns in this strategy. This strategy caps returns in a secular bull run.


HDFC Prudence


Balanced Funds, usually, fail to incite interest on the dalal street. The recent performance of HDFC Prudence, however, shows that you need not be reckless to rake in the moolah


IT IS a hybrid (balanced) fund. Yet, its returns, particularly in the recent past, have surpassed even those of the broader market indices – the Sensex and the Nifty. Launched in Jan '94, HDFC Prudence is one of the oldest equity-oriented hybrid funds of the country today. Its humungous asset size of over Rs 3,200 crore also makes it the largest and the most popular scheme in the category of balanced funds.


It is probably unfair to compare the performance of a hybrid fund with a core equity index. However, despite its blend of both debt and equity, HDFC Prudence has displayed a great ability to beat the equity market returns handsomely in its over a decade long performance history. Thus, despite being benchmarked to Crisil Balanced index, the fund's performance, so far, has inevitably raised its benchmark to an equity index like the Sensex or the Nifty. 

   HDFC Prudence has been successful in beating these indices uniformly year-onyear, since its launch, except in the most bullish years of 2006 & 2007. This indeed is surprising despite the fund's equity orientation towards mid- and small-cap stocks that had a ball in '06 & '07. The returns of about 33% and 43% in '06 and '07, respectively, may have disappointed any equity investor, for Sensex had returned about 47% in both the years and Nifty had given 40% and 55% returns, respectively. 

   But what really surprises is the fund's strong comeback in the current calendar year. Since January this year, the fund has delivered 82% returns, which is as good as the average of the category of diversified equity schemes. The Sensex and the Nifty have returned about 77% and 73%, respectively, during the period. 

   However, as far as the downturn of 2008 is concerned, despite outperforming the Sensex and the Nifty – given the balanced nature of the fund, it failed to beat the average returns of its balanced peers. The fund fell by about 42% in '08 against the average decline of about 41% by the category of balanced funds.


With about 75% of its assets invested in equity, the fund is extremely well-diversified and on average holds 55-60 stocks in the portfolio. And within the equity portfolio, the fund has a clear bias towards mid- and small-cap stocks that account for more than half of its equity portfolio. While the fund has been holding many of its stocks for over a couple of years now, churning the portfolio occasionally, some of its recent acquisitions have turned out to be multi-baggers. 

   Its recent picks like Lupin, Punj Lloyd, Simplex Infrastructure, CRISIL, Maharashtra Seamless and Biocon, during March – May '09 have more than doubled till date. As far as its long-term investments are concerned, it is benefiting mainly from the returns on some of the large-cap blue-chip companies it had picked early. These include stocks like SBI, Bank of Baroda, TCS, P&G, Glaxo Smithkline Consumer, Crompton Greaves and Sun Pharma among others. Initial investments in each of these stocks date back to early 2007 and even beyond. 

   At the same time, some of its long term mid- and small-cap acquisitions like ISMT, Indo Rama Synthetics, Uniphos Enterprises, Himatsingka Seide and Ahmednagar Forgings, among others, have fallen off grace since the time they were accumulated about two-and-half-years ago. 

   In terms of sectoral composition, financial services and pharmaceuticals have been dominating the fund's portfolio since 2008. In fact pharmaceutical sector, especially in the mid-cap space, has attracted attention of many fund mangers in the last few months. As far as the fund's debt compositions are concerned, the fund mostly invests in high rate papers especially those with AA+ or AAA ratings and in sovereign papers.


HDFC Prudence's high midcap exposure definitely raises its risk quotient. However, the equity risk is well compensated by the exposure to high quality debt instruments. While the fund's performance in the current calendar year is breath-taking, it had a rickety performance a couple of years ago. Those seeking an investment opportunity in equities with 3-5 years' horizon can consider this fund.


Monday, December 28, 2009

LEADERSHIP: Soft Communication for Hard Times

OFTEN, LEADERS ARE NOT sure how to balance soft leadership skills such as trust and communication with the more hard line leadership approaches (read: retrenchments, realignments, cost cutting) during tough times. Research indicates that the greater the stress an organiation is facing, the more important a leader’s soft-skills, especially communication skills become. Research has found that there are four important characteristics associated with leaders of the subcontinent, who were most successful in leading their organizations through transitions:

Make Relationships a Priority:

Especially in the subcontinent, companies are about people and relationships. Leaders cannot afford to become cynical or negative during times of turmoil. They cannot remain insensitive to employee needs or be seen as inaccessible. They are expected to be caring and empathetic, giving importance to relationships even during tough times.

