Prajna Capital - An Investment Guide

Significant developments investors need to track as they will have a bearing on market movements in 2011    The year 2010 has come to an end. Practically, this year was the first year after the world came out of the economic slowdown. This year, investors faced the side effects of some actions taken in the previous years to get the world economy out of the slowdown. The world faced many challenges to maintain the economy on a growth path and prevent it from falling into recession again.    There have been many desperate moves by regulators and central banks to maintain the economic recovery. As a result, the markets are signing off from this year on a positive note. However, there are many areas of concern still that need to be dealt with tactically, going forward.     These are some significant developments of 2010 at the domestic and global arenas, and will have an impact on market sentiment in the medium to long terms: Euro region crisis     The sovereign debt crisis in Europ...

Some strategies to book profits in equity and invest them in debt instruments    Stock markets are consolidating at all-time high levels and analysts believe a break-out from current range can be expected next month. The market movement henceforth will largely depend on global developments. Investors are advised to review their portfolio and do some fine-tuning in terms of profit booking, part-profit booking, cut loss, shifting equity positions or re-balancing from equity to debt instruments.    Domestic economic growth is healthy and the long term markets outlook remains positive. Foreign institutional investors ( FIIs ) are also positive on emerging markets in general. However, the markets are already trading at quite high levels and investment in equities is high risk due to global uncertainties. Following the monetary policy tightening from RBI, interest rates have gone up and debt-based investment instruments is quite attractive for capital preservation, low investment risk, g...

Investors need to be aware of changing rules before they invest in mutual funds    Mutual fund investors need to be aware of changes taking place in mutual fund investing as compliance is mandatory in the areas of 'know your customer' ( KYC ), third party payments and multiple bank account registration. KYC compliance     The threshold for KYC compliance for all individ ual investors has been changed from Rs 50,000 to nil with effect from January 1, 2011. Hence, KYC compliance is a prerequisite for individuals to invest in Mutual Funds irrespective of the size of the investment. The Association of Mutual Funds in India ( AMFI ), along with all mutual funds, has made arrangements with CDSL Ventures Ltd ( CVL ) to undertake a centralised record keeping of KYC documents.    On completing a one-time process of common standard KYC with CVL, investors can transact across multiple mutual funds without having to repeatedly submit documents with each mutual fund.    If you are no...

All those countless life policies may not secure the future of your near and dear ones. Read on to find out why      WITH March 31, 2011 drawing closer, the tax-saving season is once again upon us. It's that time of the year when insurance agents and distributors of financial products start chasing potential customers with a renewed vigour. They coax customers to buy products that are eligible for deductions under Section 80C of the I-T Act.    Their enthusiasm often succeeds in pushing gullible investors into buying something that they would have otherwise bought after much deliberation. However, these last-minute choices are the ones that often come to haunt them later. This is particularly applicable to Ulips, which have been the best-sellers during the season, thanks to insurance agents pushing them for lucrative commissions. Whether the trend will continue next year remains to be seen, given the cap on Ulip charges imposed by the Insurance and Regulatory Development Autho...

    EDELWEISS group, a financial services firm, has entered into retail housing finance business by launching Edelweiss Housing Finance. The company hopes to capture 20 per cent of the Rs 300,000 crore housing finance market over the next five years, it said in a release. "The housing finance market is expected to double from Rs 150,000 crore to Rs 300,000 crore by financial year 2015. Edelweiss Capital expects to capture about 2 per cent of the Rs 300,000 crore housing finance market over the next five years," said Anil Kothuri, executive vice-president, Edelweiss. "The gross domestic product ( GDP ) per capita is about $3,000 on purchasing power parity basis. This is the stage at which consumption and retail businesses begin to grow exponentially. This will need to be accompanied by a similar increase in retail lending. Retail financing thus offers one of the largest growth opportunities over the next couple of decades," Kothuri said. As a first step to...

A sturdy fund built with a large-cap and financial sector bias This fund follows a go anywhere strategy with no market-cap, sector and style bias. However, on close analysis, there is a large-cap bias in the portfolio. The large-cap exposure has ranged from 57 to 70 per cent and has averaged 64 per cent, since the fund's launch. And despite claims of no sector bias, there is preference to the financial services. The 20 per cent allocation to this sector since inception, stood at 27 per cent in September 2010. This has resulted in the fund being a stable performer with an average performance during market rallies and has managed to shield investors during market falls.   Justifying the higher exposure to financial services, Sandeep Kothari, equity fund manager, Fidelity Mutual Fund says, "Financial sector is a good proxy to the overall growth in the economy. But the sector does get impacted by the interest cycle, business cycle and the valuation cycles. Though I like the l...

