Prajna Capital - An Investment Guide

How these monthly income plan (MIP) plans serve the needs of those looking for capital preservation with a steady income A monthly income plan ( MIP ) is a good investment option among mutual funds. Individual investors are perpetually in search of investment avenues that yield good and regular returns. MIPs have been floated by various mutual funds. These plans are picking up fast. Investments of these plans in equities have increased. They have increased their allocations towards equity in their portfolios. Mutual funds have been focussing on the individual investor segment. A MIP is among the best products available to the individual investors. Most of these plans offer three options - Monthly income, Annual income, and Cumulative income The face value is Rs 10 per unit. Generally, the minimum investment is Rs 10,000 in case of the cumulative option, while there is no maximum limit. As is applicable to other schemes, the returns from these schemes are not guaranteed. The...

Wish to cut down on wedding costs? Don’t have a clue from where to start. Here are ways to rationalise the huge expenditure for making the event not only a memorable one but also affordable Marriages may be made in heaven but if only they could be solemnised there too. Every bride and groom could fulfil their vision of a perfect wedding, in an idyllic setting with as many guests and fanciful embellishments as they desired, without spending a penny on it. However, it only gets this good in dreams. In real life, a wedding means weeks of nervous anxiety for all concerned, starting from the day the dates are decided to the moment when the final reception is over. Compounding this anxiety is the dip that you can see in your bank balance, every time a ceremony takes place. CREATE A BUDGET Most financial planners agree that as parents, the first step you should take is to chalk out what you can afford to spend on the wedding. Be realistic and do not allow yourself to be guided by emotions ...

IT sounds the same, you might say, but there's a difference between home insurance and home loan insurance . The difference When you opt for home loan insurance , you will be insuring the home loan and not your home. That is, God forbid, if something were to happen to you (borrower), home loan insurance will take care of repaying the remainder of the loan to the bank. So, the burden of paying off the loan will not fall on the shoulders of the surviving family members. It will also prevent a situation where the home may need to be given up to the bank to help loan recovery. For instance - One takes a home loan worth Rs 30 lakh for 20-year loan tenure. He/She also takes an insurance cover for this loan. On the 18th year of his loan, Insured meets with an untimely death. The insurance company will pay the remainder of the principal, approximately Rs 9 lakh, to the bank. Thus foreclosing the loan. What’s my premium? Premium for this insurance cover varies for different insurance compa...

Some conditions to avail a tax deduction on HRA Employees usually get a house rent allowance ( HRA ) from employers. HRA is given to meet the cost of rented premises taken by the employee for his stay. A person can claim exemption on his HRA under the Income Tax Act, if he stays in a rented house and is in receipt of HRA from his employer. The exemption of HRA is covered under Section 10(13A) of the Income Tax Act and Rule 2A of the Income Tax Rules. The conditions for allowing the exemption on HRA are - the assessee for the rented premises, which he occupies, and he must not own the rented premises, must actually pay the rent. The amount of HRA exempt is the least of - the actual amount of allowance received by the assessee for the period during which the rental accommodation was occupied in the previous year, and the amount by which the actual rental expense incurred by the assessee exceeds one-tenth of the salary in the relevant period. If the accommodation is situat...

Non-life insurance companies say premium charged on policies sold by them is likely to increase from next year because of a proposed change in the way their income is calculated. The Union Budget for 2009-10, presented on July 6, wants to classify profits or gains made from their investment as business income, which would be taxed at the corporate tax rate. Similarly, loss from the sale of investment can be set off against taxable income. At present, profits from the sale of investment by non-life insurance companies are not included in their business income. State-owned general insurance firms make a profit of Rs 2,000 crore from the sale of equities on an annual basis. “It will mean a capital loss of Rs 600 crore. Therefore, the only way insurance companies will deal with it is by increasing the rate of premiums,” said M Ramadoss, chairman and managing director of state-owned Oriental Insurance Company Ltd, at a conference organised by industry body Ficci. Analyasts say that the inte...

