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WOULD HAVE LOVED TO CONTINUE WRITING BUT FOR THE TIME RESTRAINTS AND WORK PRESSURE.
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Sunday, March 21, 2010
Saturday, March 20, 2010
ULIPS : RAISING THE BAR
In a short time-span, ULIPs (market-linked plans from insurance companies with a risk cover) have managed to draw retail investors in droves and emerge as a larger force than mutual funds in managing long-term money.
In the best interests of investors, it is now imperative to raise the bar on the disclosure and marketing practices for ULIPs, which appear to be leagues behind those for mutual funds in some respects. There appears to be no harm in IRDA taking a few leaves out of SEBI's book. Thanks to an evolutionary process spanning two decades, SEBI's mutual fund regulations today present a fairly watertight framework for market-linked products.
Assured returns, again?
Consider the recent string of ULIPs that ‘guarantee' payment of the fund's highest NAV for the first 7 or 8 years, at maturity. Scanning their product literature gets you plenty of information on the insurance part — the premium payment options, risk cover, death benefit and the host of charges attached to the plan. But look for details on how exactly they will manage to “guarantee” the highest NAV — in short, the investment strategy — and these are quite sketchy!
Many plans stop with the sweeping statement that they may invest 0-100 per cent in debt/gilt instruments, 0-100 per cent in short term debt instruments and 0-100 per cent in equity shares.
What investors need to infer from this is that they shouldn't expect equity-related returns from these ULIPs, as they may juggle debt and equity to ensure that the NAV doesn't suffer very sharp blips. (Message: Don't mistake highest NAV for highest returns!)
Nor is there complete disclosure on how the insurer will meet any shortfall between promise and performance, if there is any, at the scheme's maturity. Shouldn't these facts be stated more directly?
Transparency please
Most ULIP products in fact seem to operate on the premise that investors should place faith in the insurer for the long term and not worry too much about how the returns are being managed. That is certainly healthy from a broader market perspective. However, not when investors are unclear about what they are buying or where the returns are coming from.
History has showed that keeping investors completely in the dark about the actual risk profile of an investment can sometimes backfire in a spectacular fashion. Multitudes of investors in the infamous Unit Scheme-64 lost their savings simply because they mistook a balanced fund (with an equity component) for a regular income fund, just because it paid yearly dividends like clockwork. Seasoned investors will also recall the popular ‘assured return' mutual funds of the late 1990s that couldn't quite manage annual payouts because debt market conditions changed dramatically.
These episodes prompted SEBI to crack down sharply on mutual funds using the words “guarantee” or “assured return” in their marketing efforts several years ago. It has taken a long time for retail investors in mutual funds to accept the fact that returns always carry a trade-off with risk. Is it really necessary to go down that road all over again with ULIPs?
Complexity
Then, there is also the needless complexity that accompanies the structure and marketing of ULIPs. Even a seasoned investor may be flummoxed by the sheer number of technical terms that are thrown into a ULIP brochure. Understanding the return profile of a product means getting to the bottom of terms such as ‘sum assured, fund value and surrender value'.
The costs you incur are stashed under multiple heads — premium allocation charges, mortality charges, policy administration charges and fund management charges. Helpfully, some of these charges are expressed in percentage terms while others are presented in terms of Rs/1,000 or Rs/month. The ‘benefit illustration' that IRDA has mandated thankfully helps to simplify these costs; but it still leaves investors no wiser about a product's return potential.
All ULIP illustrations are based on the product's NAV edging up by an orderly 6 or 10 per cent each year; but how realistic is this assumption for equity products? And does the insurer's track record support this assumption?
Avoidable confusion
The multiple points of difference in the way ULIPs and mutual funds define their NAV, charge expenses and operate also creates avoidable confusion for investors. Investors in a mutual fund can gauge how the fund performed by tracking its NAV appreciation.
Whereas, using the NAV alone can be misleading for ULIPs, as some of the expenses are adjusted in the balance of units you hold.
Or take the cost aspect — SEBI specifies that a mutual fund may charge no more than 2.5 per cent of its assets towards expenses each year. IRDA, however, defines the ULIP charges on the basis of the difference between gross and net yields over the policy term (capped at 300 basis points for sub-10 year plans). Mutual funds are not allowed to reward their agents out of the money collected from investors after SEBI recently cracked down on this practise; but ULIPs still pay commissions out of the premium collected.
As the IRDA and SEBI sit together to hammer out their differences over the next few weeks, it would help if they could commence a dialogue on some of these issues.
A common set of ground rules that govern all market-related products, irrespective of who markets them, would not just simplify the chore for both the regulators.
It would also leave investors a whole lot better equipped to make wiser choices and assert their rights, whether they are inclined to buy ULIPs or mutual funds.
In the best interests of investors, it is now imperative to raise the bar on the disclosure and marketing practices for ULIPs, which appear to be leagues behind those for mutual funds in some respects. There appears to be no harm in IRDA taking a few leaves out of SEBI's book. Thanks to an evolutionary process spanning two decades, SEBI's mutual fund regulations today present a fairly watertight framework for market-linked products.
Assured returns, again?
Consider the recent string of ULIPs that ‘guarantee' payment of the fund's highest NAV for the first 7 or 8 years, at maturity. Scanning their product literature gets you plenty of information on the insurance part — the premium payment options, risk cover, death benefit and the host of charges attached to the plan. But look for details on how exactly they will manage to “guarantee” the highest NAV — in short, the investment strategy — and these are quite sketchy!
Many plans stop with the sweeping statement that they may invest 0-100 per cent in debt/gilt instruments, 0-100 per cent in short term debt instruments and 0-100 per cent in equity shares.
What investors need to infer from this is that they shouldn't expect equity-related returns from these ULIPs, as they may juggle debt and equity to ensure that the NAV doesn't suffer very sharp blips. (Message: Don't mistake highest NAV for highest returns!)
Nor is there complete disclosure on how the insurer will meet any shortfall between promise and performance, if there is any, at the scheme's maturity. Shouldn't these facts be stated more directly?
Transparency please
Most ULIP products in fact seem to operate on the premise that investors should place faith in the insurer for the long term and not worry too much about how the returns are being managed. That is certainly healthy from a broader market perspective. However, not when investors are unclear about what they are buying or where the returns are coming from.
History has showed that keeping investors completely in the dark about the actual risk profile of an investment can sometimes backfire in a spectacular fashion. Multitudes of investors in the infamous Unit Scheme-64 lost their savings simply because they mistook a balanced fund (with an equity component) for a regular income fund, just because it paid yearly dividends like clockwork. Seasoned investors will also recall the popular ‘assured return' mutual funds of the late 1990s that couldn't quite manage annual payouts because debt market conditions changed dramatically.
These episodes prompted SEBI to crack down sharply on mutual funds using the words “guarantee” or “assured return” in their marketing efforts several years ago. It has taken a long time for retail investors in mutual funds to accept the fact that returns always carry a trade-off with risk. Is it really necessary to go down that road all over again with ULIPs?
Complexity
Then, there is also the needless complexity that accompanies the structure and marketing of ULIPs. Even a seasoned investor may be flummoxed by the sheer number of technical terms that are thrown into a ULIP brochure. Understanding the return profile of a product means getting to the bottom of terms such as ‘sum assured, fund value and surrender value'.
The costs you incur are stashed under multiple heads — premium allocation charges, mortality charges, policy administration charges and fund management charges. Helpfully, some of these charges are expressed in percentage terms while others are presented in terms of Rs/1,000 or Rs/month. The ‘benefit illustration' that IRDA has mandated thankfully helps to simplify these costs; but it still leaves investors no wiser about a product's return potential.
All ULIP illustrations are based on the product's NAV edging up by an orderly 6 or 10 per cent each year; but how realistic is this assumption for equity products? And does the insurer's track record support this assumption?
Avoidable confusion
The multiple points of difference in the way ULIPs and mutual funds define their NAV, charge expenses and operate also creates avoidable confusion for investors. Investors in a mutual fund can gauge how the fund performed by tracking its NAV appreciation.
Whereas, using the NAV alone can be misleading for ULIPs, as some of the expenses are adjusted in the balance of units you hold.
Or take the cost aspect — SEBI specifies that a mutual fund may charge no more than 2.5 per cent of its assets towards expenses each year. IRDA, however, defines the ULIP charges on the basis of the difference between gross and net yields over the policy term (capped at 300 basis points for sub-10 year plans). Mutual funds are not allowed to reward their agents out of the money collected from investors after SEBI recently cracked down on this practise; but ULIPs still pay commissions out of the premium collected.
As the IRDA and SEBI sit together to hammer out their differences over the next few weeks, it would help if they could commence a dialogue on some of these issues.
A common set of ground rules that govern all market-related products, irrespective of who markets them, would not just simplify the chore for both the regulators.
It would also leave investors a whole lot better equipped to make wiser choices and assert their rights, whether they are inclined to buy ULIPs or mutual funds.
Friday, March 19, 2010
WHY TO AVOID SECTORAL MUTUAL FUNDS
The idea behind investing in a mutual fund is to outsource the fund management activity to a professional fund manager.
By investing in a sectoral fund you are limiting the fund manager to invest in a particular sector. Even if the fund manager knows that the particular sector will not do well in the near future, he is forced to invest in that sector only. Also you take responsibility to shift your investments from a non performing sector fund to a performing sector.
Whereas in a diversified fund the fund manager gives higher allocation to the sector which he feels will do better in the near future and he reduces the exposure in the sector which he feel will not perform in the near future.
So it is better to outsource all these decision making to the fund manager. Why should you take decision and pay management fees to the fund house.
So focus on the diversified funds.
