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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.
Friday, February 26, 2010
Hang Seng BeES — Chance to buy into China
Credited with being the first foreign ETF in the country, Hang Seng BeES is the latest offering from Benchmark Asset Management Company. An open-ended index scheme, the Hang Seng BeES aims to provide its investors with returns (before expenses) that closely correspond to the total returns of securities as represented by the Hang Seng Index.
The fund will track the index on a real-time basis and will be passively managed. That is, the AMC will not try to ‘beat' the market or seek temporary defensive positions when the market declines or appears over-valued.
Hang Seng exposure
The ETF will enable Indian investors to buy into China, the world's largest manufacturing economy. It will invest at least 90 per cent of its total assets in the stocks of its underlying index, in the same proportion as that in the index. The Hang Seng Index comprises 42 stocks, representing about 60 per cent of the total market capitalisation of the Hong Kong stock market.
The index has a 37 per cent representation from of H-Share companies (those incorporated in mainland China and listed in Hong Kong) and little under 17 per cent from the Red Chips companies (incorporated outside mainland China but controlled by mainland entities and with at least 50 per cent share of sales revenue or profits or assets from mainland China); while the remaining are HK Ordinary shares.
Among the well-known index constituents are companies such as HSBC Holdings, China Mobile, Bank of China, Petro China and Tencent Holdings.
Comment
While reams have been written about the investment attractiveness of Chinese equities, Hang Seng BeES may not fit the investment needs of all categories of investors. It may be best suited to such investors who fully understand, and have the time and resources to track, the fundamentals of the Chinese market and economy.
Unlike the actively managed domestic fund offerings that provide exposure to Chinese equities, the ETF will passively mimic the Hang Seng Index in returns. Besides, its equity exposure will be limited to the Hang Seng Index, unlike the existing fund offerings that can invest outside of the index as well as in Greater China shares.
For instance, while Fortis China-India Fund, the only fund in the pack with at least a year's existence, invests directly in Chinese equities (overall exposure limited to 35 per cent), others such as JP Morgan JF Greater China Equity Offshore Fund and Mirae Asset China Advantage Fund offer China exposure through the feeder funds route. The ETF may, therefore, offer a good fit only for investors looking specifically for Hang Seng Index exposure.
However, to its advantage, exposure to the Hang Seng Index would offer a better proposition to dividend-seeking investors. The index enjoys a higher dividend yield (about 3.25 per cent, as on January 29, 2010), compared to the little over one per cent yield of the domestic bellwether index.
Investors may also have little to worry about the scope of ‘tracking error' as the fund house has an impressive score on that front; at least as far as its existing fund offerings are concerned. Nonetheless, investors may have to build currency risk into their returns expectation.
As for those simply looking to enhance returns, Hang Seng BeES may have little to offer, though it boasts of an exposure to the world's fastest growing economy. Domestic equities offer a better bet in comparison. For instance, the CNX Nifty outperformed the Hang Seng Index each year in the last five years, save for the 2008 correction when it lagged by a couple of percentage points. Last year too, the Hang Seng Index advanced only 52 per cent, as against Nifty's 76 per cent.
The fund will track the index on a real-time basis and will be passively managed. That is, the AMC will not try to ‘beat' the market or seek temporary defensive positions when the market declines or appears over-valued.
Hang Seng exposure
The ETF will enable Indian investors to buy into China, the world's largest manufacturing economy. It will invest at least 90 per cent of its total assets in the stocks of its underlying index, in the same proportion as that in the index. The Hang Seng Index comprises 42 stocks, representing about 60 per cent of the total market capitalisation of the Hong Kong stock market.
The index has a 37 per cent representation from of H-Share companies (those incorporated in mainland China and listed in Hong Kong) and little under 17 per cent from the Red Chips companies (incorporated outside mainland China but controlled by mainland entities and with at least 50 per cent share of sales revenue or profits or assets from mainland China); while the remaining are HK Ordinary shares.
Among the well-known index constituents are companies such as HSBC Holdings, China Mobile, Bank of China, Petro China and Tencent Holdings.
Comment
While reams have been written about the investment attractiveness of Chinese equities, Hang Seng BeES may not fit the investment needs of all categories of investors. It may be best suited to such investors who fully understand, and have the time and resources to track, the fundamentals of the Chinese market and economy.
Unlike the actively managed domestic fund offerings that provide exposure to Chinese equities, the ETF will passively mimic the Hang Seng Index in returns. Besides, its equity exposure will be limited to the Hang Seng Index, unlike the existing fund offerings that can invest outside of the index as well as in Greater China shares.
For instance, while Fortis China-India Fund, the only fund in the pack with at least a year's existence, invests directly in Chinese equities (overall exposure limited to 35 per cent), others such as JP Morgan JF Greater China Equity Offshore Fund and Mirae Asset China Advantage Fund offer China exposure through the feeder funds route. The ETF may, therefore, offer a good fit only for investors looking specifically for Hang Seng Index exposure.
