Prajna Capital - An Investment Guide

THOUSANDS of life insurance policies lapse for a variety of reasons every year. Policyholders may not pay the renewal premium either because of a change in their financial circumstances or because they discover later that the policy was mis-sold to them and it does not meet their requirements. They may also inadvertently skip renewals because of a job transfer. While lapsed policies result in a loss for policyholders, they are also a drag on the books of life insurance companies, contrary to popular perception. This is why life insurers often make special efforts to revive lapsed policies. THE PROCEDURE Typically, a policy can be revived within six months of its lapsing through a simple revival. If the lapse has occurred more than six months ago, a personal health declaration needs to be submitted. The policy is then revived subject to underwriting decisions. Additional medicals may be triggered depending on underwriting decision. The policy can be revived within one, two or five y...

Here are some tips to help you choose the ideal insurance policy that meets your needs Numerous insurance products such as children's education plans, life insurance plans with huge death benefits, and accident insurance covers are marketed aggressively. Often, people aren't aware of the actual insurance coverage. They jump onto the bandwagon, without reading the fine print. Tax payers make hasty last-minute insurance purchases to avail tax benefits under Section 80C. Though you may be saving a small amount of tax money, you could be stuck to a worthless policy for long years. Here are a few points to ponder over while buying an insurance policy: Insurance is not investment Insurance products are designed to provide protection . A term cover usually offers insurance protection but no benefit in case the insured survives the term of the policy. A unit-linked insurance policy ( ULIP ) on the other hand provides dual benefits of insurance protection and a flexible in...

The tax treatment in the mutual fund is categorised on the basis of: i) Equity and Debt funds ii) Long term and Short term Capital Gain iii) Dividend and Capital Income Equity, debt & the tax impact Equity oriented funds are those funds where more than 65 per cent of the corpus is invested in stocks of Indian companies. Debt funds are those which invest more than 65 per cent in the debt market. Now let's say you hold the units of an equity scheme for more than a year, in that case you are eligible for long-term capital gains, which is zero. In other words, you pay no tax. But if you sell the units within a year, you have to pay short-term capital gains. In the case of debt funds, if you sell the units after a year, you will have to pay a long-term capital gains tax, either with or without indexation, whichever is lower. Indexation is used to calculate tax when inflation is taken into account. This is good because it reduces the amount of capital gain and subsequently, the am...

IRDA Has Capped the difference between the gross yield and the net yield at 3 per cent for 10 years and at 2.25 per cent for more than 10 years. Within the overall cap, fund management charges were capped at 1.35 per cent for all tenures The New Year may bring challenges for distributors of financial products who had found solace in unitlinked insurance products (Ulips) after the Securities and Exchange Board of India (Sebi) had banned entry load on mutual fund instruments from August this year. From January 1, the Insurance Regulatory and Development Authority (Irda) guidelines capping overall charges on Ulips will come into force. Irda had capped the difference between the gross yield and the net yield at 3 per cent for 10 years and at 2.25 per cent for more than 10 years. Within the overall cap, fund management charges were capped at 1.35 per cent for all tenures. We expect the commission to fall from 20-40 per cent to 920 per cent. A bulk of the products we sell give us 20 ...

In the wake of engineering behemoth Larsen & Toubro taking over DBS Cholamandalam Asset Management Ltd (DCAM) through its arm L&T Finance Ltd for Rs 45 crore in September, 2009, changes will be happening that investors need to keep a track of.    All regulatory approvals have been taken from authorities (December 23, 2009 from SEBI), and now DBS Chola Mutual Fund will be renamed as L&T Mutual Fund, while DCAM will be renamed as L&T Investment Management Ltd, while DBS Cholamandalaam Trustees Ltd will be renamed as L&T Mutual Fund Trustee Ltd.   The full responsibility of management, administration and trusteeship of the schemes and assets too will fall into the realm of the new entity. Also subject to change will be the names of the various schemes, with L&T replacing the pre-fix DBS Chola on all schemes.   The fund house is offering its unit holders a chance to exit at applicable net asset value (NAV), without paying any exit load from January 15, 20...

