Prajna Capital - An Investment Guide

Outlines some risks investors face and how you can manage them    The quantum of risk in investing in stocks is somewhere between investing in high-risk commodity derivatives and low risk debt instruments. The unpredictability associated with stock price movement claws into investor returns. While the element of risk varies from stock to stock, you must ensure your overall stock portfolio risk is in sync with your risk tolerance level.    Common risks associated with investing in the stock markets: Developments in the markets     Sometimes, a development affects stocks of a particular company and not the market as a whole. An interesting piece of information doing the rounds in the market circles can impact investor decisions. This risk springs from the relationship between news and updates pertaining to a company, and the resultant price movements of that particular stock.    Company-specific news like strike by the workforce, legal tangle or even a fall in earnings can wane in...

Your credit information report ( CIR ) contains details of your credit history and track record in taking and repaying loans from banks and finance companies. A loan applicant with a good credit record will find access to loans easier, faster and on favourable terms. The Credit Information Bureau of India Ltd ( Cibil ) consolidates the information on individual borrowers' credit history, sourced from different member credit institutions such as banks, credit card companies and NBFCs, into a single report called the CIR. This is then made available to its members (banks, finance companies) to facilitate their lending decisions. You can access your own CIR for a fee. You can also check and correct errors in the report and to initiate action to improve your credit record. It is a good idea to keep your CIR updated and correct, so it is easier and faster for you to apply and get loans at competitive rates. 1) Fill up a CIR request form. It can be downloaded from www.cibil.com/acc...

BUYBACK A stock buyback, also known as a 'share repurchase', is a company buying back its shares from its shareholders. The repurchased shares are cancelled, thereby bringing down the number of outstanding shares. As a result, value of each remaining share goes up, thanks to higher per share earnings. Shareholders not participating in buyback also see their stake in the company's ownership rising post buyback. A company buying back its shares is generally viewed as a positive thing. Typically, buybacks are carried out in one of two ways: (A) Tender offer The company will send an offer to its shareholders to sell all or a portion of their shares within a stipulated time frame and the offer price. The company could be out to buy only a part or all of its outstanding shares and delist itself. In the case the company is planning to delist its shares under the reverse book-building method, only the floor (B) Open market price is given. The company can also buyback its shares...

SILVER has been on steroids for the last one month. It has risen 24 per cent from ` 58,820 in just one month, prompting retailers to offer advance booking to investors before Akshay Tritiya . Though prices of the white metal have been rising all through the past one year, the frenzy has been visible in the last one month. Typically, gold and silver move in tandem and the ratio between them is 55. Essentially, it means how much silver one can buy for the price of an ounce of gold. The ratio has been narrowing in the last few months as silver has run ahead of gold. While there is no denying that prices of precious metals are linked to the strength of the dollar, the unprecedented spike has stunned the market. So, few commodity analysts are willing to speak on the rally's sustainability, but most say the spurt has less to do with demand, and more with abnormal positions taken by some large players. One popular theory doing the rounds on the internet and among banking circles is th...

  Over 4.72 crore subscribers of Employees Provident Fund Organisation ( EPFO ) will soon be able to track status of their claim settlement and account transfer online and also get updates on their mobile phones.   This will be possible as the entire data of the retirement fund manager EPFO will be digitalised by March end.   "We have already completed the digitalisation of data at our 113 offices and the work in the remaining seven offices would be completed by t   he end of next month," Samirendra Chatterjee, commissioner, Central Provident Fund said.   "Once the digitalisation process is completed, the account transfer and money withdrawal claims' status could be done and tracked online by EPFO subscribers on the mobile phone," he said.   Besides, the subscribers would be intimated via short mobile messages ( SMS ) about the status of their request for account transfer and claim settlement.   In case of account transfer, the subscribers wou...

The I-T Act allows taxpayers to adjust capital lost with any income or gains made in another year One very important aspect of filing returns is the adjustment of losses. The Income Tax (I-T) Act allows taxpayers, under certain conditions, to set-off loss against income or gains, reducing the net tax liability. If such loss is not fully set-off in one year, it can be carried forward. It is necessary for every taxpayer to understand and take advantage of this facility. INTER-SOURCE ADJUSTMENT You can earn income from salary, house property, business or profession, capital gains and residuary income from other sources. There cannot be a loss from salary and income from other sources. But, you could suffer losses under other heads of income. Loss under one head has to be adjusted against any gain under the same head. This is known as Inter-Source Adjustment. Say, you have two businesses, one is making a loss and the other is profit-making. Then, the loss from the first one can be s...