My brother says that the investment in public provident fund ( PPF ), which gives 8 per cent, is the best. Isn't 8 per cent a low rate of return? An investment's pre-tax yield tells us if its return is high or low. The return on PPF (8 per cent) is tax-free. Also, this has to compared with returns of a taxable income to estimate its worth. For someone paying a tax of 30.9 per cent, the pre-tax yield in PPF is 11.57 per cent. At present, there is no fixed, safe and assured-return option that has 11.57 per cent return and a post-tax return comparable to PPF's 8 per cent. Formula: Pre-tax yield = ROI / (100-TR)*100 Type in: =8/(100-30.9)*100 and hit enter. You will get 11.57%. ROI: rate of interest, TR: tax rate, (depends on tax slab) Also used for: Calculating the yield on an Employees' Provident Fund or any other tax-free instrument.

Policy Lapses In Ulips Higher Than In Traditional Products: Irda DOMESTIC life insurers may have to adopt a uniform definition for lapsation of insurance policies to give more leeway to policy holders on premium payments. The insurance regulator Irda has recommended a uniform grace period of 30 days for policy holders paying their premium every quarter, half-year or every year. A 15-day grace period has been suggested for policy holders paying monthly premium. An insurance policy lapses when the subscriber does not pay the premium within the grace period. IRDA has recommended re-instatement of a policy if the premium is paid within the revival period of two to five years, as per the internal practice of the insurer. Currently, companies have varying definitions on lapsation of policies and this creates a lot of confusion. The suggestion for life insurers to adopt a uniform “ grace period ” and “ lapse definition ” has been made in Irda’s first occasional paper on “Lapsatio...

A well-known fact about equity investments is that it doesn't rob you of your returns in the long run. In fact, equity has always been kind to those who have showed patience and the perseverance to be invested during tough times. While such a strategy is gainful in the long run, it also needs a careful selection of funds. Diversification of risk among different schemes is an unwritten rule for a perfect investment strategy. In addition, one has to follow a few tips for building a good equity portfolio. Diversify according to risk appetite While diversification is a prerequisite, divide your portfolio according to your risk appetite and investment horizon for the portfolio. For instance, splitting the corpus among five diversified funds will be meaningless as all funds will have similar investment strategies. Hence, diversification has to be according to your needs. One of the smarter options could be to divide the portfolio into short-term and long-term, and then choose funds accor...

What are stocks and shares? Many people fall in to the misconception that stocks and shares are different things but they are just different ways of saying the same thing (stocks generally used in America, shares used in England). A stock or share is basically just a stake in a companies capital, ie if you have own a share you own basically own a tiny bit of that company. What is a dividend? A dividend is nothing more than a share in the underlying profit's of a company. Most companies pay dividends quarterly (four times a year).Its generally the larger especially blue chips stocks which pay dividends. The choice of buying and owning a stock that pays a dividend is up to the individual investor. There are both positive and negative aspects that come with receiving dividend. A company offering dividends is likely to be a larger stable one offering a lot less potential for growth. Share Types When consider to purchase stocks and shares it is handy to know that there is generally two...

Motor insurance is not just a legal requirement. Read the fine print before signing on the dotted lines to save money AT A TIME when motown customers are facing heat over high fuel prices and soaring interest rates, shouldn’t they strive to extract every penny they spend on their automobile purchase? Valid question, you may say, but most customers choose to ignore an important component while purchasing a vehicle — motor insurance. They just consider it a legal requirement without which they can’t bring their new vehicle on road. Indeed, motor insurance is a necessity which covers you against damage to your own vehicle and damage to the third party. Broadly, there are two types of auto insurance — 1) Comprehensive policy and 2) Third party insurance . 1) Comprehensive policy In comprehensive insurance, you get full cover for every possible damage, including dents, technical problems, repair, accidents and even for car theft. To make sure that an individual gets the best deal w...

