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Friday, December 31, 2010

Starting Investment Early the Best Gift for Your Child

A lot goes into ensuring that your child leads a financially secure life. And the sooner you start, the better


   The idea behind this planning for the child's future is to invest money in such a way — to get optimal returns and ensure that the child gets the money no matter what the circumstances. So, how do you go about achieving these objectives?

The Expenses:

With changing lifestyles, parents want to give the best to their child. So, you may want to enrol your child for a skating or a badminton or a swimming class. In addition, s/he may want to learn the guitar or the violin. All these involve expenses which need to be provided for. Inflation is another monster which you have to deal with as it reduces your purchasing power. What you get for a rupee today, may cost you more tomorrow because of inflation. So due to rising inflation and the higher cost of living, these expenses are expected to keep rising.

   The first goal is to get the child admitted to a school, followed by paying his or her school tuition fees and extracurricular activities. How-ever, the major expenses come later in life when the child starts planning for a professional course like engineering or medicine. Expenses like regular education, tuition and coaching classes should be taken care of by your regular income. You should plan for goals like higher education, education abroad and marriage.

  At today's costs, you may have to cough up anywhere from 5 lakh-25 lakh for an engineering or medicine course, depending on the college your child wishes to apply for. In case you plan a foreign education for your child, it could cost you around . 20-30 lakh. A wedding in a city like Mumbai could put you back by a minimum of 10 lakh. With inflation, this amount is only expected to increase in the future. With the rising cost of education, it will be wise to assume an 8-10% inflation in the fees per annum. "While planning for the future, you have to take inflation into consideration which could be anywhere between 5-15%," says Ranjit Dani, a certified financial planner.

Start Early:

The earlier you start the better it is, since you have more time on your hand. Secondly, it gives you more time to alter the portfolio or make changes, if the need be. Take the case of a couple who started investing when the age of their child was five and another couple who began investing as soon as their child was just born. Assuming that both the children start their respective higher education at the age of 20, the first couple will have 15 years to reach their goal, while the second will have 20 years. A sum 10,000 per month invested for 15 years, with a return of 12% per annum, will translate into 50.46 lakh, while 10,000 invested every month for 20 years at the same rate will grow to 99.91 lakh. So, first things first — do not waste time.

   Like any other type of financial planning even when you make a plan for your child, you must set a goal for yourself. You need to decide what you intend to plan for your child. Would you want him to become an engineer or a doctor? How many years are there for you before your child's education starts? Will s/he pursue the education in India or abroad? Since investment for education is time-bound you would need those funds during a specific year. So, keep that in mind and act accordingly.

Investment Solutions:

As is the case with financial planning, where every individual has a different objective and different solution, so is the case with the education of your children. If you are well-off and already have the resources with you, then capital protection will be your most important goal. However, if you pay an EMI for your house and simultaneously want to plan for your children's higher education, you will have to go for a different set of products. There are various products amongst equity, debt and insurance which you can use to meet your end objectives. The choice also depends on your risk-taking ability. Since in most cases, you are building a corpus which you re-quire after a period of 15-20 years, experts advise equity investments through the systematic investment plan (SIP) route. Investments in SIPs can be done through your regular cash flows which come in through your salary or business income.

   Many times in case of HNIs, they already have a corpus in place. In such a case, one is not chasing growth, and hence one could use debt to meet those objectives. Insurance is advised by planners to take care of any unwanted event were it to come up.

   If something happens to the parent, then insurance will come in handy, and will assure that the child's needs are met. If you start early, we recommend a simple term insurance and SIPs through equity mutual funds. For example, if the current cost of a medical course is 15 lakh and you have 16 years to achieve that goal, then assuming an inflation of 9% per annum you will need 59.55 lakh, 16 years from now. You can achieve that tar-get by investing 10,000 every month. Assuming a 12% return per annum from equities, you can reach that target in 16 years.

   For your child, you can invest in a money-back policy. For investors, it keeps things simple and ensures that you get the specified amount when the milestone is reached, which ensures peace of mind. He also recommends investment in children's schemes floated by mutual funds. Here, the child can withdraw the amount when he is an adult. I recommend a child Ulip with a waiver of premium benefit. This ensures continuity of investment even if the parent is not around.

   In the end, like any other plan, you need to review your child's plan at regular intervals. This will ensure that the direction is right and the goal can be achieved.

   So it's about time that you go ahead and plan for your child's future. This is the best gift you can give her or him


Portfolio Management: Capital Protection Strategy

A 75:25 debt-equity investment strategy ensures no loss of principal, plus returns as well

Even though stock market valuations are high and pose some degree of increased risk, one cannot deny the fact that equity markets are an avenue to earn an attractive return. Can you really invest in the stock market without undertaking any risk? Perhaps, if you structure your investment in a certain way.

First, lets look at the background or the profile of the investor who can consider the avenue. It would be the typical 45-plus investor. If you are one such investor, you are likely to earn a healthy return, but your situation in terms of family responsibilities, loan repayments, possible medical and other future expenses may not always allow you to undertake much risk. So fixed income investing may not leave much in hand after tax. But the risk and volatility associated with potentially higher earning equities may not be thrilling either.

We shall consider for this discussion an investible amount of lakh. The exact amount doesn't matter: it might as well have been `5,000 or `50 lakh -the principle will not change. The figures used are not important; the concept is. If your investment amount is different, invest proportionately.

So, assume you have `5lakh. You want to invest it well, preferably in equity, but with minimal or no capital risk. Let's devise a strategy of investing a lumpsum in equity with no risk.


Here's what you do. Out of invest around `3.87 lakh in any five-year bank fixed deposit (FD). Nowadays, FDs are generally offering 7.5 per cent yearly or 5.25 per cent yearly after tax (assuming a 30 per cent rate). Therefore, over five years, 3.87 lakh would grow to `5lakh at the post-tax interest rate of 5.25 per cent per year. So, no matter what happens, five years later, you will receive `5lakh.

However, now you have a lumpsum of `1.13 lakh left over (5lakh minus `3.87 lakh). Invest this `1.13 lakh in an equity mutual fund. Now, investment would have grown to a cool `8.40 lakh. Not only have you protected your capital but benefited from the long-term benefit of equity.

The only caveat: the returns mentioned above are the fund's returns in the past. This may or may not be repeated in the future. However. They aren't allowed to do so by the Securities and Exchange Board of India. The offer document may at best contain a mention that the schemes are oriented towards capital protection with a high degree of certainty but they don't actually guarantee it.