The fund will invest primarily in stocks of small companies, which would mean currently investing predominantly in stocks with market cap of less than 3,000 crore. The selection will be based on businesses with scalability as micro-caps are generally varied, not correlated to broader markets and not sector-specific. The fund may also use various derivative and hedging products and techniques to generate better returns. It started off as a close-ended offer and was converted into an open-ended one in June 2010. Investors here are a happy lot, though they had some tense moments in 2008 as the fund got hit. However, it did not face much redemption pressure. And has rewarded its investors well since then. It steamrolled ahead in 2009 and in 2010 was the best performing one in its category. Despite five fund managers in a little over three years, the fund house's strong core management team has done a good job. The fund sticks to its mandate and holds close to 70 per cent in the les...

As life becomes complex, there are financial needs that one cannot anticipate in totality. Be it a medical emergency or some unexpected expenses at a wedding, one needs a lifeline in terms of quick access to money. Personal loans do just that. It is a loan where the borrower need not disclose the end use of the money borrowed. There is no restriction or compliance with specific conditions of usage for the borrower. It is a loan which can be used to raise money at a comparatively short notice for any purpose, making it a rather convenient option for the borrower. These are relatively small-tenure loans, typically for less than five years. Personal loans also come with a whole host of charges. The borrower has to pay the processing fee while applying for the personal loan in the range of 1-2% of the entire loan amount. Then, there are late payment charges (1-2%) and pre-payment penalties (2-5%) along with any other charges applicable from bank to bank. This makes the personal ...

Retirement planning need not hinge on a single option. A basket of instruments can do the job    As you read reports of surging inflation, you begin to wonder if you have enough in your kitty. With many people not used to the habit of retirement planning, the concept is still the last item in the list of things to do. So, if someone gets worried and starts thinking about postretirement life, it is not completely out of place.    Technically, post-retirement life begins any time after the age of 50 and it is also reflected in the vesting period fixed by many insurance companies. In recent years, however, many individuals have begun to advance this figure by a couple of years due to a number of factors. It could be the dream to start an enterprise or the comfort of a kitty at disposal. While the former may still provide some regular source of income, the latter is technically a zero income period and hence requires greater planning.    The retirement planning in itself can be divi...

Gratuity up to Rs 10 lakhs is exempt from income tax    The government has hiked the limits of gratuity payment from Rs 3.5 lakhs to Rs 10 lakhs. This enhanced limit is applicable to employees who retire, become incapacitated before retirement, expire or whose services were terminated on or after May 24, 2010.    As per Section 10(10) of Income Tax Act, gratuity is paid when an employee completes five or more years of full-time service with the employer. In respect of government employees, any death-cum-retirement gratuity received under the pension rules or scheme of the central or state government, or regulations applicable to the members of defence services, is not taxable.    In case of gratuity received under the Gratuity Act, 1972, any gratuity received to the extent that it does not exceed an amount calculated in accordance with the provisions of the Gratuity Act is not taxable. For employees receiving gratuity other than under the government pension or gratuity scheme and ...

If you fail to pay an EMI, priority should be to clear it quickly Most people believe a home loan can power an easy ride to a dream home, but they forget that repayment obligations can be long and burdensome. Most borrowers are also oblivious of the legal hassles that may follow if one fails to repay a loan. This holds true for other borrowings, such as car loans and personal loans, too. But home loans being bigger in size and longer in tenure, the risk of going into default is much higher. Debt Recovery Tribunal is the governing body for recovery of unpaid secured and unsecured loans. Under the DRT, banks and other lenders can declare an account a non-performing asset and the loanee a `defaulter' in case the borrower has missed three installments. Under the DRT-enforced Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, lenders can take action against the borrower in case of a default. As per the Act, a demand notice needs to ...

The fund invests in fundamentally sound companies with a dividend yield at least twice that of Sensex. Dividend paying companies usually have healthy free cash flows, steady earnings growth and a strong balance sheet. This results in steady stock returns over the long-term, while providing relatively better downside protection in times of market correction. The fund also has the flexibility to invest up to 35 per cent in companies facing special situations like de-mergers, buy-backs and open offers, which are used very selectively, with a focus on minimising the downside risk. It has substantial exposure to mid-cap stocks, but this has not translated into fabulous out-performance, even in bull runs led by smaller market cap stocks. But it did put up a good show in 2009 and had held its ground in 2008. Even in the current market turbulence, it has fallen less than the average of its peers. During periods of volatility, the fund increases its debt allocation. The top sectors in its p...

