Prajna Capital - An Investment Guide

Five major challenges faced: Potential for outliving one’s assets; Threat of rising living costs; Impact of increasing health-care costs; Uncertainty about future level of social security benefits; and Damage to long-term financial security With so much at stake when planning a retirement income stream, it pays to take a step back and see whether your plan takes into account the major obstacles to retirement income adequacy. When you take this big-picture view, consider the five major challenges most retirees face: the potential for outliving one’s assets; the threat of rising living costs; the impact of increasing health-care costs; uncertainty about the future level of Social Security benefits; and the damage to long-term financial security that can be caused by excessive withdrawals in the early years of retirement. Understanding each of these challenges can lead to more confident preparation. Standard & Poor’s suggests you consider these five risks to your retirement income, in...

When it comes to investing, there are two styles to it. They are: 1) Active 2) Passive Lets discuss these in detail: 1) Active Active investing is a strategy in which the fund manager is highly involved in buying and selling of stocks (in case of mutual fund). Here the aim of the manager is to beat the returns generated by the corresponding benchmark or an index. 2) Passive On the other hand, in the passive style of investment, stocks are bought with a long term perspective. Here the portfolio is not as frequently churned as it is in active investing and the manager does not resort to profit booking based on short term price fluctuations. Indexing is an example of passive form of investing. An index fund invests in same stocks, in the same proportion, as in an index like Sensex or Nifty.

This article is on the basic difference between mediclaim and health cover MAX New York life recently launched ‘lifeline series’ — health cover plans for individuals. While typically it is the general insurance companies, which have been active in the mediclaim space, thanks to IRDA , now there are alternatives from life insurers such as ICICI Prulife and Bajaj Allianz. Protection and savings Mediclaim is usually a cashless policy, in which you can undergo treatment at any of the hospitals listed with the insurer without paying cash at the time of treatment. On submitting hospital bills, the designated third party administrators ( TPAs ) pay off the dues directly to the hospital. Newly-launched health products of life insurers extend the same cashless facility. But the structuring is different. The latter, for instance, have a health cover along with the savings option. In other words, the premium you pay for health cover also has an investment element to it. The idea is to meet the ...

Using toy piggy banks and cash registers, while older kids can learn to manage cash and pretend to be real estate moguls by playing Monopoly. To get a taste of trading stocks and mutual funds, there are online games and contests, as well as investment clubs. The first step for parents, say financial planners, is to start talking about money matters at home. “Having conversations about money at a young age lays a good foundation. With the right lessons and planning, your kids, as they grow older, may be able to avoid money traps like getting deep in debt from those alluring but deceptive Credit Card offers and embrace sound strategies as they save for big purchases such as graduate school, car, and a home. A PENNY SAVED IS A PENNY EARNED Parents can start teaching kids about earning money as early as elementary school, Silverman says. Set a weekly or monthly allowance for chores done around the house, and offer extra for helping neighbors and performing other tasks. Then show your kids...

Go for equity or MF based on risk appetite Some tips for investors in these volatile times when it is difficult to choose between equity investing and safer options The domestic stock markets have seen a historic bull run over the last four years. From the beginning of 2008, the markets are in a correction phase due to weak investor sentiments in the local as well as global markets. We have witnessed unprecedented volatility in the markets in the last few months, especially over the last 4-5 months. In fact, the domestic markets are among the most volatile markets in the world (volatility in the Indian stock markets is much higher than markets in developed economies like Dow Jones , NYSE, Nikkei, FTSE etc). There were many days when the Sensex recorded more than 1,000 points (above five percent) intra-day swings. The rise and fall of share prices (market direction) depend of various market forces. In fact, the factors that affect stock markets have increased significantly over the la...

Once, a king, extremely pleased with his wise and able minister, said: “What would you like as a reward? Ask and it shall be granted.” The minister knew he couldn’t sound greedy but at the same time, in his 15 years at the royal court, the old king had never been so generous. The minister replied humbly: “Your Highness, it has indeed been an honor to serve you at your court for all these years. That itself is my reward.” The king was pleased with his humble servant. But he insisted. The minister, after much hesitation, replied softly: “Your Highness, I request you to give me a grain of rice.” The king said: “Minister, now you are wasting my time. I insist you ask for your reward, else I’ll have you thrown in the dungeons.” The minister replied humbly: “Your Highness, if you insist, then I shall accept the rice every day for the next two months. Starting with one grain of rice tomorrow, the quantity can be doubled each day over the previous day for the next two months.” The king was amu...