By investing in a sectoral fund you are limiting the fund manager to invest in a particular sector. Even if the fund manager knows that the particular sector will not do well in the near future, he is forced to invest in that sector only. Also you take responsibility to shift your investments from a non performing sector fund to a performing sector.
Whereas in a diversified fund the fund manager gives higher allocation to the sector which he feels will do better in the near future and he reduces the exposure in the sector which he feel will not perform in the near future.
So it is better to outsource all these decision making to the fund manager. Why should you take decision and pay management fees to the fund house.
So focus on the diversified funds.
MUTUAL FUND INVESTING ADVICE
Prateek Desai from Gujarat has a piece of advice to readers of this blog :
I would like to suggest an alternative to passive mutual fund investing:-
(A) Avoid SIP of fixed date. Keep aside a small sum every month to invest in diversified or ELSS funds.Invest by net transfer when markets around lower band.
(B) Wait for about 15-20% appreciation. Take out the profit and shift profit to MIP Plans(I prefer HDFC and Reliance MIP)
(c) Do this regularly and see that you will achieve very high returns. Maintain this strategy to create your retirement corpus rather than pension plans of ULIPS. I have done this for last five years and obtained over 40 % compounded yearly. Lastly, Have patience. You will be rewarded. Regards
I would like to suggest an alternative to passive mutual fund investing:-
(A) Avoid SIP of fixed date. Keep aside a small sum every month to invest in diversified or ELSS funds.Invest by net transfer when markets around lower band.
(B) Wait for about 15-20% appreciation. Take out the profit and shift profit to MIP Plans(I prefer HDFC and Reliance MIP)
(c) Do this regularly and see that you will achieve very high returns. Maintain this strategy to create your retirement corpus rather than pension plans of ULIPS. I have done this for last five years and obtained over 40 % compounded yearly. Lastly, Have patience. You will be rewarded. Regards
Saturday, March 13, 2010
ETF VS MUTUAL FUNDS
ETF is for exposure in indexes, gold and other commodities and for short duration they are better.
Mutual fund on the other hand deals with stocks and to get the returns from mutual fund one needs to be invested for longer period of time.
So you have to make the decision to either go for ETF/Mutual Fund.
Mutual fund on the other hand deals with stocks and to get the returns from mutual fund one needs to be invested for longer period of time.
So you have to make the decision to either go for ETF/Mutual Fund.
Stock markets are zero sum game!by Rajendra Gupta
Stock markets are zero sum game!by Rajendra Gupta
One looses then other gains.All ppl gain only thorough genuine profits earned by companies by their hard work and expected growth in profit raises the speculative component of price.It is all money chasing wealth.If there is more money chasing shares(limited quantity only) like FIIs coming, the scrips go up.Same way they may go down.The only assurance one has it that if you buy top companies having long term record of performance,updating their business model and have strong brand names, well they may earn at least 15% ROI and that reflects in rise in share prices slowly as money value also goes down by inflation.There are peaks and valleys around profit trend line where ppl loose money and make money.It is all probability.You may earn for months and then suddenly loose and reverse may happen with some one else.It is zero sum game.Probability wont work for you always in favor.Just have a reasonable part of your investments in stock markets or else you may get ruined in scandals and crashes.Just invest in good companies like A group which are there because they are good and consistent performers in environment.What is point of experimenting?Churning of shares makes money for experts and broker firms not for you.Greed has to be controlled and natural course of profits that companies earn should be long term objective.That also is better than FDs. At least for 5-7 years period.For day traders, yes, volatility is only was to earn or loose,whatever way you look at.
Prof RKGupta
One looses then other gains.All ppl gain only thorough genuine profits earned by companies by their hard work and expected growth in profit raises the speculative component of price.It is all money chasing wealth.If there is more money chasing shares(limited quantity only) like FIIs coming, the scrips go up.Same way they may go down.The only assurance one has it that if you buy top companies having long term record of performance,updating their business model and have strong brand names, well they may earn at least 15% ROI and that reflects in rise in share prices slowly as money value also goes down by inflation.There are peaks and valleys around profit trend line where ppl loose money and make money.It is all probability.You may earn for months and then suddenly loose and reverse may happen with some one else.It is zero sum game.Probability wont work for you always in favor.Just have a reasonable part of your investments in stock markets or else you may get ruined in scandals and crashes.Just invest in good companies like A group which are there because they are good and consistent performers in environment.What is point of experimenting?Churning of shares makes money for experts and broker firms not for you.Greed has to be controlled and natural course of profits that companies earn should be long term objective.That also is better than FDs. At least for 5-7 years period.For day traders, yes, volatility is only was to earn or loose,whatever way you look at.
Prof RKGupta
Thursday, March 11, 2010
SUDEEP MUKHERJEE OF TRILOK INVESTMENTS KOLKOTTA REPLIES TO QUERIES ON INVESTMENTS
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Prasad Rao asked, Which is the best insurance policy for children
Sudeep Mukherjee,I don’t recommend any insurance policy for children. Rather invest in equity funds and build the education and marriage fund.
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Venkat.Kumar asked, I have taken a home loan of 18 lacs and my ROI is 10.00 %. My current outstanding is 16 lacs and balance term projected is 115. 1) Is it good to preclose the loan? 2) Is it good to convert the loan to current interest rate (8.75 %)?
Sudeep Mukherjee, Foreclose the loan. Saving on EMI should be channelised in to investment in equity funds by way of SIP to build your corpus for retirement or another objective you may have set for yourself.
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Shekhar Bellare asked, Sir i am investing money in birla sunlife equity fund growth on a sip base i just wanna ask can i use same folio number to buy and sell any other company mutual fund or i can buy and sell same company mutual fund
Sudeep Mukherjee, The folio no can be common to that fund house only which generated that folio. One folio no cannot be applicably to all fund houses. So, Birla folio no can be used for any Birla Fund but not for any other fund house.
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Raghu Ram asked, sir, i am making sip investment in hdfc top200,hdfc equity,rel power sector& growth fund,sundaram select midcap ,templton prima plus,sbi tax gain in each 1000Rs(among templton prima fund prima plus & blue chip which is good to invest)can u suggest any further & for children which plan is suitable
Sudeep Mukherjee,except for Reliance Diversified Power Sector Fund, all funds are good. Both Franklin India Bluechip and Prima Plus are good funds. You can consider both the funds in your portfolio.
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Pal Anand asked, I have invested 2 lakh rupees in ELSS funds and 3 year lock-in period is completed, is it better to continue with them or re-invest in good funds like the ones you have suggested(HDFC Top200 etc)
Sudeep Mukherjee,continue with the investment if the funds are doing well. If the ELSS fund is under-performing non-ELSS equity funds, then it is a good idea to redeem ELSS and invest in fund like HDFC Top 200 fund.
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Karan K asked, Please recommend funds to invest Rs 60,000 for a 3 year period.
Sudeep Mukherjee,Balanced Funds are ideal for you - HDFC Prudence Fund and DSP BlackRock Balanced Fund.
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Sourav asked, HI. WHAT IS THE BEST OPTION IN INVESTMENT IN GOLD BETWEEN THE TWO. 1) GOLD ETF 2) SIP THROUGH MUTUAL FUND IN DSPBR WORLD GOLD OR AID WORLD GOLD. WHICH ONE WILL YIELD BEST RETURN AFTER 10 YEARS.`
Sudeep Mukherjee,if you are willing to invest in gold then Gold ETF is the answer. DSP World Gold Fund and AIG World Gold Fund invest in stocks of gold mining companies and not directly into gold. If you are looking at higher returns then DSP World Gold and AIF World Gold Fund are likely to deliver higher returns compared to Gold ETF.
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Vithal Kamath asked, Please advice financial planning for my father. He is retired last year. He has a corpus of 50 Lacs.
Sudeep Mukherjee,you should definitely get retirement planning done for your father. The most important aspect is the post-retirement cash flows and management of corpus of Rs 50 lakhs to ensure that it remains intact and continues to grow while at the same time generating regular income to meet the day to day expenses.
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Meher Randhawa asked, Why do you advise Gold ETFs against physical Gold? I'd like to know the disadv for physical gold apart from safely holding on to it and its quality
Sudeep Mukherjee,According to me investment in gold should be through Gold Exchange Traded Fund (ETF). Every unit of Gold ETF is backed by half or one gram of physical gold. The unit of gold ETF are held in demat form. Hence, there is no botheration about safekeeping of gold that is associated with physical form. Also, the gold held by Gold EFTs are backed by physical gold of 0.995 fineness which is secured and insured. Gold ETF score on the wealth tax front too. Gold ETF are not considered as wealth for Wealth Tax purpose. Physical gold is considered as for wealth tax purpose. Also, gold ETF are treated as long term capital assets if held for more than 12 months from the date of purchase. One can avail of the indexation benefits claim concession from long term capital gains tax, if any.
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Shweta Palak asked, Please tell me some good tax savings mutual funds which gives good dividends also
Sudeep Mukherjee,in the ELSS category, you can consider funds like HDFC Tax Saver, Franklin India Taxshield and Fidelity Tax Advantage Fund. All these funds have a good dividend track record . Opt for dividend payout
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Jasmine Tordie asked, Hi I want to invest 50000 per year which is best option for me? i am 25 year old my View is entirely Longterm
Sudeep Mukherjee,assuming you are willing to take risk, given your time horizon, you should be investing in equity funds. I am sure if you continue with the practice of investing Rs 50k p.a. and hopefully increase the amount as you progress in life, you will make wealth for yourself. Avoid greed and fear. Develop Patience and Discipline to be a successful investor.
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Shreyas asked, hi,i have rs 15 lacs which i need to invest for a span of one month only, as there after i need the money to buy a land. where can in invest for one month to have some gains
Sudeep Mukherjee,in your case safety of capital is of paramount importance than the gains. Simply because equity markets are doing well doesn’t mean that you will make gains. Stay away from equity markets. Invest in liquid funds instead and be happy with 4%-5% returns p.a.