Maintain Constant Communication:

During tough times, people are more vulnerable and hence ensuring a constant flow of communication is a must. The need for information is so great that when people do not get it, they would invent it; the void gets filled with media speculation, rumours and inaccuracies. Hence, leaders need to remain sensitive to their people’s needs and need to focus on providing them with up-to-date news about their company and plans.

Keep People Reassured:

Leaders can actually do a great deal to keep the company on its feet, just by reassuring their people. People are normally distracted and threatened during bad times - they keep imagining the worst, and gentle reassurances about the long term vision and how they would tide over the crisis can go a long way in channelising energies and stimulating performances.

Make People a Part of the Solution:

Catch-22 gets to work during recession times. If people are not constantly occupied, they would give in to rumour mills. At the same time, it is very easy for people to be without work. During times like these, leaders create work and in turn excitement for their people, by making them part of the solution. This helps them feel a sense of control and security. A good example is Reliance Industries during 1989, when their Patalganga refinery was completely submerged in the flash floods. Even as the managers of Du Pont declared that it is virtually impossible to get the project on track in time, Dhirubhai Ambani knew that nothing was impossible if his employees put their hearts and minds in to it. As the foreign consultants looked on, every single employee worked round the clock, sweeping the floor, dismantling the machines and cleaning them, restoring the refinery back to shape in less than three weeks.


Use communication skills — constant, gentle, reassuring and that which puts your people at the centre of action — to tide over tough times.

Sunday, December 27, 2009

Investment Planning – Safe, Sound and Secure

The stock market is on a down hilll trek & the sentiment is gloomy. You may be looking for better options, but there are some segments you should steer clear from at the moment
AVOIDING bad investments is as important as finding good ones. Post market crash, portfolio’s worth toady is not even a third of investments. With some genuine advise, people could have saved from investing at a wrong time. To make sure that you don’t fall into the same trap, we prepare a list of five segments you should refrain from investing in right now.


Stock market is a place where people with experience get money and people with money get experience. Words of wisdom, undoubtedly. But what should be your approach when it comes to where not to invest on Dalal Street? If analysts are to be believed, realty and technology sector stocks should be treated with extreme caution. The key to investing in the stock market is to avoid relying on hearsay. Given the volatility in the rupee-dollar exchange rate, investing in tech companies is a little risky. While the sub-prime crisis in the US is not directly related to performance of the Indian tech companies.

The other sector, according to analysts, where you should avoid exposure in the capital markets is realty. With execution costs of projects escalating, analysts believe that the capital intensive realty market needs more money and capital is costly at the moment. There is even a possibility of small builders folding up, which can further hurt sentiments in the sector. While this may be the right time to pick up some good value stocks, you should keep away from penny and small-cap stocks.


The dream to own your own house is always alluring. More so now, given the slight dip in realty prices. But financial experts believe that the right time is yet to come. As a result of the liquidity crunch, further devaluation is expected in six months. Moreover, with interest rates headed north in the medium term, distress sales are expected to happen very soon. If you can be a little patient with your decision and wait for a while, the property that you are eyeing today, may get more affordable.


Given the volatility and politics around crude prices, it is advisable that you refrain from speculative trade in it in the futures market. It is a very high risk game in today’s scenario. And with crude oil prices cracking up by almost 10%, it looks that they are headed for an intermediate downtrend. This could mean that you may end up dispensing large sums of money if you had built short positions in the futures market.


Fixed deposits (FDs) is a preferred investment vehicle for investors, especially in times when gloom descends over the equity markets. Experts, however, feel otherwise. Instead of parking funds in an FD, it is better for you to invest in Fixed Maturity Plans (FMPs), which not only guarantee fixed returns but also are highly tax efficient in comparison to fixed deposits Majority of the asset management companies (AMCs) in India offer such plans in the market.

With inflation loooking up and FD returns chargeable to tax when disbursed, forget about beating inflation your real returns are negative. This means that funds are actually eroding. Another option, feel analysts, is invest your earnings in floating rate funds. These funds are currently offering 7% returns. The returns, however, are likely to go up as they are inversely related to the stock market. Also, it is easier to withdraw money from a floating rate fund and switch to another alternative if interest rates come down.


