Prajna Capital - An Investment Guide

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

You need to choose your insurance based on need and not just to meet tax deduction needs. Life involves facing risks all the time. Everyone faces risks to life, health and belongings. The question you need to ask yourself is whether you have a back-up plan in the event of the unexpected happening to you. Insurance is the perfect answer. Insurance provides protection against the risk of financial loss. While there is growing acceptance that insurance is vital, often there is confusion on what kind of insurance one needs to take, and how much insurance is adequate. There are three broad categories of risks for which a person would require insurance. Personal risk - unemployment, death, disability, illness or accident which could affect the income-producing ability of an individual is one. Property risk - something that may result in loss or damage of an individual's personal property such as fire, theft, flood, earthquake etc is the second. Liability risk - something that exposes a p

You can Widen income base & get tax relief LOOKING at ways and means to split your identity for the purpose of better accounting and tax-saving provisions? Well, you could take a cue from the times when people lived in joint families and shared joint incomes. The same concept can help you save on income tax if you open a Hindu Undivided Family ( HUF ) account. In fact, the account — coming under the provisions of the HUF Act — can help you enjoy driving your brother’s or father’s luxury car and yet save some tax by claiming depreciation on the same in your business. The only thing required is to know the details of this Act and its implications in saving tax. FLEXI-OPTIONS Unlike the name suggests, a HUF does not mean only a Hindu family but even Jains, Buddhist and Sikhs can form HUFs. Generally a HUF consists of at least two members, of which one must be a male, and are lineally ascended from common ancestors. But smaller partitioned families can also form HUF with only one mal

When choices are many you could end up feeling confused; it could be over buying a cell phone or for that matter an ice-cream flavour! So imagine, when your mutual fund ( MF ) agent throws an array of questions -- Which fund do you want to invest in? or Which MF option do you want? Chances are you might end up feeling confused. A MF offers three options-- dividend payout , dividend reinvestment and growth . Each of this option has its own pros and cons. We at Wealth tip you off on what's best for you. Let's understand the three options in detail. A. Dividend payout: Assuming you have 100 units in your MF and the net asset value ( NAV ) of the unit is Rs 10. Now, the fund house declares 50 per cent dividend (a dividend is the profit made by a MF that it distributes to its unit holders. These dividends are paid in cash and are a percentage of the unit value) on the scheme. So, for every unit you will get Rs 5 (50% of Rs 10), which makes it Rs 500 for 100 units. You might rejoi

In a volatile stock market, choosing a potential scheme is more challenging. Investors need to look beyond short-term returns There has been plenty of talk about the falling returns from mutual funds with most funds posting negative returns for one year duration. In the case of systematic investment plans ( SIP ), the picture is no different, though investor gets to invest over different market periods. However, the negative returns from SIPs can't be blamed as they generally tend to offer handsome returns over the long run. On the other hand, in a booming market environment, even SIPs tend to give excellent returns. Needless to say, many investors were used to such whopping profits from SIPs even over the short term, and hence, the current market environment has been a cause for worry. In the present market scenario, choosing the right mutual fund has become more challenging as no scheme has managed to hold on to its leadership status beyond a few weeks. So, the time has come for

A hassled wealth reader enquired about Monthly Income Plans ( MIP ). His concern was that he hasn't been getting any monthly payments (income/dividends) from the fund he had invested in. He has already made huge loss in the fund and withdrawing from the plan would mean a greater loss. Wealth takes this opportunity to tell you all you wanted to know about MIPs A general misunderstanding about MIP among investors is that it is believed to offer regular monthly income. From the name you may infer that MIP gives you monthly returns, but that's not the way it functions. An MIP is generally mistaken for a regular income plan; but actually, it gives you returns based on market's performance. What is MIP? MIP is a hybrid investment that invests a small portion of its portfolio, around 15 to 30 per cent, in equities, and the remaining in debt and money market instruments. This plan is ideal for those who score low or medium on their risk profile . What are the features? Returns MIPs

With the stock market showing little sign of any serious recovery, and inflation high, some of you are likely to be considering investing in gold. If you are, you need to know the pros and cons. Experts differ widely on the matter. Some feel this is just not the right time to invest in gold, considering the commodity's price has risen sharply, and may soon do what the stock market did under similar circumstances --crash. The price of gold is already at its peak and even a gain of 5% at this level seems quite difficult. Investment is not advisable at this price. But there are others who feel just the opposite. This is the right time to get into gold as forecasts suggest that the price is set to touch Rs 15,000 or more. Wealth managers feel an investment portfolio with an allocation to gold improves the consistency of portfolio performance during both stable and unstable periods. It's also liquid in nature and can be easily converted into hard currency. Since gold is likely to do