However, to its advantage, exposure to the Hang Seng Index would offer a better proposition to dividend-seeking investors. The index enjoys a higher dividend yield (about 3.25 per cent, as on January 29, 2010), compared to the little over one per cent yield of the domestic bellwether index.
Investors may also have little to worry about the scope of ‘tracking error' as the fund house has an impressive score on that front; at least as far as its existing fund offerings are concerned. Nonetheless, investors may have to build currency risk into their returns expectation.
As for those simply looking to enhance returns, Hang Seng BeES may have little to offer, though it boasts of an exposure to the world's fastest growing economy. Domestic equities offer a better bet in comparison. For instance, the CNX Nifty outperformed the Hang Seng Index each year in the last five years, save for the 2008 correction when it lagged by a couple of percentage points. Last year too, the Hang Seng Index advanced only 52 per cent, as against Nifty's 76 per cent.
WHATS BAD ABOUT THE BUDGET 2010
BUDGET 2010 by VS Subramaniam
THE SENIOR CITIZENS ABOVE 65 YEARS ARE COMPLETELY NEGLECTED. WHEN THE TAX LIMIT WAS INCREASED TO 160000/- , FOR SENIOR CITIZENS
ABOVE 65, THEIR TAX LIMIT SHOULD ALSO BE INCREASED FROM 2,25000/- TO 250000- AT LEAST
IT IS A GREAT INJUSTICE SHOWN TO THEM
Not addressing national issues by Dipak Srivastava
The FM has ignored the 3 most emergencies overshadowing the country:
1. Under development of tribal/ backward areas that have become a hotbed for Maoists.
three National Issues. Even though our Railway min did give token recognition, our FM has blissfully ignored the problem.
2. National defence : anybody's guess as to when war with China and Pakistan may flare up. We shall be caught highly unprepared discussing growth rates and Sensex, while the vital statistics go for a toss. FM has not spared a thought for National Security.
3. Inflation: Any body's guess when India can go the Mexico/ Malaysia way as far as sky rocketing inflation is going. It is virtually accepted by every other minister that it cannot be controlled in the short term. What are we waiting for? for inflation to touch 60% before we start acting. All eyes are on whether stimulus will go or not, any guess as to the extent of counterfeit currency notes in circulation. Rs. 1,14,000 crores last estimate by RBI. Any surprise why inflation is going up without control?
Aristocratic Budget by VIJAYAKUMAR
It seems traditional Old man (Pranab) has faith in creamy layers only those will give support to India both financially and morally. Others have only to vote but not to taste the cake (benefits) from the Govt.
What about educated youth employment ?
What about Landless laborers ?
What about Infrastructure development ?
What about Urbanologist ?
Still 70% of Rural People seeking employment in nearby Urban areas by which transportation is wasted (using different mode of travels like bus/car/two wheelers etc. by which petrol/diesel & man hour&man powers are wasted). More over pollution increases alarmingly. If Govt plan to start suitable industry in the nativity of rural / urban areas then there will be sufficient saving of health & wealth of these people.
Again Govt is paving path to way warding youth.
God only has to save our youth/nation.
Budget 2010-11 by Rajagopalan Krishnan
The budget as usual has the intricate deception. On one hand Mukherjee is giving Income-tax benefits to the salaried class, on the other he has increased the price of gold, automobiles, diesel,petrol, MAT etc. which will definitely have a cascading effect on the common man. When I say common man I am talking about the poor people and people whose income is lower than 1.6 lacs. Government babus are comparatively richer and the unscrupulous staff in excise and income tax department will definitely make a hay while the sun shines! There is no drastic measure on the teeming population nor there are any measures to tackle the skyrocketing food prices. This budget again favours the builders and not the home seekers as the racket involved in the housing and black money churned out in the deal is still untackled. It is common knowledge in each deal minimum 10 to 50 lacs are made in black by the builders and the buyers have no hesitation in shelling out the money in black. It is very difficult to either eradicate poverty or corruption in India with the present government machinery. I am sorry the budget is totally a far-fetched and impracticable one which superficially looks good at a glance. If India has to catch up with the west they have to arrest the teeming population and give enough space for people to breath fresh air as the cities are becoming concrete jungles. In fact the houses are not bought by the needy but people who want to double their income in short span of time.
Not for common Man by chanchal chakrabarti
This budget will please all those, who are paying taxes and in organized sector. what about those who do not fall in any tax bracket. Increase in diesel and petro products will have cascading effect on prices of all commodities. It is the common man who has to bear the burnt for that. common is already reeling under 17% inflation in food and vegetables and I feel it will now go up to 20%. That is the Common Man's budget, my foot.
Given one hand snatched with other hand pankaj ruparel
Given a little tax concession it will only benefit who's income is more than 3Lakhs. Other hand increase the rate of Petro and Diesel and Coal. Within the month the electricity, transportation will increase. Automatic cost increase rate increase. Service tax introduce in Health related service from Hospital. No. tax will be paid by insurance co. If they pay they certainly increase the premium.