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 w...

Determining if a portfolio is efficient or optimal is subjective. What is good for one investor may not be so for another. An ideal portfolio depends on a persons risk appetite, cash flow requirement, goals, and the investments liquidity and tax efficiency. Asset allocation: The first step is to decide allocation between asset classes. The demarcation depends on the risk tolerance and time horizon of the goal. Risk tolerance is willingness to risk losing some or all your money, in exchange for higher potential returns. For example, someone starting out should look at balanced funds or exchange-traded funds. When the investor understands the risk-return associated with equity and debt, he or she could increase or decrease exposure to the asset class. Asset allocation works only if the investor shifts the gain from one to the other, to maintain the balance. Investment horizon: Your asset allocation also depends on the tenure of the goal. If you are young and saving for retiremen...

   Efficiently planning your investments well ahead ensures threefold benefit. Investment planning helps you save on taxes, build a strong portfolio and enhances future wealth. An individual's investment plan should strive to meet his financial goals in line with his risk appetite.    There is a wide variety of investment choices, including stocks, bonds, mutual funds, bank deposits, real estate, and futures and options. Apart from these, you may also have a need for an insurance risk cover and retirement savings. Investment planning helps you in arriving at a portfolio mix that meets your financial goals comfortably.    Your financial needs over the years dictate your investment picks For instance, people who require lump sum funds at periodic intervals within the next 12 months must repose their faith in fixed income instruments such as bonds. On the contrary, those who invest with a long-term perspective look for capital growth through investments in stocks, real estate and ...

Nomination is important and you should ensure that you have nominated a person who will be entrusted with your funds in the case of your death. If you have not made any nomination, in the event of your death, it will be cumbersome for your legal heirs to take control of your investments. By having a nominee, the amount in your mutual investment gets transferred directly to the nominee in the event of your death and the process is fairly simple with nominee to prove his identity. You can change the nominee as many times as you wish to by filling up the nomination form and changing it from your mother to wife.

Registrars Like CAMS, Karvy & Franklin Templeton To Despatch Consolidated Statement Every Week   FROM January, mutual fund investors will get a weekly consolidated statement of their transactions instead of the monthly statement they get currently. The fund industry is finalising an investor database that will help registrars despatch consolidated account statements to investors every week.    The move is an offshoot of a Sebi suggestion, calling for a central statement processing hub, common for all mutual funds. Once the database is ready, fund registrars, like CAMS, Karvy and Franklin Templeton, will despatch consolidated statement of accounts to investors every week.    "Investors will get one consolidated statement having transaction details across funds, including scheme or fundwise NAV and even the overall portfolio value. This service is ideal for investors who have more than one investment folios," said a senior official in a registrar.    According to t...

Individual Mediclaim policy is the plain vanilla mediclaim or health insurance policy for an individual. This kind of policy aids in securing individual expenses acquired due to any kind of medical emergency such as injury or a disease.

What happens if you missed the deadline of 31st July to file income tax returns?  While an assessee has paid advance tax and TDS (ideally) by 31st March of every year, 31st July is the last date for filing income tax returns (ITR) as set by the Income Tax department. Let us see what happens if you miss the deadline and what penalties you might end up paying. Before we look at the repercussions, let us quickly see how the years are referenced in income tax lingo. 2009-2010 is called the Previous Year (PY) as that is the year in which you earned your income while 2010-2011 is called the Assessment Year (AY) as you are assessing your income in 2010-2011 for the Previous Year 2009-2010. Right through this article, we will use PY and AY to mean 2009-2010 and 2010-2011 respectively. If you missed the income tax return (ITR) filing deadline of 31st July, the income tax department gives a reprieve by allowing you to file it after 31st July without any penalty if and only if you file before...

The term health insurance is a type of insurance which grants you cover against ever rising medical care costs or expenses, beginning from diseases to grave accidental injuries. Health insurance is a critical monetary product that is a must for every individual irrespective of his or her age, sex or religious specification. It aids you in obtaining the first class treatment without muddling your head much over the financial costs involved.   Benefits of health insurance Our lives cannot be predicted; hence health insurance helps to make it secure and protected from handling mammoth financial hammering. It not only helps you in dealing with severe emergencies effectively, but it also beneficial in dealing with disability and custodial needs. Health insurance as a concept is new in India; however it is catching up speedily. Its responsiveness has been massive in the last couple of years. This is due to the response to the series of qualms, worries and suspicions people have observed...

