Prajna Capital - An Investment Guide

Keeping multiple credit cards can be a great saving instrument, if used wisely and timely Young people thrive on credit cards. He has as many as seven credit cards of different banks and uses all of them very extensively. Apart from doing regular shopping, many pay for their electricity bill and all other sundry expenses using their cards. For all the cards they uses, he has not paid any interest on the credit availed of, thereby not allowing himself/herself to be harassed by banks for payment. And that’s why banks hate customers like them. Actually, credit card companies hate two types of customers — those who pay before due date of payments and those who don’t pay at all. So how do they actually manage free credit every month to finance his purchases. There is surely no magic working for him. It’s just that he knows the art of managing multiple credit cards efficiently. What he does is simple. He meticulously makes a purchase a day after his statement is generated. For example, if...

AVOID BIG GIFTS FROM FRIENDS If you are someone who’s used to friends showering you with expensive gifts, there’s some bad news. Postbudget, any gift – in cash or kind (including immovable property) – worth more than Rs 50,000 will attract tax. So, think twice before accepting such gifts. FACTOR IN PERKS If you’ve are rejoicing the increase in exemption limit across categories, here’s a dampener that could have escaped your attention: abolition of Fringe Benefit Tax ( FBT ). While the employers do not have to pay the tax, the tax burden has shifted to employees in case of certain perquisites, puffing up their taxable income. You would do well to take this into account when you undertake your annual tax-planning exercise. PAY LESS WEALTH TAX If you were paying 1% tax on your wealth exceeding Rs 15 lakh, you can afford to relax. Thanks to the Budget, now this limit stands enhanced to Rs 30 lakh. GOLD’S STILL SAFE The hike in customs duty on gold bars from Rs 100 to Rs 200 per 10 gram mea...

Ready to take a home loan? The bank may recommend a particular EMI scheme as the best, but one should look at the loan agreement for details before signing on the dotted lines Bear in mind, very little is known to most people about the different EMI repayment options beyond what the banks recommend to you when you take a home loan. Banks and home financing companies such as SBI, HDFC, HSBC, LIC Housing Finance and others may have one or many options that they may recommend as the right scheme for you. The criteria taken into account by the loan-giving agency include age, income, saving history, educational qualifications, job profile, number of dependants, type of property (including the builder) and so on. Here’s what you need to know about different EMI options available in case you are planning to take one. First things first. The simple ground rule for all EMI options is that the longer the term of your loan, the smaller will be your EMI. The EMI also has two components —...

This article explains how you arrive at the dividend yield of a share to determine its efficiency as an investment option Equity investors look for two types of returns - Capital appreciation, i.e., the increase in the market value of the shares, and Dividend income. Companies declare dividends on equity shares from the profits. The balance funds left after paying off all expenses is used to create reserves and declare dividends. Calculating dividend yield is important to calculate the true returns from an equity investment. Also, dividend yield helps analysts calculate the value of an investment, and whether it is good to invest in a particular stock. Dividend is declared on the par value of the shares. For example, a 30 percent dividend on a Rs 10 par value equity share means a dividend of Rs 3 per share. However, in case you have paid Rs 30 to acquire the share, the dividend is still payable on Rs 10. So, the dividend yield would be 10 percent only. Dividend yield is not equal...

PRUDENT saving and smart investing may be important for building your portfolio and creating a huge-nest egg, but assuming them to be the only keys to accumulating wealth is akin to financial hara-kiri. For, in the absence of a good debt strategy, the financial planning for your secured future can not only get topsy-turvy but awfully wobbly as well. Debt management, in fact, assumes more importance in the light of the fact that today debt has become a way of our lives, with consumer finance schemes and credit cards becoming big drivers of this devil. Rising disposable incomes, soaring aspirations and convenience in availing credit have increased the amount of debt that an average individual is carrying. In the US, for instance, the household debt-to-income ratio is said to have reached an all-time high, topping 19%, with Americans collectively spending more than what they have earned for the past two years in a row. Likewise, the latest Grant Thornton research shows that personal ...

What are derivatives? Derivatives are financial instruments, which as the name suggests, derive their value from another asset — called the underlying. What are the typical underlying assets? Any asset, whose price is dynamic, probably has a derivative contract today. The most popular ones being stocks, indices, precious metals, commodities, agro products, currencies, etc. Why were they invented? In an increasingly dynamic world, prices of virtually all assets keep changing, thereby exposing participants to price risks. Hence, derivatives were invented to negate these price fluctuations. For example, a wheat farmer expects to sell his crop at the current price of Rs 10/kg and make profits of Rs 2/kg. But, by the time his crop is ready, the price of wheat may have gone down to Rs 5/kg, making him sell his crop at a loss of Rs 3/kg. In order to avoid this, he may enter into a forward contract, agreeing to sell wheat at Rs 10/ kg, right at the outset. So, even if the price of wheat falls ...