Almost all the investment advice that is given out to retired people is wrong. In fact, not only is it wrong, it is downright dangerous. Instead of securing their financial future, it tends to push them towards poverty. The longer a retiree lives, the more severe are the ill effects of such advice. I know that's a very strong set of statements that I have started out with but if you bear with me for a few more minutes, I'll show you where the problem lies and why it is so serious. The central premise of almost all the post-retirement investment advice I've ever heard is that retirees' money should always be entirely in guaranteed fixed-income instruments like post office deposits, RBI deposits, bank FDs etc. It is said that retirees should not have any stocks-based investment because they can't tolerate any risk. The problem with such advice is that it completely ignores a big risk that retirees face, that of inflation. None of the fixed-return instruments provide r

Investing for long term goals needs patience, commitment and more importantly, tenacity Finding the right investment option is always a tough exercise. The challenge gets tougher when it comes to long-term investment planning. An investor needs to take into account a number of factors such as inflation, risk, liquidity and more importantly, needs to sustain the investment process over a long period of time. While such an exercise gets simpler when an investor has a long tenure at his disposal, it is not easy if the tenure is less than a decade. While it may be wrong to use the word long-term planning in such a scenario, many investors end up thinking about long-term planning only when they have less than a decade at their disposal. The classic example is retirement planning which gains focus for many just prior to retirement. Start early: Needless to say, the entire process of long-term planning turns easy when an individual starts thinking about it early in life. While long-term is a

THE idea of making money can make a man move mountains. If you tell a man to stop smoking for the sake of his lungs, he'll cheekily blow a smoke ring in your face but offer him a rupee for every cigarette he gives up, you'll cure him for life! So, it's no wonder that when well-wishers ask you to take a medical insurance for health reasons you'll smile at them vacantly. But if tell you that it's going to safeguard his/her savings and also take home some extra money through tax exemptions, you'll jump at it. Whatever your reason - health or wealth, you have no choice but to take it given the greater vulnerability to stress related illnesses and escalating medical costs. And if the fringe benefit tax is going to hit the medical cover from your employer, you definitely need to look at an individual cover. Why do I need it? Health care is a serious concern for most people today. Escalating costs accompanied by the scare of new viruses being detected every other day m

The insurance market is flooded with many policies and schemes. While each has its own benefit, not all are needed. Insurance is possibly the best financial tool to protect yourself as well as your valuables from unforeseen circumstances. In fact, you owe it to your family to get the best cover you can afford. However, while it pays to be smart about insuring your family and your valuables, it is even wiser to make out which policies are truly worthwhile, and which ones are redundant. You need to know that while each cover has its own benefits, not all of them are needed in normal circumstances. Also, there are lots of insurance policies that use scare tactics to lure you in, and have premiums that are overpriced. And paying too much for protection can be a financial strain in itself. Therefore, you need to be selective in choice. Insurance is the best known form of financial protection to guard against major uncertainties or vagaries of nature. As a thumb rule, a person needs to have

Many people today find that they are deluged with information about investing. News programs provide updates on the stock market several times a day. Through the Internet, individuals can check on the performance of their investments at the click of a mouse. But one of the key sources of investment information, and one that some investors may be tempted to overlook, is the Mutual Fund Offer Document . A mutual fund offer document is a legal document that must adhere to standards set forth by the Securities Exchange Board Of India ( SEBI ), the regulatory agency that oversees the Indian Mutual Fund industry. The information contained in the prospectus is intended to help you understand what types of securities a fund invests in and the investment philosophy that the Investment Manager uses in selecting individual securities for the fund. The offer document will also provide information on the fund’s income and expenses, a review of historical performance, and information about your abil

Here are outlines of rules governing NRI investments in India Non-resident Indian ( NRI ) means a 'person resident outside India' who is a citizen of India or is a 'person of Indian origin' . Under the Foreign Exchange Management Act, 1999 ( FEMA ), a person who is not a 'person resident in India' , as defined under Section 2 (v) of the Act is considered a 'person resident outside India'. 'Person of Indian Origin' ( PIO ) means a citizen of any country other than Bangladesh or Pakistan, if he at any time held an Indian passport; or, he or either of his parents or any of his grandparents was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955; or the person is a spouse of an Indian citizen, or a person referred to in sub-clause (a) or (b). An investment by a PIO in Indian securities is treated just as investments by non-resident Indians and requires the same approvals, and enjoys the same exemptions. NRIs can pur

