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Thursday, June 30, 2011

Motor insurance - discount trouble

We always look for discounts when we shop and especially vie for discounts when shopping for insurance. Reason: Most of us think it is a waste if we do not make a claim, as we do not get back any money.

Motor insurance is one place where it is easier to avail discounts – on account of your/driver's profile, car model, city, age and low claim history. So, we tend to negotiate more and more here. However, it would pay to be a little careful if your bargaining skills are honoured. This mostly happens when a policy is bought through a broker. If you negotiate very hard with the broker, he may lower the value of your car, hence lowering your insure declared value and give you a hefty discount.

For instance, your car is valued at `5lakh and you are asked to pay a premium of `10,000 for the policy. If you bargain with the broker, he might value your car at `4lakh, thus bringing your premium down by `800-1,000.

Unfortunately, you won't be able to know this till you make a claim. At the time of claim, you will get a lower amount due to lesser cover for your car and lower value. Therefore, checking with your broker about your car value may help if you land a hefty discount.

Typically, discounts on motor insurance policy depend mainly on the driver and/or owner's profile and the car model. Another thing you need to be clear about is disclosing your claim history when changing your insurer at the time of policy renewal. Many policyholders don't do this, to bag lower premiums for their car. But, if you do so, the insurance company has the right to reject your claim request. Why? Because when you make a claim with the new insurer, it contacts the previous insurance company to verify your history.

Say you had a policy with ICICI Lombard and you shifted to HDFC Ergo. And, because a zero claim history helps you strike a good deal, you do not disclose that you had made a claim with ICICI Lombard. When you make a claim with HDFC Ergo, the company will contact ICICI Lombard to verify your history. On getting to know about your previous claim, it can reject your claim on the grounds of incomplete disclosure.

Many avoid making small claims – scratch, headlight - in a year to be able to get a discount on policy renewal. This is harmless, as you did not make a claim at all. But, making one and not disclosing it could land you in trouble.

But there is a silver lining. You can get a good discount even when the car insurance rates increase. Sometimes as much as 40-50 per cent, depending on your profile and your car. Even your profession and lifestyle can affect your car insurance premium. Insurers consider those in 'respectable' professions to be more cautious. Like, if you are a doctor or a chartered accountant, you are likely to land a discount of five per cent, say experts.

That apart, you can also bag a discount if you have anti-theft devices installed. Toyota Corolla comes with such a device. As a result, you get higher discounts on (easily 20-30 per cent) it. Whereas, the claim history of the Mahindra Scorpio has not been very good and so the discounts are lower (not beyond five to eight per cent), as it is mostly used for commercial purposes. The Tata Indica does not get even that much, as this is accident-prone.

Similarly, small cars are used more by youngsters and so are considered to be more risky. On the other hand, if you are in your mid-40s or 50s and driving a Honda City, you can easily get a discount of 30-40 per cent. Also, premiums for petrol cars are less than that for diesel, say industry experts, as diesel cars are used more. The cover for a diesel car can be up to 15 per cent higher than a petrol one.

Want a hefty discount?

Brokers may lower the value of your car if you negotiate hard for the best deal. However, this may land you in the soup at the time of making a claim

Eyeing no-claim bonus on renewal?

Not disclosing previous claims to the new insurer may lead to your claim request being rejected on grounds of incomplete disclosure

Have the premiums risen?

You can still bag a good discount (as much as 40 per cent) on the back of your (driver's) profile and car model

Steps to meet your financial objectives

Here are five simple steps to help you plan and meet your financial goals over a long term

   Gone are the days when you could own a house only towards your sunset years, with your retirement funds and hard-earned savings. Times have changed. People's needs have increased and so has the cost of living. Unlike in the past, your pension funds alone cannot meet your retirement needs in the scenario of ballooning inflation numbers. Financial planning is important because only with properly management of finances, you can achieve your financial goals.

Financial planning is a disciplined process to plan your investments to meets your financial objectives.

These steps in financial planning will help you meet your goals:

Step one: Define your goals. Set a timeframe.    

Probably, the first exercise in financial planning, it lends direction to the entire process. A financial goal could be any desire like buying a home, vacation abroad, vehicle purchase, children's education/marriage and retirement. Classify them as short-term and long-term.

Step two: Evaluate your financial situation    

Many people neither track their expenses nor keep tab of various sources of income. A cash inflow/outflow analysis will help you gauge how much funds you can spare for investments. Beginning this exercise in early stages of your life will benefit you with the power of compounding.

Step three: Measure your risk appetite

Investments must be made in instruments that are in sync with your risk profile. The age of the investor and attitude predominantly impacts his risk appetite. A person who is ready to take a negative return in his stride has a greater risk appetite and can invest in high risk products like equity.

   On the contrary, a person with low risk appetite loses his sleep even over momentary fluctuations in portfolio value. Such a person must be invested more in stable debt products that are low in risk and aim to preserve capital.

Step four: Gain control over your expenses.    

For those with serious financial obligations and larger goals, it is imperative to have a check on spending habits. People who spend their entire monthly earnings and live on borrowed money (like credit cards) are merely consuming their future savings.

   Installments towards a vehicle loan will leave you with an asset that has depreciated in value at the end of the loan tenure. On the contrary, your monthly EMI expenditure towards a home loan not only yields tax benefits but also provides an asset that has appreciated manifolds in value.

   It may be difficult to cut down on spending towards luxuries, vacations, shopping, dining out and mall visits. Allocate a small portion of your income towards luxuries. Involve all family members and incorporate their suggestions when planning.

Step five: Investment planning    

Choose the correct investment product based on your risk appetite, goal and timeframe. For long-term goals of 20 year duration like retirement planning or marriage expenses, people with moderate and high risk appetite can invest substantially in equity directly or through mutual funds. Stock markets and real estate have proven to beat inflation over the longer run.

