Prajna Capital - An Investment Guide

1. Company fixed deposits offer better interest rates than banks You probably know this already but it is an important enough point to be on top of the list. Company fixed deposits will give you a higher return than comparative bank fixed deposits. This is because of the additional risk, for example the DHFL fixed deposit that was concluded a few months ago offered interest rate of 9% per annum, when the highest any bank was offering was 7%. 2. Additional risk Company fixed deposits have higher risk than bank fixed deposits because these type of deposits are unsecured, if the company goes bust you will lose your money, and unlike banks, they don't have any backing of the RBI. A lot depends on the performance and reputation of the company of course. A strong company that regularly pays out dividends and has no losses is perhaps a good bet, whereas a company that has made regular losses should raise eyebrows. 3. Company fixed deposits are rated by Rating Agencies The rating a

There has to be debt investments in a portfolio that provide some regular income   A INVESTOR must weigh the available investment options due to various reasons. A rise in the value of the investment means good tidings for the investors but it also raises the question of what is the next step forward. This is probably the time when alternative investment options should be considered actively as these can provide an element of diversification for the investor. In reality there is a need that the portfolio of every investor has a mix of the different options available as this will make the portfolio well rounded. What is also significant is how investors can maintain some variation in their investments and here are some examples along with the benefit that they bring for the investor. Regular income option: There has to be some debt investments as part of the portfolio so that there is some regular income that is constantly being generated for the individual. A distinction has to be

  Since, with returns, their credit risk also gets compounded      ZERO-COUPON bonds, which were considered unsafe investments for banks by their regulator, are now being pushed on to retirement funds by bond brokers. The Reserve Bank of India ( RBI ) had asked banks to stay away from these bonds because, along with returns, their credit risk also gets compounded.    Zero-coupon bonds are debt instruments where the interest, instead of being paid out in regular half-yearly installments, is ploughed back and the compounded return is paid out on maturity.    The central bank had recently said that since the issuers do not pay any interest regularly, the credit risk of such bonds goes unrecognised till the maturity. In case of banks, if a borrower does not pay his loan installment within 90 days of the due date, banks have to make provisions for bad loans.    A similar debate on zero-coupon bonds had engaged the financial sector a decade back and some of the concerns highlighte

  Till this fund was taken over by Ritesh Jain, it had a tough time meeting the expectations. Under Jain, the fund has made a complete turnaround. Both the assets and the fund's performance have taken a turn for the better. In 2008, the fund was the best in its category, with a return of 29.95 per cent (category average, 13.92 per cent). In 2009, it was fifth in terms of performance. So far this year, the fund has matched its category's return of 3.69 per cent (as on September 30). This average performance could be attributed to its bet on longer maturity paper, while the category is going the other way on rate cut expectations. Since May, the fund has gone for longer tenure debt, while the rest of the funds in the category are going the other way. From 2.99 years in April, it has gone up to 12.82 years in July. Currently, it is at 9.39 years (as of August). Unlike many, the fund has actively invested in more volatile GoI bonds. At the end of August, it had a 41 per cent

  Birla Sun Life Dynamic Bond has been around since September 2004 and since its launch, it has maintained a record of positive returns in each and every quarter. Its three-year annualised returns (ended August 31), stands at 9.98 per cent, 289 basis points ahead of the category average. At its worst, the fund has given ayearly return (June 8, 2005 - June 8, 2006) of 4.54 per cent, still better than quite a few of its peers. The fund attempts to maintain a highly liquid portfolio. The manager, Maneesh Dangi, achieves this by maintaining a diversified portfolio of different maturities. Over the years, the fund managers have varied the portfolio maturity with the prevailing interest rates. In the past year, Dangi has kept the average maturity at 1.32 years. The fund manager generally populates the portfolio with certificates of deposit (CDs) and debentures issued by financial companies. Currently, the portfolio's exposure to financial companies is at 69.03 per cent. But such an

   The domestic stock markets have been through a spectacular rise over the last few months, and the trend is rubbing off in the primary markets as well. There is a flurry of initial public offers ( IPOs ) and follow-on public offers ( FPOs ) by private as well as public sector companies. Strong inflow from foreign institutional investors ( FIIs ) has resulted in ample liquidity in the markets. The corporate sector is trying to cash in on the liquidity situation and bullish market sentiments to raise capital from the markets in the form of equity.    There are many takers for the good and reasonably priced public offers. There has been a good participation by individuals, high net worth individuals, domestic institutional investors as well as FIIs . On the other hand, many offers struggled to get complete subscription due to over-pricing issues or weak fundamentals.    Earlier, investors used to invest in IPOs in anticipation of listing gains. However, the primary mar ket is gettin