Gold may appear as an attractive investment bet in the current market conditions, but analysts have a different opinion. They caution that you should avoid adding the yellow metal to your portfolio. Reason: gold is positively correlated to crude oil prices, which means that any fall in crude oil prices will result in gold prices also heading south. Conservative investors, however, can still invest in Gold Exchange Traded Funds (ETFs). With interest rates going up, investing in Gold ETFs over a longer period is a more sensible decision than investing in gold itself.

Saturday, December 26, 2009

Exchange Traded funds (ETFs)

Exchange Traded funds (ETFs) have advantages over other mutual fund types

Exchange Traded funds (ETFs) are a major class of mutual funds. Though not as popular among retail investors, they have numerous advantages over the straitjacket mutual fund.The genesis of this category dates back to 1989 when the first index type ETF was traded on the American Stock Exchange. The distinguishing factor that these funds have vis-à-vis ordinary mutual funds is the manner of purchases and redemptions. This is because the units of these funds are listed on the stock exchange just like the stocks of a company. An ETF can be bought or sold over the exchange through a broker on a daily basis during trading hours.

In India, ETFs where first launched by Benchmark Asset Management Company, which launched the Nifty Benchmark Exchange Traded Scheme (Nifty BeES) based on S&P CNX Nifty Index.In the domestic market, ETFs have not yet captured investors’ favour, which is in stark contrast to more developed markets.While the most common type of ETFs are very similar to an index fund, there are ETFs of a non-index kind, too.

A case in point is the gold ETF, which is a commodity based ETF. Commodity based ETFs are also traded on the stock exchange; however, the underlying holdings of the units are physical commodities.The most common ETFs in India track an index. These ETFs do not stick to the basic Sensex and Nifty as is the case with most index funds, but offer more options to the investor. The most recent addition is the Shariah-based ETF launched by Benchmark Asset Management Company, which intends tracking the Nifty Shariah Index. Other than this, there are ETFs which track only PSU banks and invest in money market instruments.

Trading volumes

In India, we have had little success with closed-ended schemes being traded on the stock exchange. Historically, there has been a considerable arbitrage between the net asset value (NAV) and traded price of listed closed-ended mutual funds. This arbitrage arises because the unit price is affected by demand and supply pressures in addition to the movement in the value of the underlying instrument. Such arbitrageurs are always in the market to take advantage of any significant premium or discount between the ETF market price and its NAV. Hence, if the trading volumes are robust, the NAV and market price will converge and arbitrage will disappear.

We looked at a couple of ETFs to assess the difference between the NAV and traded price. In case of larger ETFs, there is only a very small arbitrage opportunity available. However, in case of the smaller ETFs, the arbitrage can go up to Rs 34 per unit. Moreover, smaller ETFs not only have less liquidity but at times are not traded at all. Hence, investors need to be a little cautious while picking an ETF.

We have collated the information on trading volumes to give you a better picture of what kind of trading happens in these ETFs. To put things in perspective, the average trading volume of Reliance Industries — one of the most traded stocks — was Rs 812 crore in the year to March 13, 2009.

Tracking error

In a perfect market, ETF investors would get exactly what they invest into. If the underlying index was up 100% for the year, an investment of Rs 100 would become Rs 200. But that, unfortunately, is rarely the situation.Index portfolios, no matter how well run, always suffer from some amount of “tracking error.”Tracking error is the difference between the returns of a fund and the returns of its underlying benchmark. Generally speaking, the less of it, the better.

We looked at the tracking error of the index-based ETFs and didn’t find anything out of the ordinary. There is nothing drastically different between these ETFs and they are closely positioned.The expense ratio charged by ETFs is also lower than those charged by index funds. Presently, the ETF category has an expense ratio of 0.73%, whereas the expense ratio of index fund category stood at 1.36%, reflecting a significant difference in the expenses.


In terms of performance, equity ETFs compare on an equal footing with index funds, given that they track similar indices.The banking sector ETFs have not performed as well as the large-cap ETFs tracking the Nifty and the Sensex.The only small-cap ETF has also performed poorly on account of the meltdown in smaller cap stocks.The gold ETFs have of course performed exceedingly well owing to the rally in gold prices.

The Liquid BeEs has delivered consistent performance. However, when compared with the average open-ended liquid fund, the returns don’t look very impressive. The average open-ended liquid fund delivered 8% returns over the one year period ending March 12, 2009. Even over the longer timeframes of three and five years, the open-ended liquid schemes have put up a better performance.At the end of the day, what makes ETFs an attractive proposition is the convenience they offer.