Note that the structure explained in the article, if adopted by the investor, essentially guarantees his capital. There are no 'degrees' of certainty involved, just plain, old, pure certainty. One belief that has stood the test of time - a steady job and a mutual fund

Mutual Funds: Asset Allocation Funds

Asset allocation funds promise to lighten the burden of investment decisions. Here's a closer look at what they offer


   IT'S BEEN grilled into our head that asset allocation is a must if we want our investment plan to succeed. However, when it comes to drawing up an allocation plan, many people fumble or falter. It's not an easy exercise for many. Consider, for instance: first you have to set your life goals. Next, you have to decide on the instrument (or asset class if you will) that will help you reach the goal. Again, there is the tedious process of reviewing the investment portfolio and rebalancing it — if there is a need — as per the original plan if there is a change in the investment landscape. No wonder, many people pay only lip service to asset allocation plan. Actually, most of them invest in disparate avenues without a proper allocation plan.

   If you are curious to see how asset allocation works, you can check out the asset allocation schemes from mutual funds. There are five fund houses with asset allocation schemes in the market. These funds will help you in allocating money across different asset classes, depending on your investment goals and risk-taking ability.

   An asset allocation fund is an open-ended fund of funds that seeks to generate superior risk-adjusted returns to investors in line with their asset allocation. Put simply, the fund first defines an asset allocation and then identifies a basket of the funds in which it will invest to achieve the pre-defined asset allocation. Asset allocation funds are a good option for investors looking for expert handholding to invest based on asset allocation.

   Most of the funds are built around risk profiles – conservative, moderate and aggressive — in which most of retail investors fit in. It is the risk profile of the investor and the life stage that the investor is into that will decide which of these options an investor should choose.

   To make life simpler, Franklin Templeton AMC has come out with plans based on life stages, which will help investors to decide on a plan that will suit his age profile. For example, a 25-year-old person can choose to invest in FT India Life Stage Fund 20's plan. This fund has defined the asset allocation to be 80% for equity and 20% for debt. Money is invested in Franklin India Bluechip Fund (50%), Franklin India Prima Fund (15%), Templeton India Growth Fund (15%), Templeton India Income Builder Fund (10%) and Templeton India Income Fund (10%). Life stage fund can provide investors a single-stop solution for their needs. This makes the investment process much easier for investors and the inbuilt rebalancing feature helps in maintaining the target asset allocation, which could go awry due to market movements.

   The best part of investing in an asset allocation fund is that you will get access to a basket of funds with different investment styles that will invest according to your asset allocation plan. It saves you the time from investing in multiple schemes and tracking them.

   If asset allocation is the key to wealth creation, without rebalancing it has little meaning. Asset allocation helps you to invest across asset classes and garner good risk-adjusted returns. Asset rebalancing helps you further by timely profit-booking. In a volatile market, asset prices move and profit-booking becomes a must. For example, suppose you started with a 60% investment in equity and 40% in debt. Over a year, your equity investment doubled whereas the debt part generated 10% returns. At the end of the year, you have the debt-equity ratio at 73:27. In that case, it is better to sell equities and transfer those holdings to debt instruments and bring the balance back to 60:40. This process of asset rebalancing at regular intervals ensures that money moves from one asset class to another in a disciplined manner without getting the investor emotionally involved. Asset allocation funds just do that at stipulated intervals, say every six months. So, you as an investor need not worry about entry into a fund as well as exit from a fund. And more important is this is done keeping decision makers' emotions away.

   The funds can really work as a proxy portfolio for those who are not keen to devote much time and not keen to take any efforts on fund selection and asset rebalancing. Asset allocation funds are one of the best options for investors with a long-term horizon in mind, starting with at least three years. One can look at these funds with a much longer perspective, provided you can track the schemes at regular intervals. To curb the short-term traffic, most of these funds have exit loads if you decide to exit in short period of time. With a minimum investment of 5,000, they are rather accessible.

   To own them, you are charged at the most 75 basis points towards charges each year. Given the fund of funds structure, you have to borne the charges of individual schemes also, leading to higher costs compared to individual schemes.

   Tax treatment is an area which investors should be careful about. If you do asset rebalancing in individual schemes every six months, you will be taxed for short-term capital gains. If you use the shelter of asset allocator funds, asset rebalancing is done in tax-efficient way. The funds enjoys the tax treatment of a debt fund and you can avail of indexation benefit while paying taxes on long-term capital gains. For long-term capital gains, with indexation benefits you will have to pay tax at 20.6%, without indexation you will pay the tax at 10.3%.

   Of course, not everyone is a fan of these funds. These fund, by and large, have been gross underperformers when compared to the returns generated by their top three-five scheme holdings. It makes little sense to invest, considering the additional effort and expenses one will have to incur besides the higher risk, for tracking so many underlying schemes when the underlying scheme itself generates better returns and is easier to track. Then there is another school that prefers to keep things simple — provided the investors are willing to put in some efforts. "It makes sense to identify one's financial needs and invest in individual schemes than going for readymade solutions.


Mutual Fund Review: Quantum Long Term Equity

This fund's stock selection is sector agnostic and not limited by market cap levels

If you are looking for a fund which truly adheres to a buy-and-hold strategy, this one fits the bill. With such a small corpus, it would not be surprising to see the fund manager dabble in smaller stocks, churn his portfolio rapidly or take concentrated bets. Contrary to expectation, that is not the case at all. The fund started off as a large-cap offering, changed its complexion and now once again is predominantly in large caps. It is also one of the funds with the least amount of churn. Till date, just 54 stocks have appeared in the fund's portfolio and out of them only eight have been held for five or months or less. What you will find here is a value based, well diversified, liquid portfolio.


"We are completely sector agnostic and neither is our criteria on the market cap of the stock," explains Kumar. "We are value investors who go for bottom up stock picking and closely look at the daily average trading volume of the stock. From our universe of companies, we make our pick."


The fund house follows a very process driven strategy. Buy and sell limits are set for each of the stocks. Only stocks that fall within the predetermined purchase price are picked up. Once a sell limit is reached, the team re-evaluates the target and if they do not find value in holding on at that price, they exit the stock. This would explain why the fund often has substantial cash allocations during market run ups. It would also explain why in 2008, the cash and debt exposure in any single month never exceeded 5 per cent of the portfolio.


