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Friday, September 30, 2011

Launch of SBI Debt Fund Series 90D – 50


SBI Mutual Fund has announced the launch of new fund offer (NFO) of SBI Debt Fund Series 90D – 50. The new fund offer will be open for subscription from October 3, 2011 to October 5, 2011. The minimum subscription amount will be Rs. 5000 and in multiples of Rs.10 thereafter. It will have both growth as well as dividend option.

The scheme will be listed on the Bombay Stock Exchange.


Also, know how to buy mutual funds online:


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Invest in Edelweiss Mutual Funds Online



Dividend money from Mutual Funds or Stock dividends


   Major mutual fund houses have been paying out dividends, especially on investments in equity and balanced fund categories. The gains netted by a mutual fund scheme are reinvested in the fund with the growth option. On the contrary, in a scheme with the dividend payout option, the gains are periodically distributed as dividend. Consequently, the NAV falls to the extent of the dividend paid out. A good dividend payout in uncertain markets will reassure investors and encourage them to stay invested longer.

   How efficiently can the recent harvest of dividends be used by small investors? Can this haul be made to work harder for you? This largely depends on an investor's liquidity needs, financial constraints and risk appetite. The money can be used to clear unpaid dues, saving for contingency fund and meeting other personal financial obligations.

Some investment options for dividends you can explore:

Fixed maturity plan    

They are predominantly debt-oriented schemes floated by fund houses. Their main objective is to generate steady returns over a fixed maturity period by investing in debt and money market instruments. Based on the investment tenure, they invest in a range of debt products of similar maturity dates.

   Taxed at 10 percent without the indexation and 20 percent with indexation, it is an option that investors in the high tax bracket must consider. By way of indexation, inflation is taken into account when computing tax liability.

Fixed deposit    

In the current high interest rate regime, the returns on fixed deposits are a lucrative 9-9.5 percent per annum. For those in the lower tax bracket, this is a safe bet. However, investors in the higher tax bracket need to shell out 30.90 percent of their earnings. This is less risky in comparison to fixed maturity plans and the returns are guaranteed compared to the latter.

   With a high degree of safety and ample liquidity, the sheen on fixed deposits has reappeared as global uncertainties are adding to turbulence in the equity waters. Fixed deposits still remain the favorite of risk-averse investors who seek to augment wealth for their children's education, marriage, buying a house or for contingencies like medical emergencies.

Rebalance portfolio    

Perhaps it is time to consider rebalancing your portfolio. Rebalancing involves periodically resetting the proportion of each asset class back to its original allocation percentage. Suppose an investor seeks 60 percent of the investments in equity and 40 percent in debt in line with his risk appetite. Over a period of time, let us assume the percentage of investments in debt fell to 30 percent owing to profits in equity investments that grew to 70 percent. This portfolio is not in sync with the investor's risk appetite and initial allocation.

   While rebalancing, investors sell asset classes that have risen in value and buy other asset classes that have dipped. Investors can potentially increase returns when they are selling high and buying low during rebalancing.

   So, if you have no unpaid debts and other pressing financial commitments, your dividend money can be better used in one of these investment options.


Mutual Fund Review: HDFC MF Monthly Income Plan - Short Term Plan

To regular returns through investment primarily in Debt and Money Market Instruments. The secondary objective of the Scheme is to generate long-term capital appreciation by investing a portion of the Scheme's assets in equity and equity related instruments

Growth Option,Quarterly Dividend Option,Monthly Dividend Option. The Dividend Option offers Dividend Payout and Reinvestment Facility.

Exit Load (as a % of the Applicable NAV)
In respect of each purchase / switch-in of Units upto and including Rs. 10 lakhs in value, an Exit Load of 0.50% is payable if Units are redeemed / switched-out within 6 months from the date of allotment.
In respect of each purchase / switch-in of Units greater than Rs. 10 lakhs in value, an Exit Load of 0.25% is payable if Units are redeemed / switched-out within 3 months from the date of allotment.