Not a Cheering Budget. by Rahul Singh
Pranab babu has once again proved that today's budget goes all out to support the rich investors and the relatively comfortable economic strata of the country. In any case the rich or the higher middle class is hardly bothered by hike in Petroleum products and the inflation, but the middle class and AAM AADMI is certainly hit by the hike in Diesel and Petrol prices as this will have cascading effect on the inflation of all most all the commodities. As such the common man is hard pressed with the high inflation of food items. This will only add fuel to the fire and make the middle class life miserable. The opposition walkout from the Parliament is justified and the government needs to push back the inflation as an immediate priority lest the have nots start looting the haves leading to lawlessness all over.
THE SENIOR CITIZENS ABOVE 65 YEARS ARE COMPLETELY NEGLECTED. WHEN THE TAX LIMIT WAS INCREASED TO 160000/- , FOR SENIOR CITIZENS
ABOVE 65, THEIR TAX LIMIT SHOULD ALSO BE INCREASED FROM 2,25000/- TO 250000- AT LEAST
IT IS A GREAT INJUSTICE SHOWN TO THEM
Not addressing national issues by Dipak Srivastava
The FM has ignored the 3 most emergencies overshadowing the country:
1. Under development of tribal/ backward areas that have become a hotbed for Maoists.
three National Issues. Even though our Railway min did give token recognition, our FM has blissfully ignored the problem.
2. National defence : anybody's guess as to when war with China and Pakistan may flare up. We shall be caught highly unprepared discussing growth rates and Sensex, while the vital statistics go for a toss. FM has not spared a thought for National Security.
3. Inflation: Any body's guess when India can go the Mexico/ Malaysia way as far as sky rocketing inflation is going. It is virtually accepted by every other minister that it cannot be controlled in the short term. What are we waiting for? for inflation to touch 60% before we start acting. All eyes are on whether stimulus will go or not, any guess as to the extent of counterfeit currency notes in circulation. Rs. 1,14,000 crores last estimate by RBI. Any surprise why inflation is going up without control?
Aristocratic Budget by VIJAYAKUMAR
It seems traditional Old man (Pranab) has faith in creamy layers only those will give support to India both financially and morally. Others have only to vote but not to taste the cake (benefits) from the Govt.
What about educated youth employment ?
What about Landless laborers ?
What about Infrastructure development ?
What about Urbanologist ?
Still 70% of Rural People seeking employment in nearby Urban areas by which transportation is wasted (using different mode of travels like bus/car/two wheelers etc. by which petrol/diesel & man hour&man powers are wasted). More over pollution increases alarmingly. If Govt plan to start suitable industry in the nativity of rural / urban areas then there will be sufficient saving of health & wealth of these people.
Again Govt is paving path to way warding youth.
God only has to save our youth/nation.
Budget 2010-11 by Rajagopalan Krishnan
The budget as usual has the intricate deception. On one hand Mukherjee is giving Income-tax benefits to the salaried class, on the other he has increased the price of gold, automobiles, diesel,petrol, MAT etc. which will definitely have a cascading effect on the common man. When I say common man I am talking about the poor people and people whose income is lower than 1.6 lacs. Government babus are comparatively richer and the unscrupulous staff in excise and income tax department will definitely make a hay while the sun shines! There is no drastic measure on the teeming population nor there are any measures to tackle the skyrocketing food prices. This budget again favours the builders and not the home seekers as the racket involved in the housing and black money churned out in the deal is still untackled. It is common knowledge in each deal minimum 10 to 50 lacs are made in black by the builders and the buyers have no hesitation in shelling out the money in black. It is very difficult to either eradicate poverty or corruption in India with the present government machinery. I am sorry the budget is totally a far-fetched and impracticable one which superficially looks good at a glance. If India has to catch up with the west they have to arrest the teeming population and give enough space for people to breath fresh air as the cities are becoming concrete jungles. In fact the houses are not bought by the needy but people who want to double their income in short span of time.
Not for common Man by chanchal chakrabarti
This budget will please all those, who are paying taxes and in organized sector. what about those who do not fall in any tax bracket. Increase in diesel and petro products will have cascading effect on prices of all commodities. It is the common man who has to bear the burnt for that. common is already reeling under 17% inflation in food and vegetables and I feel it will now go up to 20%. That is the Common Man's budget, my foot.
Given one hand snatched with other hand pankaj ruparel
Given a little tax concession it will only benefit who's income is more than 3Lakhs. Other hand increase the rate of Petro and Diesel and Coal. Within the month the electricity, transportation will increase. Automatic cost increase rate increase. Service tax introduce in Health related service from Hospital. No. tax will be paid by insurance co. If they pay they certainly increase the premium.
