Prajna Capital - An Investment Guide

At a time when the equity markets are in choppy and interest rates are stabilizing, it is natural for investors to gravitate towards debt instruments. At the same time, there are a few who believe that the market has bottomed out. So neither do they want to miss on the upside, should the market take a U-turn. The AMCs have found a way out by introducing equity-linked fixed maturity plans ( FMPs ), which will invest in equity-linked debentures. Unlike a normal debenture, where the interest rate ( coupon rate ) is fixed, in these debentures, the interest rate depends on an underlying basket of stocks. These stocks could be a select few chosen by the fund manager or it could be an index. Depending on the performance of the stocks, the return on the debenture is fixed. So how is this figure arrived at? Simply by looking at the Participation Ratio. Let's say that the debenture is linked to the Sensex at a 100 per cent Participation Ratio . Should the Sensex rise by 10 per cent, then th...

The macroeconomic factors world-wide have been quite shaky over the last couple of quarters. As a result, the stock markets have been quite volatile with a negative bias all over the world. In line with market conditions, the performance of equity based instruments remained quite subdued. As uncertainty prevails in stock markets, investors are not keen on putting their money in equity-based instruments. The meltdown in the equity markets started with the slowdown in some countries. This coupled with several other negative developments like a sharp rise and fall in commodity prices (crude oil, metals, food items etc), fall in the global inflation rate and meltdown of some of the large financial houses kept triggering negative sentiments in the markets. Analysts believe the negative sentiments will continue in the stock markets for a few more quarters, and therefore, the stock markets will remain volatile in the medium term. Therefore, it will be risky to invest in equity-based ins...

The past few months have been difficult for investors who reposed complete faith in the stock markets. Millions of rupees of investors in the stock markets were wiped away as the index plunged. Global crisis, the foreign institutional investors' ( FII ) large-scale withdrawals and the economic slowdown affected the market performance adversely. Investors in mutual funds weren't spared either. It was a horrible fall for equity funds where as much as half of their worth was eroded. Mutual funds were considered a safe and solid investment that yielded good returns over the past few years. But this time the gains over the last two years were almost completely washed away. High interest rates and slowing economy left a huge dent behind. But some investors believe it is the right time to fish in the stock markets for value picks. For other investors who do not want to shun the markets altogether, yet play it safe, mutual funds are the only alternative. Mutual funds can be class...

Like your colleagues who throw a warm farewell for you when you leave after putting in substantial years, your employer too has a small, but significant, way of singing 'he's a jolly good fellow' to reward you for your service to the organisation. He does so by giving you a free lump sum of cash - called gratuity in financial parlance - on your exit. The amount that he gives is based on the number of years of service you have put into the organisation. Read on to know more about this little-known windfall and some ideas about what you can do with the free money that comes your way. When are you entitled? Gratuity in earlier days was rather arbitrary and completely hostage to the whims of the employer. A wealthy, well-established employer would reward his dedicated employees and the not so rich would refuse such generosities. This led to a lot of discord and finally the government stepped in, passing the Payment of Gratuity Act, 1972, making it mandatory for all employers wi...

Mr & Mrs Achar, both in their early thirties, have a long list of want to-do things post-retirement. While Achar, a private banker, wants to travel a lot and write a book, Mrs Achar wants to look after their children and do some social work. The interesting part, however, is that they want to do this after 10 years, when they plan to retire! Yes, you are right, they do want to retire in their early forties and wish to pursue their passions. Wait a minute... did we hear similar voices from you too. Alright, so let's see how this can be achieved with systematic planning that includes having reasonably aggressive investment plan, regular savings and may be a slight change in lifestyle to ensure a better and safe tomorrow. Early retirement is essentially a lifestyle issue and is proportionate to one's income and consumption pattern. To retire early one needs have to do careful planning and calibrated thinking. Before making any retire plan, one should first prepare a balance sh...

Analysis on the status of debt options in the present market conditions Considerable action was seen on the monetary policy front over the last six weeks. The Reserve Bank of India (RBI) announced sharp cuts in the cash reserve ratio (CRR) and the repo rate. There has been a 3.5 percent cut in the CRR - 1.5 percent cut in the last one month. This is one of the sharpest cuts in key monetary policy parameters in such a short span of time. The intention of the RBI and the government is to ease the liquidity crunch and provide a boost to consumer sentiments by way of low interest rates. The inflation rate is also coming under control due to the slowdown and dip in the rates of many essential goods such as crude oil, metals and manufacturing products. Softer monetary policy measures are expected to influence the returns from debt instruments, but investors should weigh different options carefully before making any changes in their portfolios. Outlook on debt options: Bank fixed deposi...

Some investment avenues for those who don’t want to take the risks associated with stock markets When the stock markets go the downside way, investments in fixed deposits ( FDs ) become attractive again. FDs remained a dormant investment avenue for the past few years, mainly because of the fact that the interest rates were low, and these investments are unsecured. So, the government's saving schemes, especially the post office saving scheme, had an edge over FDs. Fixed deposits attractive again However, some recent changes have again brought FDs into the limelight. The contributing factors include the decision to give tax breaks in terms of coverage under Section 80C of the Income Tax Act. The second major factor has been the gradual increase in the interest rates on FDs. These deposits have been brought on par with small savings schemes. Investments in term deposits for those planning to take a tax deduction will have a lock-in period of five years. The government notification sa...