   For short-term goals like vacation after six months or children's fees due after a year, debt products are more reliable. With fixed deposit rates hovering at double digits, they are a lucrative bet. Take into account post-tax returns and liquidity options that these products offer.

   Carefully, build a portfolio with desired exposure to equity, debt, realty and cash. People who have little time and energy for managing their finances can take the help of professionals. Your risk appetite, priorities, goals and financial position change with time. Hence, it is important to reassess your objectives and review your investments periodically, and accordingly rebalance your portfolio.

How to get Loans - For the self-employed class

The salaried class is dream category for banks when it comes to making lending decisions. After all, those in the category have a stable source of income and they seem to be the best placed to deal with equated monthly instalments. High-flyers with fat salary cheques even get loans 'pre-approved' — lending institutions are only more than happy to do so. For them, the loan application and sanction process is reasonably hassle free.

For the self-employed class of borrowers, however, things are a little different. But, do note that not everybody in this category might face difficulties. In fact, some may find the going easier than their salaried counterparts. For instance, most salaried borrowers look at a loan to finance 80% of their house purchase cost. In contrast, a self-employed businessman or professional could typically ask for the LTV (loan-to value) ratio of just 55% to 60%, in which case the bank's comfort would obviously be higher. Similarly, self employed professional like chartered accountants or doctors, too, could be looked upon favourably by banks.

All that the bank wants to ensure is that you have the ability to fulfil your monthly repayment commitments.


Ensure that your income proofs are in order. You could be drawing your income from several sources – dividend from business, interest on capital, etc – and the one document that could document all these would be the income statement submitted to the Income Tax department. Banks ask for this document along with three-years' I-T returns.

In addition, you also need to submit balance sheet and profit & loss statements certified by a chartered accountant. In case of professionals, their earnings would be reflected in their financial statements.


Then, banks could insist on a personal discussion with the owner/professional to understand their business models, margins, net worth, business mix, etc. You could use this platform to convince the banks about the robustness of your business. While assessing the repayment capacity of the loan-seekers, banks take into consideration the actual cash profits made by the business. Therefore, the clarity of thoughts you display during the personal discussion to convince the bank about your credentials and the business' prospects could go a long way in getting the loan approved. Furthermore, the line of business chosen by you, too, could be an influencing factor.


In addition, any properties you own, your track record with the banks and business-related repayment record will also be taken into account. If your repayment history is impeccable, it will brighten your chances of securing the loan. Also, if you are highly qualified and, hence, easily employable, you could find it easier to get the loan, as it indicates that in the event of the business running in losses, you can maintain continuity in earnings and, hence, repayment.


Monetary Policy

Monetary policy entails measures taken by the Reserve Bank of India to influence aggregate demand in the economy. The monetary policy affects output and prices through its influence on key financial variables such as interest rates, exchange rates, asset prices, credit and monetary aggregates in the future. Monetary policy actions, therefore, are forward looking. The Reserve Bank uses various policy levers, such as repo rate, reverse repo rate, cash reserve ratio, statutory liquidity ratio and bank rate, to influence the amount of money in the market. An increase in any one of these could raise the interest rates.

• How do changes in interest rates affect monetary transmission?

By increasing or decreasing interest rates, thus raising or lowering the cost of holding cash for banks, RBI indicates that banks should increase or decrease rates for their customers. This change affects people's ability to borrow and lend money, thereby affecting overall demand and completing monetary transmission.

• How much time does it take for monetary policy to take effect?

The effect of monetary policy takes place after a lag and is also found to be variable. This depend on the state of the economy, amount of regulation, liberalisation and financial innovation in the economy. Research has shown that in India, monetary policy takes effect after a lag of 8-12 months. Also, experience has shown that tight liquidity conditions lead to faster transmission of monetary policy.

• How has RBI reacted in the recent past?

Inflation has been elevated for over a year and RBI has responded by raising the repo rate, or the rate at which it lends to banks, nine times. It has tried to bring down the aggregate demand. Lower demand acts as a check on rising prices.

From July 1, Check Your EPF Account Balance Online

The department is ready to provide the facility on its website, labour minister to review the facility today

For the over 47.2 million members of Employees Provident Fund Organisation (EPFO), finding out the balance in their EPF account will just be a few clicks away from next month.

"The updation of accounts is currently on by all the 120 offices across the country and we are expecting that the subscribers will be able to view their account balance online from July 1 this year," a senior EPFO official told Business Standard .

He said in the first phase, members would be able to view their EPF balance of the previous financial year on the website by quoting their account number. "In the next phase, accounts will be updated to show the latest balance. This might take 3-4 months after the introduction of the facility in July." The initiative is expected to address major grievance of EPF subscribers as, at present, it is difficult to ascertain the exact amount in the EPF independently at a particular time. Once it is possible to view the account balance, the members will be able to put pressure on the concerned offices in case the contribution has not been deposited.

"This will bring a lot of transparency in the whole process of employers submitting EPF contributions in the accounts of employees. Ninety per cent of the grievances on whether the money has been submitted or not, would be over," said the official.

On the question of the possible misuse of the facility as others would be able to view the EPF account balance of a particular member if they know his EPF number, the official said: "We dwelt on this issue extensively and ultimately it was decided that in the interest of transparency, this facility should be allowed." The measure is part of the EPFO's efforts to improve service delivery. Labour and Employment minister Mallikarjun Kharge is meeting EPFO officials from 120 offices across the country on Wednesday to discuss the steps for improving service delivery by the organisation. The minister will assess the account updation status at various offices and steps associated with improvement of service delivery.