How an equity-linked saving scheme works An equity-linked saving scheme ( ELSS ) is an excellent avenue if you are looking at investing in the equity markets, and saving on tax. As the investments are locked in for a period of three years, the returns are also good in these schemes. Further, considering the tax advantages, the yield on investments is generally high. ELSS is a type of diversified equity fund. Investing in ELSS is deductible under Section 80C of the Income Tax Act . ELSS is like any other equity fund. However, the lock-in period is three years. These funds come with all the usual trappings of an equity fund, which includes choice between dividend and growth options, and systematic investment plans. The amount you plan to invest in an ELSS should be in multiples of Rs 500 with a minimum of Rs 500. The fund allots units to all complete applications, made in the specified form, not later than March 31 every year. Further, the plan should be open for a minimum period of thr...

Ever since the Foreign Direct Investment ( FDI ) norms were relaxed for investments into the real estate sector, the Indian real estate market has been drawing the attention of foreign realty funds (i.e venture capital funds with a focus on investments in the real estate sector). These realty funds are essentially pooling vehicles that raise capital from a number of investors with a profit sharing model on returns. The Indian real estate sector continues to be one of the most appealing investment avenues, despite issues such as land title, lack of rationalized stamp duty legislation and absence of specific tax incentives for realty funds. The government currently permits 100 percent foreign investment in companies engaged in the development of townships, housing, built-up infrastructure and construction development projects. However, such investment is subject to conditions contained in Press Note 2 (2005) which include conditions such as minimum built up space, minimum capitalization...

The Budget has announced a huge bonanza for tax-payers and it’s time you sow the hard-earned money where it would bear fruit NOW THAT the finance minister has put more money in your hands by restructuring the income-tax slabs, it’s time you take charge of the finance ministry of your house. An yearly saving of Rs 45,320 (for an individual with an income of Rs 5 lakh) may look tempting and increase your urge to spend but some smart and calculated moves can help you grow that money. Here is a lowdown on how you can maximize your hard-earned money through efficiently using different financial instruments to your advantage. UNIT-LINKED INSURANCE POLICIES (ULIPs) ULIPs can be the best investment option for those looking for a single-window option of investment, insurance and tax efficiency, say analysts. “Considering the fact that universally the risk appetite of individuals is low, ULIPs are the ideal entry points into the stock market indirectly and for long tenures in a disciplined way....

Before you decide to hang up your shoes and chase your dreams, it’s important to do some financial planning so that you can enjoy the golden age to the fullest. THE definition of golden period in one’s work or professional life has now assumed a new meaning. Today, the ‘golden age’ is one when at the peak of your career, you decide to snap your ties with competitive work and spend time on what you always wanted to do. In terms of jargons, some prefer to call it — semi-retirement. Take the case of 42-year old Rajesh (Name Changed). He was doing well for himself as a marketing head in an MNC when he decided to take a break from the daily, hectic work schedule and started to learn pottery. Rajesh, who use to head a team of B-school graduates, is now enjoying his stint as a pottery teacher to young kids. But before you decide to hang up your shoes and follow your dreams, it’s important to do some planning so that you can enjoy the golden age to the fullest. FIRST THINGS FIRST Analysts bel...

Last few years have been very easy for the investors to make money out of markets. Thanks to solid bull run. But situation has changes both globally and locally as well. This all started with US sub prime issue. This market correction has bought many of the investors back to basics and class room to review their stock selection strategy Set a ceiling for exposure to a particular stock You must set a maximum limit for exposure to a stock as over exposure can prove disastrous in a struggling market. In your portfolio, the value of RIL shares is around Rs 1.58 lakh, that's an upside of 108.7 per cent from your cost price. The rapid appreciation of the stock's price has resulted in it cornering 32 per cent of your portfolio. Consequently, one-third of your portfolio is dependent on just one stock. It would be great if you could moderate your risk by reducing your exposure to RIL. Avoid small holdings The price movement of the stock should never be the sole reason for buying it. You...

UNHAPPY with your mediclaim policy, want to change your insurer? You may soon be able to transfer your mediclaim policy from one insurer to another. The General Insurance Council ( GIC ) is in talks with the insurance regulator, IRDA , to introduce mediclaim portability and renewability. Authorities are expected to prescribe a minimum defined cover to enable portability across insurers. Already, GIC has introduced a common definition of pre-existing illnesses and exclusions for all insurers as a first step towards portability. The determination of pre-existing diseases are a contentious part of mediclaims’ settlement. By introducing a uniform definition of pre-existing diseases, the extent of litigation will come down, experts feel. KN Bhandari, secretary general, GIC, said, “We are in talks with Irda to introduce mediclaim portability and renewability. A minimum defined cover which will have basic benefits will be arrived upon. It will not be too restrictive, but should be a balance b...