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Rajiv Betalwas asked, How is Gold as an investment now, and how should that be invested ?
Sudeep Mukherjee,invest in gold over next 6-12 months. opt for Gold Exchange Traded Funds (ETFs). Its easy to buy and sell Gold ETF. You have to have a demat account and share trading account with any stock broker. Avoid buying physical gold for 2 main reasons - its too much of botheration to as far as storage is concerned and it is definitely sold by banks/jewelers at 4-5% premium to market price.
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V R Jani asked, Debt options (PPF, LIC) etc give only a maximum of 8%. However, SIPs (in good times only) have given more. Are SIPs advisable for long term. Also what is the right time to redeem units from an SIP. Are LIC's pensions plans any good (They grow at 6% pa)
Sudeep Mukherjee,You are mixing equity and debt over here. both equity and debt are must in your portfolio. While equity have the potential to deliver higher returns with higher risk, debt provides safety and stability to your portfolio. SIPs are no substitute for FDs/PPF. Yes, SIPs are the best way to invest in equity fund but that does not necessarily mean that you will make money in equity funds. your selection of fund has to be right and need to monitor the portfolio regularly. Insurance plans are not ideal investment products. Term plans is the best type of insurance.
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Avinash Godbole asked, i have invested 5000 in reliance natural resource fund is mutual fund before 2 yr ,but it is in not a good position.
Sudeep Mukherjee,exit this fund and invest in diversified equity fund like HDFC Equity Fund.
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Sneha Sonpar asked, i want to invest 30000 for 5 year , which fund is best Birla Top 100, DSP BLACCK top 100, HDFC top 200
Sudeep Mukherjee,all the 3 funds are good. Go ahead and invest.
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Sarsubra asked, I want to generate a regular fixed income of Rs.30,000 per month. How much money/capital I need to make this ? Also I want the returns should be very conservative & do not make any risk. May be a small risk is OK.
Sudeep Mukherjee,Assuming your post tax return is 5%p.a., you need to have a corpus of Rs 72 lakhs. Also, here I have not assumed inflation which will definitely erode your capital over long period of time. If you have the requisite capital invest in a bank FD and try and get atleast 5% post tax. Any amount over and above should be invested in equity funds to ensure that your overall capital grows and you are able to beat inflation.
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Dheeraj Kumar Brhamabatt asked, I have invested 52,000 rupees for my son who is 7 months old now in LIC - Marriage and education plan. It is a 18 year term. Is it a good plan for Child's education?
Sudeep Mukherjee,I would recommend that you take on a slightly higher risk as far as your son's portfolio is concerned. This is mainly because you have time on your side. 18 years is a long enough period to get good returns from investment in equity funds. Insurance policies are not the right approach. Get the education and marriage plan made for your son with the help of a professional financial planner.
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Bhavik Shah asked, Hi..i have a home loan of 38lacs..recently i sold a plot for 32 lacs..how should i use the money? i need to buy a car costing 9 lacs..should i prepay my loan or should i invest in another property/equity with the cash?
Sudeep Mukherjee,I personally fee that one's personal balance sheet should be debt free. From that perspective, I would recommend that you repay your loan. I am not sure about keeping aside the money for car. That is your personal decision. Try and repay the loan first, the balance can be used to buy the car even if it means reducing the budget.
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Aninda asked, which is the best mutual fund to invest as SIP in this present market scenario
Sudeep Mukherjee,among the funds I like, Franklin India Bluechip fund, HDFc Top 200, sundaram Select Midcap and DSP BlackRock Equity Fund.
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Karthik Iyer asked, I'm buying a home and the EMI is 27,000 for 20 years. My intention is to pre-pay this loan as soon as possible to save interest. I will need lump sum amounts for this in coming years. What type of investment do you suggest for this?
Sudeep Mukherjee,since you want to repay the money, I would advise you to invest in a bank FD or liquid funds. I would not recommend an equity fund for the purpose as it is high on risk and requires you to be invested for over 3 years atleast.
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Lenin Karuappanan asked, Hello Sir, Gold is doing low now in shares. Do you see any chances that the prices will go up?
Sudeep Mukherjee,Gold is a must in every portfolio as a hedge against inflation and as an insurance in times of financial crises. Allocate 10% of your portfolio to gold. The problems in the financial markets are far from over especially in the US and Europe. I would advise that you invest a small sum in gold every month. But cap your exposure to 10%
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RN RAO asked, SIR, I HVE INVESTED IN EQUITIES IN 2007 DEC@ 21000 SENSEX ABOUT 7.0LAC AT VARIOUS SCRIPTS 15~20 . AFTER SLASHING THE MARKET I HAD AVERAGE AND NOW 1.O LACS IN LOSS WHAT SHOULD I DO OR I SHOULD INVEST IN MUTUAL FUNDS
Sudeep Mukherjee,assuming that you are invested in companies whose prospects look promising, you should remain invested. I would advise you to invest in a equity fund if you are not able to manage the stock portfolio on your own.
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Durgaprasad Shukhtankhar asked, is this the right time to enter the stock market? Can u suggest any stocks?
Sudeep Mukherjee,India looks a very promising destination for investment from long term perspective. If you are willing to invest for 3 years and above and believe in the India story, then time is ripe of investment in equities. Don’t times the markets. Invest in a diversified equity funds. Leave the job of identifying the right stock and timing the market to professional fund managers
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Dollara Sutari asked, What is your view on Debt Funds ...do you see Short Term Debt as a good option in the current scenario and if so why ..thanks
Sudeep Mukherjee,Short Term debt funds are ideal for investment horizon of less than a year. These funds lag in performance when the interest rates are likely to move up. given the fact the RBI is most likely to increase the rates when it reviews the monetary policy next month, I would like to avoid these fund until further clarity on the interest rates. I would recommend a liquid plus fund instead.
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Laxmi Shukla asked, which is the right investment for 3 years for 1Lakh?
Sudeep Mukherjee,for 3 years you can consider balanced funds that invest 65% of their corpus in equity and balance in debt. You can consider funds like HDFC Prudence and DSP BlackRock Balanced Fund among others.
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Kunte Santosh asked, i want to know about PPF a/cs
Sudeep Mukherjee,PPF is a Public Provident fund A/c. You can invest up to Rs 70,000 in a year. The rate of interest currently is 8% p.a. and the interest is tax-free. the tenure of this fund is 15 years and you can renew if for 5 years after maturity. The investments in PPF qualify for deduction under section 80C of the income tax act
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Bhanu Singh asked, Hi what is best short term investment plans you can recommend if you want to invest around 10-15 lacks Thanks
Sudeep Mukherjee,if your investment horizon is less than a year, then liquid plus funds are the best. these score high on safety and liquidity. If your investment horizon is between 1-2 years then bank FDs are the best. If your investment horizon is 18-24 months then Monthly Income Plans are the best
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Amreetesh asked, i have invested 30000 in icici infra mutual fund before 2 yr ,but it is in not a good position.
Sudeep Mukherjee,infrastructure funds are thematic funds. They do well when the sectors that constitute the infrastructure theme do well. Also, stocks in the infrastructure sector are highly volatile. I would recommend that you redeem this fund and invest in a well managed diversified equity fund.
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Bannerjee asked, Would you recommend retired people to invest in MIP Mutual funds. How do they differ from other mutual funds. Any recommended ones
Sudeep Mukherjee,Monthly Income Plans (MIPs) are offered by most mutual funds in the country. MIPs are hybrid funds with 10%-30% exposure to equities and balance to debt. While the debt portfolio is designed to generate regular income and add stability, the equity portfolio aims for increasing the overall returns. Since there is an equity component, the investor should be willing to take some degree of risk. Also, the returns are not guaranteed or assured unlike a bank fixed deposit. Although the name Monthly Income Plan, monthly income by way of dividend is not assured. Dividends are paid subject to profits made by the fund. If you are opting for dividend option, then quarterly dividends are ideal. If you are not aiming at generating regular income, then growth option is the best. These funds are treated as long term capital assets if held for more than one year from the date of investment. You can avail of indexation benefit to reduce your long term capital gains tax on the appreciation, if any. The ideal investment horizon to reap the benefit of investing in an MIP is 18-24 months. Expected returns should be in the range of 8%-10% p.a.
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Madhavan asked, for one time investment as on date of 500000 whether equity/mutual fund OR GOLD etf is better?
Sudeep Mukherjee,in my view you should divide the amount between equity, debt and gold. Allocate 10% to gold. If you are willing to take high risk and remain invested for 5 years and more then allocate a higher amount towards equity and balance in debt. If your investment horizon is less than 3 years then allocated more towards debt. As far as equities are concerned, equity funds are the best option. For debt bank FD is ideal. For gold, avoid buying physical gold. Invest in Gold ETFs
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Prasad Rao asked, Which is the best insurance policy for children
Sudeep Mukherjee,I don’t recommend any insurance policy for children. Rather invest in equity funds and build the education and marriage fund.
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Venkat.Kumar asked, I have taken a home loan of 18 lacs and my ROI is 10.00 %. My current outstanding is 16 lacs and balance term projected is 115. 1) Is it good to preclose the loan? 2) Is it good to convert the loan to current interest rate (8.75 %)?
Sudeep Mukherjee, Foreclose the loan. Saving on EMI should be channelised in to investment in equity funds by way of SIP to build your corpus for retirement or another objective you may have set for yourself.
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Shekhar Bellare asked, Sir i am investing money in birla sunlife equity fund growth on a sip base i just wanna ask can i use same folio number to buy and sell any other company mutual fund or i can buy and sell same company mutual fund
Sudeep Mukherjee, The folio no can be common to that fund house only which generated that folio. One folio no cannot be applicably to all fund houses. So, Birla folio no can be used for any Birla Fund but not for any other fund house.