Mutual Funds growth schemes may have provided higher returns than their dividend counterparts during the bull run. But not any more! Dividends paid in the past five years have not only saved investors from the market tsunami, but also ensured higher returns Mutual fund ( MF ) houses and their distributors often use dividends as a carrot to lure investors to their schemes. Dividend, in common parlance, is understood to be a share in the profits of the company in which the investor has a stake (shareholding). However, in case of an MF scheme, dividend is nothing but a part of the capital appreciation of the investment returned back to the investor in piecemeal. It is for this reason that the net asset value ( NAV ) of a scheme stands reduced to the extent of dividend declared by the MF scheme. Dividend and growth are the two basic options that an investor can choose from while investing in an MF scheme. Unlike the dividend option, growth invests any appreciation of initial investment ...

Stop-loss orders are like health policies for stocks, which come at zero premium. Besides reducing your losses, they also help you to lock in your profits Talk to investors and we find thousands of instances where people just ignored one basic principle of investing: Setting stop losses and sticking to it. What is stop loss? It is a pre-defined order to automatically sell a stock when it falls to a certain level. When the stock reaches the point, the stop-loss order becomes a market order and the trade is executed. It’s a very important investment tool, especially if you are typically trading in a bullish market situation, which helps to save the larger part of the pain in case the sentiment turns How it helps? Stop loss is an important risk-management tool used to exit a stock before it falls any further. This not only helps in reducing your losses but also to lock in your profits. Consider you bought a stock sometime ago at Rs 100 and the stock is now trading at Rs 140. Now some n...

Transfer of property is handing over possession from one person to another. The Transfer of Property Act 1882 contains specific provisions on what constitutes transfer and the conditions attached. According to the Act, transfer of property means, 'an act by which a person conveys property to one or more other persons, or to himself and one or more other persons'. The transfer may be in the present or for the future. Further, 'person' may be an individual, company, association or a body of individuals. Under the Act, property of any kind may be transferred. Every person who is competent to contract is competent to transfer property either wholly or in part. He should be entitled to the transferable property, or authorised to dispose off the transferable property if it is not his own. The right may be either absolute or conditional. A transfer of property may be made without writing in cases where it is not expressly required by law. It can be transferred eit...

CRM: Lets you interact with your customers efficiently. Also includes employee training. Knowledge management systems: Your employees will be able to readily access company facts and information. ERP : Helps you manage all the information and functions of a business or company from shared sources. Online collaboration: ZOHO & Google Docs can manage tasks involving multiple people, deadlines and activities. Information security: Data security and protection of information and systems from unauthorised access. Social networking sites: Excellent low cost marketing tools such as Twitter, Linkedin help you reach customers. Payroll management tools: Let you handle complicated payroll systems and create a good compensation system. Search engine optimisation: Improves volume or quality of traffic to a web site from search engines. Online conferencing: Uses the Internet as a conference venue which means that participants can be anywhere. Software as a Service: A pay per use model ...

MF industry, which survived a major crisis after the stock market crash, can grow in the coming years. Excerpts... Market risk ratings Until now, we have had only one form of rating for money-market funds — credit rating. Internationally, money-market funds are rated on two parameters – credit rating and market-risk rating. Market-risk ratings are dependent on the duration of the portfolio and the liquidity of the underlying assets the fund holds. While we do not have a full fledged dual rating system in the country, the recently introduced ceiling on the maturities of the fund may be the first step. A dual rating system may make functioning of the industry robust like it has in western countries. But let’s not forget that, even if that is done – you may continue to have problems during abnormal months, like the one we have already witnessed in October 2008. The market risk ratings can only reduce the risk for investors, but it cannot eliminate it completely. Retirement investment ...

Some conditions usually applicable to avail a loan to buy a plot of land A loan to buy a site is available if you want to purchase a plot of land and construct a house on it later. Usually, the bank insists that the site be purchased from a recognised authority like a development authority such as the Bangalore Development Authority, from a society or from a recognised developer. In addition to the normal documentation, some additional documents are required to avail a land loan. These include: Original documents of ownership of land No encumbrance certificate from the registrar's office certifying that the land is not already mortgaged Layout drawing (approved by the city development authority) of the location where the land is, giving details of the precise location of the site and its surrounding areas NOC from the society for sale and transfer of land Latest revenue receipt confirming payment of land dues to the government and tax receipt for tax paid by the owner of the la...