Friday, December 25, 2009

Life Insurance: Choose a policy that suits your needs

This explains how some popular insurance schemes work to help you choose one
Anyone above 18 years of age, who is eligible to enter into a contract, can go for an insurance policy. Subject to certain conditions, a policy can be taken on the life of a spouse or child too.

Here are some popular policies:

1) Whole life policy

These are the simplest of policies. You pay a fixed premium every year based on your age and other factors. The insured earns interest on the policy's cash value as the years roll by and his beneficiaries get a fixed benefit after he dies. The premium is the same even in later years as it was when the policy was taken.

Whole life insurance policies are valuable as they provide long-term cover and accumulate cash values that can be used for emergencies or to meet specific objectives. The surrender value gives you an extra source of retirement money if you need it.

2) Endowment policy

An endowment life insurance policy is designed primarily to provide a benefit in the lifetime. Thus, it is more of an investment than a whole life policy.

Endowment life insurance pays the face value of the policy either at the time of death of the policyholder or at the time of maturity of the policy.

The policy is a method of accumulating capital for a specific purpose and protecting this savings programme against the investor's premature death. Many investors use endowment life insurance to fund anticipated financial needs, such as college education or retirement.

The premium of an endowment life policy is much higher than that of a whole life policy.

3) Money-back policy

It is an endowment policy. A part of the sum assured is paid to the policyholder as survival benefits at fixed intervals before the maturity date. Risk cover on the life continues for the full sum assured even after payment of survival benefits. Bonus is also calculated on the full sum assured. If the policyholder survives till the end of the policy term, the survival benefits are deducted from the maturity value.

4) Annuity scheme

In these schemes, the policyholder's regular contributions over a period of time (or a one-time contribution) accumulate to form a corpus. This corpus is used to generate a regular income that is paid to the policyholder until death, starting from the desired retirement age. Some annuity schemes have the option to pay survivors a lump sum amount upon death of the policyholder, in addition to the regular income he receives while he is alive.

6) With-profit and without-profit plans

Some insurers distribute profits among policyholders every year in the form of bonus or profit share. An insurance policy can be 'with' or 'without' this profit share. In the former, any bonus declared is allotted to the policy and is paid at the time of maturity or death of policyholder (with the contracted amount). In a 'without-profit' plan, the contracted amount is paid without any profit share.

The premium charged for a 'with-profit' policy is therefore higher than that of a 'without-profit' policy. While all those who insure under the 'with-profit' plan get a share of the profits, the profit amounts are not the same for all. This is because the profit share allotted depends on the premium paid by the policyholder. Policies of a longer duration yield higher profits to the company as compared with policies of shorter durations.

Here are some added benefits some offer:

a) Bonus:

Insurers distribute profits among policyholders every year in the form of a bonus. Bonuses are credited to the account of the policyholder and paid at the time of maturity. Bonus is declared as a certain amount per thousand of sum assured.

b) Guaranteed additions:

In some policies, insurers guarantee the bonus/profit declared as a certain amount per thousand of sum assured. This assured bonus will be credited to the policyholder irrespective of the insurer's performance and is known as guaranteed additions. Guaranteed additions will be payable at the end of the term of the policy or death of the policyholders.

c) Loyalty additions:

In some policies, over and above guaranteed additions, the insurer will declare and credit to the policyholder, an additional amount per thousand of sum assured every five years, depending on its performance. This additional amount is known as loyalty addition.

d) Accident benefits:

On payment of additional premium, a policyholder is entitled to this benefit. In case of death in an accident, the nominee will receive double the sum assured.

e) Disability benefits:

If the policyholder becomes totally and permanently disabled due to an accident, he need not pay future premiums and his policy will remain in force for the full sum assured.

Thursday, December 24, 2009

Free Ways to Increase Your Blog Traffic

1) Comment on Blogs - Look for large traffic Blogs in your niche, visit them and leave your comments on their blogs posts. You may use blog search engine like, and to find blogs in your niche.

2) Submit Articles - Write articles that are related to your blog and submit them to popular article directories such as,,, and Quality articles may drive you a lot of free targeted traffic.

3) Participate in Community Forums - Use google to search for forums that are related to your blog. Look for forums that has over 10,000 members and read the rules of the forums to see whether you can promote your blogs and websites in your signature. Join forums that allow you to add a link to your blog in the signature and start participating in discussion. You can ask questions, answer other members questions and post your articles, ideas and thought in the forums.

4) Submit Your Blog to Directories - This isn't working to me but some bloggers claim that they gain a good amount of traffic from their listings in directories.