Here are some parameters that give you an indication of a fund’s performance The performance of a mutual fund scheme is reflected in its net asset value ( NAV ) which is disclosed on daily basis in case of open-ended schemes and on a weekly basis in case of close-ended schemes. The NAVs of mutual funds are required to be published. All mutual funds are also required to put their NAVs on the web site of the Association of Mutual Funds in India ( AMFI ). Investors can access NAVs of all mutual funds at one place. The NAV is the most common denominator which summarizes the entire performance of the fund. The mutual funds are also required to publish their performance in the form of half yearly results which also includes their returns/yields over a period of time i.e. past six months, one year, three years, five years and since inception of schemes. Investors can also look into other details like expenses as a percentage of total assets as this has an affect on the yield. In addition, mut...

In the financial services area, consumer courts receive the largest number of complaints on medical insurance claims. Complaints are largely on account of underpayment or even rejection of claim payments by health insurers. Considering that events leading to health insurance claims themselves are stressful, any issue with the insurance compensation only adds to the stress. Industry experts say there have been some common misses by customers while making a claim. Let’s look at what you need to do to ensure a hassle-free health claim. PAPERWORK INSUFFICIENT documents are some of the most common causes of a dispute. Insurers ask for original bills and documents to ensure that customers do not make multiple claims. Also, you have to submit a document called discharge summary, which adds to the authenticity of your claim. He says the simple logic is that every outgo has to be supported with an authentic document, which justifies the expenditure. For example, if you claim for consultation re...

This article is on the basic difference between mediclaim and health cover MAX New York life recently launched ‘lifeline series’ — health cover plans for individuals. While typically it is the general insurance companies, which have been active in the mediclaim space, thanks to IRDA , now there are alternatives from life insurers such as ICICI Prulife and Bajaj Allianz. Protection and savings Mediclaim is usually a cashless policy, in which you can undergo treatment at any of the hospitals listed with the insurer without paying cash at the time of treatment. On submitting hospital bills, the designated third party administrators ( TPAs ) pay off the dues directly to the hospital. Newly-launched health products of life insurers extend the same cashless facility. But the structuring is different. The latter, for instance, have a health cover along with the savings option. In other words, the premium you pay for health cover also has an investment element to it. The idea is to meet the ...

Once, a king, extremely pleased with his wise and able minister, said: “What would you like as a reward? Ask and it shall be granted.” The minister knew he couldn’t sound greedy but at the same time, in his 15 years at the royal court, the old king had never been so generous. The minister replied humbly: “Your Highness, it has indeed been an honor to serve you at your court for all these years. That itself is my reward.” The king was pleased with his humble servant. But he insisted. The minister, after much hesitation, replied softly: “Your Highness, I request you to give me a grain of rice.” The king said: “Minister, now you are wasting my time. I insist you ask for your reward, else I’ll have you thrown in the dungeons.” The minister replied humbly: “Your Highness, if you insist, then I shall accept the rice every day for the next two months. Starting with one grain of rice tomorrow, the quantity can be doubled each day over the previous day for the next two months.” The king was amu...

How an equity-linked saving scheme works An equity-linked saving scheme ( ELSS ) is an excellent avenue if you are looking at investing in the equity markets, and saving on tax. As the investments are locked in for a period of three years, the returns are also good in these schemes. Further, considering the tax advantages, the yield on investments is generally high. ELSS is a type of diversified equity fund. Investing in ELSS is deductible under Section 80C of the Income Tax Act . ELSS is like any other equity fund. However, the lock-in period is three years. These funds come with all the usual trappings of an equity fund, which includes choice between dividend and growth options, and systematic investment plans. The amount you plan to invest in an ELSS should be in multiples of Rs 500 with a minimum of Rs 500. The fund allots units to all complete applications, made in the specified form, not later than March 31 every year. Further, the plan should be open for a minimum period of thr...

The Budget has announced a huge bonanza for tax-payers and it’s time you sow the hard-earned money where it would bear fruit NOW THAT the finance minister has put more money in your hands by restructuring the income-tax slabs, it’s time you take charge of the finance ministry of your house. An yearly saving of Rs 45,320 (for an individual with an income of Rs 5 lakh) may look tempting and increase your urge to spend but some smart and calculated moves can help you grow that money. Here is a lowdown on how you can maximize your hard-earned money through efficiently using different financial instruments to your advantage. UNIT-LINKED INSURANCE POLICIES (ULIPs) ULIPs can be the best investment option for those looking for a single-window option of investment, insurance and tax efficiency, say analysts. “Considering the fact that universally the risk appetite of individuals is low, ULIPs are the ideal entry points into the stock market indirectly and for long tenures in a disciplined way....

If you have lost money, then have a hard look at your holdings. It is time to be patient ULTIMATELY, you cannot really lose money in the stock market! If you have, then either you have not been in the stock market long enough or you are in the process of getting the most expensive education. In the last 15 years, I have portfolios earning about Rs 5 lakh from share dividends alone against others who started with Rs 5 lakh and today owe the broker about Rs 3 lakh. When the markets, Sensex moved from 4,000 to 7,000 points, people thought it was a bubble and many sold out by the time it reached 12,000 points. A huge majority lost the run from 9k to 16k. Seeing their folly, many entered around 17-18k levels and in two months, saw their portfolios doubling. Greed peaked, speculation peaked and the fall shattered millions of dreams. Is there someone sitting on profits today? The answer is a resounding yes! Here are examples. HDFC was quoting at Rs 300 in 1999 and touched about Rs 3,000 earl...

