Prajna Capital - An Investment Guide

Planning investments is a challenge for everyone, and more so for senior citizens. Choosing the right investment product per se is a difficult task for many investors. The task is even more challenging for senior citizens as they will have a limited corpus, while their need for income from the corpus does not remain constant. While a pension plan takes care of a regular source of income, life is not easy if the investor does not have a regular source of income. As a result, senior citizens have to do the balancing act between risk and returns. Needless to say, the risk element has to be as low as possible for this class of investors. Safety over returns As pointed out earlier, safety of capital has to be the underlying principle of investments, and risk can be a component only when the investor has the comfort of liquidity. For instance, the monthly income needs have to be met through fixed return products. Some fixed return products Senior citizens’ savings schemes: T...

By number of funds as well as money invested, one of the most important type of mutual fund in India is something that is generally called a Fixed Maturity Plan. Of the 1920 mutual funds that are currently available, no fewer than 805 are FMPs, as they are known. And of the Rs 5.61 lakh crore that is invested in Indian mutual funds today, 68,000 crore is in FMPs. FMPs are generally used by companies and large investors as an alternative to bank fixed deposits. In general, these funds resemble FDs more than they do other mutual funds. These are closed-end funds, meaning that one can only enter them when they are launched and exit them when their pre-stated term is over. Actually, one can exit them earlier, but generally after paying a load that is high enough to be a serious discouragement. More importantly, fund companies offer an ‘indicative return’ for FMPs. Unlike other types of mutual funds, FMPs are run in such a way that this indicative return actually has some meaning. FMPs inve...

The macroeconomic factors world-wide have been quite shaky over the last couple of quarters. As a result, the stock markets have been quite volatile with a negative bias all over the world. In line with market conditions, the performance of equity based instruments remained quite subdued. As uncertainty prevails in stock markets, investors are not keen on putting their money in equity-based instruments. The meltdown in the equity markets started with the slowdown in some countries. This coupled with several other negative developments like a sharp rise and fall in commodity prices (crude oil, metals, food items etc), fall in the global inflation rate and meltdown of some of the large financial houses kept triggering negative sentiments in the markets. Analysts believe the negative sentiments will continue in the stock markets for a few more quarters, and therefore, the stock markets will remain volatile in the medium term. Therefore, it will be risky to invest in equity-based ins...

In these uncertain and volatile market conditions, investors are flocking to invest in debt securities to ensure not only stable and certain returns but more importantly capital protection THE GLOBAL MELTDOWN Across the globe, financial and economic markets have taken a severe beating and there are expectations of recession in developed countries. In this backdrop, the Indian markets have also been affected but not as badly as the others. BETTER SAFE THAN SORRY Investors have seen their wealth, especially in shares, erode faster than they would have imagined or liked. Thus, investors are now increasingly flocking to invest in debt securities. So what are their options and the pros and cons of each investment avenue. Let’s take a look at some of the attractive ones: Government Securities: The bond yield on short term (1-year) government securities ( g-secs ) is currently approximately 8% to 9% p.a. Due to the inverse relationship between bond prices (carrying fixed interest rates) and ...

At a time when stock markets zigzag, what would be the right investment arena? Corporate FDs or equities? THE sharp fall in the equity markets has changed a lot of things including India Inc’s fund raising plans. This, in turn, has changed investment avenues for retail investors. Till about a year ago, the only way for retail investors to participate in a company’s growth was to buy equities either in the secondary market or invest in primary issues (IPO) or rights issue. However, the primary market option currently is almost closed with the virtual drying up of the IPO market. Bearish sentiments and lack of investors’ confidence due to wild volatility, on the other hand, has decreased the participation of investors in the secondary market. In such a situation, India Inc is now approaching the potential investors through fixed deposit (FD) schemes. In fact, FD schemes are not new to India Inc. Earlier, every major company had an FD department and it was considered to be one of th...