AS the number of mobile phone users grows, Mobile Banking is getting a wider acceptance due to its convenience. However, it comes with its own share of risks. It is therefore important to be aware of the safeguards to enhance the security of your transactions. Given below are some tips to ensure the safety of Mobile Banking: • Use the phone lock function with a password which is difficult to crack. The password should be a combination of letters, numbers and symbols. • Never disclose any personal information (like account number, date of birth, PAN number, debit card PIN) via text message. This could lead to identity theft. • Update your mobile phone with the latest version of a reliable antivirus software regularly. • Remember to delete all personal details from your phone before allowing anyone else to use it. • Download files only from a trusted source. Make sure that Bluetooth is switched off when the phone is not in use, to avoid transmission of viruses. • Mobile phones should be

Credit cards don't just substitute for cash, they can also earn you reward points. And you, too, can tap the monetary value of the points collected on your card. How to accumulate points? Every time you swipe your credit card to make a purchase, you collect reward points. Typically, you get one point per Rs 100-250 spent. This, however, depends on the card and the bank. For instance, banks offer more points on co-branded cards. State Bank of India gives one point per Rs 40 spent on its Gold Card and eight points per Rs 100 on its co-branded Tata Card. The value of each reward point also varies across credit cards and banks. The value of a point can be anywhere between 30 paise to a rupee and is also a function of the merchant partner in case of co-branded cards. For example, the value of one point on the SBI Gold Card is 70 paise, while it is Re 1 on the SBI-Tata Card. The limitation with most accelerated reward points on co-branded cards, however, is that they can be redeemed only

When you buy or sell a stock future, you're not buying or selling a stock certificate. You're entering into a stock futures contract -- an agreement to buy or sell the stock certificate at a fixed price on a certain date. Unlike a traditional stock purchase, you never own the stock, so you're not entitled to dividends and you're not invited to stockholders meetings. In traditional stock market investing, you make money only when the price of your stock goes up. With stock market futures, you can make money even when the market goes down. Here's how it works. There are two basic positions on stock futures: long and short . The long position agrees to buy the stock when the contract expires. The short position agrees to sell the stock when the contract expires. If you think that the price of your stock will be higher in three months than it is today, you want to go long. If you think the stock price will be lower in three months, then you'll go short. Let's

Investors can Exploit Cut-Off Timing To Make Fast Buck MANY companies have perfected the art of making a quick, cool return from mutual funds ( MFs ) without investing anything. They do this by playing around with the cut-off timings set by fund houses for accepting cheques from investors. It works like this: Companies and some high net worth investors give cheques to buy units of “ liquid-plus ” MF schemes just before the weekend, when there is no money lying in their current accounts. They enjoy a free return for two days, fund their accounts on Monday morning, stay invested for a few more days and then switch to a new scheme to play the game all over again. For mutual funds, it is like offering the net asset value ( NAV ) of the scheme to the investor without receiving any money from it. It is similar to a bank paying interest on a non-existent deposit. Fund houses know the game, but are unwilling to spoil their relationship with big investors. Here is a typical sequence of events:

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

What is an FMP? FMP stands for Fixed Maturity Plan . These are essentially close-ended income schemes with a fixed maturity date i.e. that run for a fixed period of time. This period could range from one month to as long as two years or more. When the fixed period comes to an end, the scheme matures, and your money is paid back to you. FMPs do not invest in equity. The portfolio is generally invested in debt and money market instruments maturing in line with the tenure of the scheme. The objective is to lock-in the investment at a specified rate of return thereby immunizing the scheme against market fluctuations. Liquidity In most open-ended mutual fund schemes, one can redeem one’s units anytime. However, the structure of the FMP does not lend itself to this kind of liquidity. Invest money you are more or less sure you are not going to need during the tenure of the plan. If you withdraw before the scheme closes, generally a steep exit load is imposed. The reason for this steep load is