The new system will minimise possibility of fraud, increase efficiency and cut costs    According to the new Reserve Bank of India (RBI) guidelines effective from December 1, 2010, cheque leaves with changes/corrections (with exception of changes / correction on date field duly countersigned) would not be honoured by the banks. Instead, a fresh cheque should be issued. This guideline will be applicable only for cheques cleared under the image-based clearing through Cheque Truncation System (CTS). Presently, the system is operational in Delhi, but will be implemented across India.     However, these guidelines will not be applicable for cheques submitted for: • MICR Clearing • Non- MICR clearing • Over-the-counter collection (for cash payment) • Direct Collection of cheques outside the Clearing House arrangement    CTS is based on electronic data/images without physical exchange of instrument. The cheque is scanned and electronically presented for settlement with the clearing house...

Your health insurance policy will not pay for the treatment of all ailments.    If you have a health insurance policy, you might be aware that it covers certain diseases only after a waiting period of four claim-free years. But do you know that conditions related to genetic disorders are not covered at all? And that claims relating to certain self-inflicted ailments—such as cirrhosis (liver disease) due to excessive intake of alcohol, lung and throat cancer due to tobacco use, and HIV—can also be rejected by an insurance company. All this is explicitly stated in the policy terms and conditions but buyers seldom go through the fine print. Even the agent will not disclose these intricate features of the policy for fear of losing business. An agent will not usually tell the buyer about all the exclusions in the policy. Congenital diseases Conditions such as cataract, hernia and sinusitis, which take a few years to develop into a full-blown ailment, are usually covered after a waiting p...

Using the nomination option in mutual funds is very simple and beneficial    Mutual fund investors should opt for the nomination facility to avoid hassles in case of unforseen events. Though nomination is not essential under the MF rules, it helps avoid inconveniences and hassles in future. With the nomination, fewer documents are required to transmit the investments in the Mutual Fund, should the unfortunate need ever arise. Sometimes, you can nominate up to three persons and indicate their differential shares to the funds.    To nominate, the account holder(s) must fill up and sign the nomination form along with the signatures and photographs of the nominee and signatures of two witnesses. If the nominee is a minor, then the signature and the photograph of guardian will also be required. This form can be submitted to AMC at the time of initial investment or anytime after the investment is made. The nomination can be changed by the account holder/s anytime, by filling up a new nom...

Returns on NAV-guaranteed plans are higher than debt products There are various options to choose from. Birla Sun Life Insurance has launched Platinum Advantage Plan; ICICI Prudential has Pinnacle II; HDFC Standard Life Insurance has Crest, and the latest offering is from ING Life Insurance — Market Shield. Investors expect to get returns based on the highest NAV in these funds. Suppose the NAV in the first, second and third year is 20, 30 and 40, respectively, the company will offer returns at 40 per cent even if the equity markets undergo a correction thereafter. Financial advisor, however, ruled against his investing in the product. Reason: the returns from such products are slightly higher than debt products or at best comparable to balanced funds. Guaranteed return products are for investors who have a conservative approach and do not mind sacrificing the upside in lieu of downside protection. Many investors think that in NAV-guaranteed funds, the insurance company will in...

    Here's a ready reckoner on how to calculate your tax dues so that you can plan your investments accordingly   B. Calculate Non Sec. 80 C Deductions Medical insurance (Sec 80D) Premiums paid for self, spouse, kids and parents qualify for deduction up to Rs 40,000. Tip Consider a family floater plan. Interest on home loan (Sec 24) Maximum deduction of Rs 1.5 lakh as interest payment on home loan for self-occupied property, unlimited for let-out property. Tip Rent out second property, even if not for full year. Interest on educational loan (Sec 80E) Entire interest paid on education loan for full-time studies for any graduate or PG course. No benefit on principal repayments. Deduction available in the year when repayment starts and only for eight succeeding assessment years. Tip You may take loan even for spouse. Donations (Sec 80G) For donations to funds and charities, 50 or 100 per cent of the donated amount, depending on the charity, is deductible from incom...