HOSPITALISATION is something that most people hate, irrespective of the age they are. There is a sense of helplessness that overcomes you as you lie prostate on the bed, the subject (and victim) of the close study by doctors, nurses and the topic of discussion of those around. The irritation only magnifies itself in the case of an elderly person who is more prone to such emergencies. The sense of helplessness is compounded by a fear that rising medical expenses will force you to look at close relatives (mostly children) for support. Many elderly persons are unwilling to let go of their pride and request either financial or physical help from close relatives. To give elderly citizens the privilege of being independent and keeping their ever-increasing needs in mind, a few health insurance companies in the country have launched specific health insurance products for senior citizens. THE RIGHT AGE A standard complaint of many elderly people approaching companies for health insurance ...

Reliance Life Insurance company has announced the launch 17 unit linked insurance plans (Ulip). The new range of Ulips encompasses several categories including child plans, pension, protection, savings and investment, which are available in two versions — basic plan with tenure of over 15 years and another with a 10-year-term. According to an official release, these Ulips are primarily targeted at customers paying a premium of over Rs 10,000. All these schemes come with features such as capital guarantee, loyalty additions, higher internal rate of return and several fund options. The plans also offer riders, including payment of lump sum on diagnosis of specified critical illnesses, surgeries and additional life cover. Policyholders have the option of choosing between automatic asset allocation, systematic transfer plan and return shield options. Recently, the company launched two traditional insurance plans — Reliance Jan Samriddhi plan (RJSP) and Reliance Traditional Super InvestAssu...

Market Share Of LIC Jumps To 66% During First Eight Months Of FY10    THE new businesses of the life insurance companies grew 22% to Rs 55,355 crore in the first eight months of the current fiscal, compared to the corresponding period last year. The industry mopped up Rs 45,337 crore during the same period last fiscal, according to IRDA data.     The market share of LIC among 23 players in the sector jumped to 66% at Rs 36,448 crore during the first eight months of 2009-10, from Rs 25,219 crore during the same period last fiscal. However, the private life insurance industry has registered a decline of 6%. The 22 private insurers have collected Rs 18,905-crore first year premium during April-November this fiscal, compared to Rs 20,116 crore during the same period last year.     Private insurer ICICI Prudential was the worst hit as its premium declined 28% at Rs 3,031 crore in the first eight months of the current fiscal from the corresponding period last year. The insurer mopped u...

Private sector life insurer Max New York Life on Monday launched Shiksha Plus, a unit-linked plan, to facilitate a child's aspirations and goals over different phases of student life. "Shiksha plus is a 360-degree child plan that provides resources for over all development of your child under all uncertain circumstances," said Max New York Life director V Viswanand. Along with addressing the increasing cost of education, the plan also provides an option to secure the future of second child, he said. In case of death of the parent, the nominee or beneficiary is entitled to receive 10% of initial sum assured every year, subject to a maximum of 100% of sum assured, to provide for yearly education expenses of the child, Mr Viswanand said. It provides control over uncertainties of life and inflation, he added. Available with seven investment fund options, the plan has the option for upgrading premium for sibling on birth/adoption of second child, he said, adding, one could als...

THE mark-to-market accounting rules are being brought a little closer to economic reality — accompanied by misplaced howls of outrage. True, the ostensibly independent Financial Accounting Standards Board agreed to alter a portion of the rules only under extreme pressure. Still, the standards have forced many financial institutions to overstate losses on trillions of dollars worth of assets, intensifying the global financial crisis. Defenders of the rules say they protect bank investors and changing them will allow institutions to hide future losses. To the contrary, they have helped drive down the value of bank stocks, made shorting the shares much easier and caused bank stockholders to lost hundreds of billions of dollars in such companies as Citigroup Inc. and Bank of America Corp. William M. Isaac, a former chairman of the Federal Deposit Insurance Corp., told a House Financial Services subcommittee “MTM accounting has destroyed well over $500 billion of capital in our financial...