Wednesday, June 29, 2011


Investment Strategy:

The fund invests in banking and financial stocks across market capitalisation but focuses mainly on the large cap banking stocks. In the past three years, large cap stocks on an average account for about 75% of the portfolio, midcap stocks account for about 8% of the portfolio, small cap stocks account for about 2% of the portfolio and cash holdings account for 13% of the portfolio.

Investments in public and private sector banks account for about 76% of the portfolio on an average. The public sector banks account for 51% of the portfolio while the private sector banks account for 25% of the portfolio. Non Banking Financial companies (NBFCs) also account for about 6% of the portfolio.

Asset Size:

The fund's AUM is around Rs. 1661 crore as at 31 March 2011.


This fund is the best performing Banking fund in India and also the best performing Banking fund on our platform over a 5 year period (31 December 2005 to 31 December 2010). We have been recommending this fund for the past two years.

As of 31 December 2010, this fund has outperformed its benchmark, the S&P CNX Bank Index across all periods. Over a 1 year period, this fund has given 46.1% while its benchmark has given 35.8% and has given annualized returns of 28.4% over a 5 year period in comparison to 22.5% of the benchmark over the same 5 year period. 



Also, know how to buy other mutual funds online:


1) DSP BlackRock Mutual Funds:


2) Reliance Mutual Funds:


3) Birla Sunlife Mutual Funds:


4) UTI Mutual Funds:


5) SBI Mutual Funds:


6) Edelweiss Mutual Funds:


7) IDFC Mutual Funds:


For estate planning, a trust proves to be more effective than a will

It is simply a process for an individual to arrange the transfer of his assets in the event of his death or incapacitation

Estate planning is not just for the rich and famous. It is simply a process for an individual to arrange the transfer of his assets in the event of his death or incapacitation. In fact, as soon as you acquire some assets or have dependants, you should start planning for your succession.

The goals of estate planning are to protect, preserve and manage your estate/assets during and post your life. In fact, looking at the various disputes in families in the public domain, estate planning is becoming increasingly necessary for every individual to ensure a planned succession, avoid family feuds leading to disintegration of businesses and lengthy court battles. Also if estate duty is reinstated in India today or in the near future, estate planning may turn out to be the best tool to minimise the estate duty. As this process is legally binding, it is important to do so in a timely manner in order to provide for the family. So, what does it take to make an efficient estate plan? Your starting point should be to draw up a comprehensive list of assets. Then figure out how you want to bequeath these assets, ideally in consultation with your family members.

Trust versus will: A will can be challenged in court. Usually, in a high-profile family, some member is likely to be unhappy over the distribution of wealth under a will.

Such a person could always raise hands in a court. But he cannot do so if wealth has been put into a trust.

A trust protects your assets from probate, keeps it out of the creditors' clutches and provides confidentiality, since the names of the beneficiaries are not disclosed, nor are the assets listed.

The main reason for this is the lack of flexibility and control over the end use of your assets. You cannot list out an investment mandate for your wealth nor can you allocate your wealth for somebody who is yet to be born, which you can do with a trust. Also, India doesn't have the concept of a living will. A trust helps you manage your wealth during your lifetime, unlike a will that is operational only after your death. Given these numerous advantages, a trust definitely scores over a will in a big way.

Before you opt for a trust: Though trusts give you the much-needed flexibility, you need to be careful of certain bloopers that you might make. First, choose the right trustees. A major problem could arise if you don't get the right trustee. After all, it is the trustee who manages your trust. Second, envisage your beneficiaries well.

There's very little that you can do if you choose the wrong beneficiaries.

A disadvantage of using trusts is that you cannot pull out an asset that you have put into a trust. So, make sure you only put that part of your wealth into the trust that you are not going to require in your lifetime. Also, people who have several listed companies need to be careful as to how they use their trusts. Most of the ultra HNIs, who have several listed companies, will be advised to create a holding company. In terms of structure, this is perfect but one more step can complete the succession planning, by creating a family trust above the holding company. This trust will hold personal as well as holding company assets. Certain long-term succession and taxation and personal objectives can be met through this structure. There is no thumb rule to this but it could work for most.

Types of Trusts: The Indian Law classifies trusts only on the basis of their purpose, namely private purpose (private trust) or public purpose (public trust) and religious/charitable (religious /charitable trust). A public trust is for the benefit of the public and the beneficiaries are incapable of ascertainment and a private trust is created for benefit of certain specified individuals who are ascertained. Besides the classification on the basis of purpose of trusts, trusts can also be classified as either revocable or irrevocable in nature.

Taxation: In case of a revocable trust, the income of the trust is taxed in the hands of the creator of the trust--the settlor. The tax imposed would be at the rates applicable to the settlor. In case of an irrevocable trust, the income of the trust is taxed in the hands of the beneficiaries. The tax imposed would be at the rates applicable to the beneficiaries.
Conclusion: Though planning one's estate may feel uncomfortable, the cost of procrastination can be high. Setting up an estate plan is not as complicated as it sounds.

You execute a trust deed where you appoint a trustee, name your beneficiaries and specify how and when the properties of the trust would be distributed to the beneficiaries.

In a trust, you transfer ownership of some or all of your assets (which can include investments, real estate, bank accounts) and even personal property (jewellery, antiques or furniture) from your name to that of the trust.

Transfer of ownership of assets to the trust can be done at anytime after the creation of the trust either by the settlor or any other person.

After you transfer the assets, you maintain the same access and control as you did before you put them in the trust in case of a revocable trust.

In case you create an irrevocable trust then you can retain some control over the assets in the trust by either having the trustee consult you or by appointing an administrator/protector who will be consulted by the trustee.