The fund's style means that it can lag behind its peers when speculative growth stocks rule the roost. In 2007, the fund lagged behind the category average with a return of just 46 per cent. Its high cash and debt exposure (16%) in the December quarter that year also contributed to that. Moreover, the fund manager refused to shed his IT exposure despite the fact that tech stocks were reeling under the pressure of rupee appreciation. Come 2008, and this very exposure was its saving grace. "We look at the long term fundamentals of the company before we invest in it. Once done, we do not get swayed by market movements," says Kumar.


Not only has this fund rewarded its investors over the long term, it is even one of the cheapest ones available in terms of a low expense ratio.


Thursday, December 30, 2010

Kisan Vikas Patra – KVP

• The minimum investment is INR 500.

• The interest rate payable is 8.40% annually. The investment doubles in 8 years and 7 months. The interest earned is fully taxable.

• This account can be opened by individuals. NRIs, corporates, trusts and other institutions cannot invest in KVP.

• On maturity of the term, if the maturity proceeds are not withdrawn then post office savings account interest rate is payable on the deposit and that too for only upto maximum 2 years.

• KVP certificate can be pledged as a security to avail a loan against it.

• The certificates are transferable from one post office to another. Also the certificates are transferable from one person to another.

• Nomination facility is available.


Some options for those looking at investing in the debt market

   Bonds are debt instruments and typically issued by government bodies or large corporate houses. The market for trading debt instruments (bonds) is termed as debt market. The debt market is quite popular in most parts of the world, especially in the developed countries. However, in India, it is the other way around. The debt market is mainly limited to dealing in government bonds. Yet, slowly, the debt market in India is getting more attractive for investors with many steps taken by the government in the bond market and related trading.

   Usually, debt-based instruments are low risk and returns instruments and many investors do not even give a serious thought to them. In fact, debt instruments should be a part of every investor's investment portfolio. Inclusion of debt based investment instruments provides stability to a portfolio and reduces the overall risk.

   The primary return from a debt instrument is the regular interest accrual. Investors can also look at getting good returns in terms of capital appreciation if the debt-based investment is made through market-tradable debt instruments. The prices of these debt instruments go up when the interest rates go down and the prices go down when the interest rates go up. Therefore, investors can expect good appreciation if they select and time their investments in debt instruments well. Since the interest rates are going up, investments in debt-based instruments are getting attractive from many perspectives such as capital preservation and low risk with good returns, and the possibility of capital appreciation if the interest rates go down.

   These are some debt-based instruments available in the market:

Non-convertible debentures    

Recently, many companies have floated new non-convertible debenture (NCD) issues. These schemes offer attractive returns, but investors should read the risk document carefully. Analysts' opinions should also be considered before taking investment decisions.

   Investors should check the rating of the NCD, which is mentioned in the prospectus itself. 'AAA' rating is the safest rating assigned by credit rating agencies. Investors should check the company before subscribing to its NCD.

   Usually, small companies float the offers in the retail markets as the bigger companies can get better rates in the wholesale markets, and hence do not offer them in the retail market. Also, the fund-raising exercise in the wholesale market turns out much cheaper than in the retail market.

Debt mutual fund    

Debt mutual funds invest in debt instruments such as government bonds, fixed deposits and approved private deposits. The returns from debt mutual funds depend on two factors - interest accrued on the deposits or bonds and capital appreciation during interest rate fluctuations. Therefore, debt mutual funds draw more interest when the interest rate cycle reaches its peak and shows the possibility of interest rates easing in the future.

   The debt mutual funds are better than investing directly in debt instruments as the dividend returns from debt mutual funds come tax-free in the hands of investors in comparison to the interest income from debt instruments which attract tax as per the prevailing rates.

Liquid fund    

Liquid funds are good for investors who are looking at parking their funds for a short term perspective. Liquid funds invest the corpus mainly in money market instruments, short-term corporate deposits and treasury. Liquid funds are quite good in terms of funds withdrawal and usually liquidate the funds at short notice.

   They score over other short-term bank fixed deposits. Returns from bank fixed deposits are taxable depending on the tax bracket of the investor, which pulls down the actual returns considerably. Dividends from these funds are tax-free in the hands of the investor, which is why they are more attractive than deposits.


Apollo to dilute over 15% stake in insurance JV

APOLLO Hospitals' stake in British American Hospitals -the joint venture between the hospital group and British American Investments which runs the Apollo Bramwell hospital in Mauritius, and Apollo Munich Health Insurance Company (AMHIC) -is set to dilute over 15 per cent, as the group is not much keen on pumping further funds into them.

In both JVs, Apollo had a 20 per cent holding earlier. In AMHIC, the stake has come down to 16.71 per cent and in the Mauritius hospital it is 19.72 per cent, a senior company official told Financial Chronicle.

British American Hospitals had opened the Mauritius hospital last year. Till now, the group has invested Rs 22 crore in this project and it will not be putting any further funds into it.

British American Investments has been investing on further expansion of the hospital that is a 200-bed multi-specialty hospital.
The total project cost is estimated to be Rs 450 crore.

"By virtue of investing no more into the project, Apollo's stake has been coming down. Within four or five years it would come down and stay around 15 per cent as necessitated by the JV agreement," the official said.

Lately, Apollo has been concentrating on investing in domestic projects as it sees the market more vibrant here. Projects abroad, including the Mauritius one is expected to take a longer duration to breakeven compared to domestic projects.

According to company insiders, there is so much in hand for Apollo in the domestic market itself. Apollo had exited from the Sri Lankan and Dubai JVs a few years back.

Similarly, the company will also lower its stake in Apollo Munich Health Insurance Company to 15 per cent from 20 per cent held earlier while the promoter family will up its share. The promoter family as well as the German insurance company Munich Re will make further investments in the JV. Munich Re holds 24 per cent, Apollo Hospital Enterprise 16.71 per cent and the rest by the promoter family at present.


DSP BlackRock MF Launches DSP BlackRock FMP- 3M - Series27

DSP BlackRock Mutual Fund has announced the launch of DSP BlackRock FMP- 3M- Series 27. The New Fund Offer (NFO) will open for subscription from January 4, 2011 to January 6, 2011. 