5) Post Often - You can lose traffic if you seldom update you blog, try to make it at least 5 posts per week. This not only will maintain your traffic but possibly attract more readers.

6) Write about Blogging - Write helpful and quality articles related to blogging can attract other bloggers link to your articles and gain may be truckload of free traffic.

7) Post Breaking News - If your found a breaking news of your niche very earlier, post it to your blog. It may give your blog's traffic a boost.

8) Social Bookmarking - Bookmark you blog posts in the large social bookmarking sites like,, Simply and

9) Run a Contest - Start a contest on your blog. Think about the prizes that people really want. It will create a viral effect and bring in new visitors.

10) On-page Optimization - Make sure your blog's title tag and description tag contain your targeted keywords. When you have posted plenty of quality blog post and done a lot of blog promotion, don't be surprise to see your blog ranks top 10 in Google and get free search engine traffic daily.

Bajaj Allianz introduces highest NAV plan

MAX Gain, Bajaj Allianz Life's new ULIP, promises a fund value at maturity that takes into account the highest NAV (monitored on a daily basis) to the policyholder, that is, the number of units multiplied by the highest NAV recorded during the policy's term. Birla Sun Life's plan with a similar feature (guaranteed highest daily NAV during seven years between September 15, 2009 and December 15, 2016) closed on December 15. The minimum premium to be paid under Max Gain is Rs 25,000 per year with an option to increase or decrease the regular premium, while the sum assured is five times the annual premium. The premium allocation rate will be 100% from the policy's third year onwards and there are no surrender charges. The plan also offers to pay 175-350% (depending on the premium amount paid) of the total allocation charges deducted as guaranteed addition at maturity.

Wednesday, December 23, 2009

Joint ownership of property

Joint ownership is when two or more persons hold title to the same property. In case of coparcenary, the members have a common and an equal interest in the ancestral property. Any co-owner can transfer his share in the property to an outsider or another co-owner, and the transferee steps into the shoes of the co-owner. The transferee becomes the co-owner.

A co-owner is entitled to three essentials of ownership - right to possession, right to use and right to dispose off the property. Therefore, if a co-owner is deprived of his property, he has a right to be put back in possession. Such a co-owner will have an interest in every portion of the property and has a right irrespective of his quantity of share, to be in possession jointly with others. This is also called joint-ownership.

Co-ownership can be changed to sole ownership through partition. The term co-owner is wide enough to include all kinds of ownerships such as joint tenancy, tenancy in common, coparcenary, membership of Hindu Undivided Family etc. The very fact that the parties have certain shares in the property indicates that they are co-owners.

Here are some forms of co-ownership:

Joint tenancy

This entails the right of survivorship. Upon the death of one joint tenant, his interest immediately passes to the surviving joint tenants and not to the descendant's estate. Joint tenants hold a single unified interest in the entire property. Each joint tenant must have an equal share in the property. Each joint tenant may occupy the entire property subject only to the rights of the other joint tenants.

Joint tenancy has several requirements that must be met in order to be properly created. The conveyance must state specifically that the grantees are taking the property jointly.

There are four additional legal requirements necessary in order to create a joint tenancy.

Unity of time: The interests of the joint tenants must vest at the same time.
Unity of possession: The joint tenants must have undivided interests in the whole property and not divided interests in separate parts.
Unity of title: The joint tenants must derive their interest by the same instrument.
Unity of interest: Each joint tenant must have estates of the same type and same duration. All these four unities must exist. If one unity is missing at any time during the joint tenancy, the type of co-ownership automatically changes to a tenancy in common. A joint tenancy may be created by a will or deed but can never be created by intestacy because there has to be an instrument expressing joint tenancy. A joint tenancy is freely transferable.

Tenancy by entirety

This type of co-ownership is exclusively for a husband and wife. Tenancy by entirety provides the right of survivorship. To exist, a tenancy by entirety requires that the four unities of a joint tenancy exist, plus a fifth unity of marriage should exist between the two co-owners. However, even if all five unities exist, the type of co-ownership may still be joint tenancy if the conveying instrument indicates as such.

Unlike joint tenancy, tenancy by entirety does not allow one spouse to convey his or her interest to a third party. However, one spouse may convey his or her interest to the other spouse.

A tenancy by entirety may be terminated only by divorce, death, or mutual agreement by both spouses. A terminated tenancy by entirety becomes a tenancy in common.

