Prajna Capital - An Investment Guide

Instead of waiting till March to make tax-saving investments, take advantage of the attractive prices in the stock markets now Only two things, they say, are certain - death and taxes. Oddly, both topics are usually avoided in polite society. The annual ritual of year-end investing to save on taxes is almost five months away. So why bring up this dreadful talk about taxes now? It's not March already, by any chance, is it? No, don't bother to look at your calendar. It's only November. But there are attractive investment opportunities available today, if you plan to look at tax-saving equity options - equity-linked savings schemes ( ELSS ) or unit-linked insurance plans ( ULIPs ). The recent drop in equity markets has brought stock valuations down to compelling levels. Mutual fund NAVs have plunged, some by as much as 50 percent over the past three months. While this is obviously unfortunate for existing investors, it's extremely good news for those who are evaluating ...

THOUSANDS of life insurance policies lapse for a variety of reasons every year. Policyholders may not pay the renewal premium either because of a change in their financial circumstances or because they discover later that the policy was mis-sold to them and it does not meet their requirements. They may also inadvertently skip renewals because of a job transfer. While lapsed policies result in a loss for policyholders, they are also a drag on the books of life insurance companies, contrary to popular perception. This is why life insurers often make special efforts to revive lapsed policies. THE PROCEDURE Typically, a policy can be revived within six months of its lapsing through a simple revival. If the lapse has occurred more than six months ago, a personal health declaration needs to be submitted. The policy is then revived subject to underwriting decisions. Additional medicals may be triggered depending on underwriting decision. The policy can be revived within one, two or five y...

The securities market regulator, SEBI, has proposed radical changes in the way mutual fund distributors are compensated. SEBI seems set to enforce complete flexibility and transparency into the commission paid to the distributors. The changes are long-anticipated and many ways logical. However, they are likely to lead to a deep transformation in the way mutual funds are sold, and I think many distributors will find it difficult to adjust to the new regime. Mutual fund distributors (who are now euphemistically called Independent Financial Advisors-IFAs) are currently paid a commission by the Asset Management Company ( AMC ) whose funds are being sold. This commission is generally around 2-2.25 per cent for equity funds. This is deducted from the invested amount and the investor gets allotted that many fewer units of the fund. The distributor gets the commission from the AMC. Distributors are not permitted to refund any of the commission back to the investors. However, it is an open secr...

Policy Lapses In Ulips Higher Than In Traditional Products: Irda DOMESTIC life insurers may have to adopt a uniform definition for lapsation of insurance policies to give more leeway to policy holders on premium payments. The insurance regulator Irda has recommended a uniform grace period of 30 days for policy holders paying their premium every quarter, half-year or every year. A 15-day grace period has been suggested for policy holders paying monthly premium. An insurance policy lapses when the subscriber does not pay the premium within the grace period. IRDA has recommended re-instatement of a policy if the premium is paid within the revival period of two to five years, as per the internal practice of the insurer. Currently, companies have varying definitions on lapsation of policies and this creates a lot of confusion. The suggestion for life insurers to adopt a uniform “ grace period ” and “ lapse definition ” has been made in Irda’s first occasional paper on “Lapsatio...

The volatility in markets only underscores the need for taking a financial planning decision based on sound risk as well as time horizon considerations OVER the last six months, the Indian equity market has seen a huge fall after a long period of spectacular returns. The fall in the equity market indices on one hand, and poor returns in fixed income funds due to rise in interest rates on the other, have led to some confusion among investors. The concerns plaguing the markets are partly global and partly cyclical in nature. The cyclical issues could lead to a temporary slowdown in the pace of growth, but the long-term uptrend will prevail as India is in the midst of a long investment-led growth phase supported by high domestic savings rates and very favourable demographics. While the long-term picture warrants considerable optimism on equities, investors have been concerned about falling value of their past savings, and confused as to where to put their incremental savings. ULIPs (...

The events of 2008 should be quite enough to cure anyone of either making or believing in predictions. Of course, there’s no shortage of people who claim to have foreseen bubbles in this or that asset class. Some of them are even right. However, no one, absolutely no one, foretold the inter-connectedness and the mutual reinforcement of the various disasters that overtook the world’s economy during this past year. I could argue, with some justification that the carnage of 2008 is over and various investment markets have already discounted a very dismal picture indeed. On the other hand, I could also argue that much of the good news is merely a side effect of factors like the oil price crash and suddenly lower prices which themselves foretell even deeper trouble ahead. Some analysts will guess one way and some the other and the lucky ones will get to pretend that they knew something that others didn’t. However, if you are a retail, non-professional investor, then none of this should a...