Mutual Fund Review: Fidelity Equity Fund

Launched in May 2005, Fidelity Equity Fund is a well diversified equity fund investing in stocks across market capitalisation and sectors. The fund, which is managed by Sandeep Kothari and Subramanian Balakrishnan, invests across large, mid and small cap stocks without any investment style bias. The asset under management of the fund stood at 3,273-crore as on October. Fidelity Equity fund has been Crisil Fund Rank 1 for the last two quarters in the Diversified Equity category

Impressive performance

The fund has been delivering impressive returns since its launch. The fund's compounded annualised returns since its inception have been 26 per cent till December 16, as compared to its benchmark's (BSE 200's) 21 per cent return during the same period. Over a five-year period, the fund returned 21 per cent, clearly outperforming the BSE 200 and peers, which returned 16 per cent and 17 per cent, respectively. Over the past one year, the fund benefited from the recent rally in stock-prices and delivered a CAGR of 28 per cent vis-à-vis 17 per cent by the BSE 200 and 20 per cent by its peers.

While `1,000 invested in the fund at inception would have grown to `3,706 as on December 16, a similar sum invested in the benchmark index and peer group would have grown to 2,848 and `2,941, respectively.

Investment approach

The fund's objective allows freedom to invest regardless of sector, market capitalisation or investment style. Thus, the fund manager can invest in large cap, mid cap or small cap stocks with growth or value styles. The fund's average exposure to Crisil defined large cap stocks over the last three years has been 76 per cent, while the balance exposure has been in small and mid cap stocks.

The fund follows a bottomup stock picking investment approach (prefers to focus on individual stocks rather than a top-down approach). The fund's performance during the market downturn and upturn proves testimonial to its bottom-up stock picking approach. When the markets started to decline from their historic highs in the beginning of 2008, Fidelity Equity fund fell by 35 per cent as compared to a 41 per cent fall in the BSE 200 from January 2008 till April 2009. When the markets started to recover from May 2009, Fidelity Equity fund gained 54 per cent as compared to a rise of 45 per cent by the BSE 200. Thus, the fund's ability to gain more in a market rally and bleed less in a market downturn stands out.

Portfolio analysis

Active cash calls: The fund has remained well invested in equities with an average exposure of 94 per cent over the last three years. The fund manager has taken active cash calls during the bear run starting May 2008 until April 2009 by maintaining an average cash exposure of 10 per cent during this period. Post this phase, the fund manager gradually lowered the cash exposure, bringing it to as low as 0.6 per cent in November 2009. Lately, the fund maintained 3.7 per cent as cash in its October portfolio.

Diversification: The fund held an average of 64 stocks in its portfolio over the past three years, thus representing a well diversified portfolio in terms of number of stocks. At the sector level, banking has been the most favoured sector with an 18 per cent exposure followed by pharma, IT and refineries constituting the next largest sector exposures (close to 7 per cent each) over the last three years.

Risk: The fund has been able to generate superior returns by maintaining a low volatility in its returns vis-à-vis peers and the benchmark index. The fund bears a relatively lower risk owing to its large cap tilt and hence provides more cushion to investors during times of market volatility.


Avail Additional Tax Benefits on Rs 20,000

The IFCI Infra bonds are the latest in the band of tax saving infrastructure bonds on offer for the purpose of tax saving and are the second in the series issued by IFCI. These bonds are the first of its kind since the finance minister announced a new income tax section — 80CCF — which entitles a tax payer to exemptions on money invested in infrastructure bonds. Issued for the purpose of reducing your taxable income under section 80CCF with an overall cap of Rs 20,000 per annum, the IFCI Long term infrastructure bond Series – 2 opened on 16, November and is open till 30 December, 2010. The proceeds from the same would be utilized by IFCI for further infrastructure lending.


These funds are expected to be a hit among retail investors, because of attractive rates of interest as well as tax exemptions. On an investment of Rs 20,000, an individual in the 30 per cent tax bracket can save Rs 6,000 of tax and earn an annual interest of 7.85-7.95 per cent. This issue is 50 basis points, or half a percentage higher than similar L&T bonds issued earlier. According to the government notification, the bonds will have a minimum tenure of 10 years, and investors will be locked in for five years and IFCI hopes to raise Rs 100 crore, including a green-shoe option of Rs 50 crore.


IFCI has already begun a private placement of unsecured redeemable, non-convertible long-term infrastructure bonds of up to Rs 20,000 for this financial year. The interest rate is 7.85 per cent for buyback option and 7.95 per cent for non-buyback option, under cumulative and non-cumulative (September 15 yearly) interest schemes. However, under the 7.85 per cent bonds with a buyback option, the investor can redeem the bonds after the fifth year. The buyback starts from 2015 to 2019. The 5-year lock-in is compulsory to avail of the 80 CCF benefit.


Those who have already exhausted their annual tax savings limit of Rs 1 lakh can keenly look at these bonds. The exemption for investments in infrastructure bonds is in addition to the investments of Rs 1 lakh in tax-saving instruments under Section 80C. After the lock-in period, an investor can take loans against these bonds. Investors also have the exit window through the secondary market or through a buyback facility. Surely, as the year is coming to an end; these bonds will find many takes who wish to benefit from the additional tax benefit on offer.



All about the IFCI bond
Here are answers to some of the most common questions on these bonds


How can you buy the IFCI infrastructure bonds?
You can buy these bonds through your broker like ICICI Direct, or can submit an application form in one of the bank branches that are accepting them. The information memorandum lists down a large number of HDFC bank branches so you can go to one near your house, and they might be selling the bonds or can at least tell you where you will get them.


Is a Demat account necessary to apply for the IFCI Infra Bond?
No. it is not necessary to have a demat account to invest in these bonds.


Can one invest in all the four option?
Yes an applicant can subscribe to all the four options but the minimum application under each option shall be only one bond or Rs 5,000.


Are these infrastructure bonds tax free?
No. The interest received in these bonds are not tax free. The investor is liable to pay tax on the interest received. The investor saves tax based on the amount of investment and the applicable tax bracket.


Who can apply for these bonds?
Only resident Indian individuals and HUF can invest in the bonds


Will TDS be deducted on these bonds?
No. TDS will not be deducted on the interest received if these bonds are held in the demat form.


Can one invest without a PAN in these bond?
No. PAN is mandatory when subscribing to these bonds.

Wait for the issue from IDFC which has better credit rating

Wednesday, December 29, 2010

Income Tax Planning: Senior Citizen’s Saving Scheme – SCSS

• Senior Citizen's Saving Scheme (SCSS) product was introduced for senior citizens in the annual budget by the then Finance Minister in the year 2004. It is a part of Section 80C of the Income Tax Act.

• All senior citizens can invest in this scheme.

• Investments of upto INR 1,00,000 made in this scheme are eligible for deductions from taxable income.