Not a Cheering Budget. by Rahul Singh
Pranab babu has once again proved that today's budget goes all out to support the rich investors and the relatively comfortable economic strata of the country. In any case the rich or the higher middle class is hardly bothered by hike in Petroleum products and the inflation, but the middle class and AAM AADMI is certainly hit by the hike in Diesel and Petrol prices as this will have cascading effect on the inflation of all most all the commodities. As such the common man is hard pressed with the high inflation of food items. This will only add fuel to the fire and make the middle class life miserable. The opposition walkout from the Parliament is justified and the government needs to push back the inflation as an immediate priority lest the have nots start looting the haves leading to lawlessness all over.
BUDGET2010 HIGHLIGHTS
Minimum Alternate Tax up from 15% to 18% on book profits
-Fiscal deficit pegged at 5.5% of GDP
- I-T dept to notify simple two-page Saral 2 form for individuals for current year
-Personal income tax: Nil for income up to Rs 1.6 lakh, 10% for income bet Rs 1.6 -5 lakh
- Personal income tax: Income between 5-8 lakh: Tax at 20%
- Personal income tax: Above Rs 8 lakh, tax at 30%
- Professionals with Rs 15 lakh income need account audit
- Partial rollback of excise duty relief on large cars
- To provide subsidy in cash instead of bonds for fertiliser, oil
- Customs duty on gold, platinum imports raised to Rs 300 from Rs 200
- Service tax to GDP ratio is 1%
- Net revenue gain of Rs 43,500 cr from customs, excise proposal
- Direct tax proposals result in Rs 26,000 cr loss; indirect tax yield Rs 45,000
cr gain
- News agencies exempt from service tax
- Some services hitherto not taxed would be brought under the purview of new Service Tax
- Service Tax rates unchanged at 10%
- No import duty on some equipment in road projects
- Cut in duty for photovoltaic units
- External commercial borrowing will be available for food storage industries
- Clean energy cess on domestic, imported coal
- Peak customs duty remains unchanged at 10%
- Central excise on LED lights halved to 4%
- Agricultural seeds exempt from service tax
- Full excise cut on electric cars
- For solar mission, solar power generating units rates are to be reduced by 5%
- Cut on personal tax rates means saving of Rs 50,000 for income up to Rs 8 lakh
- Partial rollback of excise duty relief on large cars
- Peak excise duty hiked from 8% to 10%
- Market borrowing were up to 3,45,000 cr. Enough to meet credit need of private sector
- Duties on smoking and non-smoking tobacco products up
- Excise duty on large cars, SUVs, multi utility vehicles hiked
- Petroleum products: basic excise duty of 5% crude, 7.5% on diesel & petrol; 10% on other products
- Structural changes in excise duties of tobacco, propose to extend excise duty
- Revenue loss of Rs 26,000 cr on a/c of direct tax proposals
- Surcharge for companies reduced to 7.5%
- Due to direct taxes, result in a revenue loss of Rs 26,000 cr
- Threshold limit for TDS applicability to be rationalised
- Extended scope of presumptive taxes up to Rs 40 lac
- Real estate sector now gets 5 years for completion instead of 4 years before
- To boost tourism investment, offers investment linked tax deductions
- Addl Rs20,000 deduction available for investment in infra bonds
- Reduces current surcharge of 10% on domestic comp to 7.5%
- Automation of excise, service tax already rolled out
- FY11 market borrowing pegged at Rs 3.45 lakh cr
- Govt to set up apex level Financial Stability and Development Council
- FY13 fiscal deficit seen at 4.1%
- Fiscal deficit seen at 4.8% in FY12
- Allocates Rs 1,900 cr for UID project
- Planned expenditure up 15% over 2009-10
- Increase in non-planned exp up only 6%
- Total exp proposed up 8.7% over 2009-10, to Rs 11 lakh cr
- Taskforce to counter problems in Maoist affected areas. Adequate funds will be allocated
- Allocation to Defence over Rs 147,000 crore
- Technology advisory group to be set up under Nandan Nilekani
- Smart card extended to NREGA
- RBI to dole out more banking licences: Pranab
- Sign language training centre for hearing impaired
- Rs 4,500 cr for program of social justice, sr citizens, backward classes, handicapped
- Rs 100 cr allocated for women farmers
- Exclusive skill dev prog in textile and garment sector
- Rs 48,000 cr for Bharat Nirman plan
- Asks state govt to contribute for social security to workers in unorganised sector
- Infra stocks spurt on higher allocation
- To allocate Rs 22,300 cr to Health Ministry
- Allocates Rs 100 cr for new pension scheme, to benefit 100,000 low income citizens
- Khadi institutes get Rs 400 cr
- GOI sign $150 mn deal with ADB for implementing Khadi programme
- Rajiv Awas Yojana now ready' gets Rs 1,270 cr for FY11
- Rs 7300cr in 2011 for backward sections
- GST, Direct Taxes Code from April 2011
- Housing loan: 1% interest subvention scheme extended, allocation Rs 700 cr
- Urban dev allocation up more than 75% to Rs 5400 cr
- Allocates Rs 1,200 cr for drought mitigation