FIVE years after acquiring the Hyderabad based Global Trust Bank, state-owned Oriental Bank of Commerce has begun the hunt for another lender to expand its footprint in south India.     The bank has a strong presence in the northern region. To strengthen its position in the south, OBC would go in for inorganic growth if some good opportunity come up, a senior bank official said.     "We are a strong bank. We can take over a south-based bank having synergies to expand business in the region," the official said. In 2004, OBC acquired Global Trust Bank, which helped establish its footprint in South India. OBC merged about 100 branches of GTB as part of an amalgamation process along with non-performing assets of Rs 1,362 crore at the end of March 2004.     Asked how the bank would fund the acquisition if it happens, the official said the capital adequacy ratio (CAR) is close to 13%, and given the balance sheet size it could raise further capital through bonds.     The ca...

A Fixed Income Fund Scheme Seeks To Reduce Interest Rate Volatility & Generate Returns By Investing In Fixed Income Securities AFTER unprecedented gains in 2009, Indian equities still look promising, especially from a long-term perspective. However, with the government expected to tighten the monetary policy, fixed income investors, especially of long-dated paper, are likely to lose out.     At this juncture comes a scheme from Franklin Templeton AMC that seeks to reduce interest rate volatility and generate returns by investing in a mix of fixed income securities, which mature on or before the maturity of the scheme and equities.     Franklin Templeton Fixed Tenure Fund – Series XIII – Plan A, a three-year closed-ended scheme intends to invest 80-100% of its assets in fixed income instruments, which includes money market instruments. Up to 20% of the money can be invested into equities and equity-linked instruments. The scheme has a benchmark comprising 20% of the S&...

  Bharti AXA Investment Managers has announced the launch of the Bharti AXA Focused Infrastructure Fund.   It is an open-ended equity fund that would invest in equity and equity-related securities of companies engaged in infrastructure and infrastructure-related sectors.    The reasoning behind the creation of the new fund, as per the fund house, is the opportunity that has been unveiled. According to the fund house, the CNX Infrastructure index has outperformed the broader CNX Nifty index over a period of 3 years. This trend is likely to continue owing to the increased outlay for infrastructure both from government and public-private partnerships.   "Our internal research has indicated that core Infrastructure stocks amongst the companies forming the BSE 100 index has outperformed the BSE 100 index by 19% CAGR over a period of 3 years. By having a focused portfolio of such sectors, we expect to derive the best for our investors through this fund," said Prateek Agraw...

THOUGH THE YEAR STARTED WITH sentiments being down, we are ending it where a lot of ground has been recovered. The times may be challenging but everyone feels the worst is behind us, especially in India. Vehicle sales are looking up, housing loans have started picking up, lot of money continues to flow into bank deposits and Indians have again started travelling all over the world. Where does insurance stand in the scenario for an individual?     Let me talk about life insurance first. Whenever one buys an unit-linked insurance plan (ULIP), one should keep few things in mind. First, is the term of the policy. From January 1, new guidelines will ensure that commission and other expenses built into an ULIP will depend upon the term of the policy. Thus every customer should consciously decide the term during which he is committed to pay premium regularly.     Second, ULIPs offer free switching between funds. Customers should utilise this facility keeping in mind their risk profile. If...

Some forms of home loan insurance available for borrowers With the changing times and increasing competition, banks have come out with new and innovative schemes. This has been further boosted by the upsurge of insurance companies in the private sector. They provide an important solution - security of repayment of loan in case of untimely demise of the borrower. Many people are a bit reluctant to go in for housing loans because of the risks involved. The risk of not being able to repay the loan, because of some unforseen event, deters them. The loan amounts are large. The loan tenures are long too - 10 to 20 years. Uncertainties in life tend to affect the decision. It makes sense to pay a little extra and be secure of the unforseen risks in the future. Many new products are entering the market. Innovative home loan insurance schemes have been devised. These offer a wide variety of options to protect the home loan. Many products are flexible and can be tailored to meet the req...