• Maximum investment permissible in the scheme for an individual is INR 15,00,000.

• Interest payable on deposits under the scheme is 9% per annum. The interest is payable quarterly. The interest is paid on 31st March, 30th June, 30th September, 31st December. The interest can be credited directly to the savings account of the investor. The interest earned on this deposit is fully taxable.

• Under this a joint account can be opened only with spouse. In case of a joint account age of the 1st holder is considered as the age eligibility factor for opening the account. The age of the 2nd holder (spouse) doesn't matter.

• The tenure of the scheme is 5 years which can be extended for another 3 years on maturity.

• If on maturity the proceeds are not withdrawn and also the account is not renewed within one year of maturity, then post maturity the interest at the rate applicable to the deposits under post office savings account will be paid.

• Nomination facility is available.

• Since the product is offered by the government of India, it is one of the safest investment instruments.


Get know-your-customer (KYC) done to invest in Mutual Fund in future

If you're looking to invest or are already invested in a mutual fund, you have to complete a simple verification process before the calendar changes. Mutual funds will not accept new payments unless an investor has obtained a know-your-customer (KYC) acknowledgement. All fresh investments, including switches and existing SIPs that go via auto debit, will be stopped. Earlier, KYC compliance was required only for investments over 50,000. From 1 January 2011, even a 100 investment needs a KYC. It actually saves you the pain of submitting documents with a different fund house each time. The documents are to be submitted only once to be maintained by CDSL Ventures. You can download the forms (, / poskyc.aspx or or take physical forms from MF houses, service centres or distributors. Fill in your name, PAN card details, address in the form and attach your ID and address proofs along with photographs. Carry originals and copies of documents signed by you. The originals will be returned over the counter. The form along with these documents can be submitted in centres including Mumbai, Delhi, Kolkata, Chennai, Agra, Ahmedabad, Vadodara and Visakhapatnam




for addresses of these centres. Once submitted, these documents will be stored in your name, and an acknowledgement number or a slip over the counter will be given. The acknowledgement letter will be given within 15 days at the same office.

   If you have investments in any MF, the KYC acknowledgement will have to be notified to the fund house. If you want to withdraw MF investments made years ago, you will have to complete this procedure to receive your money. So, even if you'd invested in the past, notify the fund house of the completion of the verification procedure. Include your folio number when sending the acknowledgement letter to the fund house.

Forms available at :

• MF offices

• Websites of Amfi and mutual funds

• MF Distributors

• Registrars like CAMS, Karvy MF Services

Documents required:

For identity: PAN card, passport-size photos For address (any one):

• Ration/voter card

• Gas/electricity/phone bill

• Passport (essential for NRIs)

• Latest demat/ bank account statement or passbook

• Leave and licence agreement

• Documents issued by government/statutory authority

Submission centres

• Bajaj Capital Investor Services


• Deutsche Investor Services

• ICICI Brokerage Services

• IL&FS Ltd

• Integrated Enterprises

• Karvy Computershare

• Kotak Securities

• BRICS Securities

• ING Mutual Fund


Mutual Fund Review: Reliance Regular Savings Equity

The fund manager attempts to capitalize on valuation differentials between mid- and large-cap stocks

When Omprakash took over the fund in November 2007, it was only around Rs 290 crore. He rapidly changed its complexion and used the flexibility that a small fund offers to the hilt. Exposure to Construction shot up to 28 per cent with almost 21 per cent cornered by Pratibha Industries and Madhucon Projects. Exposure to Engineering was yanked up (18.50%) while Financial Services lost its prime slot (dropped to 6.69%) and Auto was dumped. His moves paid off. In the December 2007 quarter, he delivered 54.66 per cent (category average: 25.70%). That has changed. Now with a corpus that has crossed Rs 3,000 crore, he still takes strong sector bets but plays it safe with individual stock bets. Nevertheless, he still has managed to impress and in 2009 beat the category average by 20 per cent (102%). Though the portfolio is well balanced between large and mid caps, last year had he bet more on mid caps and lowered his cash holdings rapidly as soon as the market rallied, he would have probably delivered even more. "Last year we had a tremendous amount of inflows. The issue with mid caps is that you need to get the requisite quantity at the right price, which is a problem when volumes are poor. But we did add mid caps wherever we could," he says. Going by the current YTD returns, his large-cap bets have certainly worked out well.

The fund manager attempts to capitalize on valuation differentials between mid- and large-cap stocks which at times could result in aggressive churning. "I churn my portfolio in a choppy market because there one finds a lot of opportunity, not in a trend market," he says. The direct fallout of such a strategy is that the market cap keeps changing. This fund started off as a large-cap fund but resembled a pure mid-cap offering by the end of 2007. During the last two months that year, exposure to large caps stood at a meagre 20 per cent. Since January 2009, it took on a distinct large-cap tilt and today is evenly balanced between large caps and mid- and small-caps. A while back Omprakash confessed to adopting a wait-and-watch strategy to see how interest rates pan out and how inflation is dealt with. He still believes interest rates are firm given that inflation has not tamed down. He also feels that the market is fairly valued and though he has a decent exposure to Banking, he has increased his Pharma exposure.


Medical Insurance (Health Insurance) – Section 80D

• Under Section 80D a person paying premium for medical insurance for self, spouse and children is eligible for a deduction of upto INR 20000.

• In case the person is above 65 years (senior citizen) then deduction of upto INR 20,000 can be availed.

• For premium paid for health insurance for parents, an individual can claim an additional deduction of INR 20000. In case the age of the parents is 65 years or above (senior citizens), the deduction can be claimed upto INR 30,000.

• The deduction available under Section 80D for medical insurance premium is over and above the deduction of INR 1,00,000 available under Section 80C

• A person can avail a total deduction of INR 35,000 for premium paid for medical insurance – INR 20,000 for self, spouse, children and INR 30,000 for parents if they are senior citizens (INR 15000 if parents are less than 65 years old).

• The payment of premium can be made by any mode except for cash to avail the tax benefits.


State Bank of India (SBI) Bonds have been listed on the National Stock Exchange

State Bank of India (SBI), India's largest lender, has come out with a Series 1 and Series 2 Lower Tier-II bonds having a face value of 10,000. Though the issue was closed on October 25, you can purchase it from the stock market as the bonds have been listed on the National Stock Exchange (NSE). Outlining the bank's plans, SBI chairman O.P. Bhatt said: "We intend to do more such issues, maybe, every quarter. We will create a secondary market for these issues so that exit becomes easy and price discovery takes place."