You lose nothing, but gain the assurance that your wishes will be carried out if something happens to you, without the time or hassles of probate through the hands of competent and professional trustees.

Hence estate planning is the foremost judicious step in securing your family's future and fulfilling your desires during your life and after you depart from the world.


For New Investors in Equities

For any investor, whether firsttime or not, a crucial point to keep in mind is the formulation of an investment plan. Such a plan is meant to be based on the projection of 'needs' over a period of time, normally spanning the entire lifetime.

An investment plan may help the investor arrive at a realistic investment objective and the time required to get to the objective. It also assists the investor in determining the risk-return trade-off. This enables the investor to narrow down the investable asset classes, regulating the asset allocation ratio, and drawing up the asset quality framework to adhere to.

The investor must realise that equities market in the short run tend to be highly volatile, but its long-term return potential remains high. Thus, the equities asset class is considered as a viable medium for investors wishing to build a large corpus over the long term. For example, an equity investor who would have invested . 10,000 in January 1980 in the BSE Sensex would have built a corpus of . 16.45 lakh by the end of March this year, at an average CAGR of 17.73% per annum.

Alternatively, had an investor invested just . 1,000 per month (through an SIP, for instance) in the BSE Sensex from January 1980 to March, the effective corpus he/she would have accumulated would be about . 95 lakh.

The point is that equities are a long-term capital builder and deserve as much diligence and patience as any other. An equally important corollary is that investment in equities must start as early as possible to allow for compounding to make a sizeable impact.

Investors must also be mindful that investment in equities occasionally occur either out of personal conviction or out of a systematic setup. If it is the former, then the investor needs to be sharply aware of the emotions driving such conviction. Because, more often than not, it is the emotional inference of fear and/or greed that drives the investor to buy and sell, leading to less than desired outcome. On the other hand, lack of disciplined approach to systematic investments can lead to the temptation of altering the investment pattern, size, and allocation ratio depending on the fluctuations of the market movement. This, too, may lead to sub-optimal return. To address this behavioral tendency, a long-term SIP in equity mutual funds is advised.

The investor must also appreciate that an increasingly integrated world has increased the factors affecting equity assets. Consequently, the risks associated with investments in equities, too, have increased. For example, individual direct investors could be hard pressed to research and identify the underlying business of the company they want to invest in. Moreover, business factors like changes in the input cost of a business, cost of capital, labour and taxation regulation, etc, require in-depth research and specialisation.

An investor without ample resource by way of time, experience, and expertise is advised to seek the mutual funds route to equities investment. Equity-oriented mutual funds are one of the most economical investment products, and provide an investor a proxy route to investment in equities. The core advantage of equity mutual fund is the professional portfolio management service, dedicated research, and hands-on market knowledge offered by the fund management team.

An investor in equities may also want to be watchful about the tax incidence of an investment. While the realised gains arising out of investments held for more than a year attract no tax, the realised gains arising within a year attract tax according to the slab rate. The cost and convenience of equity investment is also an aspect the investor should consider. Demat holding and opening charges, along with the STT and trading charges of the broker, eat into the gains made from direct investment. In mutual funds, while there are no entry charges (and no exit charges either, if the exit is made after a year), an investor has to shoulder the annual recurring charge not exceeding 2.5%. To sum up, new investors in equities must realise that effective investment requires a purpose, a plan, prudent risk appetite, and a reasonable time horizon. Investors must also appreciate that outcomes of direct equities investment can be undesirable in the absence of market knowledge, experience, and expertise. The most convenient and cost-effective route for first-time investors is, therefore, equity-oriented mutual fund.


Safety of capital with fixed income instruments

Some debt instruments you can consider in these times of rising interest rates

   Investors with a low risk appetite can opt for fixed income instruments. Some provide regular income. Others offer deferred returns. Some also offer tax saving. The long term debt instruments provide a pre-stated rate of returns over a long term. However, the returns are relatively low. Also, these instruments are not very liquid.

Bank deposits    

Then there are bank deposits. The tenures may range from a few days to five years. The interest rates are fixed in advance and remain the same through the tenure of the deposit. The interest earned is subject to tax. The interest may be up to 10 percent. After tax, you may get returns up to seven percent. The deposits are safe.

NSC, KVP    

You can also look at post office saving schemes such as National Savings Certificate (NSC) and Kisan Vikas Patra (KVP). These are for 5-7 years. There is an overall limit for investments in monthly income schemes. A bonus is paid at the end of the tenure. There is no limit for investment in National Savings Certificate and Kisan Vikas Patra. The interest earned is taxable. You can pledge them as security for a loan.


There is also the Senior Citizens' Saving Scheme (SCSS) for senior citizens, with deposits up to Rs 15 lakhs, The interest offered is nine percent and the tenure is five years. The interest earned is regular, but is also subject to tax.

Infrastructure bonds    

They are available for 10-15 year tenures with an initial lock-in period of five years. The interest is around nine percent, and is subject to tax. The holding period is pretty long. The Income Tax Act allows an additional deduction of Rs 20,000 for investments in these bonds.


The Public Provident Fund (PPF) is available for 15 years and can be extended for another five years. The interest is tax-free, but is credited to the account and cannot be withdrawn on a regular basis. The maximum investment per annum is Rs 70,000 for an individual.

   In all these cases, the interest rates are fixed in advance and remain the same for the tenure of the scheme.