   YOU work hard and save money to buy a house and household appliances. You take utmost care to secure your dream house, yet there is the risk of a natural or man-made catastrophe. If you cannot prevent it, transfer the risk. Consider buying a householders- or home-insurance policy. Scope Of Cover: A package householders policy provides cover to the structure of the building as well as the contents of the house, that belong to the proposer and his family permanently residing with him or her. In case you are living in a rented house or in an apartment where the building is insured by your society, you can buy a customised plan which covers only your household articles and not the building. Some common risks covered under the policy are fire, earthquake, flood, burglary, bursting and overflowing of water tanks, breakdown of domestic appliances and loss or damage of jewellery and valuables by accident or misfortune. Sum insured for certain items under contents, such as works of art, jew...

Plain maths show PPF investment plus term policy may work better FEBRUARY marked the revival of traditional children's plans of life insurance companies with the launch of three education schemes; Bharti Axa Life launched Future Champs on February 2, Aviva floated Young Scholar Secure on February 15 and Max New York Life unveiled College Plan on February 17. Till then, ICICI Prudential's Smart Kid regular premium plan, which was launched in 2002, and Life Insurance Corporation's Jeevan Anurag, launched on November 2004, were the only options available. One common feature about education plans is that the maturity benefit is disbursed in a phased manner, synchronising cash flows with different stages of education. Here is how it works. Say your child is five-year-old. In Max New York Life's College Plan, you will need to pay a regular yearly premium till the child is 18 years. In the year the child turns 18, you will receive 40 per cent of the total sum assured. ...

With interest rates likely to go up in the future, staying with liquid or liquid-plus funds will mean better returns and flexibility Today, when the Reserve Bank of India ( RBI ) raised key rates —repo and reverse repo —by 25 basis points, debt fund investors would have wondered if this was the time to get locked into medium or long-term schemes. The answer, however, is still no. Financial experts feel with inflation still not under control, the apex bank could raise rates in the future. It is advisable to go for liquid and liquid plus or ultra short-term schemes because more rate rise is likely in the future. Staying short will also mean provide flexibility, in terms of moving money from one kind of scheme to another, if there is a change in the interest rate cycle. Also, short-term debt funds will give better returns because the constant churn that fund managers have to do. Ultra short and liquid debt funds have returned 6.09 per cent and 6.02 per cent annually. While gilt, m...

  The Insurance Regulatory and Development Authority ( Irda ) is vetting a proposal to allow life insurance companies to invest in gold and exchange-traded funds, or ETFs . The move will provide greater flexibility to local insurers to invest in various asset classes. A senior Irda official said the regulator is weighing the two options. We may allow insurance companies to invest in gold and equity ETFs with a cap of 5-10%. There are proposals from various companies to let them invest in ETFs of commodities and equities. An exchange-traded fund is an investment fund traded on stock exchanges just like stocks. Gold ETFs invest directly in gold and hence track its prices closely, eliminating the hassles of stocking up on physical gold. Equity ETF mirrors a basket of stocks such as S&P CNX Nifty or BSE Sensex, which reflects the composition of an index. The Irda official said the regulator would, however, like to restrict the exposure of insurers to any single commodity. After t...

Many investors seem to be under the impression that having a permanent account number (PAN) makes it mandatory to file the tax return. The issue has especially come up ever since PAN was made compulsory for investing in mutual funds. There are many who feel that now that they have been allotted a PAN, return filing would also be a must, no matter that they don't have any taxable income. On the other hand, there are those, especially the salaried class, who feel that as long as their monthly take home salary has been subject to TDS, they have no further obligation as far as the taxman is concerned. In other words, they feel that since their income is already subjected to tax, there is no further action needed on their part. Both are misconceptions. Though a taxpayer needs to have a PAN to file the tax return, the reverse is not true. And similarly, even though TDS has been deducted on one's income, filing a tax return could be obligatory. Basically, the rule is that if one...

