Prajna Capital - An Investment Guide

No matter what savers are hoping for, interest rates are going to stay low for years to come. It is time to study the investment alternatives. A few hiccups   along the way notwithstanding, it's more than likely that India is heading for lower interest rates for years to come, if not for decades. In fact, if one steps out of the ivory tower of economists and into the real life of savers, a huge amount of damage has already been done. A measly 2.5 - 3.5% on savings bank deposits and 5-7% on other deposits are going to be the normal from now on. Most Indian savers, including retirees who need income, are heavily invested in bank fixed deposits. Their earnings have fallen by 25% or more in the past three years. So is there a solution? As it happens, there is. There are mutual fund products that fit the bill perfectly. They not only give you higher returns than the banking products, but are also liable for a lower tax outgo, making the effective return very attractive. In fact, their l...

An ideal retirement corpus should take care of all your expenses after you stop working. But can you calculate the amount required? It involves taking into account life expectancy, interest rates, inflation and the time value of money...and can be a bit tricky. Here we explain how to use MS Excel to calculate the amount easily. But first, let's understand some basics. The concept of time value of money states that the worth of a rupee received today is more than a rupee received at a later date because of its earning potential. The concept of time value has two elements: Compounding and discounting. Compounding helps to estimate future values whereas discounting helps to estimate present values. For calculating your retirement corpus, it is the present value that matters. For example, an investment product promises ₹8 lakh in 10 years if you invest ₹4 lakh today. Given interest or term deposit rates of 8% per annum, will this investment product be profitable? You will have to find ...

The Public Provident Fund (PPF) and equity-linked saving schemes (ELSS) are popular investment options that both qualify for income tax deductions. A deduction reduces your overall tax liability. Contributions up to Rs 1.5 lakh a year qualify for tax deduction under Section 80C . Financial planners say that when it comes to investments in the PPF and ELSS mutual funds , investors should look at these investments not just from a tax-saving perspective but one that will help achieve their financial goals . ELSS mutual funds invest in equity shares of companies across sectors and market capitalization and have a three-year lock-in. An ELSS mutual fund is quite the same as a diversified equity fund , other than tax deduction benefits and the three-year lock-in. ELSS investments come with a lock-in period of three years, which is lowest among Section 80C investments. Investors should understand ELSS mutual funds are equity market-linked products. 1) The PPF is a...

They are bit more Risky. The risk comes in two forms. One is the likelihood of a fund manager losing money in a certain stock. I think if a fund manager goes wrong, the possibility of significant loss in a focused fund is far higher. Because in a focused fund a position in a stock can well be in the region of 5 to 10 percent. The other is that focused funds can be far more volatile because you have fewer stocks. Nowadays, we are seeing a volatile market. So, the days on which the market goes down you see the concentrated fund falling much more than the market, compared to a more diversified fund. I would say volatility is not as much of a risk on a 5 to 7 year basis. Because volatility, if you stay invested, is not a risk. But the risk of the fund manager going wrong is reasonably high. So, yes, focus funds do come with high risk of volatility as well as the penalty for a fund manager going wrong with his selection is very high. And if he goes wrong with a couple of things, it cou...

Rising interest rates in all eventuality can apply the brakes on a rising stock market. Of late, returns from market indices, especially mid- and small-cap indices have dwindled. "Interest rates act like gravity on valuations; higher the interest rates in a country, lower are the equity valuations. It is an inverse correlation Reasons such as rise in oil prices, faltering health of public sector banks, increasing inflation among others may lead to the equity market finding new lows in the near future. The offset is that corporate earnings have been robust this quarter (top and bottom lines) for a substantial portion of the market. The question is what level will crude become an impediment to earnings, and we think we are already at levels that will result in a dampening of consumer willingness to spend. That has repercussions for equities and continued rise in crude is likely to impact markets negatively What to do: These macro economic factors should no...

As citizens of India, our responsibility towards the country does not end with paying taxes. We have to file income tax returns (ITR) every year for which the government allows us four months from April 1 to July 31. To crackdown on stragglers, the government has introduced penalties on late and failure to file ITR. Let's discuss in details. Penalties: Sec. 276CC Wilful failure to furnish ITR during the prescribed time resulting in tax evasion exceeding Rs 1 lakh attracts a fine and imprisonment that can be from 6 months to 7 years. In other cases, it could be a fine and imprisonment of 3 months to 3 years. However, a penalty cannot be levied unless there is substantial evidence of wilful failure. As the provisions of the Income Tax Act are amended frequently, it is impossible even for tax experts to know all the provisions at any given point of time. Hence, ignorance of law is often cited as an excuse to escape the penalty. From April 1, 2018, the government introduced a fine of R...

Mutual Fund SWPs are better option When your clients are looking to generate regular cash flow from mutual funds, they often find it difficult to decide whether or not they should redeem their investments. Currently, mutual fund investors have two options to generate regular cash flow, systematic withdrawal plan (SWP) or dividends. Let us understand what is best suited for your clients. Dividends in mutual funds Choosing the dividend option for a mutual fund scheme entitles an investor to receive dividends declared by the fund scheme periodically. Dividends are tax-free for investors. The fund house though has to pay Dividend Distribution Tax (DDT ) on such dividends on behalf of investors. This means investors indirectly bear the tax burden on dividend income. However, in case of close-ended schemes or schemes with a lock-in period like ELSS , the dividend option is preferable. This is because your clients will receive part of the profits throughout the investment tenure. ...