Company background

SBI's origin dates back to 1806. Today, it's India's largest bank, with more 12,500 branches. The lender has more than 140 international offices in over 30 countries. Its customer base was over 153 million as on 31 March 2010. The bank reported a consolidated net profit of Rs 3,365 crore for the period ending 30 June 2010, a rise of 22 per cent year-on-year.

Product features

  • Series 1 Lower Tier-II bonds will earn you an interest rate of 9.25 per cent, and have a tenure of 10 years;
  • The bank offers an interest of 9.50 per cent for the Series 2 Lower Tier-II bond. The tenure of these bonds would be 15 years;
  • Trading, of the bond will be in demat form;
  • The minimum investment is Rs 10,000 and further investments should be in multiples of Rs 10,000;
  • The interest on both would be paid out on 2 April every year;
  • The interest earned on these bonds is taxable. The amount would be added to the 'other income' of the investor in the financial year in which the interest was received. So, the tax would be according to the tax slab the investor falls under. Those in the 30 per cent bracket would get a post-tax yield of 6.5 per cent. For the 10 and 20 per cent tax bracket investors, the returns would be 8.3 and 7.4 per cent, respectively.


  • The interest is attractive compared to the annual interest rate of 7.75 per cent offered by SBI on its 8-10 year fixed deposits;
  • Five-year term deposits offered by banks can earn you 7-8 per cent with Section 80C benefits. Investors in the tax bracket of 20 per cent and above get a return of over 9 per cent on these deposits, which is still less than the return on SBI bonds. And even this is applicable only if they have not exhausted the Rs 1 lakh limit;  
  • The bonds do not attract any tax deducted at source (TDS);
  • They have high liquidity as they have been listed;
  • The bond issue was assigned AAA rating by CARE, indicating highest safety;
  • The bonds have a call option. The Series 1 bonds would be called after five years and Series 2 bonds after 10 years. If SBI does not buy back the bonds, investors get an additional 0.50 per cent interest on the bonds.

Points to note

  •  The bonds do not provide any deduction under the I-T Act;
  •  Unlike bank deposits, they aren't covered by deposit insurance;
  •  They cannot be used as collateral for any loans; and
  •  They will attract capital gains tax when sold in the secondary market.

Mutual Fund Review: UTI Dividend Yield

This fund is best suited for those who want decent returns with good downside protection

The fund has navigated through good and bad times to emerge as an impressive performer. The mandate demands an investment of at least 65 per cent of the portfolio in equity shares that have a high dividend yield at the time of investment. A look at the track record makes one wonder whether the fund manager follows this principle diligently. Its impressive performance in 2007 of 71 per cent put it ahead of the Sensex which managed 47 per cent and multi-cap category average of 60 per cent. Kulkarni hopped on to the Energy and Metals bandwagon by re-entering Tata Power and adding RIL, SAIL and Tata Steel. That year, the BSE Power, BSE Oil & Gas, and BSE Metal all delivered handsomely. But Kulkarni claims to have never deviated from the mandate. "Almost always 70 per cent of the portfolio will be in stocks qualifying as high dividend yield," she says. "Even in the peak of the bull run in January 2008 we were within these limits."


The objective is best suited to those who want decent returns with good downside protection, both of which the fund has given. Its fall in 2008 was less than that of the Sensex as well as the category averages (multi cap and dividend yield) helped by a substantial allocation to debt and cash. Come 2009 and the fund faltered because Kulkarni began to seriously up the equity allocation only from June 2009 onwards. "I was investing but between March and May the rally was substantial and there was an event risk ahead with the Elections, the results of which caught us by surprise. In hindsight, I can say that we were slow in deploying cash and our cash holding was a drag on portfolio performance for a while," she says.


But what has always worked for this fund is smart bottom up stock picking and sector allocation. And by doing that Kulkarni managed to marginally outperform the Sensex and the other two categories in 2009 as well. Her overweight calls in IT, Auto and Fertilisers helped along with "some good stock picking in Consumer, Engineering and Metal sectors". This year she has been holding cash at around 10 per cent and is looking at "deploying the fresh inflows into the fund in stocks fitting the criteria."


Besides scouting for companies which have sustainable cash flows, Kulkarni also looks at capital appreciation potential as the next filter. Using a multi cap strategy she has put to rest the notion that dividend yield funds can only impress during market downturns.


Tuesday, December 28, 2010


When Omprakash Kuckian took over the fund in November 2007, its assets under management were only `290 crore.

He rapidly changed its complexion and used the flexibility a small fund offers to the hilt. His moves paid off and in the December 2007 quarter, he delivered 54.66 per cent (category average, 25.7 per cent). But that has changed. With a corpus that has crossed `3,000 crore, he still takes strong sector bets but plays it safe with individual stock bets. Nevertheless, he has managed to impress, and in 2009, beat the category average by 20 per cent (102 per cent).

The portfolio is well balanced between large-and mid-caps. However, last year, had he bet more on mid-caps and lowered his cash holdings rapidly, as soon as the market rallied, he would have probably delivered even more. However, going by the current YTD returns, his large-cap bets have certainly worked out well.

The fund manager attempts to capitalise on valuation differentials between midand large-cap stocks, which at times could result in aggressive churning. The direct fallout of such a strategy is that the market cap keeps changing. This fund started off as a large-cap fund but resembled a pure mid-cap offering by the end of 2007. Since January 2009, it has taken on a distinct large-cap tilt and is evenly balanced today between large-, mid- and small-caps.

Kuckian confessed to adopting a waitand-watch strategy, to see how interest rates pan out and how inflation is dealt with some days back. He still believes interest rates are firm, given that inflation has not been tamed. He also feels the market is fairly valued and though he has adecent exposure to banking, he has increased his pharma exposure.Overall, the funds numbers speak for themselves. This one is a top pick.

Income Tax Planning: Home Loan Interest Repayment – Section 24

• An individual can claim tax benefits on the principal repayment as well as the interest repayment on a home loan.

• The principal repayment of upto INR 1,00,000 qualifies for deduction from taxable income under Section 80C. The interest repayment of upto INR 1,50,000 qualifies for deduction from taxable income under Section 24(b) for a self occupied property.

• To avail the benefit of upto INR 1,50,000, the acquisition or construction of the house property should be completed within 3 years of the year in which the home loan was taken. Else only INR 30,000 will qualify for deduction for interest repayment.

• Also the amount of INR 1,50,000 for interest repayment qualifies for deduction for self occupied property.