   RECENTLY, I met a very savvy businesswoman who had just received a windfall and she was in a tearing hurry to prepay her loan taken at a very attractive rate of interest. Her income is extremely high and EMIs were comfortable and technically there was no rush to prepay the loan. However, there was an emotional urge to pay off the loan. When I inquired further, I realised that she might require some funds in the next 18 months. I told her that she had already paid a lot of interest in the first two years and considering her financial need, she should really think whether it makes sense to prepay the loan.    She didn't have a clear answer to it. I went on to demonstrate how her loan repayment is scheduled.    The interest paid per year is 5.36 lakh. That means at flat rate of interest it works out to be 5.36%. This is excluding the tax benefits that she would have received on the interest payments. In her case, the entire interest can be claimed as expense. This translates i

    Financial planning is important for young professionals to ensure sufficient funds to meet their goals, both short-term and long-term   LOOK after the pennies, and the pounds will look after themselves.    The age-old adage highlights the importance of the habit of saving for a rosier tomorrow. And with the domestic economy booming and jobs mushrooming across diverse service and financial sectors, like BPOs, brokerage houses, media and telecom, young professionals are earning increasingly attractive packages. As per various estimates, nearly 3 to 5 million youth under the age of 25 years enter the workforce each year in our country, and for them it becomes important to quickly get in place a financial plan. This would help to ensure that these young professionals have sufficient resources to meet both their goals. PLAN EARLY: As part of the strategy, one needs to draw up a budget, and take into account the monthly expenditure for a single person, living either with his pare

    They are added to fund NAVs of Mutual Fund.   If the stocks in a portfolio are the beneficiaries of bonus shares or dividends, it is ploughed back into the portfolio and hence, ultimately, reflected in the fund's Net Asset Value (NAV).

   The rights and entitlements as well as the limitations and restrictions on the acquisition, holding and transfering of immovable property in India by a Non-Resident Indian ( NRI ) or Person of Indian Origin ( PIO ) have been much simplified.    NRIs and PIOs are permitted to purchase residential and commercial property in India without seeking any prior permission and without any limitations on the number or size of such properties. When purchasing a residential/commercial property, an NRI/PIO can make requisite payments only from funds that have been remitted to India through normal banking channels or from funds held in an NRE/NRO/FCNR (B) account maintained in India. They are not permitted to make payments against such purchase in foreign currency or by traveller's cheques or any other mode except those specified by the RBI.    However, NRIs/PIOs wishing to purchase agricultural land/plantation property/farmhouse in India have to seek the specific permission of the Reser

     YOU can go without a life cover. Provided you don't have anyone financially dependent on you. However, there is no excuse for not having a health cover. This is not just because of the mounting health care cost. Financial advisors are justifiably concerned that an unforeseen hospitalisation can upset your financial health beyond repair. So, don't wait for a good time to buy a health cover. Just grab it. However, if you are planning to combine your need with your family's, it is better to check these points before zeroing in on one health plan.    Individual versus family floater :   You should ideally buy an individual policy for every family member you are financially responsible for rather than a family floater. This is because if you buy an individual policy of, say, 5 lakh each for all members of your family versus buying a family floater of 5 lakh each, the cost differential is not too much. Also, it becomes very small as the age of the senior most member c

    If you list the goals you are saving for, attainting them becomes easy VARIETY is fast emerging as a bitter pill for investors. Just like shopping in a departmental store becomes tedious with dozens of choices on offer, the same often occurs in the investment market, but the effects are even more substantial with bigger consequences. Financial Chronicle talks to experts to tell you how to simplify and choose from the array of mutual funds, insurance products and company deposits available in the market. The cornerstone of any good financial plan is a sensible, personalised asset allocation strategy. For a common investor, the classes of investible asset are – real estate, gold, equity and debt. Each of them have their own distinct track record of risk and reward. Understand yourself:   If you list the goal for which you are saving, attainting the target becomes much easier. However, understanding one's risk appetite may be difficult. Your ability and willingness t

Duplication of paperwork makes the procedure of buying financial products cumbersome   There is no escaping the paperwork while investing in financial products. Be it, opening a new bank account, demat account or buying insurance, filling the Know Your Client ( KYC ) documents is a mandatory procedure today. KYC is a client identification program that verifies and maintains records of the identity and address of investors. KYC norms were introduced in 2002 by the Reserve Bank of India ( RBI ). It directed all banks and financial institutions to put in place a policy framework to know their customers before opening any account. The purpose was to prevent money laundering, terrorist financing, theft and so on. Today other regulators too have made KYC mandatory. The Securities and Exchange Board of India ( Sebi ) has mandated it for mutual funds and broking accounts, the Insurance Regulatory Development Authority ( IRDA ) while buying insurance and the Forwards Markets Commission (F

The HDFC Monthly Income Plan – Long Term Plan (LTP), launched on December 26, 2003, is the largest fund among Monthly Income Plans (MIP), with assets of 8,358 crore as of August 2010. This is higher than most of its peers in the category, which have assets under management ( AUM ) of less than ` 1,000 crore. The fund is hybrid in nature, with a predominant investment in debt. It is designed to provide regular income to investors in the form of dividends. The fund is ranked Crisil Fund Rank 1 (top 10 percentile of the peer set) over the last three quarters. It is managed by Shobhit Mehrotra ( debt portfolio) and Prashant Jain ( equity ). Investment style MIPs are debt-oriented hybrid funds with a portion of the AUM being invested in equity and the rest in debt and money-market instruments. The investment style is classified as conservative or aggressive based on the weightage given to the equity component. This proportion can vary between zero per cent and 30 per cent. Accordin