Debt funds    

Fixed maturity plans (FMPs) are offered by mutual funds. They may offer higher post-tax returns than other schemes. However, the returns are not fixed in advance. You can index the growth using the Cost of Inflation Index, taking home higher post-tax returns. Though they are listed on exchanges, FMPs are essentially not liquid and have to be held till maturity. Although the returns are higher, there is an element of risk

   You can also look at debt funds. They offer a high level of liquidity and good returns. Although the returns may be higher, there is element of risk as well. The value of the investment keeps changing depending on the movements in the market interest rates. As the interest rates increase, the NAV comes down. The shorter the tenure of the debt fund, the lesser the impact of changes in market rates. As such, many of the mutual funds manage portfolios with very short tenures when interest rates are increasing. This way, they can reduce the impact of market rates on the portfolio value. Most debt fund products are short-term in nature with a tax benefit if held for over a year.

   It is to be noted that liquidity may be limited in many of these instruments. There may be a penalty for premature withdrawal.


Buying child cover early in life pays off well



APRIL is the month when children after crossing one milestone move to the next.
This is also the time when most parents for the first time realise that their child is growing up and may be faster than their rate of planning for the child's future. Though multiple new career opportunities have emerged, competition at the same time has also increased manifold. It is not uncommon to find a father spending sleepless nights thinking how his beloved son or daughter would cope in this competitive world.

This is the time for self actualisation and realisation to plan for your child.

And this is why child insurance plans have been gaining in importance.

The awareness about child insurance has risen substantially over the past few years. Max New York Life Insurance conducted an extensive ethnographic consumer study, which showed that the child insurance segment had an awareness level of 99 per cent, present ownership of just 16 per cent with 12 per cent intending to purchase a plan. What explains the rising interest in these insurance products within this segment and why life insurance when there are a number of financial instruments available in the market today?

The most common explanation is the need to provide for children's education and facilitate their subsequent smooth transition to the professional field. Life insurance is probably the only financial product available to address and facilitate multiple parent-child needs, let us look how.

Higher education, marriage, financial security of our children are some of the most important milestones that we all save for. However, with rising cost of living in today's world, simple saving instruments would not be enough to meet the aspirations for one's children.

Child plans facilitate planning for children's needs and most importantly provide financial protection. In case of unfortunate event of death of the parent the beneficiary is entitled to receive guaranteed sum assured immediately. In addition there are plans today, which will continue to operate the unit account until maturity of the policy. All future premiums in such cases are paid by the company on behalf of the life insured until policy maturity thereby ensuring that the purpose for which the policy was originally purchased is accomplished.

Life insurance plans are also the only financial instruments that provide multiple fund options in just one instrument, allowing one to choose as per their risk profile. These plans also allow partial withdrawal facilities to help enhance your child talent.

Regular systematic investments in such a product help enhance savings over the long term and provide guaranteed commitment to the child's educational goals, professional career and overall financial well being. Statistics support this argument as well.

How should a parent go about planning finances for his child? The best way to build up a healthy corpus over the long-term is by starting investments early.

Investing smaller portions of the savings at regular intervals goes a long way in building a healthy corpus.

Parents also benefit from the compounding effect (the interest keeps getting added up to the principal), which increases over time.

In short, the following points should be kept in mind while purchasing a child insurance plan--time frame for building a corpus, which includes age at which the fund would be required and amount required to build the desired corpus, and the cost implications of education.

As a parent, you wish to provide the best to your child. A child insurance plan helps meet this objective and holds the key to securing a child's future. In depth research of insurance products and careful assessment of future needs remain important tools to enable you as a parent to get the ideal plan for your child.


Invest your dormant Provident Fund money in fixed deposits or FMPs

IF YOU have an inoperative employee provident fund account, now is the right time to withdraw your corpus, as it is not earning any interest. With the interest rates on fixed deposits soaring high, it is time to withdraw your employee provident money.

From April 1 all inoperative or dormant accounts have stopped earning interest.

The central board of trustees of the Employee Provident Fund Organisation (EPFO), the key decision-making body for the fund comprising representatives from the government, employers and trade unions took decision to stop paying interest to accounts inoperative for more than 36 months or three years.

Most of people do not transfer their existing provident fund account to their new workplace when they switch jobs. Earlier, these dormant accounts also earned interest so it was lucrative to let your money earn high interest rate offered by Employee Provident Fund Organisation. At present EPFO is giving return of 9.5 per cent.

At present, around Rs 10,000 crore of unclaimed money is lying in more than 2.9 crore inoperative accounts of Employee

Provident Fund Organisation that has a total subscriber base of 5.6 crore.

Process of withdrawal of provident fund is simple.

Download a provident fund withdrawal form online and fill it and get is signed by authorised officer in your previous workplace and submit it in the nearest

Employee Provident Fund Organisation office.

A Mumbai-based financial planner said fixed deposit accounts are offering return between eight and 10 per cent depending on various maturities and it is good idea to channelise your money from provident fund to fixed deposits, which are safe and also giving good retuns. Interest rates are expected to go up further after recent key policy rate hikes by the Reserve Bank of India (RBI).

Financial planners say it is best to apply for a transfer of fund account when you change jobs as the it will also ensure you have a good corpus when you retire after working hard over the years.


Debt funds and their appetite for bank CDs


IT IS not a secret that cash-strapped banks have been resorted to heavy borrowings and debt funds have been the major buyers of their debt paper, called as certificates of deposit (CD). This trend continues going by the latest mutual funds' deployment data released by the Securities and Exchange Board of India (Sebi) recently, pertaining to March this year.

From the end of one financial year (FY10) to the next (FY11), debt fund schemes of domestic mutual funds have deployed a rising portion of funds available to deployed in bank CD in two out of three maturity buckets (based on tenure of debt paper). This has come at the cost of paring down of their exposure to money market instruments as well as to long-term debt to non-banking financial companies (NBFCs).