It is advisable to make bonds a part of your investment portfolio if you need a steady income stream. So lets understand what are bonds and how it can help to generate returns. Bonds were almost a forgotten word in the last few years. The stock markets were exciting and were giving anywhere between 25 to 50 percent returns per annum. Stories of investors gaining great wealth in the stock market were dime a dozen. Generating returns on an equity portfolio seemed a cakewalk. Bonds, on the other hand, did not have the same appeal. Bonds were boring during bull markets when they seemed to offer an insignificant return compared to stocks. However, with the crash in equity markets, investors saw their capital erode by almost 50-75 percent in less than six months. Scorched by the experience, investors are now looking at other options to park their surplus funds. All it took was a bear market phase to remind investors of the virtues of a bond's safety and stability. What are bonds? ...

Some good options if you have a high-risk appetite Everybody should start their financial planning as early as possible in life. There are many facets of financial planning. These include inflow and outflow of money, planning for increase in income and expenditures, saving for future needs etc. Keeping track of inflows and outflows of money helps in maintaining financial discipline. People save a percentage of their inflows to cater their future needs - investments. There are many investment instruments available in the market and it's important for investors to understand the various offerings, requirements, and limitations of an instrument, before entering into it. Some of these investment instruments (equity or market based) offer much higher returns than traditional instruments. However, investing in these instruments is risky as they do not guarantee the principal amount. Since the future needs are also variable in nature (some known and others unknown), it is better to ...

Planning investments is a challenge for everyone, and more so for senior citizens. Choosing the right investment product per se is a difficult task for many investors. The task is even more challenging for senior citizens as they will have a limited corpus, while their need for income from the corpus does not remain constant. While a pension plan takes care of a regular source of income, life is not easy if the investor does not have a regular source of income. As a result, senior citizens have to do the balancing act between risk and returns. Needless to say, the risk element has to be as low as possible for this class of investors. Safety over returns As pointed out earlier, safety of capital has to be the underlying principle of investments, and risk can be a component only when the investor has the comfort of liquidity. For instance, the monthly income needs have to be met through fixed return products. Some fixed return products Senior citizens’ savings schemes: T...

PMS Providers Underperform Due To Wrong Investments, Higher Cash Calls & Capital Protection Strategies    FUND managers overseeing portfolios of wealthy individuals are working overtime to catch up with the broader market that gained 75% since January this year.    Mistimed investments, increased cash calls and capital-protection strategies adopted by PMS fund managers have resulted in several PMS folios underperforming the broader index. According to wealth managers, PMS providers have underperformed broader indices by around 5-15%.    Surprisingly, PMS schemes are trailing at a time when the top-10 equity diversified mutual funds have delivered annual returns between 115 and 150%.    Ideally speaking, PMS schemes should have done better than mutual funds. But then portfolios managed aggressively have been able to outperform the broader market.    Mutual funds are pressurised to perform well as most funds are open-ended in nature and there is a need to bring in fresh mon...

Future Generali, the insurance joint venture between India's Future Group and Generali of Italy, has teamed up with Atom Technologies to offer an IVR-based premium payment and renewal facility. The policyholders can make payments over the phone with the help of their credit cards. To avail of this service, policyholders need to contact the insurer's call centre and speak to the customer service representative, who will initiate the three-way conference call between customer, atom and himself. Subsequently, the IVR will prompt the customer to enter credit card details on the phone's keypad, and read out the successful authorisation upon completion of the transaction

Whether you are a home loan borrower or an equity/gold investor, you should be prepared for a rise in funds cost    PINPOINTING the movement of interest rates is as difficult as forecasting that of stock markets. But there are enough signs of an imminent increase in the cost of funds. Headline inflation is close to 5% and the central bank is talking of unwinding its accommodative stance. An exit from an easy money policy is a precursor to a hike in interest rates or in cash reserve requirement for banks, which is a more direct and an immediate step to drain out excess liquidity. So, how does a home loan borrower or an investor prepare herself for such an imminent event. Here's how: LOANS Hedge your home loan against rising interest rates by opting for a scheme that offers you fixed rates for a few years. If you already have a floating rate loan, you can reduce your interest rate burden by using available liquidity to effect a part-prepayment, on which there is no penalty. EQUIT...