Like most budgets, these years' too had some minor measures that haven't attracted too much attention but are nonetheless interesting. One such measure has been the inclusion of the Senior Citizens Savings Scheme ( SCSS ) into Section 80C. Why is this interesting? Because it offers a significant new tax break to older people who still have an income but are short of options on saving taxes. Let me explain. The SCSS was introduced in 2004 budget. It is a deposit with the government that is serviced through the post office and is available only to those who are older than 60 years, or 55 years for those who have taken a VRS. The deposit fetches interest at the rate of nine per cent, which is a great return for a safe, government-guaranteed investment. Until now, this deposit had no tax-saving angle to it. Money put into it did not get the depositor any kind of a tax break and the interest earned was fully taxable. Mr. Chidambaram has changed this in this budget. Now, investments ...

Any investment planning must guard against the unforeseen, particularly when it pertains to your better half. Take stock of the must-do list JOHN Lennon, one of the founding members of The Beatles, once noted in his album, Double Fantasy, that life is what happens to you while you’re busy making other plans . Perhaps, Lennon wouldn’t have given a second thought to what he said. But, life certainly did. Some years later, he was shot dead by Mark David Chapman, for whom Lennon had autographed a copy of Double Fantasy earlier that same night. Lennon has left a treasure of melodies for his admirers but some of us aren’t that lucky. Any eventuality, may not only affect your family emotionally but financially as well. Specially, for your spouse, who can be in dire straits if you haven’t planned for such a situation. Here’s a low down on what to keep in mind while building a financial reserve for your better half. TILL THERE WAS YOU Financial planners hold the view that before you make any pl...

If you suspect you’re not using your small business data to the utmost, here are seven steps to get you on track. UNDERSTAND WHY DATA MATTERS On the surface, information about your customers and market is certainly useful. But it goes much deeper: careful analysis of data can be invaluable in identifying broad based, reliable trends central to your business’ success particularly for small businesses. You need to understand and analyze data to keep your customers. YOU HAVE UNEXAMINED, USEFUL DATA There are scads of proactive ways to gather data, such as customer surveys and other forms of feedback. That’s helpful, but don’t overlook information that you may already have at the ready. Customer purchase records, demographic data left by website traffic — these and other sources provide insightful material. WHAT TO LOOK FOR Start with your existing customer base. Chances are good that you have extensive customer information. Find out what they’re buying, how often and even where they’re co...

A ULIP is a two-in-one plan which gives you life cover and an opportunity to make investments WITH Dalal Street in a range-bound mood, uncertainty has gripped investors whether to dabble in stocks right now or wait for bulls to charge. In times such as this, it’s market risks which is now playing in the mind of a first-time investor. Suddenly, investors are running for safe cover and insurance activity has heightened, especially Unit-linked Insurance Plans ( ULIPs ). But, is it really advisable to invest in a Ulip? Making the decision could become simpler if you are acquainted with the finer details. For starters, a Ulip is a scheme which in addition to a life cover also gives you an opportunity to make investments. In simple words, a two-in-one plan which offers benefits of life insurance plus savings. Here’re five reasons why an investment in Ulips makes sense in the current market conditions. WEALTH CREATION Insurance experts advise that you should buy Ulips with a long-term orient...

An increase in the disposable income of Indians has led to an upswing in the lifestyle of people. A growing need for insurance has also been observed, as more families are dependent on only one earning member. There are two types of life insurance – 1) Term plans - which are the simplest and cheapest form of risk cover, and savings based plans, where one can expect returns after a period. 2) The number of savings based plans have recently been on the increase. People are viewing it as an investment instrument; like market-based Unit Linked Insurance Plans ( ULIP ) as equivalent to another Mutual Fund. But it is not entirely their fault. Insurance Advisers are 'misguiding' them into buying these savings based plans as investments with an added benefit of risk cover, instead of the other way round. However, consumers need to keep in mind that most of these plans are beneficial (both risk-cover as well as returns wise) only in the long term, though most insurance agents push them ...