Fixed Maturity Plans ( FMPs ) have been attracting investors simply because the Certificate of Deposit rates are high. If fund managers buy 1-year CDs at attractive rates, naturally the returns would be reflected in FMPs.   FMPs are closed-end debt funds where investments can only be made during the offer period. They have a fixed maturity horizon which is declared at the outset. Depending on the maturity of the scheme, the fund manager selects debt instruments with identical maturity. They are passively managed with low turnover and transaction costs. However, liquidity is a problem. Though these schemes are compulsorily listed on the stock exchange, it's not easy to exit a scheme before maturity as there are few buyers. So ensure that you are pretty certain you will not need the money for the duration of the FMP. Like any market-related product, there is no guarantee of principal or return. In the case of a bank fixed deposit, you know exactly how much you are getting.   ...

Gold May Soar on Increased Demand   Investors opt for yellow metal amid Libyan unrest & inflation worries      Gold may gain in New York, narrowing the first weekly loss since January as demand for the metal as an alternative asset increases. European equities slipped for a third day and commodities including crude oil and copper fell as an 8.9-magnitude earthquake in Japan, the world's strongest in more than a century, shook buildings across Tokyo and triggered a 33-feet-high tsunami. Muammar Qaddafi's son said Libyan government forces are mounting a fullscale attack on rebels. Gold futures retreated 1.2% on Thursday, the most in a week. "It is the demand for safety that is driving the buying of precious metals as geopolitical tensions in the Middle East and North Africa region escalate," Marc Ground, an analyst at Standard Bank Plc in Johannesburg, said in a report. Sovereign credit-rating downgrades have "seen market fears surrounding the euro zon...

These funds give you an opportunity to make some money whenever commodity prices flare up    It's been ages since consumers have been crying themselves hoarse over the stubbornly high prices of commodities. The unacceptable level of inflation has blown their financial planning strategies off course as soaring expenses burn a huge hole in their pockets. So how would you like it if you were given an opportunity to make the culprits — commodities in this case — contribute to your kitty instead of eroding it? Enter Commodity Funds This is where some financial advisors say commodity mutual funds come into the picture. Although, the option of commodity futures exists, it involves big money and you may not want to risk such a huge sum in a volatile market. Instead, you can consider commodity funds. These funds invest in commodities-related companies such as metals and oil, in India or abroad. The logic is that these companies will clock profits whenever commodity prices see a spike. ...

  Indian insurance market will feel the jitters of the Japan earthquake with reinsurace rates expected to harden in the international market. The quake and tsunami struck Japan at a time when most Indian insurers are renewing their treaties with global reinsurance players who take over a large part of the risk from the books of underwritters. The extent of damage is yet to be ascertained but industry officials fear large claims from Japan. The reinsurance market was largely unaffected by recent catastrophes like flood in Australia and earthquake in New Zealand but the disaster in Japan could push up rates. Dhananjay Date, MD, Swiss Re Services said: "Swiss Re has a loss of $800 million for the New Zealand quakes. Munich Re has also suffered substantial loss. Although loss data for Japan is yet to come, initial aerial view of casualties make us believe it will be substantial. We will get a fair view of the losses once the stock markets open and it will definitely have a hardeni...

  "ONCE health insurance portability comes into force, service is going to play a major role" Shreeraj Deshpande Head health insurance, Future Generali Insurance Company HEALTH insurance companies are gearing up their service offerings to keep their flock of customers together with the onset of health insurance portability from July 1, 2011. With service being the prime differentiator between the health insurance providers, companies want to ensure that situations like the mobile number portability launch, where customers left one service provider in droves to the other, who offered better services, does not arise. The launch of portability will see a huge movement of customers across the board initially, industry experts point out. However, the companies are gearing up for the new regime. "Once health insurance portability comes into force, service is going to play a major role. We have set up an in-house service centre and would start providing service all by our...

Here are some of the things that you should know before you move your health cover to another insurance company    Last year, several customers of a private general insurer were up in arms against its decision to increase health premiums. They went to town crying themselves hoarse over the disproportionate hike, but many could not switch to another insurer. This was because they would have had to forgo critical continuity benefits. However, cases like these could become a thing of past once health insurance portability becomes a reality from July 1, provided it is implemented by insurers in its true spirit. MORE POWER TO POLICYHOLDERS The key issue that prevents policyholders from insurer-hopping at will lies in the pre-existing disease ( PED ) cover offered by health insurers. In most cases, claims arising out of such pre-existing illnesses are reimbursed only after a waiting period of 3-4 years. A pre-existing disease is defined as any ailment or condition that the policyholder...