Section 44 of the Transfer of Property Act 1882 deals with transfer by a co-owner. It also deals with the rights of a transferee in this type of a transaction. Where a co-owner transfers his share of a property, the transferee acquires the transferor's right to joint possession, use, and to enforce a partition of the property. Where the transferee of a share of a house belonging to an undivided family is not a member of the family, he will not be entitled to joint possession or other uses.

A person who takes transfer from another, steps into the shoes of his transferor, gets all the rights, and becomes subject to all the liabilities of the transferor. He becomes as much a co-owner as the transferor was before the transfer. A coparcener of a Hindu Undivided Family can alienate his share in the property for a consideration.

Tenants in common

When the type of co-ownership is not specifically stated, by default a tenancy in common is likely to exist. Each tenant in common has a separate fractional interest in the entire property. Although each tenant in common has a separate interest in the property, each may possess and use the whole property.

Tenants in common may hold unequal interests in the property but the interest held by each tenant in common is a fractional interest in the entire property. Each tenant may freely transfer his interest in the property. Tenants in common do not have the right of survivorship. Therefore, upon the death of one tenant in common, his interest passes through a Will or through the laws of intestacy to another person, who will then become a tenant in common with the surviving co-owners.

Tuesday, December 22, 2009

Riders on Life Insurance Policy

Add-on offers or riders are best options for customising your present and future insurance needs. But you have to be careful while opting for one. This article provides a pocket guide for taking the right cover

In a bid to stand out above the pack in the face of increased competition, insurance companies have of late started offering add-ons to customise their products and make them more powerful.
These add-ons — or riders, as they are called — are a special policy provision or group of provisions that can be added to a policy to supplement the cover provided. They allow you to increase your insurance coverage or limit the coverage set down by the policy. Riders can also be blended according to your present and future insurance needs.

Riders are optional additional benefits that you can opt for with your insurance plan for a nominal extra amount. One important thing to remember, however, is that riders are always attached to the basic policy which a person takes. They cannot be bought separately or independently of a basic policy.

Notwithstanding these limitations, riders are increasingly becoming popular owing to the numerous advantages they provide both to the insurer as well as the insured. For instance, besides helping the insurer customise their policy and increase sales, they are also helping the insured take additional cover at the fraction of the price of a basic cover and also cover risks which are not considered important by a common man.

Till today insurance is not a thought-out and planned purchase for most Indians. As a result, many important insurance policies like critical illness cover and personal accident policy are not taken by a common man. Riders provide a chance to the insured to opt for such covers by merely ticking on a box. Hence, risks which would have been left out in the normal course get covered by them.

Riders also help one avoid owning excessive insurance as one doesn’t need to purchase separate policies for additional coverage. When the need arises, you can just get a rider at economical rates which helps cut premium costs. As there is no extra administration cost involved, the premium payable for riders is nominal (being as low as Rs 100 in some cases). More importantly, you also have the flexibility to stop the rider benefit without terminating the basic cover, which is not possible in the case of a separate policy.

Besides, each rider — such as Accidental Death and Disability (ADD) Rider, Critical Illness Rider, Waiver of Premium Rider, Income Benefit Rider, Surgical Benefit Rider and Hospicash Rider —has its own advantages. For instance, while the Critical Illness Rider protects the insured in the event of a critical illness, under the Waiver of Premium Rider, the future premiums are waived off if the insured becomes permanently disabled or loses his or her income as a result of injury or illness prior to a specified age. This rider is very useful in case of a child policy where the life assured is a minor and therefore does not have any paying capacity.

Similarly, if you travel a lot, using your car everyday, or if you work in a field where there is a high probability for accidental injury, yet you can’t afford to buy as much insurance as you need, then the Accidental Death Benefit Rider may be a good supplement for your insurance plan.

Sadly, however, not many people in India are still aware of the various riders available in the market. Even most insurance salesmen typically neither understand nor recommend riders. However, if used judiciously, riders can provide a great insurance cover against unforeseen events such as accidental disability, critical illnesses, accidental death or dismemberment.

Thus, riders help increase the scope of your policy. Still, since they come with a cost, it always makes sense to choose them with care. For this, it is important that an individual knows his needs and opts for a rider accordingly. For example, if he already has a mediclaim worth, say, Rs 500,000 and is not married, then opting for a Critical Illness Rider won’t make much sense. Likewise, for a young person below age 25, there is no need of a Critical Illness Rider unless the person’s family history is abnormal. However, for a person between age 25 and 35, it is important to have accidental death, dismemberment and disability benefit riders.