Minimum Application Amount
For new investors : (Growth & Quarterly Dividend Option) – Rs.5000 and any amount thereafter under each option.
(Monthly Dividend Option) . Rs. 25000 and any amount thereafter.
For existing investors : Rs. 1000 and any amount thereafter.

Ensure safety of credit card

Keeping a note of card details and helpline numbers helps You must also erase the last three digits, the CVV number, on the back of your card

YOUR credit card is your cash on the go, but if not handled carefully, it can lead to complications in the future.

Losing a credit or debit card is a common thing that can happen to any one of us at some point of time. But, it is important to react immediately when you notice your card is missing.

Always keep a list of your credit cards, credit card numbers and customer care toll-free numbers handy, in case your card is stolen or lost.
Inform your credit card company/bank immediately: You should store the 24hour helpline number of the lender on your phone.
In case you haven't done that and lost your card, look up the number from sources such as a website or number search companies.

Credit card companies advise customers to report loss of card within 24 hours, but it is better to inform the lender promptly because the bank can then block your card and safeguard you from any fraudulent transactions.

In case your card is used after informing the bank, the liability of any misuse will lie with the bank. However, if the credit card is used before informing the bank, it will be considered as a transaction made by you.

Most banks send new cards within seven days from date of reporting.
Precautions: You should make a note of your card details such as card number, expiry date in a place other than the wallet where the card was kept. Bank officials will need these details to deactivate your card. If you don't have the number handy, ask the executive to help you by giving other relevant details such as full name and address.

A lot of people waste precious time in figuring out whether they have lost their card or forgotten it somewhere at home or office. To be safe, one should inform the bank as it immediately puts a freeze on all future transactions.

You must also erase the last three digits, the CVV number on the back of your card. The CVV number is required for all online and IVR transactions. You should not reveal your CVV number to anyone.

A lot of credit card companies offer insurance against loss of card, so do check with your bank and the customer care officials handling your call if you are insured or not. Even if you have an insurance against loss of a credit card, still informing your bank should be a priority because there are lots of exclusions in an insurance cover. You must not relax and depend on insurance cover to protect you from any card misuse.

Make sure you get your card back after you make a purchase (one good habit to inculcate is to leave your wallet open in your hand until you have the card back), suggest banks.

One must follow the same process for loss of debit cards as well.

Insurance: Furnish accurate details while opting for


Here are the consequences of inaccurate information furnished while applying for an insurance policy

   Insurance is based on the accuracy of the information provided by the insured to the insurance company. In case of wrong information given in the documents, the chances of getting a claim are reduced. A life insurance company offers a policy on the basis of a proposal. This is the first step to get a policy. The form seeks basic information of the proposer and the life assured. This includes name, age, address, education and employment details of the proposer, and medical history of the life to be assured.

   There are also questions pertaining to the health status of family members. The proposer and the life to be assured have to mention their incomes in the proposal form to satisfy the insurer about their ability to pay for the insurance, and the need for the insurance.

   The proposal form also has questions pertaining to the existing insurance policies of both the proposer and the life assured from other life insurance companies. It is in the proposer's interest to provide accurate information to the life insurance company. The information is used by the insurance company to ascertain if a policy can be issued and the premium payable. Life insurance underwriters use the information regarding the health and family history of the life to be assured to arrive at the premium to be charged. The company gives a photocopy of the proposal form to the insured, along with the life insurance policy document.

   Inaccurate information may go against the interests of the insured. His survivors will suffer, because they won't be able to get any claim from the insurance company because of such incorrect information. It is to be reiterated that an insurance application is a vital document. So, one should always provide accurate information and answers. Any wrong information or mistake can lead to rejection of coverage claim.

   Life, income and health insurance policies also require one to inform the company about anything that may happen between completing the application and the insurance cover beginning. In case one does not comply, the policy can be treated as though it never existed and the company can refuse to consider a claim. When a policy is treated as though it never existed, it is called avoidance. If a policy is avoided, it can affect other claims that the person concerned might have made under the policy and the success of any future insurance applications.