- Indira Awas Yojana: allocation up by Rs 10,000 cr
- NMDC, SVJN stake sale to fetch Rs 25,000 cr in FY10
- NREGS gets Rs 40,100 cr in FY11
- Rs66,1000 cr allocateds for rural development in FY11
- IIFCL disbursements at Rs 9000 cr by March 2010
- School education outlay for FY11 at Rs 31,000 cr
- States to get Rs 3,675 cr for primary education at rural level
- To set up coal regulatory authority
- Spending on social sector at Rs 137,000 cr
- Rs 25,000 cr allocated to develop rural infrastructure
- Growth to exceed 7.2% in this fiscal
- Final FY10 GDP figure maybe higher than estimate of 7.2%
- To set up National clean energy fund
- Plan outlay for Renewable energy ministry up 61%
- Power allocation doubles to Rs 5,100 cr
- To set up 5 more mega food park projects
- Allocation for road tansport Rs 19,894 cr
- Farm loan repayment extended by 6 months
- ECB to be available for cold storage
- To provide Rs 400 cr to boost farm output in eastern India
- Timely repayment of crop loans: subvention raised from 1% to 2%
- Govt is committed to growth of SEZ to promote exports
- Proposes allocation of Rs 200 cr for climate-resilient agricultural program
- Extend 2% interest subvention for exports for another year
- FY11 capital for PSU banks at Rs 16,500 cr
- Extends interest subvention of 2% for handloom, handicrafts for 1 more yr
- Propose new bill to address problems in corpoate sectors
- Will augment assistance to RRBs to strengthen rural sector
- RBI may give license to some more private sector players and NBFCs
- Rs 1,900 cr addl capital in four PSU banks
- Ownership and control clearly defined in FDI policy
- To discuss Kirit Parikh report in due course
- Subsidy for fertiliser sector to increase farm productivity
- Govt to raise Rs 25,000 cr this year to meet cap expenditure requirements
- GST and DTC can be introduced in April 2011
- Steps to reduce public debt, paper to be presented in 6 months
- Signs of food inflation going to non-food items
- Need to review stimulus, move to fiscal consolidation
- Double digit food inflation in 2009
- Export figures encouraging; pvt investments can be expected
- Concerned over emergence of double digit food inflation
- 18.9% growth rate in manufacturing sector in 2009
- Final figure may be higher if earnings in last quarters are strong
- Need to make recovery
- Growth slows down to 6% in Q3 vs 7.9% in Q2 this fiscal
- Focus shifts to non-governmental actors
- 3rd challenge: relates to problems in government system
- 2nd challnge: harden economic growth to make dev more inclusive
- 1st challenge: quickly revert to higher GDP growth path of 9%, cross double digit growth
- Economy is in a better position than a year ago, however, challenges remain
- Uncertainity was there on account of delay in monsoon, concerns about production and food prices
- Pranab Mukherjee starts announcing Union Budget
- Bond yields steady ahead of Budget
-Fiscal deficit pegged at 5.5% of GDP
- I-T dept to notify simple two-page Saral 2 form for individuals for current year
-Personal income tax: Nil for income up to Rs 1.6 lakh, 10% for income bet Rs 1.6 -5 lakh
- Personal income tax: Income between 5-8 lakh: Tax at 20%
- Personal income tax: Above Rs 8 lakh, tax at 30%
- Professionals with Rs 15 lakh income need account audit
- Partial rollback of excise duty relief on large cars
- To provide subsidy in cash instead of bonds for fertiliser, oil
- Customs duty on gold, platinum imports raised to Rs 300 from Rs 200
- Service tax to GDP ratio is 1%
- Net revenue gain of Rs 43,500 cr from customs, excise proposal
- Direct tax proposals result in Rs 26,000 cr loss; indirect tax yield Rs 45,000
cr gain
- News agencies exempt from service tax
- Some services hitherto not taxed would be brought under the purview of new Service Tax
- Service Tax rates unchanged at 10%
- No import duty on some equipment in road projects
- Cut in duty for photovoltaic units
- External commercial borrowing will be available for food storage industries
- Clean energy cess on domestic, imported coal
- Peak customs duty remains unchanged at 10%
- Central excise on LED lights halved to 4%
- Agricultural seeds exempt from service tax
- Full excise cut on electric cars
- For solar mission, solar power generating units rates are to be reduced by 5%
- Cut on personal tax rates means saving of Rs 50,000 for income up to Rs 8 lakh
- Partial rollback of excise duty relief on large cars
- Peak excise duty hiked from 8% to 10%
- Market borrowing were up to 3,45,000 cr. Enough to meet credit need of private sector
- Duties on smoking and non-smoking tobacco products up
- Excise duty on large cars, SUVs, multi utility vehicles hiked
- Petroleum products: basic excise duty of 5% crude, 7.5% on diesel & petrol; 10% on other products
- Structural changes in excise duties of tobacco, propose to extend excise duty
- Revenue loss of Rs 26,000 cr on a/c of direct tax proposals
- Surcharge for companies reduced to 7.5%
- Due to direct taxes, result in a revenue loss of Rs 26,000 cr
- Threshold limit for TDS applicability to be rationalised