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Raghu Ram asked, sir, i am making sip investment in hdfc top200,hdfc equity,rel power sector& growth fund,sundaram select midcap ,templton prima plus,sbi tax gain in each 1000Rs(among templton prima fund prima plus & blue chip which is good to invest)can u suggest any further & for children which plan is suitable
Sudeep Mukherjee,except for Reliance Diversified Power Sector Fund, all funds are good. Both Franklin India Bluechip and Prima Plus are good funds. You can consider both the funds in your portfolio.
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Pal Anand asked, I have invested 2 lakh rupees in ELSS funds and 3 year lock-in period is completed, is it better to continue with them or re-invest in good funds like the ones you have suggested(HDFC Top200 etc)
Sudeep Mukherjee,continue with the investment if the funds are doing well. If the ELSS fund is under-performing non-ELSS equity funds, then it is a good idea to redeem ELSS and invest in fund like HDFC Top 200 fund.
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Karan K asked, Please recommend funds to invest Rs 60,000 for a 3 year period.
Sudeep Mukherjee,Balanced Funds are ideal for you - HDFC Prudence Fund and DSP BlackRock Balanced Fund.
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Sourav asked, HI. WHAT IS THE BEST OPTION IN INVESTMENT IN GOLD BETWEEN THE TWO. 1) GOLD ETF 2) SIP THROUGH MUTUAL FUND IN DSPBR WORLD GOLD OR AID WORLD GOLD. WHICH ONE WILL YIELD BEST RETURN AFTER 10 YEARS.`
Sudeep Mukherjee,if you are willing to invest in gold then Gold ETF is the answer. DSP World Gold Fund and AIG World Gold Fund invest in stocks of gold mining companies and not directly into gold. If you are looking at higher returns then DSP World Gold and AIF World Gold Fund are likely to deliver higher returns compared to Gold ETF.
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Vithal Kamath asked, Please advice financial planning for my father. He is retired last year. He has a corpus of 50 Lacs.
Sudeep Mukherjee,you should definitely get retirement planning done for your father. The most important aspect is the post-retirement cash flows and management of corpus of Rs 50 lakhs to ensure that it remains intact and continues to grow while at the same time generating regular income to meet the day to day expenses.
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Meher Randhawa asked, Why do you advise Gold ETFs against physical Gold? I'd like to know the disadv for physical gold apart from safely holding on to it and its quality
Sudeep Mukherjee,According to me investment in gold should be through Gold Exchange Traded Fund (ETF). Every unit of Gold ETF is backed by half or one gram of physical gold. The unit of gold ETF are held in demat form. Hence, there is no botheration about safekeeping of gold that is associated with physical form. Also, the gold held by Gold EFTs are backed by physical gold of 0.995 fineness which is secured and insured. Gold ETF score on the wealth tax front too. Gold ETF are not considered as wealth for Wealth Tax purpose. Physical gold is considered as for wealth tax purpose. Also, gold ETF are treated as long term capital assets if held for more than 12 months from the date of purchase. One can avail of the indexation benefits claim concession from long term capital gains tax, if any.
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Shweta Palak asked, Please tell me some good tax savings mutual funds which gives good dividends also
Sudeep Mukherjee,in the ELSS category, you can consider funds like HDFC Tax Saver, Franklin India Taxshield and Fidelity Tax Advantage Fund. All these funds have a good dividend track record . Opt for dividend payout
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Jasmine Tordie asked, Hi I want to invest 50000 per year which is best option for me? i am 25 year old my View is entirely Longterm
Sudeep Mukherjee,assuming you are willing to take risk, given your time horizon, you should be investing in equity funds. I am sure if you continue with the practice of investing Rs 50k p.a. and hopefully increase the amount as you progress in life, you will make wealth for yourself. Avoid greed and fear. Develop Patience and Discipline to be a successful investor.
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Shreyas asked, hi,i have rs 15 lacs which i need to invest for a span of one month only, as there after i need the money to buy a land. where can in invest for one month to have some gains
Sudeep Mukherjee,in your case safety of capital is of paramount importance than the gains. Simply because equity markets are doing well doesn’t mean that you will make gains. Stay away from equity markets. Invest in liquid funds instead and be happy with 4%-5% returns p.a.
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Rajiv Betalwas asked, How is Gold as an investment now, and how should that be invested ?
Sudeep Mukherjee,invest in gold over next 6-12 months. opt for Gold Exchange Traded Funds (ETFs). Its easy to buy and sell Gold ETF. You have to have a demat account and share trading account with any stock broker. Avoid buying physical gold for 2 main reasons - its too much of botheration to as far as storage is concerned and it is definitely sold by banks/jewelers at 4-5% premium to market price.
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V R Jani asked, Debt options (PPF, LIC) etc give only a maximum of 8%. However, SIPs (in good times only) have given more. Are SIPs advisable for long term. Also what is the right time to redeem units from an SIP. Are LIC's pensions plans any good (They grow at 6% pa)
Sudeep Mukherjee,You are mixing equity and debt over here. both equity and debt are must in your portfolio. While equity have the potential to deliver higher returns with higher risk, debt provides safety and stability to your portfolio. SIPs are no substitute for FDs/PPF. Yes, SIPs are the best way to invest in equity fund but that does not necessarily mean that you will make money in equity funds. your selection of fund has to be right and need to monitor the portfolio regularly. Insurance plans are not ideal investment products. Term plans is the best type of insurance.
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Avinash Godbole asked, i have invested 5000 in reliance natural resource fund is mutual fund before 2 yr ,but it is in not a good position.
Sudeep Mukherjee,exit this fund and invest in diversified equity fund like HDFC Equity Fund.
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Sneha Sonpar asked, i want to invest 30000 for 5 year , which fund is best Birla Top 100, DSP BLACCK top 100, HDFC top 200
Sudeep Mukherjee,all the 3 funds are good. Go ahead and invest.
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Sarsubra asked, I want to generate a regular fixed income of Rs.30,000 per month. How much money/capital I need to make this ? Also I want the returns should be very conservative & do not make any risk. May be a small risk is OK.
Sudeep Mukherjee,Assuming your post tax return is 5%p.a., you need to have a corpus of Rs 72 lakhs. Also, here I have not assumed inflation which will definitely erode your capital over long period of time. If you have the requisite capital invest in a bank FD and try and get atleast 5% post tax. Any amount over and above should be invested in equity funds to ensure that your overall capital grows and you are able to beat inflation.
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Dheeraj Kumar Brhamabatt asked, I have invested 52,000 rupees for my son who is 7 months old now in LIC - Marriage and education plan. It is a 18 year term. Is it a good plan for Child's education?
Sudeep Mukherjee,I would recommend that you take on a slightly higher risk as far as your son's portfolio is concerned. This is mainly because you have time on your side. 18 years is a long enough period to get good returns from investment in equity funds. Insurance policies are not the right approach. Get the education and marriage plan made for your son with the help of a professional financial planner.
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Bhavik Shah asked, Hi..i have a home loan of 38lacs..recently i sold a plot for 32 lacs..how should i use the money? i need to buy a car costing 9 lacs..should i prepay my loan or should i invest in another property/equity with the cash?
Sudeep Mukherjee,I personally fee that one's personal balance sheet should be debt free. From that perspective, I would recommend that you repay your loan. I am not sure about keeping aside the money for car. That is your personal decision. Try and repay the loan first, the balance can be used to buy the car even if it means reducing the budget.
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Aninda asked, which is the best mutual fund to invest as SIP in this present market scenario
Sudeep Mukherjee,among the funds I like, Franklin India Bluechip fund, HDFc Top 200, sundaram Select Midcap and DSP BlackRock Equity Fund.
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Karthik Iyer asked, I'm buying a home and the EMI is 27,000 for 20 years. My intention is to pre-pay this loan as soon as possible to save interest. I will need lump sum amounts for this in coming years. What type of investment do you suggest for this?
Sudeep Mukherjee,since you want to repay the money, I would advise you to invest in a bank FD or liquid funds. I would not recommend an equity fund for the purpose as it is high on risk and requires you to be invested for over 3 years atleast.
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Lenin Karuappanan asked, Hello Sir, Gold is doing low now in shares. Do you see any chances that the prices will go up?
Sudeep Mukherjee,Gold is a must in every portfolio as a hedge against inflation and as an insurance in times of financial crises. Allocate 10% of your portfolio to gold. The problems in the financial markets are far from over especially in the US and Europe. I would advise that you invest a small sum in gold every month. But cap your exposure to 10%
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RN RAO asked, SIR, I HVE INVESTED IN EQUITIES IN 2007 DEC@ 21000 SENSEX ABOUT 7.0LAC AT VARIOUS SCRIPTS 15~20 . AFTER SLASHING THE MARKET I HAD AVERAGE AND NOW 1.O LACS IN LOSS WHAT SHOULD I DO OR I SHOULD INVEST IN MUTUAL FUNDS
Sudeep Mukherjee,assuming that you are invested in companies whose prospects look promising, you should remain invested. I would advise you to invest in a equity fund if you are not able to manage the stock portfolio on your own.
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Durgaprasad Shukhtankhar asked, is this the right time to enter the stock market? Can u suggest any stocks?
Sudeep Mukherjee,India looks a very promising destination for investment from long term perspective. If you are willing to invest for 3 years and above and believe in the India story, then time is ripe of investment in equities. Don’t times the markets. Invest in a diversified equity funds. Leave the job of identifying the right stock and timing the market to professional fund managers
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Dollara Sutari asked, What is your view on Debt Funds ...do you see Short Term Debt as a good option in the current scenario and if so why ..thanks
Sudeep Mukherjee,Short Term debt funds are ideal for investment horizon of less than a year. These funds lag in performance when the interest rates are likely to move up. given the fact the RBI is most likely to increase the rates when it reviews the monetary policy next month, I would like to avoid these fund until further clarity on the interest rates. I would recommend a liquid plus fund instead.