Interestingly though, in the shorter maturity bucket of zero to six months, the FCRB analysis also revealed one another debt paper, namely commercial papers by NBFCs, getting prominence. Bank CD completely dominated the deployment in the six to 12 months maturity bucket and this came at the cost of the debt funds' exposure to all commercial papers. This is not surprising as banks were the biggest borrowers.

There were more interesting shifts in debt fund managers' preferences in debt paper having maturity of one year and above. Collectively, they bought down their exposure to corporate debt paper issued by NBFCs and correspondingly increased exposure to corporate debt issued by non-NBFCs and non-realty companies, government securities and to securitised debt involving single sell down or single loan made to non-NBFC, non-realty companies.

Take for instance, the portfolio of Templeton India Income Opportunities Fund, among the five largest long-term debt funds with a corpus of Rs 4,177 crore on March 31 this year and Rs 1,720 crore on March 31, 2010.

Last March-end, it had 29.72 per cent of its corpus invested in corporate debt papers of nine NBFCs. At the end of March this year, it had just 14.50 per cent of its corpus invested in eight NBFCs' corporate debt papers. On the other hand, the share of its investments in pass-through certificates, which are securitised debt paper, to total corpus rose from 24 per cent to 41 per cent.

Long-term NBFC debt papers are illiquid and we can not sell them easily.

You need to Play Safe With Commercial Property As an Investment

Property consultants say sluggish volumes in the residential sector and hardening interest rates have come as a boon for retail investors in office properties.

Today, in Mumbai, investors can own smaller units of space, of 500 to 1,000 sq ft, in Grade A buildings (those centrally air conditioned and with standard amenities), in contrast to a few years earlier, when only larger units were available, says Ramesh Nair, managing director, West India, Jones Lang LaSalle (JLL), an international property consultant.

"If you look at Lower Parel (in south-central Mumbai), you can own office space for `1.5 crore, which was not possible a couple of years ago," says Nair. While residential prices are upwards of `20,000 a sq ft, office values are at `15,000 a sq ft in Lower Parel.

Rental yields have also shot up from 9-10 per cent to 12-15 per cent in the past couple of months, due to increase in interest rates and borrowing costs. Rental yield is the amount of money an owner receives in rent over the course of a year and expressed as a percentage of the amount of money invested in the property.

"If you prefer higher yield and low upside, investment in office properties is a better bet," says Prakrut Mehta, national director, office and industrial agency, Knight Frank India.

Besides, the advantages of small units are that it is easier to find tenants and the premises can be used for business by their owners if they happen to be of a entrepreneurial bent.

According to JLL, the demand for office space in India will be around 200 million sq ft over the next five years. Post the global financial crisis, the prices across most markets dropped 35-40 per cent and have bottomed out in most markets, offering investors a good opportunity to buy into commercial real estate.

Nair says there is an almost 50 per cent jump in absorption of office space in the past two years.


But retail investors should not forget that the office market was hit hard during the property slowdown of 2008-2009 and the last one to recover from the lull, as companies and financial institutions deferred leasing transactions "It is a high risk, high return investment segment. Investors should bear this factor in mind," says Mehta of Knight Frank.

High vacancy levels are also one of the risks associated with investing in office properties.

According to JLL estimates, vacancy levels in office properties across the country have risen from two to three per cent to 18-19 per cent due to increased supply over the years.

"Investors need to study the demand and supply dynamics in a particular location where they are investing. If they do not engage in sufficient research, they may end up buying into micro markets which have or will have high vacancies," Nair adds.

There is also a restriction on bank funding. Banks lend only up to 60 per cent of the loan to value ratio to buy commercial properties, subject to the borrower's adequate net worth and established ability to repay. Again, the loans are given subject to a maximum of seven years.

"Your equity contribution is higher and tenure is fixed. You have to tackle these two issues," says Mehta.

Investors also need to check developer credentials, potential for infrastructure development and quality of project management before deciding.

Check rating of issue before buying NCDs


AT TIMES, where inflation hovers above nine per cent and stock market returns are unstable, it is important for an investor to park his funds in avenues that would provide higher returns to combat the inflationary effect on investments. For those looking at fixed and safe rates of returns, fixed deposits in banks and non-convertible debenture (NCD) by companies are good options to consider.

Shriram Transport Finance has recently announced a NCD issue in which it promises returns of 11 per cent and above.

Since many more such retail NCD issue are waiting to hit the markets in the months to come, it is important to know how NCDs fare as investment avenues compared to fixed deposits.

Check the ratings of the issue: Companies come out with a bond issue if they need capital but cannot or do not want to borrow it.

Hence, they offer higher interest rates. An investor has to look for the rating of the issue. If an issue is rated AA or AAA and offers a 11 per cent interest it is better to go for it than another issue which is rated B and offers 13 per cent interest. Investing in an issue which is rated badly may cause a delay or even a loss of capital

No tax benefit: Like bank FDs, one cannot get any tax benefit by investing in NCDs.

Longer lock-in period: The 10.50 per cent interest rate on fixed deposits (FDs) are available for bank deposits of one-year tenure and above. However, in the case of NCDs, they come with tenure of three, five and seven years. So an investor has to know what his investment horizon is before going in for such long-term issues. We are nearing the peak of the interest rates and it is good to invest in a long-term debt fund that offers a 11 per cent rate is good.

Trading of NCDs: Despite the longer tenure it is still possible to liquidate an NCD investment, if it is tradeable. The tradeable NCDs would be listed on the stock exchanges and one could sell them whenever one feels that the value of NCD has appreciated to the level expected. But experts say that it is rare as retail debenture trading has not really picked up in India. So, even if an investor wants to sell off his debentures there has to be a buyer.

How to apply for an NCD?

Most NCDs mandate having a demat account to subscribe to an NCD issue. For the subscriber too it is easier as the NCDs can be sold off online when one wants to liquidate them.