• In case of a property that is let out or given on rent, the entire interest repayment amount qualifies for deduction from taxable income without any limits.

• The deduction on the principal component of the home loan can be availed as soon as the borrower starts repaying the home loan. The borrower need not wait till the acquisition or completion of the house property.

• The interest repayment deduction under Section 24 can be availed after the completion or acquisition of the house property.

• The interest deduction for pre-acquisition or pre-construction period can be availed after the acquisition or construction is complete. This benefit can be availed in 5 equal installments (20% each year) in 5 years.


Apollo Munich Maxima Health Plan Review


Does your health insurance policy cover treatment costs for things like sore throat, cracked lips, running nose, wisdom tooth, broken finger, itchy eyes etc????? Chances are not. Most of the policies issued by Health Insurance Companies do not cover the treatment costs for these small-small illness for which we consult a doctor or visit the Out Patient Department (OPD) of a hospital. Most of the policies issued by Health Insurance Companies cover treatment cost for major illness wherein a patient gets hospitalised. How about a Health Policy, which apart from major hospitalisation instances, also takes cares of treatment costs of small illness, visits to a doctor for consultation, pharmacy expenses, annual health check-up, dental treatment, spectacles etc????? Would you be interested in knowing more about this Health Policy ……. then read on ……….

Features of Apollo Munich Maxima
Apollo Munich Maxima is a health insurance policy that covers major hospitalisation events along with OPD expenses for small-small treatments.

  • 3 Variants: The policy comes in 3 variants. The policy can be taken by

      i. One Adult (Individual) or
      ii. Two Adults (Family Floater) or
      iii. Two Adults and Two Children (Family Floater)

  • The policy comes with a cover of Rs 3,00,000 (sum insured) for an individual for in-patient hospitalisation, pre and post hospitalisation and 140 day care procedures. If 2 adults or 2 adults and 2 children have taken the policy then the cover of Rs 3,00,000 becomes a floater for them.


  • Additional Critical Illness Cover: An individual can also opt for additional critical illness cover of Rs 3,00,000 against 8 specified critical illnesses if required. This is optional and comes with additional premium payment depending on the age of the insured. In case of a floater policy additional critical illness cover can be availed on an individual basis.


  • Doctor Consultations: The policy offers 4/6/8 doctor consultations for the individual and the covered family members, based on the plan opted for and the number of family members covered.



  • Maximum entry age is 75 Years
  • Life Long Renewal: The individual can renew the policy year after year during his / her entire lifetime. There is no maximum age for maturity of the policy.
  • No Claim Bonus: For every claim free year for in-patient treatment, the company offers 10% cumulative bonus on the in-patient sum insured. However the additional sum insured is limited to 50% of the in-patient sum insured.
  • Income Tax Benefit: Under Section 80D of the Income Tax Act, the individual can avail deduction from taxable income for the premium paid for the policy. The deduction is upto Rs 15000 for individuals below 65 Years of age and upto Rs 20,000 for Senior Citizens.
  • Maternity Expenses: Maternity Expenses are covered but there is a waiting period of 4 Years.

What all does Maxima Cover?
Apart from treatment costs for regular hospitalisation, there are a whole host of other things which Maxima health policy covers. Some of these are:

  • Pharmacy Expenses: Your pharmacy bills are covered
  • Diagnostics: Cost of diagnostic tests taken by you or anyone covered in your family are paid
  • Specialist Services: Dental treatment, Spectacles and Contact Lenses are covered upto a certain limit.
  • Health Check-up: The company provides an annual health check-up facility. A person above 45 years of age can avail this benefit from the second year.
  • Pre-existing illnesses under OPD Benefits: Medicines or Doctor's consultation for any pre-existing illnesses are covered without any waiting period.

All the above benefits are available on a cashless basis in the Apollo Munich network and on reimbursement basis outside the network.

Policy Premium:

  • If the policy with sum insured of Rs 3,00,000 is taken for 2 adults aged between 18 Years and 45 Years the premium comes to Rs 21,105 (inclusive of taxes).
  • On this the individual can save net income tax of Rs 4635 under Section 80D of the Income Tax Act.
    Rs 15000 premium * 0.309 (30% tax rate) = Rs 4635
  • The individual also gets OPD Entitlement Certificates worth Rs 14,900 which he can use for things like Doctor Consultation, Diagnostic Tests, Pharmacy, Annual Health Check-up, Dental Treatment, Spectacles, Contact Lenses etc.
  • So effectively the cover of Rs 3,00,000 comes only for Rs 1570.

Rs 21,105 (Premium) – Rs 4635 (Net Tax Savings) – Rs 14,900 (OPD Entitlement Certificates) = Rs 1,570 (Net Effective Premium)

Things to Remember

  • During the first 30 days the policy covers only medical expenses arising out of accidental emergency conditions
  • Cataract and some other specific diseases are covered after two consecutive years
  • Pre-existing illnesses will be covered from the 4th year onwards
  • HIV AIDS and related diseases are not covered. Non-allopathic treatments and cosmetic treatments are not covered.
  • For other finer details about the policy please refer the company website or get in touch with the company personnel.

About Apollo Munich Health Insurance
Apollo Munich Health Insurance Company Limited is a joint venture between the Apollo Hospital Group and Munich Health. Apollo Hospitals has 50 Hospitals, 8000 Doctors, 1068 Pharmacies spread over India. Munich Health has 5000 Experts across 26 locations worldwide and Customers spread across 100 Countries. For its Health Insurance venture Apollo Munich has tied up with 4500 Network Hospitals across 800 cities for offering cashless treatment facility for its customers.

For more details please read the policy wordings available on the company website on what is covered and what is not covered.

The company Toll Free Number is 1800-103-0555.

Note: Readers please note that all the above information has been sourced from the company website. So please make sure you refer the company website or company contact person before deciding on whether to take the policy or not.


Income Tax Planning: Home Loan Principal Repayment – Section 80C

• An individual can claim income tax benefits on the principal repayment as well as the interest repayment on a home loan.

• The principal repayment of upto INR 1,00,000 qualifies for deduction from taxable income under Section 80C. The interest repayment of upto INR 1,50,000 qualifies for deduction from taxable income under Section 24(b) for a self occupied property.

• The deduction on the principal component of the home loan can be availed as soon as the borrower starts repaying the home loan.

• The borrower need not wait till the acquisition or completion of the house property.

• The interest repayment deduction under Section 24 can be availed after the completion or acquisition of the house property.