WE all can work out our basic expenses based on how much we spend currently, but to plan for the future, we need to factor in inflation or the rate of price increase. On the face of it, India experiences a modest inflation. But that perception is quite misleading because India is possibly one of the few economies where policymakers focus on the wholesale price index rather than consumer prices. This is why even when headline inflation figures slipped into the negative zone a few months ago, prices of essential commodities and the cost of living never really fell. In fact, it rose in line with retail inflation, which was much higher at 12%. How Does Inflation Affect You? Transportation, dining, movies, phone bills, electricity bills comprise a substantial portion of your budget and move in tandem with inflation. These are regular expenditures which will push up your monthly outgo. Other less recurring expenses include education and healthcare, which are highly vulnerable to inflation. ...

Stock exchanges in an effort to seek wider participation are trying to increase the number of liquid stocks. They may introduce some innovative products for this purpose. If rating agency Crisil ' s efforts succeed, stock exchanges may sponsor research in some of the fundamentally strong, but less liquid counters to attract investors. While around 200 stocks are active on the Indian bourses, the number in the US could be a few thousands. The rating agency is now promoting a new product which grades listed companies in terms of fundamentals and valuation. The product is an upgraded one from the agency ' s earlier product for rating initial public offerings (IPOs). The company had approached stock exchanges to sponsor bulk research on some of the illiquid stocks, said a Crisil official. The agency had introduced the product a couple of month earlier. Volumes in listed companies covered by the report have gone up substantially, said the official. Globally, stock exchanges spo...

This annual top quartile performer stands tall in the long run as well. Over the 2-year period ended October 31, 2009, Fortis Money Plus Inst delivered an annualized return of 8.48 per cent against its category average of 7.21 per cent.    Even during its worst quarter (August 4 to November 3, 2009), the fund delivered ahead of its peers. It turned in a return of 1.23 per cent against the average return of 1.08 per cent over this period.    While the performance is appealing, its expense ratio is not. Though on the lower side at 0.47, it has consistently risen from 0.27 (March 2008).    This year, the fund has been heavily into Commercial Paper (CP) and Certificate of Deposits (CDs). Even then, the average maturity of the fund's portfolio has never exceeded one year and has largely been on the lower side in the category. Over the past one year, it touched a maximum of 5.64 months (September 2008) and currently stands at 3.96 months (September 2009). Despite the fund'...

If in a dispute over repayment with your lending or credit card-issuing bank, can you be forced to pay up or else face an entry of your refusal in Cibil database? Borrowers must know that loan and credit card repayment details are passed on by banks to a centralised body, Credit Information Bureau India ( Cibil ). This information — both positive and negative — plays a vital role in determining whether a borrower’s future loan applications get accepted or rejected. As a pointer to a disturbing phenomenon, a senior official at the banking ombudsman says such ‘arm-twisting’ tactics are not unheard of. A Delhi resident who formally discontinued his credit card in December 2005 and thus refused to pay the annual maintenance fee of Rs 826, says he was harassed by the card-issuing bank since. Not only did the card-issuing bank fail to reverse the charges, it kept levying latepayment fees, which over the years totalled Rs 3,500. In April this year, he received a call from a bank executi...

IT may be lagging its arch rival where equity and equity derivative volumes are concerned. But there is some comfort for Bombay Stock Exchange as far as the mutual fund platform is concerned. BSE's mutual fund platform ' Star MF' is having an upper hand over National Stock Exchange's ' NEAT -MFSS' for the time being. If sources are to be believed, BSE has transacted fund units worth Rs 21 crore since December 4, when this facility was opened on the exchange, more than twice than that transacted on the NSE. Though both the exchanges have 10 fund houses listed with them, BSE has more schemes (over 130 schemes) that are eligible to be transacted through the exchange, say brokers. Moreover, BSE has gathered support from several financial advisors, who have been requested to advise their clients to trade through BSE. According to industry sources, the exchange has received confirmed participation from 15 other fund houses who are expected list their funds on the e...