The choice of a particular rider depends upon the life insurance coverage needs of an individual, which depends upon various factors such as age, family responsibilities and income, among others. It is, therefore, critical for an individual to make a sound decision after ascertaining his needs.

The best risk management plan takes into consideration the client’s lifestyle (food habits, health, family history etc), working environment (stress levels) and income replacement need. Anything that doesn’t pass through this test is unnecessary.

Financial advisors and insurers also suggest that normally riders which provide protection for risk, for which separate standalone policies are not available, should be taken first. For instance, the Waiver of Premium Rider should be taken with the base policy and if the employer of the insured provides a high-value personal accident policy, then the ADD Rider can also be left out.

It must also be kept in mind that riders are not equal to full-fledged policies which are available to cover similar risks. For example, accidental death and disability is also covered under the personal accident policy. A personal accident policy also covers reimbursement of OPD medical expenses following an accident and loss of income following an accident. These benefits are not provided by the ADD Rider.

Insurance seekers, thus, must understand that while riders are important, they are essentially add-ons to an insurance policy. The life insurance cover, therefore, should always take precedence and be treated as the core necessity. Only after having adequately insured yourself, should you opt for riders.

Baroda Pioneer PSU Bond NFO

Baroda Pioneer has announced the launch of Baroda Pioneer PSU Bond Fund which is an open ended Debt Scheme.

The portfolio of the fund would predominantly consist of PSU bonds and government securities of varying yields and maturities. The portfolio will track interest rate movements with low credit risk due to its exposure to PSU Bonds. 

The fund will invest upto 65 per cent of the assets in debt or debt related instruments issued by PSUs and public financial institutions. The remaining balance 35 per cent would be invested in treasury bills or government securities. Liquidity would be managed through investments in PSU Bank CDs.

The fund offers both growth and dividend options. The New Fund Offer (NFO) would be available from December 7- December 21, 2009. The exit load applicable would be 0.50 per cent if redeemed on or before 90 days. The minimum investment amount would be Rs 5,000. The fund has been benchmarked against CRISIL Bond Fund Index. 

Monday, December 21, 2009

Revoking a power of attorney (POA)

While some powers are revocable, others are not
A power of attorney (POA) is a document of agency where the principal appoints an agent to do and execute certain deeds on his behalf. A POA is any instrument empowering a person to act for and in the name of the person executing it. It includes an instrument by which a person is authorised to appear on behalf of any party in the proceedings before any authority. The Indian Stamps Act defines POA as 'any instrument empowering any specified person to act for and in the name of the person executing it'.

Revocation of a POA is as important as delegation of the power itself. Otherwise, it might be to the prejudice of the parties themselves. In deciding whether the agency can be revoked or not, two conflicting interests are to be reconciled and a suitable middle way is to be formed so that none of the parties suffer unjustly. The interests of the person who has delegated the power should be in conflict with those of the person to whom the power was given.

A POA is automatically terminated if either one of the parties to the instrument dies, the principal goes bankrupt, or any specific condition in the instrument is breached. Generally, in case the power given was one coupled with interest, it cannot be withdrawn. Section 202 of the Indian Contracts Act contains some relevant provisions. Accordingly, if an agent has an interest in the property that forms the subject matter of the agency created via the POA, the agency cannot be terminated to the prejudice of such an interest. Also where an agency is created for valuable consideration and authority is given to effect a security, the authority cannot be revoked. The POA is irrevocable if it creates an agency coupled with interest, unless there is an express stipulation to the contrary.

Where the authority of an agent is given for the purpose of effecting any security or for protecting any interest of the agent, it is irrevocable during the subsistence of such security.

The mere fact that a power is declared in the instrument granting it to be irrevocable does not make it so. Irrevocability requires something further. If on a construction of the document and in the light of the facts, the document does not prima facie satisfy the condition for the creation of a power coupled with interest, merely because the document itself describes the agency to be irrevocable, does not make it so. The interest which an agent gets in the property must be simultaneous with the power given to him in order to give him a power coupled with an interest. If the interest created in the agent is the result or proceeds arising after the exercise of the power, the agency is revocable and cannot be said to be an irrevocable agency.

If a document creates a power coupled with interest it is irrevocable in law. Still, the parities can by agreement make it revocable. If the power is irrevocable, the parties are nevertheless free to make it revocable by an express stipulation to the contrary. However, in cases where it is revocable it cannot be made irrevocable merely by writing so in the agreement.