• The interest deduction for pre-acquisition or pre-construction period can be availed after the acquisition or construction is complete. This benefit can be availed in 5 equal instalments (20% each year) in 5 years.

• The house property for which the tax benefit is availed should not be sold before a period of 5 years, else the tax benefit is reversed.

• Money spend on reconstruction, renewal or repair does not qualify for this deduction.

• This deduction is only for residential property and not for commercial property.



Stock Review: Mandhana Industries

But High Valuations May Limit Further Upside In The Stock



MANDHANA Industries' stock has nearly doubled since its public listing in May. Much of the appreciation tracks the company's robust performance in the September 2010 quarter. However, its current valuations seem to fully factor in the future growth expectations and, hence, a further upside looks limited.

   Mandhana Industries is a textile company involved in yarn dyeing, fabrics and garments. It raised over . 108 crore through an initial public offer in April to fund the expansion of its weaving and garment capacities.

   Mandhana earns four out of every five rupees of revenue from the fabrics segment; the garment division contributes the remaining. While it sells fabrics locally, most garments are exported to major retailers in Europe and the US.

   The company has shown a strong momentum in both the segments. In the first six months of FY11, its total sales grew 31.4% to . 328.7 crore and net profit shot up by 64.2%. According to the management, its business grows faster in the second half of the year due to higher export order bookings. Hence, it anticipates an overall topline of . 800 crore on the higher side of the guidance for FY11, 28% more than the previous year's revenue.

   Though the topline growth looks promising, it will not be easy to retain net margins given the rising input costs. Cotton prices have doubled over the past 12 months, propelling yarn prices by more than one-third. Mandhana has so far been able to fully pass on the impact of rising input costs but at the cost of expanding its working capital cycle. It has offered a higher credit period to its clients. This has increased the time to convert raw materials to cash by nearly two-fold to over 120 days. A higher working capital cycle increases the requirement of short-term funds, thereby putting pressure on margins.

   During its post-results conference call for analysts a month ago, the company guided for a net margin of 9% for FY11. Considering this and its revenue guidance for the year, the stock trades at a forward P/E of around 12. This is much higher than P/Es of 5-7 for other textile companies such as Alok Industries and Sangam India. Bombay Rayon, a garment maker with marginally higher profitability than Mandhana, trades at a P/E of 12. Hence, the valuations of Mandhana look rich, thereby leaving no major room for a further increase in its stock price.


Portfolio’s risk-return balancing

Rebalance your portfolio periodically to retain its risk and returns characteristics

   Seasoned investors can vouch for the fact that the key to maintaining a good portfolio mix is periodic portfolio rebalancing. Rebalancing helps in maintaining the portfolio's original risk-return characteristics.

   Asset allocation strategy is crucial to building a strong portfolio. It determines the proportion of any given asset class represented in your portfolio. An older and risk-averse investor has a retirement asset allocation of predominantly fixed income investments. A young and aggressive investor will have the bulk of his money in the stock markets. In a nutshell, a portfolio's asset allocation strategy determines its risk and returns characteristics.

   What happens to the original asset allocation when one asset class yields phenomenal returns while others pale out? As different asset classes give different returns, a portfolio's asset allocation changes considerably with time. It is essential to retain the original risk and returns characteristics of a portfolio. Investors can rebalance by buying and selling portions of their assets in order to regain the weight of each asset class back to its original proportion.

Time to rebalance portfolio    

When should an investor balance his portfolio? The characteristics of the portfolio's assets determine the frequency of rebalancing. If there is a high correlation among the returns of a portfolio's various assets, the performance of assets under the given market conditions will be similar. This significantly reduces the likelihood of the portfolio drifting from target allocation, and hence such a portfolio has little need for rebalancing.

Rebalancing becomes critical under these circumstances:

• It is time to rebalance the portfolio when some of your investments become out of alignment with your goals
• Your portfolio loses its original asset allocation proportion when some asset classes become over-represented
• If your risk profile has changed
• When an asset class makes a significant profit or loss
• Another strategy is to periodically rebalance the portfolio - say once every six months

Strategies to rebalance portfolio    

How can you rebalance your portfolio? There are three strategies for rebalancing a portfolio that has strayed away from the original asset allocation mix. The most common strategy is to sell star performing stocks and reinvest the profits in debt instruments to regain the original equity-to-debt ratio.

   Most investors hesitate to rebalance at a time when the stock markets are yielding lucrative results. Rebalancing is essential to maintain the risk level of your portfolio.

   Another strategy is to weed out under-performers from your stock basket and reinvest the money in bonds or cash. This way, you can also get rid of risky stocks that are worthless.

   If you have surplus money, you can make fresh investments and raise the percentage level of asset classes that have trimmed down.

   Portfolio rebalancing helps maintain an acceptable level of risk, and in times of turbulence, will prevent gross erosion of portfolio value.

Avoid frequent churning    

When implementing a rebalancing strategy, do not forget to factor in time spent, redemption fees and trading costs. These expenses will reduce the returns from the portfolio. Hence, rebalancing too frequently is not advisable.


SHANKAR has invested Rs 5 lakhs in stocks and bonds. Since his risk appetite level is medium, he has invested 50 percent of his money in stocks and 50 percent in bonds. In the bull run, the representation of stocks in the portfolio went up to 70 percent. His original investment of Rs 2.5 lakhs in stocks grew to Rs. 7 lakhs. His investments in bonds moved up marginally to 30 percent at Rs 3 lakhs.

   The portfolio has churned out to be quite risky with excessive exposure to equity. Shankar can sell 20 percent of his stock portfolio that have fared well and use those proceeds to invest in bonds to reset the original equity-debt allocation ratio.

   After rebalancing this way, the equity-to-debt ratio has come back to 50:50 at Rs 5 lakhs each.

   If Shankar hesitates to sell stocks performing well, he can explore investing more money in bonds to regain the original asset proportion.

Consequences of not rebalancing this portfolio    

What happens if Shankar does not rebalance his portfolio? Assuming that during the bull run Shankar's portfolio has an equity exposure of 85 percent, only 15 percent of his portfolio is invested in more stable and less risky debt instruments. Assume after a few months, the stock market bubble bursts and a bear market ensues. The incessant selling in the markets plunges investors into gloom.

   Consider a scenario when the crumbling market pulls down Shankar's equity holdings to peanuts. With his debt exposure already at a dismal 15 percent, Shankar has no safety net to fall back on in these troubled times.


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