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Laxmi Shukla asked, which is the right investment for 3 years for 1Lakh?
Sudeep Mukherjee,for 3 years you can consider balanced funds that invest 65% of their corpus in equity and balance in debt. You can consider funds like HDFC Prudence and DSP BlackRock Balanced Fund among others.
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Kunte Santosh asked, i want to know about PPF a/cs
Sudeep Mukherjee,PPF is a Public Provident fund A/c. You can invest up to Rs 70,000 in a year. The rate of interest currently is 8% p.a. and the interest is tax-free. the tenure of this fund is 15 years and you can renew if for 5 years after maturity. The investments in PPF qualify for deduction under section 80C of the income tax act
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Bhanu Singh asked, Hi what is best short term investment plans you can recommend if you want to invest around 10-15 lacks Thanks
Sudeep Mukherjee,if your investment horizon is less than a year, then liquid plus funds are the best. these score high on safety and liquidity. If your investment horizon is between 1-2 years then bank FDs are the best. If your investment horizon is 18-24 months then Monthly Income Plans are the best
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Amreetesh asked, i have invested 30000 in icici infra mutual fund before 2 yr ,but it is in not a good position.
Sudeep Mukherjee,infrastructure funds are thematic funds. They do well when the sectors that constitute the infrastructure theme do well. Also, stocks in the infrastructure sector are highly volatile. I would recommend that you redeem this fund and invest in a well managed diversified equity fund.
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Bannerjee asked, Would you recommend retired people to invest in MIP Mutual funds. How do they differ from other mutual funds. Any recommended ones
Sudeep Mukherjee,Monthly Income Plans (MIPs) are offered by most mutual funds in the country. MIPs are hybrid funds with 10%-30% exposure to equities and balance to debt. While the debt portfolio is designed to generate regular income and add stability, the equity portfolio aims for increasing the overall returns. Since there is an equity component, the investor should be willing to take some degree of risk. Also, the returns are not guaranteed or assured unlike a bank fixed deposit. Although the name Monthly Income Plan, monthly income by way of dividend is not assured. Dividends are paid subject to profits made by the fund. If you are opting for dividend option, then quarterly dividends are ideal. If you are not aiming at generating regular income, then growth option is the best. These funds are treated as long term capital assets if held for more than one year from the date of investment. You can avail of indexation benefit to reduce your long term capital gains tax on the appreciation, if any. The ideal investment horizon to reap the benefit of investing in an MIP is 18-24 months. Expected returns should be in the range of 8%-10% p.a.
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Madhavan asked, for one time investment as on date of 500000 whether equity/mutual fund OR GOLD etf is better?
Sudeep Mukherjee,in my view you should divide the amount between equity, debt and gold. Allocate 10% to gold. If you are willing to take high risk and remain invested for 5 years and more then allocate a higher amount towards equity and balance in debt. If your investment horizon is less than 3 years then allocated more towards debt. As far as equities are concerned, equity funds are the best option. For debt bank FD is ideal. For gold, avoid buying physical gold. Invest in Gold ETFs
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Wednesday, March 10, 2010
BUY GOLD AND ADD GLITTER TO YOUR PORTFOLIO
You can do it in 3 ways
1. Buy solid gold and keep it safe. Typically buy it from a trusted jeweler.
2. Buy the Gold Funds. You can invest in gold and its valuation but need to stock it by yourself. Being Indian, its easy to sell funds than selling gold. Get in touch with your funds manager.
3. Invest in gold schemes. Its typically available with jewelers. Its a bit risky but its worth a try.
Comparing to gold , Bank/ Postal deposit is more benefited. Normally gold and silver prices will hike once in 10 years. It will take another 10 years to get another boom. Any how a minimum quantity of Gold is required for marriages. If it is shortly required we can purchase Gold. Otherwise Cash deposits is much benefited.
If not able to take right decision we can invest in both as 1: 2 basis i.e. 1part Gold : 2 parts deposits. Don't invest in any schemes/gold mutual buy only 99.99 or 99.95% gold from the banks / reputed jewelers and kept in safe.
1. Buy solid gold and keep it safe. Typically buy it from a trusted jeweler.
2. Buy the Gold Funds. You can invest in gold and its valuation but need to stock it by yourself. Being Indian, its easy to sell funds than selling gold. Get in touch with your funds manager.
3. Invest in gold schemes. Its typically available with jewelers. Its a bit risky but its worth a try.
Comparing to gold , Bank/ Postal deposit is more benefited. Normally gold and silver prices will hike once in 10 years. It will take another 10 years to get another boom. Any how a minimum quantity of Gold is required for marriages. If it is shortly required we can purchase Gold. Otherwise Cash deposits is much benefited.
If not able to take right decision we can invest in both as 1: 2 basis i.e. 1part Gold : 2 parts deposits. Don't invest in any schemes/gold mutual buy only 99.99 or 99.95% gold from the banks / reputed jewelers and kept in safe.
Monday, March 8, 2010
Investment Advice by Jeevan Kiran , Grace Investments, Chennai
Seshan asked, Which one is better...1) 5000 per month as SIP in one pure equity fund...2) 1000 per month as SIP in 5 pure equity funds....both with long term (15-20 years) in mind
Jeevan answers, hi, it is always better to have a equity fund portfolio of 4-5 funds. It helps you diversify the risk. Your portfolio does not depend on one/two scheme to perform. Hence, divide the amount between 4- funds.
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Garg asked, My PPF account matures on 1st April 2010. Keeping in mind the new DTC with EET coming, should I close my PPF account without 5 years extension?
Jeevan answers, hi, the provisions of DTC will be applicable only to deposits made on or after 1st April 2011. You can go ahead and renew your PPF account for another 5 years.
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Veena Sridhar asked, How should a 25 yr old plan/invest in mutual fund to gain maximum wealth. Investment capacity is 9k/mth for 2 years. Thanks
Jeevan answers, hi, your age is appropriate for investing in equity funds which has the potential to build wealth over the long term. But your investment horizon is too less. You should invest in equity funds with time horizon of atleast 5 years. Then only you can capitalize on the wealth creation potential of equities
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Vignesh asked, Hi... I am residing in a rented house in Bangalore & I am planning to take Home Loan to build a house in my native. Would I be able to get tax benefit on the prepayment of Home Loan as well as enjoy tax deduction through HRA?
Jeevan answers, hi, yes you can claim the home loan benefits under the income tax act for the house you are building in your native. You can also claim the benefit of HRA for the rent paid by you for the house in Bangalore.
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Chaturvedi asked, WHY SHOULD ONE GO FOR ETF INSTEAD OF BUYING PHYSICAL GOLD. PLEASE EXPLAIN
Jeevan answers, hi, physical gold is better than ETF because it is easier to buy and sell an ETF compared to physical gold. You need to call your stock broker to buy and sell the ETF. Secondly, the units of ETF are held in demat form. So there is no worry of taking care like physical gold. also, the gold which the funds is the purest form of gold.
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Raman Kochhar asked, I am 28 years ,working in automobile company and completed 3 years in job. Till date i have taken lic policy of 5 lakhs for 15 years and given two premium of 35000 for last 2 years. I have invested 20000 in lic ulip,35000 in sbi mutual fund. Is my strategy policy will work good in future and also suggest me for future planning for getting good corpus. My monthly take home salary is 37000
Jeevan answers, hi, you seem to investment savvy but you need to plan your investment before buying any ULIP or mutual fund. If you are investing to build your retirement corpus then I would recommend that you get a retirement plan made for yourself. Once the plan is ready and you know how much you need to invest and in which asset class (equity, debt, gold),then go ahead and buy the insurance plans and mutual fund schemes.
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Meghraj asked, Hi Jeevan, in the view of the tax benefits on the housing loans likely to be withdrawn next year, will it be worthwhile availing a new housing loan at this juncture ?
Jeevan answers, hi, if buying a house is a need then i don’t see any reason why you should postponed the decision by one year. There may be an increase in the property price in the next one year. So go ahead and take the loan. I am not sure what will kind of similar benefits will be made available under the Direct Tax Code. Waiting for more clarifications and then taking action may not be a good idea.
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Bharath Reddy asked, Sir, I want to invest 25lakh in share market how many years I have to wait to avoid any capital gains tax..
Jeevan answers, hi, as per the prevailing tax laws, if you want to claim exemption from long term capital gains on equity shares and equity funds, then your holding period should be atleast 365 days from the date of investment.
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Bharat Sharma asked, Hi Jeevan, I want to know more about the capital gain tax and is it possible to avoid it by paying for loans
Jeevan answers, hi, you cannot avoid paying capital gains tax by repaying your loans. To save capital gains tax, you need to invest in capital gains tax saving bonds offered by REC and National Highway Authority of India (NHAI)
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Pratik Jain asked, i want to invest gold...which is good for me..?
Jeevan answers, hi, if you are looking at investing in gold, then consider Gold Exchange Traded Fund (ETF). These are the best form of investing in gold. Its easy to buy and sell gold ETF. You need to have a demat account and a share trading account with any stock broker. Also, do not allocated more than 10% of your overall portfolio to gold. Invest in gold as an insurance and a hedge against inflation.
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Walter asked, Sir, I intend to invest in ELSS - HDFC tax saver and ICICI tax saver, kindly suggest. Time horizon for the investment is 5 + years
Jeevan answers, hi, both the funds are good for 5 years time horizon.