Investing in gold may be a good option to hedge against inflation and extreme crisis. It can be done in two ways. One can either hold gold in physical form or can make investment in Gold ETF. If you are over cautious and always play on the safe side, then it would be better to keep physical gold but you have to bear the risk of purity and safety of gold. There is a possibility that due to national calamity or extreme difficult condition of the economy, it may be difficult to liquidate Gold ETFs. But such an occurrence would be rare; you can enjoy the same benefits by investing in Gold ETF without taking the risk of the quality and safety of the physical gold. ul

Examine Sector Weightings and the Fund's Concentration: The funds that have large stakes in just one or two sectors are expected be more volatile than the evenly diversified funds. A concentrated portfolio may also get more successful if its stocks are performing better. You may add a concentrated fund in your portfolio but mostly the concentration should be in a diversified fund which is more predictable. Invest in a few funds and develop a Plan: But it would not mean you should invest only in one fund. Even though the funds are diversified, many funds go though a few years of poor performance. When you invest in only one fund, you might lose heavily. On the other hand, investing in too many funds may lead to duplication of many securities and a portfolio with no focus. For the long-term financial goals, equities are the best option. Keep It Simple: To keep the selection of fund simple, you should stick with well diversified and well established equity funds, an index fund for equ

Here are some home loan terms it helps knowing CREDIT APPRAISAL This is a process by which a lender evaluates the creditworthiness of the loan applicant. It involves assessing the borrower's past repayment history, establishing the sustainability of his current income and evaluating his capacity to repay. The applicant will be sanctioned a loan only after taking into account his savings, income, age, qualifications, period of employment and other outstanding debts. EMI EMI (equated monthly installment) is an unequal combination of two components - principal and interest. This is the amount of money the borrower owes the lender every month, through the tenure of the loan. MARGIN MONEY Also called down payment, margin money is typically around 10-15 percent of your loan amount. The bank does not disburse the entire cost of the property when you seek a home loan. It lends only around 85-90 percent of the project cost. The borrower is expected to bring in the remaining money. This is r

RETURNS ON GOLD & ITS ETF’s RISE WHILE most of the popular asset classes are going through bad times, the yellow metal shines on. In fact, in the last one year, gold has given a return of more than 25% and currently trades at Rs 14,695 per 10 gm. Even gold exchange traded funds ( ETFs ) have appreciated substantially. Gold Gold Benchmark Exchange Traded Scheme ( BeES ) and Kotak Gold ETF have given more than 25% returns each in the last three months. Even as the equity markets have taken a hit with the Sensex losing around 46% in the last one year and real estate prices also witness a correction, investors’ preference has shifted to safe havens such as gold. On an average, most of the diversified equity mutual funds have fallen and real estate developers are offering discounts. Thus gold remains the safest bet. The appreciation in the gold prices is mainly due to its safe haven status. The key reason for gold to go up is lack of other investment opportunity. There is also a risk in

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

Indeed, mobile banking scams have become common these days. Here’re some precautions you need to take before you decide to reach your bank through your mobile phone. FIRST THINGS FIRST It is true that mobile banking saves you from those bank trips for every small little thing. But before you get lured by the convenience and the ease that mobile banking services provide, make sure that you know everything about the service. Mobile banking is available through many modes. Which one is compatible with your handset is the first thing that, experts say, you should know as a mobile banking user. A user must know what his bank is charging for the service and also the rates that telecom companies levy for connectivity and messaging. SAFETY MEASURES Apart from the basics, you should be aware of the safety measures that you need to take. As is always prescribed, you should immediately change your password and destroy the password mailer after doing so. Disclosing your password to someone (incl

Despite being around for more than a decade, Escorts Mutual Fund is a virtual non-entity. Though it holds a number of schemes, this fund house is one of the smallest players. This is an AMC which seems to lack direction. A very small player, it showed no sign of even wanting to corner a bigger slice of the pie. During 2002 to 2004, the AMC did not launch a single scheme. But surprisingly, this year it has been quite aggressive with the launches of two FMPs and two equity funds, Escorts Leading Sectors and Escorts Power and Energy. If one looks at the returns of its two oldest funds, Escorts Tax Plan (March 2000) and Escorts Growth (March 2001), the performance has not been consistent. But neither has it been abysmal. In fact, at times it has quite impressed. The performance of the debt funds too has been noticeable. Escorts Opportunities and Escort Income Bond, both hybrid funds with a debt orientation, have been good funds. Escorts Income had a phenomenal run in 2003 and 2004 but has