Whether a given power is coupled with interest or not depends on the facts of the case and the wording of the instrument itself.

Companies paln for Non-Convertible Debentures (NCDs)

Senior citizens and pensioners need not worry about the recent fall in interest rates on bank term deposits. Instead, one can invest in corporate debt instruments that carry coupon rates that are 3-4 per cent above bank rates.

Many companies are expected to bring in debt issues, largely non-convertible debentures (NCDs), to raise around Rs 20,000 crore from the market within the next six months.

Companies like L&T Finance, Shriram Transport Finance, Tech Mahindra and Tata Capital recently raised funds over Rs 3,300 crore via NCDs. Companies preparing to launch debt issues include Dewan Housing Finance, Gujarat Industrial Finance Tech-City, IIFCL, Jaiprakash Associates and Srei Infrastructure.

Suresh Sadagopan, certified financial planner, Ladder 7 Financial Advisory, Mumbai, says: "Now is a good time to invest in NCDs as bank fixed deposit (FD) rates have seen a decline. As NCDs offer 3 per cent higher interest than FDs, they are a good option. However, one must look for a good company with a good track record. Serviceability can be an issue, therefore, due diligence of the company should be done before investing."

So, attractive as they may seem, make sure that you do your homework on the company before investing in its NCD.

Sunday, December 20, 2009

Hybrid strategy to match Warren Buffett

Dividend-FD combo give you handsome return
INVESTORS can earn as high a return as 20% per annum by simply investing in shares for dividend and then re-investing those dividends in fixed deposit to earn interest. We made a portfolio of six stocks, which pay higher dividends than the average and then estimated the return —which an investor would have earned if he had invested in these stocks on April 1, 2003, and held on to his investments till April 1, 2009.

The reason why we chose April 1, 2003, as the starting point is that the Bull Run was just about to start then and therefore, prices were very low, resulting in high-dividend yield. And today, we have come full circle as there are so many stocks which are beaten to such an extent that the dividend yield is as high as 10%, in some cases even more.

The six stocks, which we have chosen are

  • Tata Steel,
  • Varun Shipping,
  • HCL Infosystems,
  • Chennai Petroleum Corp,
  • Graphite India and
  • Allahabad Bank.

Assuming that an investor had bought 100 shares each of these scrips, he would have shelled out Rs 29,590 on April 1, 2003.

Exactly after a year on April 1, 2004, he/she would have earned Rs 4,360 just from dividends on these stocks. This implies a dividend yield of as high as 15% (4,360/29,590).

Upon the receipt of dividend cheque, let’s assume that the investor had put the money in one-year fixed deposit, which was yielding 5.5% per annum then. And then, every year the investor kept on rolling his fixed deposit for another year. This is called ‘hybrid strategy’, wherein the income from risky investments (in this case equities) is routed to a relatively less risky investments (in this case fixed deposit).

The sum of Rs 4,360 received on April 1, 2004, would amount to Rs 5,673 on March 31, 2008, if kept in fixed deposit this way. And mind you! We have considered dividends received just for one year.

Similarly, dividend would have been credited to an investor’s account in 2005, 2006, 2007, which can be routed to fixed deposit for three, two and one year, respectively. Obviously, dividends received on April 1, 2008, would not fetch any interest. In five years time, that is at April 1, 2008, this strategy would have yielded a return of Rs 42,564, which is more than the principal itself.

This translates to a whopping 19.5% compound return per year! Pretty close to what the most successful investor of all times Warren Buffett makes. And guess what, we have not considered the capital appreciation at all. The value of 100 shares each of the six stocks in our portfolio stands at Rs 116,555 today. So, the portfolio has become four times in the past five and a half years even after the stock market has corrected by more than 50% this year.

Of course, in the hindsight, giving investment ideas is as easy as throwing darts. And therefore, there is no guarantee that retail investor would make a return as high as 20%.

But what the retail investor must remember is that as the stock market has fallen more than 50% in the past nine months, a number of stocks are available at a dividend yield of 5%.

Don’t simply put the money because the current dividend yield is high. Select the stocks, which have high dividend yield and have high probability of growing their profits in future.

This is most important because if the profit rises, the dividend payment also rises even if the payout ratio remains constant. And when you get the dividend cheque, put it straight in the one-year fixed deposit and keep rolling over these FDs. In few years’ time, you would have recovered your investment through dividend and interest while still holding on to your principal.

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