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Ajay Sinha asked, Hi Jeevan, correction is possible in share market in coming months in 2010, Is it right time to invest in market ?
Jeevan answers, hi, corrections keep happening in the stock markets at regular intervals. The long term outlook looks good for the India as a country and I would definitely recommend that you invest in equity markets. Please invest for the long term - 5 years and above. Ensure that you invest in diversified equity funds. Avoid Sector or Thematic funds. Every fall in the market should be considered as an opportunity to invest in equity markets.
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Lalit Kankate asked, Hi i am planning to invest 60K p.A in met gold plus for 3 years with insurance cover for 10 years pl. suggest. i am 26 earning 25k p.m.
Jeevan answers, hi, i m not sure of the details of this policy. If its an ULIP, please stay away from it. Go for term plan. For investments, you should invest in mutual funds. ULIPs are very high on the cost side in the initial years and hence not advisable.
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UjagirRai asked, hi sir i am planning to invest in Lic of india
Jeevan answers, hi, if you are taking a life insurance policy then go only for Pure Term Plan. This is the best type of insurance for any individual of any age. It offers you higher sum assured at relatively lower premiums. Please stay away from ULIPs. Ask your insurance advisor if the policy is a ULIP. IF yes, do not go for it.
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Manikanthan Iyer asked, I am going to sell my house and buy an another asset. The Money which i am going to get from my old house can I keep for 6 months and invest or I need to invest. Is this is taxable ?
Jeevan answers, hi, you will have to deposit this money into a separate bank account call the Capital Gains Deposit Account. This money can then be utilized to buy another house property within 2 years from the date of sale of an existing house property.
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Dhannu asked, Which are the Infrastructure Bond which are best to invest in to save tax under 20000/-category?
Jeevan answers, hi, the details of these bonds are not out as yet.
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Sibu George asked, I wanted to invested 5000 via SIP , pl tell me which fund would be the best for SIP
Jeevan answers, hi, in the equity fund category, you can invest in funds like HDFC Equity, Franklin Indi Bluechip, DSP BlackRock Equity and Sundaram BNP Paribas Select Midcap. In the balance fund category you can consider funds like HDFC Prudence and DSP BlackRock Balanced Fund.
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Deb asked, I want to invest in ELSS. I have savings of around 1 Lakh. Please advise what % of my savings should I put in ELSS scheme? Is there any other better options where I can invest?
Jeevan answers, hi, you can follow the thumb rule. 100 minus your age can be invested in ELSS. This means if you are 30 years in age, then Rs 70000 can be invested in ELSS and so on.
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Santhosh Mhatre asked, Hi i am santhosh here and i am 39 years old, How can i plan for retirement now so that i can get monthly income after i reach 55.
Jeevan answers, hi, you need to build a corpus of investments to take care of your day-to-day and lifestyle expenses post retirement. You will have to sit with an investment planner and get the retirement plan made for yourself. The plan will lay down the roadmap as to how much money you need to save on a monthly basis and invest the same into asset classes that in line with your risk appetite and investment horizon.
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Gagan Chawla asked, if someone has monthly surplus amount, then one should repay the housing loan or to have SIP in MF
Jeevan answers, hi, in my view you should repay your home loan instead of investing it in equity funds through SIP. Rather, the amount which you save on EMI should be channelized into equity funds through SIPs.
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Yogeshbhai Shah asked, How good is LIC Wealth plus when compared to all the guaranteed NAV Plans. Do u think its wise to invest in this plan than in KVP and NSC's . Thanks for your help!!!
Jeevan answers, hi, I am not sure the way these NAV guaranteed schemes work. Personally I have not been able to understand the mathematics behind these schemes. I would prefer a term plan when it comes to insurance. For regular income and safety, I would prefer NSC over LIC Wealth Plus.
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Sabyachee Mukherjeea asked, Hi Jeevan. I had bought NSC worth 10,000 in 2004 and they matured now. Do I have to include this amount in my income this year? I got 16000 on maturity. Secondly earlier dividends of MFs were taxfree. What’s the status now and for 2011-12?
Jeevan answers, hi, yes you will have to include the total interest earned on the NSC in your total income for the year in which your NSC matured. There is no change in the taxability of dividends in the budget. They remain tax-free for both equity and debt fund investors.
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Vivek Jain asked, i have a joint home loan, me and my wife working, the tax we can save is 1lakh each as principal and 1.5 each as interest right or it will be divided since joint home loan
Jeevan answers, You have taken a joint loan for the property. That by itself does not make you and your wife eligible to tax benefits under section 24 & 80C. To claim the tax benefits by each one of you, the property should be co-owned by you and your wife. The loan should be taken by the person in whose name the property is purchased to avail of the tax benefits.
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Khatri Haresh asked, Are there new tax saving investment opportunities created in this budget
Jeevan answers, hi, yes besides the deduction of Rs 1 lakhs available under section 80C, there will be additional deduction of Rs 20k for investing in specified infrastructure bonds. The details of these bonds will be notified shortly.
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Magan Singh asked, WHAT WILL THE NEW INREREST RATE FOR PPF AND MIS.
Jeevan answers, hi, there has been no change in the rate of interest for PPF and POMIS. It remains the same at 8% p.a.
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Varun Singla asked, I have 5 lacs of cash. Where can i invest other than FDs for good returns ?
Jeevan answers, Hi, if you are looking at higher returns than FDs, then you can consider Monthly Income Plans (MIPs) offered by most of the mutual funds. MIPS invest 10%-25% of their corpus in equities and rest in safer fixed income generating securities. MIPs are structured to give you the benefit of debt and equity market. Since, the investment is done in equity markets, you will have to take some risk. MIPs are not risk free like FD. Also, the income in the form of dividend is not assured. Your investment horizon should be atleast 24 months to benefit from investing in MIPs
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Farhan Syed asked, what are the new TAX slabs?
Jeevan answers, The new tax rates are: NIL for income upto Rs 160000 (Rs. 190000 for woman assessee), from Rs 160001 to Rs 500000 -10%, from Rs 500001 to Rs 800000 – 20%, Rs 800001 and above 30%.
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Jeevan answers, hi, it is always better to have a equity fund portfolio of 4-5 funds. It helps you diversify the risk. Your portfolio does not depend on one/two scheme to perform. Hence, divide the amount between 4- funds.
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Garg asked, My PPF account matures on 1st April 2010. Keeping in mind the new DTC with EET coming, should I close my PPF account without 5 years extension?
Jeevan answers, hi, the provisions of DTC will be applicable only to deposits made on or after 1st April 2011. You can go ahead and renew your PPF account for another 5 years.
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Veena Sridhar asked, How should a 25 yr old plan/invest in mutual fund to gain maximum wealth. Investment capacity is 9k/mth for 2 years. Thanks
Jeevan answers, hi, your age is appropriate for investing in equity funds which has the potential to build wealth over the long term. But your investment horizon is too less. You should invest in equity funds with time horizon of atleast 5 years. Then only you can capitalize on the wealth creation potential of equities
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Vignesh asked, Hi... I am residing in a rented house in Bangalore & I am planning to take Home Loan to build a house in my native. Would I be able to get tax benefit on the prepayment of Home Loan as well as enjoy tax deduction through HRA?
Jeevan answers, hi, yes you can claim the home loan benefits under the income tax act for the house you are building in your native. You can also claim the benefit of HRA for the rent paid by you for the house in Bangalore.
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Chaturvedi asked, WHY SHOULD ONE GO FOR ETF INSTEAD OF BUYING PHYSICAL GOLD. PLEASE EXPLAIN
Jeevan answers, hi, physical gold is better than ETF because it is easier to buy and sell an ETF compared to physical gold. You need to call your stock broker to buy and sell the ETF. Secondly, the units of ETF are held in demat form. So there is no worry of taking care like physical gold. also, the gold which the funds is the purest form of gold.
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Raman Kochhar asked, I am 28 years ,working in automobile company and completed 3 years in job. Till date i have taken lic policy of 5 lakhs for 15 years and given two premium of 35000 for last 2 years. I have invested 20000 in lic ulip,35000 in sbi mutual fund. Is my strategy policy will work good in future and also suggest me for future planning for getting good corpus. My monthly take home salary is 37000
Jeevan answers, hi, you seem to investment savvy but you need to plan your investment before buying any ULIP or mutual fund. If you are investing to build your retirement corpus then I would recommend that you get a retirement plan made for yourself. Once the plan is ready and you know how much you need to invest and in which asset class (equity, debt, gold),then go ahead and buy the insurance plans and mutual fund schemes.
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Meghraj asked, Hi Jeevan, in the view of the tax benefits on the housing loans likely to be withdrawn next year, will it be worthwhile availing a new housing loan at this juncture ?
Jeevan answers, hi, if buying a house is a need then i don’t see any reason why you should postponed the decision by one year. There may be an increase in the property price in the next one year. So go ahead and take the loan. I am not sure what will kind of similar benefits will be made available under the Direct Tax Code. Waiting for more clarifications and then taking action may not be a good idea.
________________________________________
Bharath Reddy asked, Sir, I want to invest 25lakh in share market how many years I have to wait to avoid any capital gains tax..
Jeevan answers, hi, as per the prevailing tax laws, if you want to claim exemption from long term capital gains on equity shares and equity funds, then your holding period should be atleast 365 days from the date of investment.
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Bharat Sharma asked, Hi Jeevan, I want to know more about the capital gain tax and is it possible to avoid it by paying for loans
Jeevan answers, hi, you cannot avoid paying capital gains tax by repaying your loans. To save capital gains tax, you need to invest in capital gains tax saving bonds offered by REC and National Highway Authority of India (NHAI)
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Pratik Jain asked, i want to invest gold...which is good for me..?