   GOLDMAN Sachs is acquiring 9.4% stake in the Analjit Singh-promoted Max India for Rs 540 crore ($115 million) by subscribing to compulsory convertible debentures issued by the company.     The debentures will be converted to shares after 15 months.    Simultaneously, Max India is also issuing 2 million warrants to Analjit Singh for Rs 175 crore. Mr Singh is paying 50% of the total consideration (Rs 87 crore) upfront as against the stipulated requirement of 25%. These warrants will be converted into equity shares in any time during the next 18 months.     These decisions were taken at Max India board meeting on Saturday. ET had reported in its edition dated December 26 that Max India is looking to raise Rs 450-550 crore through a preferential allotment to a financial investor.     "The convertible debentures shall have a lockin period of 18 months along with a coupon rate of 12%. The instruments will be converted into equity shares at Rs 216.75 each," said Max India d...

Given the performance in 2007, 2008 and the recent market run up, it is a worthwhile choice in the tax planning category. In the three years ending November 30, 2009, it has been the second best performer in tax planning category, giving 16.77 per cent against the categorys 7.31 per cent. In 2006, it delivered 31.46 per cent against the categorys 29.77 per cent. In 2007, it beat its category by seven per cent. Again in 2008, when the market tumbled, it shed 46.85 per cent against 55.67 per cent fall of an average equity tax planning fund. The aggressive cash and debt bets taken by the fund manager in the second half of 2008 helped the fund. In the recent rally (March 9, 2009 to November 30, 2009), the fund has delivered an astounding 125 per cent against the categorys 104 per cent rise. Some sectoral bets worked in favour of the fund. Allocation to construction stocks was increased from eight per cent in December 2005 to 24 per cent in February 2006. The fund also benefited from ...

The securities market regulator, SEBI, has proposed radical changes in the way mutual fund distributors are compensated. SEBI seems set to enforce complete flexibility and transparency into the commission paid to the distributors. The changes are long-anticipated and many ways logical. However, they are likely to lead to a deep transformation in the way mutual funds are sold, and I think many distributors will find it difficult to adjust to the new regime. Mutual fund distributors (who are now euphemistically called Independent Financial Advisors-IFAs) are currently paid a commission by the Asset Management Company ( AMC ) whose funds are being sold. This commission is generally around 2-2.25 per cent for equity funds. This is deducted from the invested amount and the investor gets allotted that many fewer units of the fund. The distributor gets the commission from the AMC. Distributors are not permitted to refund any of the commission back to the investors. However, it is an open secr...

Launched in January 2006, the fund is relatively new in the tax planning category but has made a mark. In the three years ending November 30, 2009, the fund delivered an annualised return of 13.38 per cent against the category return of 7.31 per cent. Although its performance during the market run-up has been average, it protects against the downside. Since its launch, the fund has guarded investors better than other tax planning funds. The bias towards large-cap stocks and a diversified portfolio has helped the fund but the trade-off has been in returns during the market rally. In the recent bear run (January 8, 2008 to March 9, 2009), the fund shed 50.56 per cent against its categorys 56.92 per cent. While in the bull run (March 9, 2009 to November 30, 2009) that ensued, it delivered 105.57 per cent, almost equal to the categorys 104.17 per cent. The fund largely maintains a buy and hold strategy. But, it does take short-term bets. Of the 186 stocks it has invested in so far, 66 ...

Fund Houses Asked To Suspend Commission And Incentives To Erring Distributors   THE Association of Mutual Funds of India (Amfi), an industry body representing fund houses, has directed its members not to deal with four distributors allegedly involved in corrupt practices.     The barred entities are alleged to have involved in misselling fund products to investors. Misselling describes a wide array of common malpractices such as selling products which are not suited for a particular investor. Investors have also lodged complaints regarding misappropriation of money by the erring entities. However, the distributors blacklisted by Amfi don't figure among the country's top financial advisors.     "Some distributors were carrying out fraudulent activities due to which investors were suffering losses. After seeking explanations from the distributors, we immediately suspended them," said Amfi chairman AP Kurien. "Amfi has asked fund houses to suspend payment of ...