   One cannot take recourse to the fact that the agent was aware of the actual circumstances. The insurance company can avoid a policy and decline to consider the claim because the insured has to read the answers and sign a statement declaring all the information furnished is correct. So wrong/non-disclosures can have serious consequences on an insurance claim.


Mutual Fund Review: Religare Tax Plan

Tax Plan is one of the better performing schemes from Religare Asset Management. Existing investors can redeem their investment after three years. But given the scheme's performance, they can continue to stay invested


Given the mandated lock-in period of three years, tax saving schemes give the fund manager the leeway to invest in ideas that may take time to nurture. Religare Tax Plan's investment ideas revolve around 'High Growth', which the fund manager has aimed to achieve by digging out promising stories/businesses in the mid-cap segment. Within the space, consumer staples has been the centre of attention for the last couple of years and can be seen as one of the key reasons for the scheme's outperformance as compared to the broader market. It has, however, tweaked its focus and reduced exposure in midcaps as they were commanding a high premium. The strategy seems to have worked as it returned a 22% gain last year. Religare Tax Plan has outperformed BSE 100 by fairly good margins since its launch four-and-a-half years ago.

Retirement Plan: Secure your golden years


You can choose from the retirement products offered by insurance companies and mutual fund houses. You can also opt for New Pension Scheme

GOLFER Chi Chi Rodriguez once said when a man retires, his wife gets twice the husband but only half the income.

Retirement isn't only about gardening or playing with grandchildren. If not planned right, life can become a pain. While on the other hand, if planned well, it can be the best stage of your life. Financial Chronicle shows you how you can use a variety of retirement products to enjoy your golden years.

Peaceful retirement ll life insurance companies have a strong A focus towards retirement or pension products. Insurers offer two kinds of retirement products. One in which the corpus is built over the years by regular investment and the corpus is then annuitised (breaking of corpus into monthly instalments). The pension amount depends on the age when monthly pension is to begin and average life expectancy.

The other kind of product offered by insurers is annuity, where the customer gives a lumpsum amount to the insurance company and the amount is annuitised and the insurance company starts paying pensions to the customer.

Pension products can be on the traditional or unit-linked platform. In a traditional platform, returns are guaranteed and moderate.

Whereas, in a unit-linked pension plan, the risks of investment lies with the customer, but if he decides to chose to allocate his investment in equities, he can enjoy higher returns in the long term.

Experts say that young customers looking at retirement solutions should take higher risks and invest in equities, whereas, if your retirement age is not very far away, you must look at safer debt instruments for parking your investments.

Managing finances during retirement would be extremely tough if one hasn't planned for retirement. The key is start investing for retirement early in life.

At present, all major insurance companies are offering traditional pension plans. Apart from the Life Insurance Corporation of India (LIC), which also controls 95 per cent of the annuity business, none of the private insurance companies are offering a regular pension plan because as per present regulations, insurance companies have to offer a minimum guarantee of 4.5 per cent returns to its customers, which insurers find difficult to offer.

However, the Insurance Regulatory and Development Authority (Irda) is in the process of amending guidelines to ensure more pension products are available for customers to choose from. The regulator has already issued draft guidelines for new pension norms and has invited comments from stakeholders.

We have not been able to calculate a formula to offer a long-term guarantee of 4.5 per cent on a unit-linked insurance plan (Ulip) platform. Irda is expected to make changes in pension norms. At this point, there is a huge gap between demand and supply of pension plans. There is no social security in India, hence, the need for pension is strong. Pension products have been one of the highest-selling product categories.

New Pension Scheme another option one can look at is the New A Pension Scheme (NPS). The charges in the scheme are very low compared with those charged by insurance companies. The minimum amount of investment required in this scheme is Rs 6,000 annually. NPS has been introduced by the government and made mandatory for all new recruits to the government, except for the armed forces with effect from January 1, 2004.