Jeevan answers, hi, if you are looking at investing in gold, then consider Gold Exchange Traded Fund (ETF). These are the best form of investing in gold. Its easy to buy and sell gold ETF. You need to have a demat account and a share trading account with any stock broker. Also, do not allocated more than 10% of your overall portfolio to gold. Invest in gold as an insurance and a hedge against inflation.
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Walter asked, Sir, I intend to invest in ELSS - HDFC tax saver and ICICI tax saver, kindly suggest. Time horizon for the investment is 5 + years
Jeevan answers, hi, both the funds are good for 5 years time horizon.
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Ajay Sinha asked, Hi Jeevan, correction is possible in share market in coming months in 2010, Is it right time to invest in market ?
Jeevan answers, hi, corrections keep happening in the stock markets at regular intervals. The long term outlook looks good for the India as a country and I would definitely recommend that you invest in equity markets. Please invest for the long term - 5 years and above. Ensure that you invest in diversified equity funds. Avoid Sector or Thematic funds. Every fall in the market should be considered as an opportunity to invest in equity markets.
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Lalit Kankate asked, Hi i am planning to invest 60K p.A in met gold plus for 3 years with insurance cover for 10 years pl. suggest. i am 26 earning 25k p.m.
Jeevan answers, hi, i m not sure of the details of this policy. If its an ULIP, please stay away from it. Go for term plan. For investments, you should invest in mutual funds. ULIPs are very high on the cost side in the initial years and hence not advisable.
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UjagirRai asked, hi sir i am planning to invest in Lic of india
Jeevan answers, hi, if you are taking a life insurance policy then go only for Pure Term Plan. This is the best type of insurance for any individual of any age. It offers you higher sum assured at relatively lower premiums. Please stay away from ULIPs. Ask your insurance advisor if the policy is a ULIP. IF yes, do not go for it.
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Manikanthan Iyer asked, I am going to sell my house and buy an another asset. The Money which i am going to get from my old house can I keep for 6 months and invest or I need to invest. Is this is taxable ?
Jeevan answers, hi, you will have to deposit this money into a separate bank account call the Capital Gains Deposit Account. This money can then be utilized to buy another house property within 2 years from the date of sale of an existing house property.
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Dhannu asked, Which are the Infrastructure Bond which are best to invest in to save tax under 20000/-category?
Jeevan answers, hi, the details of these bonds are not out as yet.
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Sibu George asked, I wanted to invested 5000 via SIP , pl tell me which fund would be the best for SIP
Jeevan answers, hi, in the equity fund category, you can invest in funds like HDFC Equity, Franklin Indi Bluechip, DSP BlackRock Equity and Sundaram BNP Paribas Select Midcap. In the balance fund category you can consider funds like HDFC Prudence and DSP BlackRock Balanced Fund.
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Deb asked, I want to invest in ELSS. I have savings of around 1 Lakh. Please advise what % of my savings should I put in ELSS scheme? Is there any other better options where I can invest?
Jeevan answers, hi, you can follow the thumb rule. 100 minus your age can be invested in ELSS. This means if you are 30 years in age, then Rs 70000 can be invested in ELSS and so on.
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Santhosh Mhatre asked, Hi i am santhosh here and i am 39 years old, How can i plan for retirement now so that i can get monthly income after i reach 55.
Jeevan answers, hi, you need to build a corpus of investments to take care of your day-to-day and lifestyle expenses post retirement. You will have to sit with an investment planner and get the retirement plan made for yourself. The plan will lay down the roadmap as to how much money you need to save on a monthly basis and invest the same into asset classes that in line with your risk appetite and investment horizon.
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Gagan Chawla asked, if someone has monthly surplus amount, then one should repay the housing loan or to have SIP in MF
Jeevan answers, hi, in my view you should repay your home loan instead of investing it in equity funds through SIP. Rather, the amount which you save on EMI should be channelized into equity funds through SIPs.
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Yogeshbhai Shah asked, How good is LIC Wealth plus when compared to all the guaranteed NAV Plans. Do u think its wise to invest in this plan than in KVP and NSC's . Thanks for your help!!!
Jeevan answers, hi, I am not sure the way these NAV guaranteed schemes work. Personally I have not been able to understand the mathematics behind these schemes. I would prefer a term plan when it comes to insurance. For regular income and safety, I would prefer NSC over LIC Wealth Plus.
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Sabyachee Mukherjeea asked, Hi Jeevan. I had bought NSC worth 10,000 in 2004 and they matured now. Do I have to include this amount in my income this year? I got 16000 on maturity. Secondly earlier dividends of MFs were taxfree. What’s the status now and for 2011-12?
Jeevan answers, hi, yes you will have to include the total interest earned on the NSC in your total income for the year in which your NSC matured. There is no change in the taxability of dividends in the budget. They remain tax-free for both equity and debt fund investors.
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Vivek Jain asked, i have a joint home loan, me and my wife working, the tax we can save is 1lakh each as principal and 1.5 each as interest right or it will be divided since joint home loan
Jeevan answers, You have taken a joint loan for the property. That by itself does not make you and your wife eligible to tax benefits under section 24 & 80C. To claim the tax benefits by each one of you, the property should be co-owned by you and your wife. The loan should be taken by the person in whose name the property is purchased to avail of the tax benefits.
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Khatri Haresh asked, Are there new tax saving investment opportunities created in this budget
Jeevan answers, hi, yes besides the deduction of Rs 1 lakhs available under section 80C, there will be additional deduction of Rs 20k for investing in specified infrastructure bonds. The details of these bonds will be notified shortly.
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Magan Singh asked, WHAT WILL THE NEW INREREST RATE FOR PPF AND MIS.
Jeevan answers, hi, there has been no change in the rate of interest for PPF and POMIS. It remains the same at 8% p.a.
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Varun Singla asked, I have 5 lacs of cash. Where can i invest other than FDs for good returns ?
Jeevan answers, Hi, if you are looking at higher returns than FDs, then you can consider Monthly Income Plans (MIPs) offered by most of the mutual funds. MIPS invest 10%-25% of their corpus in equities and rest in safer fixed income generating securities. MIPs are structured to give you the benefit of debt and equity market. Since, the investment is done in equity markets, you will have to take some risk. MIPs are not risk free like FD. Also, the income in the form of dividend is not assured. Your investment horizon should be atleast 24 months to benefit from investing in MIPs
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Farhan Syed asked, what are the new TAX slabs?
Jeevan answers, The new tax rates are: NIL for income upto Rs 160000 (Rs. 190000 for woman assessee), from Rs 160001 to Rs 500000 -10%, from Rs 500001 to Rs 800000 – 20%, Rs 800001 and above 30%.
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Sunday, March 7, 2010
How to make a ‘good investment'
How to make a ‘good investment'
What is a good investment? We can spend hours defining that but to me, a good investment protects the value of the investor's principal. But, then, if you just tuck money away in a mattress, the principal is protected. Is that a ‘good investment'? Not really. A good investment must also ensure that inflation does not make inroads into your portfolio. The threat of inflation, especially consumer inflation, is looming large across the globe. Food prices, in particular, have been rising from April 2009 and India is no exception. In this context, inflation is not about ‘price rise' but about a ‘state of rising prices'.
Arresting inflation
Expectations of such a state of rising prices emerging in the near future is getting stronger. In the Indian context, food price inflation (currently around 20 per cent ) is a matter of grave concern as food constitutes almost 45 per cent of the spending pattern of the common man. Oil, metals and other asset classes are firming up rapidly which will have a cascading effect on inflation in the days to come.
Therefore, with one-tenth of the country's GDP in fiscal deficit and the government in no hurry to roll back the fiscal stimulus, the RBI is left with few choices other than to signal a tighter monetary policy. If they don't do it now, they would need even harsher measures to arrest the inflation threat. The bond market has begun discounting the raising of rates by the RBI, and, irrespective of the degree of hawkish tone in the ensuing credit policy, yields will continue their upward journey. The roll-back of stimulus, (implying less government borrowings) if it happens, will be positive for the bond market from the demand-supply (of government securities) perspective.
Earnings growth
On the equity front, market undertones are expected to remain positive as long as foreign institutional investors flows continue. Beyond the results-season market volatility, a bigger concern is the foundation of expectations of earnings growth of the Nifty fifty stocks in FY-11 over FY-10. A 20 per cent earnings growth consensus of the Nifty fifty stocks in FY11, on the back of Reliance Industries and Tata Steel alone contributing to 40 per cent of such growth, appears to be quite vulnerable. The profitability of both stocks is sensitive to global factors and not exclusively dependent on domestic growth story. Almost 60 per cent of the earnings growth in FY11 of the Nifty stocks is expected to come from high global swings related to the metals and energy sector.
Indian markets will thus remain quite sensitive to global macro cues; let us not rely too much on exclusive domestic economic growth-driven Nifty movements in FY-11. However, the time is once again ripe for bottoms-up approach in selecting stocks.
What is a good investment? We can spend hours defining that but to me, a good investment protects the value of the investor's principal. But, then, if you just tuck money away in a mattress, the principal is protected. Is that a ‘good investment'? Not really. A good investment must also ensure that inflation does not make inroads into your portfolio. The threat of inflation, especially consumer inflation, is looming large across the globe. Food prices, in particular, have been rising from April 2009 and India is no exception. In this context, inflation is not about ‘price rise' but about a ‘state of rising prices'.
Arresting inflation
Expectations of such a state of rising prices emerging in the near future is getting stronger. In the Indian context, food price inflation (currently around 20 per cent ) is a matter of grave concern as food constitutes almost 45 per cent of the spending pattern of the common man. Oil, metals and other asset classes are firming up rapidly which will have a cascading effect on inflation in the days to come.