Top SIP Funds Online   SBI Focused Equity Fund How has the SBI Focused Equity Fund performed? With a 10-year return of 17.82%, the fund has outperformed both the index (12.43%) and the category average (14.31%) by a good margin. The fund has comfortably beaten the multi-cap category over the past decade. SBI Focused Equity Fund performance (%) The fund has outperformed across time periods. Yearly performance (%) The fund has mostly delivered healthy outperformance in recent years. Where does the SBI Focused Equity Fund invest? The fund has hiked presence in large-caps in recent years. Top 5 sectors in portfolio (%) The fund is significantly overweight in auto, engineering and metals. SBI Focused Equity Fund Top 5 stocks in portfolio (%) The fund takes outsized positions in its top bets. How risky is it? Should you buy SBI Focused Equity Fund? This fund has been rechristened as a focused fund, but even in its earlier avat...

Apart from a health insurance policy that pays for hospitalization, critical illness insurance plans are also very popular in the health insurance segment. A critical illness policy compliments a plain vanilla health plan, so ensure you don't substitute your health policy with a critical illness plan. What are critical illness plan? There are two types of health plans: indemnity and defined benefit plans. A basic health insurance is an indemnity product that covers hospitalisation expenses, pre- and post-hospitalisation expenses and listed day-care procedures. Defined benefit policies pay a stipulated sum on an insured event. A critical illness policy is a defined benefit plan that pays the total sum assured on diagnosis of an insured critical illness; it doesn't matter what the hospital bill is. Also, most of the plans terminate after the first claim; few plans cover multiple critical illnesses but mostly cap the number of illnesses they can cover...

What are FMPs? As Fixed maturity plans or FMPs are closed-end debt mutual fund schemes , they come with a specific tenure. So investors can invest only at the time of a new fund offering (NFO). Similarly, you cannot withdraw before maturity, but you can sell such schemes on the stock exchange. The corpus of FMPs is invested in fixed-income securities that mature just before the scheme itself. For example, if the FMP is for three years, the fund manager will invest in instruments with a maturity of three years or less. This helps FMPs to protect against interest rate risk. In the current interest rate regime, FMPs offer a good investment opportunity as investors can lock in their money at attractive yield SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know...

Investors are increasing finding it difficult to pick up quality stocks because of their high valuations. In such a situation, it makes sense to be with mutual fund schemes that follow value theme and have high focus on large-sized companies. One such scheme is L&T India Value Fund. The scheme invests 40-55% of its portfolio in large-sized companies, 35-40% in mid-sized companies and rest in small-sized companies. In comparison with its peers, the scheme has higher exposure to large-sized companies. Due to this, the scheme has performed well even in weak markets. In the past three- and fiveyear periods, the scheme has generated returns of 16.4% and 26%, respectively. During the same period, its category of schemes have given 12% and 19%, respectively. In the past six months, the scheme's fund managers Venugopal Manghat and Karan Desai have invested in diversified themes by selecting companies which not only have lean balance sheet, but are also placed well in terms of earnings...

Why go for term plan-MF combo The term plan- mutual funds combination is financially the most efficient. Ulips levy a number of other charges besides the fund management charge (that a mutual fund also charges) and mortality charge (that a term plan charges). They levy a premium allocation charge (PAC), an administrative charge, and so on. The cost structure of Ulips is also complicated. While charges levied under endowment plans and money back policies are unknown, charges under linked policies are clearly mentioned in policy brochures and policy document available on company website. Investors are either unaware or they do not take pain to go through the policy details before making a final purchase. Insurance companies, agents and advisors take advantage of the ignorance of investors and sell policies which are not really helpful. Therefore, in the first place, the mutual fund-term plan combination scores by having a lower and more transparent cost structure. Another problem wit...

Rising rates is bad news for debt fund investors. When the interest rate starts to move up, the price of existing bonds falls which in turn pushes down the net asset value (NAV) of debt funds, translating into lower returns for the investor. As far as debt mutual funds holders are concerned, the impact of rising interest rates is more on the schemes that hold long-term securities compared to those holding bonds which are maturing early. What to do : While investing in any of the 16 debt fund categories as classified by Sebi recently, look at the ones with a shorter maturity profile. Investors should be allocating to ultra-short term funds and corporate credit funds. These funds are likely to deliver the best returns in the current rate environment and can substantially protect investors from a rise in interest rates Debt funds with underlying securities with longer holding period may be avoided. Avoid long-term bond funds as they depreciate in a rising ...

Indians love travelling. The thought of exploring new places, learning new cultures and tasting local cuisines is both exciting and enthralling. But in that excitement, many of us generally forget to secure oneself from any unexpected events one can face during their travel. These can range from loss of baggage, flight cancellation, accidents, etc. Conclusion: One needs to have a forceful travel insurance policy in place before they board their flight, regardless the kind of trip they are taking. So, the next steps involve doing a thorough research on the various policies available in the market vis-à-vis one that meets your requirements to the closest. Broadly, there are two types of travel insurance policy available in the market for travellers travelling abroad: single and multi-trip travel insurance policy. But first let's understand the basic difference between the two: Single trip travel insurance As the name suggests a single trip travel insurance policy provides coverage fo...