NPS was made available to all citizens of India from May 1, 2009, on voluntary basis, but, despite its low cost and customer-friendly structure, it has failed to make much of an impact due to low awareness. In this scheme, the Pension Fund Regulatory and Development Authority (PFRDA) has appointed fund managers to manage pension fund corpus.

Any Indian citizen between 18 and 60 years can join NPS. At present, only tier-I of the scheme, involving a contribution to a nonwithdrawable account, is open. Subsequently, tier-II accounts, which permit voluntary savings that can be withdrawn at any point of time, can be opened. But to be eligible to open a tier-II account, one needs a tier-I account.

The single major difference between tier-I and tier-II is that tier-II balance can be withdrawn by the investor at any time, but the minimum balance to keep the account operative is Rs 2,000. At the end of financial year, any balance above that can be withdrawn. Both tier-I and tier-II are pension products -they are meant to create a lumpsum on retirement.

Subscribers have two asset allocation choices for investments. The `auto choice' (which allocates based on age) invests in stocks, corporate bonds and government bonds. For example, for individuals up to 35 years old, the auto choice will invest 50 per cent in stocks, 30 per cent in corporate bonds and another 20 per cent in government bonds.

In the `active choice', the subscriber gets to choose, subject to a maximum allocation of 50 per cent in stocks, such that the total 100 per cent is allocated as per one's choice. Once can change the scheme preference from auto choice to active or vice versa once every financial year.

The options for exit are interesting. The normal retirement age has been fixed at 60 years. At 60, you will be required to use at least 40 per cent of your accumulated savings to buy a life annuity from an insurance company. A phased withdrawal is also allowed, but the lumpsum benefit has to be availed of before you turn 70 years. For those looking to exit before turning 60, there is an option to withdraw 20 per cent of the accumulated savings and buy an annuity with the remaining 80 per cent.

If the subscriber dies before turning 60, the nominee can receive the entire pension corpus. Alternatively, a subscriber can exit if the account value falls to zero, or if the citizenship status changes. The age of exit will be reviewed by PFRDA from time to time.
There will also be the option to select an annuity that will pay a survivor pension to your spouse.

Mutual funds asset management companies have also A floated mutual fund schemes that offer another alternative for building a retirement corpus. Mutual fund houses suggest that if one has a 15-20-year horizon, the investor can build his retirement corpus by using a systematic investment plan (SIP). They point out that an investment of Rs 1 lakh in at least 30 schemes during August 2000 would have become at least Rs 5 lakh in August 2011.

Through the SIP route, one can increase their chances of getting better returns because the money in spread across up and downs. The final returns could be higher by at least 100-200 basis points on a compounded annual growth rate basis, if not higher.

One can also opt for balanced funds (that distribute money between stocks and bonds), or asset allocation schemes (recommended on the risk appetite of the investor).

It is best not to put 100 per cent of your money in stock mutual funds. One can do SIPs in balanced funds. The debt portion is a comforting factor that a certain portion of your money will never really fall. In that sense, an asset allocation scheme is ideal for conservative investors. Once confidence builds, you can take some calculated bets if your retirement corpus is going to be used only after 1520 years.

Portfolio Management Service (PMS) – FAQ (Frequently Asked Questions)

What is a PMS?


A PMS (Portfolio Management Service) is a service offered to investors wanting to invest in the Indian stock markets on the basis of expert knowledge, research and experience.


Who can use a PMS?


A PMS service can be used by an investor who wants to invest in the Indian stock
markets and benefit from India's economic growth, but doesn't have the necessary time,
knowledge or experience to do so.


How is a PMS different from a Mutual Fund?


A PMS is more transparent than a Mutual Fund as the stocks purchased are in your name. The cost structure of the PMS is also more competitive and thus give you the opportunity to make higher returns.


Can everyone invest in a PMS?


While a Mutual Fund is open to everybody, a PMS is more selective and the minimum amount needed to invest is higher. It is meant for more sophisticated investors looking for exponential returns.


What are the types of returns I can expect?


Returns vary on the basis of your needs and investment profile. On an average, looking
at India's economic growth, you can expect returns in the range of 45%-55% per year
over the next ten years. The returns depend also on your PMS fund manager and
according to SEBI regulation cannot be guaranteed.