    If regularity of income and safety of capital are your prime concerns and you do not have any other source of income to meet your monthly expenses, then you should invest in a secured avenue that provides stable return. In this case, you may invest in Post Office MIP that is backed by the government. This scheme will enable you to earn a fixed return of 8 per cent per annum. You may even invest in Senior Citizens Savings Scheme ( SCSS ) that allows you to invest a maximum of Rs15 lakh and earn a higher return of 9 per cent per annum (compounded quarterly).   Alternatively, you may go ahead with your plan to split your corpus between Post Office MIP and Mutual Fund MIP Long-term.   The mutual fund MIPs aim to generate regular returns through investments primarily in debt and money market instruments (minimum of 75 per cent of its total assets). But remember that a fund such as this involves risk and does not come with a guarantee of either assured returns or capital protection.

    GOLD is considered to be one of the most liquid assets in the world. The reason is simple — it is accepted as a universal currency and finds a buyer in virtually any corner of the earth. So, when you want to borrow in case of an emergency, the yellow metal is one of the easiest way out.    The traditional and ancient method was to pledge your ornaments with a jeweller and borrow from him. He would, in turn, keep the ornaments and lend you a certain amount of money, depending on the valuation. Typically, he would lend you an amount equivalent to 50% of the value of gold you pledge and charge you a hefty interest, which could start from 30% and go up to 50%. However, these days, there are several different options available. Individuals can avail gold loans from private sector banks or even NBFCs.    There are companies like Manappuram Finance and Muthoot Finance that specialise in gold loans and claim to offer you finance against gold in five minutes, with minimum documentatio

ONE problem frequent flyers often face is limited choice – while spends on airline tickets earn them loyalty points, they do not have the freedom to redeem them against their choice of airline tickets.    To cater to this segment of flyers, Citibank has come up with PremierMiles credit card that helps them accumulate reward points – in the form of ' PremierMiles' – and redeem the same against flight tickets of close to 50 domestic and international carriers. In that sense, the loyalty scheme is airline-neutral. Deutsche Bank and American Express also offer similar programmes linked to their specialised credit cards. Such programmes help those who opt for low-cost carriers, which mostly do not offer such schemes, to earn frequent flyer points.    Under the program, card members earn 10 premier miles for every 100 spent on airline ticket bookings made at airline-owned websites, airline booking counters or through the PremierMiles portal. For each non-airline spend worth 10

    DSP Black Rock Equity has proved to be an impressive long term performer with its sound portfolio management strategy   LAUNCHED in 1997, DSP Black Rock Equity is one of the oldest schemes in the DSPBR basket. The rise in its asset base and the popularity of this fund is an outcome of the fund's exceptional strategy and impressive performance over the years. Its asset base has grown four-fold to 2,130 crore since 2006. PERFORMANCE: Given its presence in the mutual fund industry for over a decade now, DSPBR equity fund has performed well in both bullish and bearish phases. The fund's track record over 13 years appears impressive when compared with the benchmark and other major market indices. The fund featured in the GOLD category for three consecutive quarters    It did underperform during the dotcom bubble of 2000-01 but managed to stage a quick recovery subsequently. In 2003, it posted a return of 130% compared to gains of 72% in the benchmark- S&P Nifty. Sinc

     IT HAS become more or less a set pattern now for middle-aged people, mainly above 40 years, to consider seriously, buying what is called a 'second home' or a 'holiday home'. In fact, many exhibitions are being organised by builders and developers urging people to go for their second home, a little far away — may be at an hour or two drive — from their homes.    A second home is not a bad idea. It can serve the purpose of a change from the routine, once in a while, and leave you refreshed and energised. It can be a wise investment. But nobody should go overboard on this. It would be wiser to consider the following points before one goes for a second home: 1. These properties are not exactly cheap. Realty prices can slide.   2. Often, it is difficult to ascertain if the quoted price is reasonable because of a lack of benchmark rates. Many places are being developed for the first time and, as such, there is no way to determine if any previous deals have been

     SEPTEMBER 1, 2010 can truly be described as a watershed date for life insurance companies in India. It was on that day that the Insurance Regulatory and Development Authority's ( Irda ) new rules regarding various aspects of unit-linked insurance plans ( Ulips ) came into effect.    Quite expectedly, several insurance companies have adopted new strategies to align their business in line with the sweeping changes that have come into force. And 'cost control' and ' rationalisation' have become the new buzzwords in the life insurance industry today. Eyeing Singles: Some insurers have hit on single-premium plans as one of the ways of reducing costs. While most policies offer a single- premium option, last month saw the launch of a few single premium-focused unit-linked insurance plans ( Ulips ). Many see this as a cost-controlling measure, as single-premium policies eliminate the cost of pursuing as well as the risk of lapsation.    In case of regular premiu