Tuesday, June 28, 2011

Mutual Fund Review: DSPBR Savings Manager


DSPBR Savings Manager has a good track record.

This one takes its chances and has delivered accordingly. With a leeway to go up to 25 per cent in equity and a small asset base, movements are rapid and opportunistic. Originally, the equity allocation was restricted to the top 100 stocks by way of market capitalisation. That has changed and the equity allocation now follows a multi-cap approach. What's even interesting is the fluctuation in this asset allocation. For example, in December 2009 it stood at 25 per cent but rapidly moved to 8.48 per cent within two months. Naturally, the number of stocks too will fluctuate and has been known to drop to just 3 (March 2007), when the equity allocation was 7.45 per cent before shooting up to 23 by December that year (equity allocation: 25%).

"It's a very actively managed fund and we book profits from time to time to give regular dividends. When the market is volatile, the idea is to capture momentum across sectors and stocks. If we think the market is going to go down significantly, we become risk averse and raise cash," says Shah.


On the debt side, the portfolio did favour floating rate papers till July 2009. "On the one hand the issuance came down and on the other, the liquidity in the secondary market was very low," explains Choksi. Currently, the fund is focused on Certificates of Deposit (CD). From no allocation to CDs in May 2010, it now averages around 30 per cent of the portfolio. It also currently holds 27 per cent of its assets in bonds and debentures.


"We are focusing on the two key rate durations -3 and 12 months. When we believe that the rates have peaked, we will change our balance from 3 months to 12. So we will increase duration and continue to do that as we come closer to the peaking of the rates," says Choksi.

Prior to 2010, the average maturity of the portfolio rarely went above 1 year. Though it touched 2.53 years in April 2010, it now stands at 0.73 years.


The fund has consistently delivered above average annual returns, the only blip being 2010 when it returned just 5.23 per cent (category average: 7.56%). In a falling market, the fund has done a fair job. During its worst 1-year period (November 19, 2007 to November 18, 2008), its loss of 6.08 per cent was almost equal to the category average.


The fund was pretty consistent in dividend payment till 2007, declared none in 2008 but got back on track from April 2009.


The low asset base has entailed an expense ratio of 2.14 per cent.




Also, know how to buy other mutual funds online:


1) DSP BlackRock Mutual Funds:


2) Reliance Mutual Funds:


3) Birla Sunlife Mutual Funds:


4) UTI Mutual Funds:


5) SBI Mutual Funds:


6) Edelweiss Mutual Funds:


7) IDFC Mutual Funds:


Lending Institutions Prefer Clients with Credit Score of 800 and Above

The launch of India's first credit score for individuals, the Cibil TransUnion Score, last week was a landmark event in the country's credit evolution. While the score has been used by loan providers for almost three years, the Credit Information Bureau (India), in an attempt to improve transparency in the use of information during loan evaluations, now provides the score to individuals as well.


An individual's Cibil TransUnion Score provides loan provider with an indication of the "probability of default" of the individual based on their credit history. What this means is that the score tells a credit institution how likely is that an individual will pay back a loan (should the credit institution choose to sanction the loan) based on the individual's past pattern of credit usage and loan repayment behaviour.

Given that the Cibil TransUnion Score is a loan-evaluation tool developed to help loan providers, the first logical question that comes to mind is: 'What difference does it make to me'?

The answer is that the higher your Cibil TransUnion Score (ie, the closer it is to 900), the more likely you are to get your loan application approved.

The reason being that a score closer to 900 provides the loan provider more confidence that the individual would be in a good position to repay the loan.
While this is what is claimed, it is always useful to analyse the underlying data, which serve as the foundation based upon which such claims are built.


The best way to analyse the impact the Cibil TransUnion Score has on an individual's loan application is to observe the lending behaviour demonstrated by credit institutions over time. The table gives data of loan sanctioned by loan providers based on an individual's Cibil TransUnion Score in 2008 and 2010.
The data tells us that 90% of new loans sanctioned in both 2008 and 2011 were to individuals who had a Cibil TransUnion Score of 700 or more.

However, the data also indicates that over three years, lending institutions preference has shifted from individuals with a Cibil TransUnion Score ranging between 750 and 799 in 2008 to individuals with a credit score of 800 and above in 2011.

Hence, you will have to maintain greater financial discipline to secure credit in future.

It is important to note that loan providers also consider your total income, overall debt burden and how you fit into their internal credit policy before deciding upon your loan application. Hence, if your EMI to income ratio is over the set cut-off percentage, your loan application may get rejected despite having a credit score of 847.

Simply put, the Cibil TransUnion Score is like the marks one earns in school examinations. Higher marks (credit score) increase the chances of your being accepted in a college (getting a loan approved), but they don't guarantee your admission. A more overall evaluation of your extracurricular activities (income level, overall debt burden) is required before you are granted admission.
Similarly, different colleges will have different cut-offs with regards to the marks (credit score) required to gain admission.


Portfolio Management Service (PMS)



Portfolio Management Services (PMS) is a specialized service that offers a range of specialized investment strategies to capitalize on the opportunities in the market.


Investing requires knowledge, time, and the right mind-set. This is besides constant monitoring. PMS gives you professional managers who strategize to deliver you consistent returns keeping your risk appetite in mind. Every portfolio manager has a well-defined investment philosophy and strategy that acts as a guiding principle.


PMS relieves investor from all the administrative hassles of investments. You receive periodic reports on your portfolio performance and other aspects of your investments. Investments are tracked continuously to maximize returns.


In a PMS setup, your relationship manager defines your financial goals and advises you the right product mix. They give personalized service and ensure that you receive periodic updates and account performance reports.


What are the tax implications of investments in PMS?