Therefore, with one-tenth of the country's GDP in fiscal deficit and the government in no hurry to roll back the fiscal stimulus, the RBI is left with few choices other than to signal a tighter monetary policy. If they don't do it now, they would need even harsher measures to arrest the inflation threat. The bond market has begun discounting the raising of rates by the RBI, and, irrespective of the degree of hawkish tone in the ensuing credit policy, yields will continue their upward journey. The roll-back of stimulus, (implying less government borrowings) if it happens, will be positive for the bond market from the demand-supply (of government securities) perspective.
Earnings growth
On the equity front, market undertones are expected to remain positive as long as foreign institutional investors flows continue. Beyond the results-season market volatility, a bigger concern is the foundation of expectations of earnings growth of the Nifty fifty stocks in FY-11 over FY-10. A 20 per cent earnings growth consensus of the Nifty fifty stocks in FY11, on the back of Reliance Industries and Tata Steel alone contributing to 40 per cent of such growth, appears to be quite vulnerable. The profitability of both stocks is sensitive to global factors and not exclusively dependent on domestic growth story. Almost 60 per cent of the earnings growth in FY11 of the Nifty stocks is expected to come from high global swings related to the metals and energy sector.
Indian markets will thus remain quite sensitive to global macro cues; let us not rely too much on exclusive domestic economic growth-driven Nifty movements in FY-11. However, the time is once again ripe for bottoms-up approach in selecting stocks.
Debt funds: Not always risk-free
Debt funds invest in instruments that carry a fixed rate of interest or are guaranteed, in many cases, by the issuer. As a result, debt funds are often perceived by the investor as being completely risk-free. However, the reality is different. Debt funds may be less risky than equity funds, but they certainly aren't risk-free. Debt fund NAVs can change with interest rates, changes in the portfolio's ratings or tenure.
There are two types of gains — one is the interest that a debt security accrues or earns which is also called the coupon; and the other is the capital appreciation which it earns due to a change in market interest rates. The following risks are associated with Debt Funds.
Interest rate risk: The price of the bond is not only based on the current interest rates but also the expected future interest rate. The NAV of a debt fund is calculated based on the price of the underlying bond/securities. If market interest rates fall, the price of the bond rises, thereby increasing the NAV and vice versa.
The extent of the fall or rise will also depend on the tenure of the bond the fund is holding. The longer the tenure, the more sensitive it is to change in interest rates. Assume a debt fund has invested in a certificate of deposit, which carries an interest rate of eight per cent and will mature in five years.
After a month, the central bank announces a cut in interest rates and as a result the same deposit is now available at say 7.5 per cent. What it means is that all fresh investments will earn 0.5 per cent lower. As the earlier deposit is earning 0.5 per cent more than the current rates the markets will pay more for the same resulting in an increase in valuation of the deposit, and thereby, increasing the NAV.
When the fund manager is expecting the rates to come down, he increases the tenure of the bonds that he is holding to increase capital appreciation and reduces the tenure, if he is expecting the rates to go up. That is why bond funds give higher returns when interest rates are expected to go down and lower returns when it is expected to go up.
If interest rate risk is one type of risk, bond funds also carry credit risk.
Credit quality: Most securities held by debt funds have a credit rating assigned by rating agencies, suggesting the ability of the security to meet its payment obligations. The higher the credit rating (P+ or AAA or A1+), the lower is the perceived risk of default, and hence, lower is the rate that one earns, and vice-versa.
Funds also take exposure in securities with lower ratings either to get higher interest rates or with the hope that the rating will be upgraded in near future. In case the rating of a bond goes up from say AA to AAA, there will be some capital appreciation resulting in increase in NAV. In case of a default, the NAV will come down as the money invested in the bond cannot be recovered from the company the fund has invested in. Therefore, it is important for an investor to not only look at the returns generated by the fund but also the credit quality of the portfolio.
Liquidity: It is important that the bonds invested in by the fund are liquid enough to be sold when the money is required. In case bonds are not liquid, they have to be sold at a discount, resulting in a lower NAV.
All the above risks are manageable and can be reduced if the investor is prudent in choosing his bond funds. If the surpluses that you have are for less than three months, you should be investing in liquid funds that have shorter portfolio tenure.
If you have the money for more than a year, you should be investing in funds with longer portfolio tenure or maturity like income funds. By doing this, you are aligning your investment objective with the fund's objective, and thereby, neutralising the volatility that the fund may go through due to any of the risks mentioned above.
There are two types of gains — one is the interest that a debt security accrues or earns which is also called the coupon; and the other is the capital appreciation which it earns due to a change in market interest rates. The following risks are associated with Debt Funds.
Interest rate risk: The price of the bond is not only based on the current interest rates but also the expected future interest rate. The NAV of a debt fund is calculated based on the price of the underlying bond/securities. If market interest rates fall, the price of the bond rises, thereby increasing the NAV and vice versa.
The extent of the fall or rise will also depend on the tenure of the bond the fund is holding. The longer the tenure, the more sensitive it is to change in interest rates. Assume a debt fund has invested in a certificate of deposit, which carries an interest rate of eight per cent and will mature in five years.
After a month, the central bank announces a cut in interest rates and as a result the same deposit is now available at say 7.5 per cent. What it means is that all fresh investments will earn 0.5 per cent lower. As the earlier deposit is earning 0.5 per cent more than the current rates the markets will pay more for the same resulting in an increase in valuation of the deposit, and thereby, increasing the NAV.
When the fund manager is expecting the rates to come down, he increases the tenure of the bonds that he is holding to increase capital appreciation and reduces the tenure, if he is expecting the rates to go up. That is why bond funds give higher returns when interest rates are expected to go down and lower returns when it is expected to go up.
If interest rate risk is one type of risk, bond funds also carry credit risk.
Credit quality: Most securities held by debt funds have a credit rating assigned by rating agencies, suggesting the ability of the security to meet its payment obligations. The higher the credit rating (P+ or AAA or A1+), the lower is the perceived risk of default, and hence, lower is the rate that one earns, and vice-versa.
Funds also take exposure in securities with lower ratings either to get higher interest rates or with the hope that the rating will be upgraded in near future. In case the rating of a bond goes up from say AA to AAA, there will be some capital appreciation resulting in increase in NAV. In case of a default, the NAV will come down as the money invested in the bond cannot be recovered from the company the fund has invested in. Therefore, it is important for an investor to not only look at the returns generated by the fund but also the credit quality of the portfolio.
Liquidity: It is important that the bonds invested in by the fund are liquid enough to be sold when the money is required. In case bonds are not liquid, they have to be sold at a discount, resulting in a lower NAV.
All the above risks are manageable and can be reduced if the investor is prudent in choosing his bond funds. If the surpluses that you have are for less than three months, you should be investing in liquid funds that have shorter portfolio tenure.
If you have the money for more than a year, you should be investing in funds with longer portfolio tenure or maturity like income funds. By doing this, you are aligning your investment objective with the fund's objective, and thereby, neutralising the volatility that the fund may go through due to any of the risks mentioned above.
ARE ULIPS BEATING THE MARKETS ?? READ ON
Unit-linked insurance plans (ULIPs) investing 80-100 per cent of their assets in equity have found it an uphill task to beat the Sensex in the last one year. A compilation of 62 such schemes shows that only 20 schemes managed to outpace the narrow benchmark, the BSE Sensex, with a return of 83 per cent. The return averaged 83.5 per cent for the entire category. A majority of them have not fully participated in the stock market rally. One reason that can be attributed to this is that insurance companies receive renewal premia at different points in time and may have only deployed their assets in a staggered manner. Their absolute return divergence was also very wide. The top performer – Birla Sun Life Individual Life Maximiser – clocked returns as high 150 per cent, while Star Union Pension Equity Fund was at the bottom of the table with a decline of 5 per cent. Mid-cap stocks that were quoting at a big discount to their large-cap peers same time last year were the top performers, and the funds that invested in this segment managed to top the returns chart.
Though falling short on one-year returns, the performance of ULIPs has improved substantially over the past six months. Majority of them has outpaced BSE Sensex and S&P CNX Nifty and both these indices clocked an absolute return in the range of 3-4 per cent in the year to February. For the same period the CNX Midcap index posted a return of 17.5 per cent and quite few mid-cap funds managed even to beat the CNX Midcap by a few percentage points.
Thirty-four of the 62 schemes studied here have a two-year track record and half of the schemes posted negative returns over a two-year period. The underperformance over a two-year period could be due to fact that markets peaked out two years ago. Insurance companies by and large prefer to stay invested rather than moving into cash during market corrections.
For this analysis we have restricted ourselves to plans that have mandate to invest a maximum of 80-100 per cent in equity investments (the premium are invested in equity, after deducting premium allocation, policy administration and mortality charges).
In ULIPs, appreciation of NAV may not be the actual return to the investor as a host of charges are deducted from NAV-based returns.
Though falling short on one-year returns, the performance of ULIPs has improved substantially over the past six months. Majority of them has outpaced BSE Sensex and S&P CNX Nifty and both these indices clocked an absolute return in the range of 3-4 per cent in the year to February. For the same period the CNX Midcap index posted a return of 17.5 per cent and quite few mid-cap funds managed even to beat the CNX Midcap by a few percentage points.
Thirty-four of the 62 schemes studied here have a two-year track record and half of the schemes posted negative returns over a two-year period. The underperformance over a two-year period could be due to fact that markets peaked out two years ago. Insurance companies by and large prefer to stay invested rather than moving into cash during market corrections.
For this analysis we have restricted ourselves to plans that have mandate to invest a maximum of 80-100 per cent in equity investments (the premium are invested in equity, after deducting premium allocation, policy administration and mortality charges).
In ULIPs, appreciation of NAV may not be the actual return to the investor as a host of charges are deducted from NAV-based returns.
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