KEYNES, the most talked-about economist in these days of bankruptcies and bail-outs, once said, “markets can remain irrational longer than you can remain solvent.” While this theory is applicable to both bears and bulls, the underlying message is undoubtedly clear that rational investors can succeed if they can keep irrationalities out. The broader investment decision of whether to invest in equities as an asset class at a given point in time should depend on the prevailing stock market activity. While I also agree with the learned view that a retail investor should not try to time the entry and exit in a particular stock, I strongly argue that every investor can time the market to enter/exit equity markets. Stock markets historically have peaked at a time when interest rates also peaked or tended to peak due to higher demand for market related credit fuelled by over confidence. There is an example of this not so “knowledgeable” investor friend who sold all his equity investments wh...

The volatility in markets only underscores the need for taking a financial planning decision based on sound risk as well as time horizon considerations OVER the last six months, the Indian equity market has seen a huge fall after a long period of spectacular returns. The fall in the equity market indices on one hand, and poor returns in fixed income funds due to rise in interest rates on the other, have led to some confusion among investors. The concerns plaguing the markets are partly global and partly cyclical in nature. The cyclical issues could lead to a temporary slowdown in the pace of growth, but the long-term uptrend will prevail as India is in the midst of a long investment-led growth phase supported by high domestic savings rates and very favourable demographics. While the long-term picture warrants considerable optimism on equities, investors have been concerned about falling value of their past savings, and confused as to where to put their incremental savings. ULIPs (...

The events of 2008 should be quite enough to cure anyone of either making or believing in predictions. Of course, there’s no shortage of people who claim to have foreseen bubbles in this or that asset class. Some of them are even right. However, no one, absolutely no one, foretold the inter-connectedness and the mutual reinforcement of the various disasters that overtook the world’s economy during this past year. I could argue, with some justification that the carnage of 2008 is over and various investment markets have already discounted a very dismal picture indeed. On the other hand, I could also argue that much of the good news is merely a side effect of factors like the oil price crash and suddenly lower prices which themselves foretell even deeper trouble ahead. Some analysts will guess one way and some the other and the lucky ones will get to pretend that they knew something that others didn’t. However, if you are a retail, non-professional investor, then none of this should a...

Trading in currency futures helps you speculate and hedge against daily market volatility. But you should be aware of the associated risks as well WORRIED over your investment growth in the light of volatile currency exchange rate? Put your fears aside. After a long wait, currency futures’ trading was launched on NSE (India’s largest stock exchange) at 8.45 am, on August 29, 2008. Currency future is a standardised futures contract with currency as the underlying instrument. Put simply, it is a contract or an agreement to buy or sell any currency at a specified future date before contract expiry date. For those who are new to futures trading, the key factor to understand is the leveraging character of the product and the associated risk. The currency movements in the last few months bear out the importance of having currency in your portfolio and how the futures platform, with the availability of the one-year contract, makes it possible. START HERE If you want to trade in currenc...

A joke in the personal finance industry is that investors are more willing to buy insurance policies than mutual funds. When quick profits become more challenging or losses become the order of the day, it's probably natural for investors to take shelter under safety. But then can insurance be a supplement for investors. The question assumes significance, as it is not the job of an insurance policy to provide capital or yield comfort. However, in the last 3-4 years, insurance is being sold as an investment option rather than as a risk cover and hence, investors too have begun to expect insurance to do the job of wealth creation. One of the reasons could be due to the fact that the middle income segment, till the current decade, used insurance as a savings product. The legacy seems to have passed on over the years and products like the unit-linked insurance plan ( ULIP ) have only strengthened the belief of investors that insurance is for investment. However, investors can go for ...

Mutual funds are a convenient way to invest in the markets. Numerous fund houses offer a wide platter of schemes. The choice before the investor is so wide, that he is often baffled. Some investors who have tasted attractive returns in the past believe that all funds can work the magic for them. When they get mediocre results, they realise that their time and money are wasted. Today, the stock markets are badly beaten. People with low risk appetite are locking away their savings in debt instruments. Some investors consider mutual funds a safer route to remain invested in the markets. How does an investor evaluate the performance of mutual funds? How do you ensure that your money is not locked in a low or no return scheme? Don’t rely on past performance A fund that was yielding consistent returns over the past few years can disappoint the investors next year. Past performance is no guarantee for good future performance. Compare its performance over varying timeframes against the b...