The vacation season is drawing closer and you’ve made a perfect plan for that much needed break. All nitty gritties have been taken care of and you are sure nothing is amiss. Just one fear remains: What if things don’t go according to plans? One goes on a holiday to unwind, but this fear can play spoilsport. So what’s the solution? You can either keep your fingers crossed and pray that you have a smooth trip or opt for travel insurance. An increasing number of travelers today are realizing the significance of travel insurance. It is your ticket to a tension-free holiday. Why travel insurance? Consider this: You are faced with a medical emergency in a foreign land with no one for help and limited cash — an ideal recipe for a disastrous holiday. Add to this, the fact that the cost of medical treatment in the US and European countries is very steep and you know why travel insurance needs to be a critical part of your travel plans. If you have such a policy, you effectively transfer the h...

A money back policy has dual benefits of insurance cover and periodic returns MONEY back life insurance policies rank high on the popularity chart. And for good reason: they offer dual benefits of insurance and redemption of money at regular intervals. But little do people realize that they pay more towards premium amount in comparison to a term policy. Here’s a lowdown on what it takes to buy a money back policy and the issues involved. FIRST THINGS FIRST According to life insurers, money back policies fit perfectly in the scheme of things of traditional investors who seek financial instruments that provide insurance and investment, with a low risk element and guaranteed returns. In other words, the plan is meant for individuals who require money at certain intervals in their lifetime to meet fixed long and short-term financial needs (buying a house or car, vacations abroad). “Unlike ordinary endowment insurance plans where the survival benefits are payable only at the end of the end...

ACCEPT THE LEARNING CURVE Living within a budget is an educational curve for any new entrepreneur. Trimming your expenses, knowing how long a pay cheque will last, or how much of a cash reserve to keep around are issues which require skilful management. Knowing these techniques takes time. But a start-up can learn to adjust its budget mostly through practical experience, and what was once a shot in the dark would gradually become a more predictable and useful practice. BE PREPARED TO MISS YOUR ESTIMATES Knowing that you are going to miss your estimates doesn’t make an entrepreneur unintelligent or a bad businessperson. Instead, a good businessman must in such cases try to miss them intelligently and start thinking of ways this can be corrected at the earliest. To keep things in line as much as possible, try to adjust from some other area within your overall budget to account for the adjustment. WORK FLEXIBLY As with setting up a budget, sticking also often boils down to a willingnes...

1) Voluntary pension fund Pension funds and retirement planning go hand in hand. A typical pension scheme involves making a voluntary contribution during one’s working life. The pension fund in turn invests it to create a corpus and pays a pension income to the individual on his/her retirement. A 39-year-old salaried individual contributes Rs 10,000 monthly to an eligible pension fund and is planning to retire at 45 years. On his retirement, he/She will receive a monthly pension of Rs 12,000 from this pension company. His taxation would be as follows: Pre-retirement, the contribution to the pension fund of Rs 1,20,000 is allowed as a deduction from his taxable income up to an aggregate amount of Rs 100,000 under Section 80C of the Income-Tax Act. He/She being in the highest bracket would get a tax break of Rs 33,900 on this account. On his retirement, his monthly pension will be taxed as salary at the applicable slab rates. Where He/She opts for a commuted amount of pension at the tim...

A wise investment plan may help you secure a bright future for your children. YOU may want to give the best to your children, but lining up the facilities — properly and prudently — is no kid’s stuff. And when it comes to financial planning for them, it’s even more difficult, particularly in the light of rising inflation rate and increasing cost of education and health services . However, if you can account these factors into your calculation before you invest on behalf of your child, you can make the exercise less burdensome and productive. Here’s a guide on the best possible avenues where you can put your hard-earned money and secure a bright future for your children. START EARLY FOR LONG TERM GAINS Financial Planners hold the view that with ever increasing cost of healthcare and education, the significance of planning for your child’s future has acquired new dimensions. Today, it’s not only about buying an insurance policy but also investing in financial products which give g...

The three options available in mutual fund schemes to help you choose one. Most mutual funds offer an option to investors to either receive the dividends or to have it reinvested in the fund. This is an interesting choice that investors have to make while making investments in mutual funds. The investor has to decide whether he wants to receive the amount of income earned in the form of dividends or to accumulate the gains through the growth option. The option of dividend reinvestment can be used favorably by investors depending on their specific needs. There are three options available for an investor: • Dividend option • Growth option • Dividend reinvestment option Dividend option Under the dividend option with a payout facility, the investor receives regular income in the form of dividends as and when the fund declares dividends. In case the investor opts to take dividends, he gets a current income. Also, he gets tax benefits on such a payout. As per the current income tax rules, ...