- Extended scope of presumptive taxes up to Rs 40 lac
- Real estate sector now gets 5 years for completion instead of 4 years before
- To boost tourism investment, offers investment linked tax deductions
- Addl Rs20,000 deduction available for investment in infra bonds
- Reduces current surcharge of 10% on domestic comp to 7.5%
- Automation of excise, service tax already rolled out
- FY11 market borrowing pegged at Rs 3.45 lakh cr
- Govt to set up apex level Financial Stability and Development Council
- FY13 fiscal deficit seen at 4.1%
- Fiscal deficit seen at 4.8% in FY12
- Allocates Rs 1,900 cr for UID project
- Planned expenditure up 15% over 2009-10
- Increase in non-planned exp up only 6%
- Total exp proposed up 8.7% over 2009-10, to Rs 11 lakh cr
- Taskforce to counter problems in Maoist affected areas. Adequate funds will be allocated
- Allocation to Defence over Rs 147,000 crore
- Technology advisory group to be set up under Nandan Nilekani
- Smart card extended to NREGA
- RBI to dole out more banking licences: Pranab
- Sign language training centre for hearing impaired
- Rs 4,500 cr for program of social justice, sr citizens, backward classes, handicapped
- Rs 100 cr allocated for women farmers
- Exclusive skill dev prog in textile and garment sector
- Rs 48,000 cr for Bharat Nirman plan
- Asks state govt to contribute for social security to workers in unorganised sector
- Infra stocks spurt on higher allocation
- To allocate Rs 22,300 cr to Health Ministry
- Allocates Rs 100 cr for new pension scheme, to benefit 100,000 low income citizens
- Khadi institutes get Rs 400 cr
- GOI sign $150 mn deal with ADB for implementing Khadi programme
- Rajiv Awas Yojana now ready' gets Rs 1,270 cr for FY11
- Rs 7300cr in 2011 for backward sections
- GST, Direct Taxes Code from April 2011
- Housing loan: 1% interest subvention scheme extended, allocation Rs 700 cr
- Urban dev allocation up more than 75% to Rs 5400 cr
- Allocates Rs 1,200 cr for drought mitigation
- Indira Awas Yojana: allocation up by Rs 10,000 cr
- NMDC, SVJN stake sale to fetch Rs 25,000 cr in FY10
- NREGS gets Rs 40,100 cr in FY11
- Rs66,1000 cr allocateds for rural development in FY11
- IIFCL disbursements at Rs 9000 cr by March 2010
- School education outlay for FY11 at Rs 31,000 cr
- States to get Rs 3,675 cr for primary education at rural level
- To set up coal regulatory authority
- Spending on social sector at Rs 137,000 cr
- Rs 25,000 cr allocated to develop rural infrastructure
- Growth to exceed 7.2% in this fiscal
- Final FY10 GDP figure maybe higher than estimate of 7.2%
- To set up National clean energy fund
- Plan outlay for Renewable energy ministry up 61%
- Power allocation doubles to Rs 5,100 cr
- To set up 5 more mega food park projects
- Allocation for road tansport Rs 19,894 cr
- Farm loan repayment extended by 6 months
- ECB to be available for cold storage
- To provide Rs 400 cr to boost farm output in eastern India
- Timely repayment of crop loans: subvention raised from 1% to 2%
- Govt is committed to growth of SEZ to promote exports
- Proposes allocation of Rs 200 cr for climate-resilient agricultural program
- Extend 2% interest subvention for exports for another year
- FY11 capital for PSU banks at Rs 16,500 cr
- Extends interest subvention of 2% for handloom, handicrafts for 1 more yr
- Propose new bill to address problems in corpoate sectors
- Will augment assistance to RRBs to strengthen rural sector
- RBI may give license to some more private sector players and NBFCs
- Rs 1,900 cr addl capital in four PSU banks
- Ownership and control clearly defined in FDI policy
- To discuss Kirit Parikh report in due course
- Subsidy for fertiliser sector to increase farm productivity
- Govt to raise Rs 25,000 cr this year to meet cap expenditure requirements
- GST and DTC can be introduced in April 2011
- Steps to reduce public debt, paper to be presented in 6 months
- Signs of food inflation going to non-food items
- Need to review stimulus, move to fiscal consolidation
- Double digit food inflation in 2009
- Export figures encouraging; pvt investments can be expected
- Concerned over emergence of double digit food inflation
- 18.9% growth rate in manufacturing sector in 2009
- Final figure may be higher if earnings in last quarters are strong
- Need to make recovery
- Growth slows down to 6% in Q3 vs 7.9% in Q2 this fiscal
- Focus shifts to non-governmental actors
- 3rd challenge: relates to problems in government system
- 2nd challnge: harden economic growth to make dev more inclusive
- 1st challenge: quickly revert to higher GDP growth path of 9%, cross double digit growth
- Economy is in a better position than a year ago, however, challenges remain
- Uncertainity was there on account of delay in monsoon, concerns about production and food prices
- Pranab Mukherjee starts announcing Union Budget
- Bond yields steady ahead of Budget
INCOME TAX SLABS FOR INDIVIDUAL PAYERS
The finance minister proposed the following slabs for individual tax payers:
There will be no tax for income upto Rs 1.6 lakh. This was the same earlier.