THOUSANDS of life insurance policies lapse for a variety of reasons every year. Policyholders may not pay the renewal premium either because of a change in their financial circumstances or because they discover later that the policy was mis-sold to them and it does not meet their requirements. They may also inadvertently skip renewals because of a job transfer. While lapsed policies result in a loss for policyholders, they are also a drag on the books of life insurance companies, contrary to popular perception. This is why life insurers often make special efforts to revive lapsed policies. THE PROCEDURE Typically, a policy can be revived within six months of its lapsing through a simple revival. If the lapse has occurred more than six months ago, a personal health declaration needs to be submitted. The policy is then revived subject to underwriting decisions. Additional medicals may be triggered depending on underwriting decision. The policy can be revived within one, two or five y...

Average salaries have shot up dramatically in the past few years. But other than government employees, most of us don’t have the luxury of pension support after retirement. The fear many of us have is, who will support us in old age? The answer to all these is to have inflation linked guaranteed pension plans. It is part of prudent financial planning. It is best to start investing in a pension plan at an early stage in life, like 25-35 years, in order to get a s u b s t a n t i a l amount each year once you retire. As the gap between the contribution period and the vesting period reduces, the amount of annuity will become smaller, and then it will be difficult to get a meaningful pension, which also beats inflation Understanding a plan There are two types of pension plans — 1) Stock Market linked and 2) Traditional. The traditional plans would offer a return of around 7%-10% in line with other debt options. Market linked plans could give higher returns in line with the market, but woul...

If safety of your funds is what matters to you, try guaranteed life insurance products which offer assured returns too. Lets check out the benefits: IT’S a lesson that most people learn pretty early these days — there are no guarantees in life. Almost everything is a 50:50 game and to survive, you need to be ready for those days when the odds are weighed against you. But the irritation is much greater when the uncertainty involves money. With the stock markets still volatile, frustration and despair are becoming the predominant sentiment. Faced with the need to rekindle feelings of safety and security , life insurance companies have launched guaranteed insurance products. SWEET TREATS Guaranteed return plans are what one would call a two-in-one treat . On one hand, they offer what a normal life-insurance policy would in terms of covering you against unforeseen incidents like death. In addition, they also ensure that you are entitled to a fixed sum of money at the end of the maturity p...

‘If you always do what you’ve always done, you’ll always get what you’ve always got.’ - Anonymous Most of us vow to do it early, but end up doing it in a hurry. Now is the time to start your tax savings investments. You can also use the ‘ Contrarian Style’ . Asset allocation While using tax saving investments, look at the overall asset allocation, since managing risk is the key to sustaining long term wealth creation. Tax saving avenues may restrict you to the available asset classes. While planning asset allocation, diversify across complementary avenues so that risks are managed better. A contrarian needs to study various asset cycles and accordingly choose the investment avenue where the trend is likely to change. For example, when interest rates are expected to fall, invest in a bank fixed deposit of about 7-10 years instead of just a 5-year deposit. To invest in equity or not? Most of us who have invested in equity linked saving scheme (ELSS) funds last year are likely t...

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....

An increase in the disposable income of Indians has led to an upswing in the lifestyle of people. A growing need for insurance has also been observed, as more families are dependent on only one earning member. There are two types of life insurance – 1) Term plans - which are the simplest and cheapest form of risk cover, and savings based plans, where one can expect returns after a period. 2) The number of savings based plans have recently been on the increase. People are viewing it as an investment instrument; like market-based Unit Linked Insurance Plans ( ULIP ) as equivalent to another Mutual Fund. But it is not entirely their fault. Insurance Advisers are 'misguiding' them into buying these savings based plans as investments with an added benefit of risk cover, instead of the other way round. However, consumers need to keep in mind that most of these plans are beneficial (both risk-cover as well as returns wise) only in the long term, though most insurance agents push them ...

INDIA, like many other economies, has embarked on a long, difficult road to check runaway prices. It’s now evident that policymakers will hike interest rates till it hurts and pulls down demand. The central bank as well as the government are willing to sacrifice a bit of growth to douse inflation — an issue that has captured the collective imagination. On Tuesday, the Reserve Bank of India hiked the benchmark short-term rate by 50 basis points, about 25 bps more than what the market had expected. Bonds and equities reacted sharply. Soon, home loan seekers and corporate borrowers will feel the pinch, since borrowing money will now be far more costly. RBI has not only raised the benchmark repo rate — the rate at which banks borrow from the RBI — from 8.5% to 9% with immediate effect, but has also hiked the cash reserve ratio ( CRR ) for banks by 25 bps — a measure that will drain Rs 9,000 crore from the banking system. Given the outright hawkish policy stance, it’s clear that RBI will no...