WHEN we are a college fresher or in first job, saving and investment are the last things in our mind. Our priority is the latest gadget, movies or a dream car. This is natural among the youth. With so much media exposure, you get tempted to buy these items. I would advise youth to follow five personal finance steps: 1) BUDGETING It’s easy to find ourselves wondering where our money went. Putting a budget in writing can show how we are actually spending our money and what we can do to help control where it goes. We should remember to add entertainment and shopping expenses into monthly budget and not forget to include savings. We should treat it with the same importance we would treat utility bills. In fact, the earlier we start saving, the earlier that money can start working for us. 2) PLASTIC WOES Easy availability of credit cards has provided a major boost to spending. We should use credit cards in a proper way like for emergency payments or life insurance premium payments. If we ar...

ALMOST 70% of Indians are worried about outliving their retirement money, yet only two out of ten full-time workers opt for a retirement plan, other than what is mandated by law. More than eight out of 10 Indians (80%) have done no retirement planning independent of any mandatory government plans, said the MetLife surveys — the study of international employee benefits trends and the sixth annual us study of employee benefits trends. Despite worries about funding a comfortable retirement or outliving their retirement savings, many fulltime workers in developing and mature economies, have taken few or no independent steps to plan for retirement. In India, the surveys said, “while almost three out of four employees (71%) say they are concerned about outliving retirement money, only one out of every three (35%) say they have taken steps to determine retirement need; only 20% say they have done actual planning for retirement.” The surveys further point out that while 80% employees in India ...

SEBI Likely To Accept Panel’s Recommendations For Friendly & Uniform Norms THERE’S good news for legal heirs awaiting the transmission of shares of deceased shareholders. Market regulator Sebi is expected to accept most of the recommendations of the group that was formed to look into the matter. This will pave way for quick transmission of shares and benefit those who have inherited them in physical form. Currently, companies follow different systems for transmission of shares in physical form. For instance, HDFC asks its local manager in some cases where the legal heir does not possess succession certificate or the probated will, to carry out verification once it receives the application. The manager then submits a report and the company then acts based on the recommendation. But market participants say this can be a tedious exercise. The companies would have to fix a threshold limit of 200 shares or Rs 100,000 whichever is higher for transmission of shares after submitting the s...

VALUATION of insurance companies is back on the regulator’s radar. The insurance regulator Irda is on course to develop commonly accepted benchmarks and disclosures to value insurance companies, as this would be crucial when Indian partners dilute their shareholding from 74% to 26%. The present regulation requires Indian promoters with a majority shareholding to dilute their stakes through an initial public offering ( IPO ) at the end of the tenth year of operations. The value of insurance companies hinges on several assumptions, which could result in wide variations. It is different from valuing, say, brick-and-mortar companies listed on the stock exchange. Their valuation is generally based on the price-earning multiple — a measure of the price paid for a share relative to the profit earned per share. A high PE multiple suggests that investors expect higher earnings growth in the future. But this exercise is much more complex for insurers. Once an insurance company receives the premi...

There are some fund houses that offer a life insurance benefit if you opt for a systematic investment plan in their schemes. It was initiated by DSPML Mutual Fund in 2005 with the name of Super SIP. Some other players like Birla Sun Life Mutual Fund, Kotak Mutual Fund and Reliance Mutual Fund have come out with the same concept. You will have to look into the details to see which one suits you. For instance, here are some questions you can ask as a guideline. Is there a minimum amount that has to be invested in the SIP? Must the SIP be of a certain tenure? Are all equity schemes of AMC, eligible or is it offered only on certain schemes? Will the insured amount be given to the nominee or be used to continue with the SIP so that the investment plan continues? Will all the insurance expenses be borne by the AMC? Is there any age limit to avail of this scheme? Now coming to your second question; yes, if you switch your units from one scheme to Equity Linked Saving Scheme ( ELSS ) of the sa...

Year 2008 has been an action packed one in all respects. It started off with stock market correction in mid January, later it turned out to be a bear market and eroded Billons of dollars of investor money. By then sleeping giant was awaken, the sub prime. It had cascading effect all walks of the economy only in US nut all across the world. Then came the big investment bank failures. Fed has to Bail out leading mortgage lenders of the country Fannie Me, Freddie Mac. But, worst was yet to come, Lemon Brothers, a hundred year old investment bank went bankrupt. It was the situation with Merrill Lynch and Morgan Stanley as well. Goldman Sachs was also taken a beating but was slightly better off. Merrill Lynch was acquired by Bank of America. Wachovia acquired by Wells Fargo, Washington Mutual (WaMu ) acquired by JP Morgan. Both Goldman and Morgan were converted to conventional banks. Meanwhile, Warren Buffet, greatest investor that the world has seen also showed confidence in Goldman. On th...