For income between 1.6 lakh - 5 lakh, the tax liability will be 10%. The older slab was 1.6 - 3 lakh.
For income between 5 lakh - 8 lakh, the tax liability will be 20%. Earlier 20% tax was deducted on Rs 3-5 lakh income.
Individuals with income of above Rs 8 lakh will have tax liability of 30%. Earlier 30% was deducted on income of Rs 5 lakh and above.
The government would allow a deduction of up to Rs 20,000 for investments in long-term infrastructure bonds. The deduction would be in addition to Rs 100,000 allowed under Section 80C of India's Income Tax Act.
There will be no tax for income upto Rs 1.6 lakh. This was the same earlier.
For income between 1.6 lakh - 5 lakh, the tax liability will be 10%. The older slab was 1.6 - 3 lakh.
For income between 5 lakh - 8 lakh, the tax liability will be 20%. Earlier 20% tax was deducted on Rs 3-5 lakh income.
Individuals with income of above Rs 8 lakh will have tax liability of 30%. Earlier 30% was deducted on income of Rs 5 lakh and above.
The government would allow a deduction of up to Rs 20,000 for investments in long-term infrastructure bonds. The deduction would be in addition to Rs 100,000 allowed under Section 80C of India's Income Tax Act.
Sunday, February 21, 2010
EDUCATION IS COSTLY AND BIG AMOUNTS
Education is costly and big amounts of money are required often. start planning from your child's birth.
In this era of rapid change, the education of children has become a major component of financial planning. For instance, in 2009, all the Indian Institutes of Management hiked their annual fees by Rs 75,000-4 lakh. In percentage terms, they were quite hefty hikes. Both IIM Calcutta and IIM Lucknow hiked their fees from Rs 5 to Rs 9 lakh in a single year -- a 80 per cent hike. Others like, IIM Ahmedabad increased their fees from Rs 11.5 lakh to 12.5 lakh. No wonder, parents, whose children are aspiring to be management graduates, can suddenly fund their numbers going completely berserk. In such circumstances, it is important that parents start early to ensure that there are no hiccups at the final stages. And that implies planning well in advance. Some points that will help in this planning :
EARLY START
Most people associate financial planning in education only with college and postgraduate expenses. But this is not so. Pre-school attendance in the form of playgroups are now common. There are significant costs from this stage itself, which can easily go up to Rs 25,000 to 50000. In a city like Mumbai, the Poddar Group of schools is charging Rs 90000 per term. The option is safe and secure debt instruments, that have the feature of accessibility when required.
PLANNING FOR EXPENSES
The expenses intensify as the child enters school and this part has to be properly provided for. Apart from admission and tuition fees, there are a lot of additional heads -- uniform, school bus, stationary and so on. These could be in the range of Rs 50,000 to Rs 500,000 a year during the school years. On an average ICSE & CBSE schools are charging in the range of 36000 to 100000 lakh fees a year as tuition fees excluding school bus costs.
With the advent of international education, costs will rise further. IB schools are charging fees ranging from 1 Lakh onwards . Some school insist the parent pay at one go which is difficult for parents having more than one child and taking into consideration the runaway inflation I the last 1 year . One way is through a pay-as-you-go effort, whereby the expense is met from regular income. But this policy is fraught with risks. It is better if a regular amount is set aside each year that becomes available over a period of time. Since the payment requirement for such portfolio will stretch over 10 years, a variety of options like bonds, mutual funds and stocks can be deployed.
AIMING FOR THE SKY
An increasing number are sending their children abroad right from this stage, to get a good education. This stage requires adequate use of equity in the portfolio to deliver growth over the years, as there is a long time frame till this stage comes into play.
The period of college education would mean four-five years, depending on the country where the child is studying. The expense will also vary significantly, but for good universities abroad, it can go up to $50,000 a year, which means Rs 22-24 lakh. The best way to provide for this is by ensuring a lumpsum comes in each year during the period when the child is of this age. An important point is also that parents will need to plan for various stages simultaneously and they do not have the luxury of saying, first we will plan for school and then move ahead.
THE BACKUP
This is the traditional area where educational planning took place, but is now just a part of the overall process. Even in India, these expenses are rising and except for a few courses like chartered accountancy, most of the other areas require spending in lakhs of rupees. For example, a two-year stint at an MBA institute, including IIMs, will mean an expense in the range of Rs 6-12 lakh, depending upon the institute chosen.