This article explains how hedge funds use different strategies to mitigate risk Hedging means managing risk. A fund manager employs a particular hedging technique in order to mitigate a particular type of risk. For example, a market risk can be hedged against by selling a broad collection of securities short, in equal proportion to one's long exposure or by buying put options on an index. You can hedge against interest rate, inflation, currency etc. Tools for hedging include raising cash, selling short, buying or selling options, futures, commodity and currency futures etc. A hedge fund is a private investment partnership. Hedge funds tend to be skill based investment strategies that attempt to obtain returns based on a unique skill or strategy. The primary aim of most hedge funds is to reduce volatility and risk while attempting to preserve capital and deliver positive returns under all market conditions. It designs a strategy to reduce investment risks using call optio...

Though maintaining an expense sheet and budgeting looks mundane, it is a very critical step in personal money management and can help reduce worries in an uncertain economic scenario. The main objectives of maintaining a budget sheet is to track and control the day to day expenses, to provide and prepare for the priority needs and to create financial backups to counter any unforeseen needs. Ideally one should do this exercise for at least 6 months if not more which will definitely give a lot of food for thought. The budgeting process has two main steps. First, preparation and maintenance of an expense sheet, and second, deriving a cash-flow statement. The simplest way to do this is to create a template on Excel and regularly update the same. Steps to create a budget sheet Define the basic heads of expense and list all the expenses under each head Committed expenses: Includes expenses, which are a must and are recurring in nature. Rentals, groceries, school fees, telephones, fue...

IF YOU’RE one of those who started a bank account when you were 18 and about to leave home for college, refrain from passing on this piece of information to a young person if you want to protect your dignity. Otherwise, be prepared to see the smirk and hear the condescending tone of a four-feet something person, elaborate on how he/ she was exposed to banking at the age of 10. Exposure comes early these days. Kids aren’t content with paper money or being the banker in a game of Monopoly. They want to be a part of the real financial system and enjoy the benefits that their parent’s have- like having an account of their own, using an ATM card to withdraw cash, having a debit card to occasionally go shopping and so on. Most banks in India now provide the opportunity to start a savings account in a child’s name. KNOW THE BASICS Junior accounts in most banks are available for children up to 18 years of age. However, the minimum age to start such an account could be as low as one day. Bef...

Thematic funds should be considered only if you have built up a sizeable portfolio and allocated your assets appropriately WHO IS IT MEANT FOR? Strictly speaking, if you’re a first-time investor, then a thematic fund may not be the right kind of product for you. For a first time investor, diversified equity funds should be the first step. Thematic funds are generally seen as more of a product for informed investors. An investor should look at investing in thematic funds only after one has built up a sizeable portfolio and has allocated one’s assets appropriately. What this means is that you should explore thematic funds only after you have an adequate exposure to both small cap and mid-cap stocks and have the capacity to bear a sizeable amount of risk. Even then experts recommend minimal exposure. FALLOUTS At any given time, there is generally one segment in which more interest is shown than others, which then becomes the flavour of the season. Investors immediately begin clamouring fo...

With rising awareness and courts getting consumer friendly, more aggrieved clients are taking professionals to court. How indemnity insurance minimises the financial impact of such adverse rulings? Read on………. SAMPLE this: An Illinois jury recently awarded the parents of a seven-year-old boy $12 million in a medical malpractice case against the doctor who delivered the ‘disabled’ child. In another case last year, an elderly man’s death brought a $5.25-mn malpractice verdict against a Texas doctor, while a Washington, DC, judge filed a $67-mn lawsuit against his drycleaner just for losing his favourite pair of pants! If you, however, thought such things can happen in western world only, think again. For, India’s premier medical institution AIIMS was also some time back ordered to pay Rs 5 lakh in damages to a woman for surgically removing one of her body parts after wrongly diagnosing that it was affected by cancer. And that’s not the ‘lone’ case of medical negligence or error wh...