At present, 10% tax is chargeable for short-term capital gains and no tax is chargeable on long-term capital gains. Securities transaction tax (STT) is also applicable.


What is Securities Transaction tax (STT)?

Securities transaction tax (STT) is imposed on securities exchange transactions under the provisions of the Securities Transaction Tax Act, 2004.

What are the advantages of investing in PMS vis-a-vis mutual funds?

You have greater control over the asset allocation in PMS, whereas it is automatic in mutual funds. The portfolio can be customized to suit your risk-return profile.
The PMS portfolio manager also has relatively greater flexibility to move in and out of cash as and when required depending on the market view.


What is the fee structure for PMS?

The fee structure depends from company to company.

The fee structure depends from company to company. There may be many options such as:

         A fixed proportion of the fund amount (for eg. 2% of the initial corpus)

         A fixed proportion of the fund amount + variable depending upon the performance of the portfolio (2% above 10% of the returns)

         Variable depending upon the performance of the portfolio


Can a NRI avail of the Portfolio Management Service?

PMS is open to all Indian nationals, resident or otherwise. NRIs will have to open a portfolio investment scheme (PIS) account in order to invest via a PMS.

PMS is open to all Indian nationals, resident or otherwise. NRIs will have to open a portfolio investment scheme (PIS) account in order to invest via a PMS.


What is a portfolio investment scheme (PIS)?

In order to invest in the secondary markets in India, NRIs need to obtain RBI permission. To do so, you have to open a Portfolio Investment Scheme (PIS) account with a designated bank. All transactions related to investments in the secondary market need to be routed through this account.


Wine promises high returns

Though it promises high returns, this elite asset class is only for the ultra rich

Need a ticket to the high life? Invest in the best wines the world has to offer.

For a new class of investors willing to combine passion with investment acumen, wine is more than just an indulgence for the taste buds.

Wine advisory companies assess the global market for fine wine to grow at $3 billion annually. For investors looking to diversify from conventional investment classes, this can be agood alternative, say investment advisors.

Last financial year, London based Liv-ex Fine Wine 100 Index, the only benchmark index for the wine investment industry, rose by over 26 per cent. The year before, it rose by 31 per cent. In comparison, Nifty, the Indian equity benchmark index, rose by just over eight per cent last financial year.


As of now, there are no Indian wines, wineries or wine funds one can invest in. Investors have to look to international wine funds. One could even invest directly in wineries or bottles of classic fine wine and wait for its price to turn lucrative before putting it up for sale.

For instance, the price of Château Lafite Rothschild, 2000 vintage, has risen more than five times over the last five years. Château Mouton Rothschild, 1982 vintage, has shot up 173 per cent in the same period.

Indian wine advisory firms, such as Antique Wine Company and Drayton Capital, offer services to hold and preserve the wine on behalf of their clients.

You can also invest in wine futures or "en primeur", that is, wine which has not been bottled and is still in barrels. Given the high demand for fine wine, your chances of getting wine are higher with wine futures, at the least possible price. And, the prices only get better with age.

Cellar and storage companies and wine merchants help you with preserving the wine and shipping it wherever you want to sell it.

You can sell through auctions and wine merchants have buyback policies. Governed by the Liv-ex exchange, market prices are very transparent.


International wine investment portfolios invest 80-90 per cent of their value in just eight brands or vineyards. Five of the best fine wines in the world are from the Bordeaux in France. The restricted supply from these wineries makes them rare and expensive.

This is one of the reasons why investing in a bottle of fine wine is a good idea, wine advisories say. Also, prices are not volatile, making this somewhat insulated from the financial markets. During the market crash of 2008, while the Sensex lost more than half its value, wine prices corrected by about 10-20 per cent.

However, investing in the highly-priced, exotic drink belongs to an elite group of investors. According to Sonal Holland, country representative at the Antique Wine Company, "Orders of less than `5 lakh are not considered." Clearly, investing in wine is suitable for the ultra high networth individuals only.


However, such exclusivity makes it a high risk asset class. A lot will depend on the fund manager's ability to source good wines and the kind of wine dealers available. Clearly, as an asset class, it is strictly for people who know and understand wine. Also, the valuations are not clear and it is not well regulated like traditional asset classes. It may not be as liquid compared to other asset classes. Wine advisors say investors need to consider their budget, investment time frame and the reason for investment —pure passion or speculation.

The profits made on investments in fine wines overseas will attract capital gains tax, says Holland. Tax experts say that profits made on investing in wine can be considered as income from other sources.


Investment Strategy:

The Mirae Asset China Advantage fund is a feeder fund that invests in the Mirae Asset China Sector Leader Equity Fund. The Mirae Asset China Sector Leader Equity Fund invests in equities and equity related securities of companies domiciled in or having their area of primary activity in China and Hong Kong. As of 31 December 2010, the Mirae Asset China Advantage fund has invested 97.86% in to the Mirae Asset China Sector Leader Equity Fund.

Asset Size:

The fund's AUM is around Rs. 101 crore as at 31 March 2011.


This fund is the best performing global fund in India and also the best performing global fund on our platform. As of 31 December 2010, this fund has outperformed its benchmark, the MSCI China Index, across all periods. Over a 1 year period, this fund has given 11.56% while its benchmark has given -1.68% and has given annualized returns of 9.73% since its inception in comparison to -0.15% of the benchmark. 



Also, know how to buy other mutual funds online:


1) DSP BlackRock Mutual Funds:


2) Reliance Mutual Funds:


3) Birla Sunlife Mutual Funds:


4) UTI Mutual Funds:


5) SBI Mutual Funds:


6) Edelweiss Mutual Funds:


7) IDFC Mutual Funds:


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