What all PMS services are available in India?


There are various PMS services available in India such as Kotak Portfolio Management
Services (Kotak Securities) Reliance Portfolio Management Services, ICICI Portfolio
Management Services and FAMS Portfolio Management Services amongst others.


How do I choose which PMS to invest in?


Invest with someone who philosophy of investing matches your outlook. If you believe in
long term investing on the basis of knowledge, don't invest with a fund manager who
believes in daily trading and speculation.


Which PMS has given the best returns?


Due to the private nature of the fund management industry, it is difficult to say which is

the best PMS service has given the best and maximum returns.


How does the PMS work?


A new bank account, DP and trading account are opened in your name and then it is
professionally managed by your PMS Fund Manager. Your PMS fund manager will
have a specific POA (Power of Attorney) to manage this account.


Whose names will the stocks be in?


Stocks will be in your personal name and not in the name of your PMS manager. All dividends will also be directly credited into your account. Your stocks will be held in Demat form (electronic form) in your name and can be accessed by you at anytime.


What about the funds I invest?


The funds you invest will be kept in a new bank account opened in your own name.


Will I be able to see what stocks are being bought and sold?


Yes, the PMS system is completely transparent and you will get to know what is being

done with your funds.


Can I access my funds whenever I need them?


Yes, you can access your funds anytime you want by giving prior intimation. There is no



Can I also transfer my existing shares to the new PMS account?


Yes, you can transfer your existing shares to your new PMS account and have it

managed professionally.


How do performance based fees work?


Performance based fees ensure your fund manager is motivated to maximize your

returns. Based on the returns given, performance based fees are charged.


Will I get a receipt for the charges?


Yes, you shall get a receipt for all charges. The PMS operates under very strict
regulatory norms laid down by SEBI (Securities and Exchange Board of India), BSE
(Bombay Stock Exchange), NSE (National Stock Exchange) and all other regulatory


Can Non-resident Indian (NRIs) invest in a PMS?


Yes, NRIs can invest in a PMS. For that they will need to also open a PIS (Portfolio
Investment Scheme) account, for this permission from RBI(Reserve Bank of India)
needs to be taken. This documentation and permission will be handled by your PMS
manager. The documents can be sent across to anywhere in the world and you don't
need to be present physically in India.


Thursday, September 29, 2011

Yield and Average Maturity in debt mutual funds

While investing in a debt mutual fund, there are two factors one should look at — average maturity and yield to maturity of the portfolio. These are the two variables most fund fact sheets and aggregators generally provide.


It is the average of the maturities of all the debt instruments held in a fund portfolio. A debt mutual fund invests in various fixed income instruments such as government securities, government bonds, corporate papers and certificates of deposits. Each instrument has its own maturity date – the date on which the holder of the security is paid the original amount of money borrowed.
Average maturity tells the investors how sensitive a bond fund is to change in interest rates. When interest rates move down, the prices of the bond move up. That results in capital appreciation for the investors and boosts the returns on their debt fund portfolios.

On the other hand, when the interest rates move up, the prices of bond move down. This leads to a loss to the fund as the value goes down. If the portfolio of a debt fund is loaded with long-term bonds — high average maturity — it will be highly sensitivity to interest rates movements. If the interest rates were to move down in near future, the funds stand to gain.

Long-term bond fund managers typically push their fund's average maturity to the higher end if they expect the long-term rates to fall. If fund managers expects the rate of return to harden, they would usually prefers to keep the average maturity low.

Average maturity of the fund, however, does not indicate when the scheme matures. The open-ended schemes do not mature.


This is the expected return the investor will generate if he holds on to the current portfolio till all the securities mature. It captures both the coupon payments and the capital gain or loss till the portfolio matures. It also assumes that the inflows in the form of coupon receipts and part payment of principal are reinvested at YTM. Investors looking to invest in a fund should look at YTM of the portfolio to get an idea of the possible returns.


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