Skip to main content

How best to tackle Inflation - Part III

How you can fight back
  • Review your emergency fund requirement. Keep six months' expenses as emergency funds, mostly in short-term debt funds such as inflation- and tax-efficient FMPs.
  • Examine your health and life cover. With costs going up, you need to bump up your life and health covers. Go for low-cost, high-cover term plans and floating health covers to bridge the gap. avoid large idle savings and bank balances. Invest in short-term debt funds like FMPs.
  • Defer large loan-based purchases. Avoid large EMIs that will stretch your finances more. Go for your first home if you can afford the down payment and EMI.
  • Prepay high-cost loans. Start with your floating rate home loan. Remember, no investment option will provide guaranteed returns that equal the higher interest payout.
  • Seek capital gains and dividend instead of interest. Interest income gets taxed at your income tax rate. Long-term capital gains and dividends from equity and equity MFs are tax-free, but taxed at 10 per cent without indexation and 20 per cent with indexation if coming from debt funds. Dividends from debt funds are tax-free post dividend distribution tax.
  • Continue staggered investments in equity and equity MFs. Carry on with your systematic investment plans (SIPs) in equity funds. For fresh investments, seek large-cap funds from OLM 50 that are likely to benefit from a rebound along with blue chips they predominantly invest in.
  • Diversify into international funds and gold. Gain from the upsides in well-performing equity markets in other countries by investing in international funds. Investing in gold (up to 5-10 per cent of your corpus) will give your portfolio a stable growth.
  • Avoid interest rate-sensitive stocks. This includes sectors such as real estate and auto. The best bets would be large-cap pharma and FMCG stocks currently available at attractive valuations.
Labels:

Popular posts from this blog

Mutual Fund MIPs can give better returns than Post Office MIS

Post Office MIS vs  Mutual Fund MIPs   Post office Monthly Income Scheme has for long been a favourite with investors who want regular monthly income from their investments. They offer risk free 8.5% returns and are especially preferred by conservative investors, like retirees who need regular monthly income from their investments. However, top performing mutual fund monthly income plans (MIPs) have beaten Post Office Monthly Income Scheme (MIS), in terms of annualized returns over the last 5 years, by investing a small part of the corpus in equities which can give higher returns than fixed income investments. The value proposition of the mutual fund aggressive MIPs is that, the interest from debt investment is supplemented by an additional boost to equity returns. Please see the chart below for five year annualized returns from Post office MIS and top performing mutual fund MIPs, monthly d...
Read more

All about "Derivatives"

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 ...
Read more

Benefits Of Repo Rate & CRR Rate Cut On Consumers

  How Reduction In Repo Rate & CRR Affects Customers Finally  RBI announced slashing of repo rate by 25 basis points (bps ) and cash reserve ratio (CRR) by 25 bps which industry experts believe will fuel the economic growth to some extent. Although experts were expecting higher rate cut this year. This lowering of the rate cuts has taken place for the first time in nine months. Now let's see how reducing the repo rate (defined in economic term as the rate at which RBI lends money to the banks) relates to the following individuals and sectors: Banking:   Lowering of repo rate directly reduces borrowing costs of a bank. Banks in turn reduces interest rates on different types of loans such as home, auto, business etc. Similarly trimming down of CRR allows banks to unlock money for lending to the customers i.e. with 0.25 rate cut banks are estimated to lend more than INR. 17 Crores. Consumers:   Lower repo rate does not necessarily benefit existing loan borrowers but new loan se...
Read more

NRI Corner: The process of remittances abroad

The process of remittances abroad, and back, is cumbersome. Here’s how you can wade through without hassles Approach The Right Place Outward remittances or the process of sending money abroad is governed by many regulations. In India, outward remittances are made mainly through banks. At the outset, you need to remember that you just cannot trust any individual or a financial firm with the responsibility of sending your money. Experts recommend that you should always try to choose a bank with an international footprint, which will make your job easier. Choose Mode Of Transfer The next step is to choose the mode of transfer. One option is to get a Foreign Currency Demand Draft ( FCDD ). This draft will be denominated in foreign currency and should be drawn in favour of the recipient/ beneficiary. The beneficiary does not necessarily need to have an account with the same bank. The other option is to send money via wire transfer. Do not be puzzled if the bank official uses the word SWIFT ...
Read more

Zero Coupon Bonds or discount bond or deep discount bond

A ZERO-COUPON bond (also called a discount bond or deep discount bond ) is a bond bought at a price lower than its face value with the face value repaid at the time of maturity.   There is no coupon or interim payments, hence the term zero-coupon bond. Investors earn return from the compounded interest all paid at maturity plus the difference between the discounted price of the bond and its par (or redemption) value. In contrast, an investor who has a regular bond receives income from coupon payments, which are usually made semi-annually. The investor also receives the principal or face value of the investment when the bond matures. Zero-coupon bonds may be long or short-term investments.   Long term zero coupon maturity dates typically start at 10 years. The bonds can be held until maturity or sold on secondary bond markets.
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now