There can be a variety of areas used for planning these expenses and there is also a lot of time for the efforts to be put into effect, which can be anything from 15-20 years, depending on when the process is started. A mixture of long-term debt and equity would be essential for this purpose, using a wide array of instruments. The better the planning here, the lower will be the reliance on loans for education. Another point is that at all stages of the planning process, there has to be a safety element built in through the use of insurance on the life of the parent. This is important, as there has to be a situation where there is no disruption of the education
NEW DEPOSIT RATES EFFECTIVE FEB 2010
Banks have started to revise an upward trend in interest rates which are lagging with the current inflation rates after the RBI increased the CRR for banks . Here are the banks which have revised their interest rates on FDS and others are soon to follow .
ICICI BANK
IBDI BANK
J & K BANK
UNION BANK OF INDIA
ICICI BANK
IBDI BANK
J & K BANK
UNION BANK OF INDIA
Strategy to review your MF portfolio
I have some questions regarding portfolio management and review of mutual funds:
— How frequently should I review my portfolio?
— What are the criteria to decide whether a fund is performing or not?
— If it is underperforming should I wait for some more time period or immediately sell it?
I am 30 years old and can invest Rs 5000 per month in mutual funds. What is the allocation to be made across different classes of funds (large-cap, diversified, mid-cap and small-cap)?
Amol Kulkarni
Mumbai
We appreciate your intention to come up with a systematic strategy to review your portfolio. These tricky questions pose a challenge to many investors. We will attempt to answer them by giving you some broad guidelines. As a general rule, you can review the performance of your portfolio at least once a quarter, subject to the following exceptions:
A huge rally in stocks in a short span of time warrants a cautious approach for two reasons: one, it could be a sign of a bubble in which case you would be better off encashing those paper profits; or two, your asset allocation – between debt and equity or amongst large-mid- and small-cap funds - would have gone out of kilter. You may have to review and rebalance the portfolio in such a case. In addition to this, any change in your strategy or risk profile too would warrant a review.
Is a fund performing?
When you review your portfolio, assess the performance of the individual funds and their overall contribution to the portfolio returns. Compare the funds returns with that of its benchmark and with funds belonging to the same category. For instance, mid-cap funds may be compared with their respective benchmarks and schemes with a similar strategy of investing in mid-cap stocks.
For this purpose do not take short periods of say one month. Unless it has been an eventful quarter, even a three-month period does not provide much insight. Look at the performance over 6-month, 1 year and two-year time frame. In markets such as the present one, a one and two-year period would reveal a lot on how the fund has tackled the different market phases. If you have held the fund for a long period of five years or more, then see if the three-year return has seen any significant change since the last time you reviewed it.
What is the extent of underperformance that can be tolerated would be the next logical question. Should you sell a fund because it returned 2-3 percentage points lower than its peer? Perhaps not. You will then have to look at the risk-adjusted return (as represented by Sharpe ratio). The fund which appears to have marginally underperformed may actually be doing so because of its lower risk profile. That means, its risk-adjusted return could very well be superior to some of its peers.
Note that, even between the same categories of funds — say within large-cap funds or mid-cap funds — the risk profile tends to vary. Most funds provide this data in their fact sheet. However, a variance of over 10 percentage points in performance should be a cause for concern.
Once you notice that a fund's performance is dipping, look out for the reasons as well. Has the fund' sector calls not worked well? Is the fund holding too much cash? If the fund is able to beat its benchmark but struggles to keep pace with peers, it could be because of the fund's conservative mandate or the high-risk mandate of its peers. Look for these variances before deciding on the next course of action. However, if the fund continues to be a laggard even after 3-4 quarters, it perhaps may be a time to take a call.
An active equity fund seldom holds over 5-8 per cent in cash and equivalents. It also strives to remain invested in equities at all times. Funds from the HDFC basket are an example of such a strategy. Remember that while wrong sector calls occasionally can be tolerated, underperformance due to prolonged periods of poor participation in equity or high cash holdings isn't a good strategy. It defeats the very purpose of your investing in equity funds.
Sell immediately?
Was your fund in the top-10 list or top quartile of the equity fund list and has now slipped slightly lower in the last three or six month period? First thing: Do not panic and sell right away. You do not have to chase returns at all times. Only prolonged periods of underperformance, as mentioned earlier, should prompt you to sell a fund.
In your entire portfolio, there will always be a few funds that aren't great contributors to the overall returns score. Such funds, unless they are a drag the returns of your funds portfolio, need not be sold. A value-fund or a dividend yield fund for instance, may not be the best performer during bull phases, as was seen in the previous market rallies. However, such funds warrant a definite hold if they outperform their category peers. Besides, their value-investing approach may come in handy during periods of market correction. Gold funds or international funds too qualify as primarily diversifiers. So, do not expect these funds to keep pace with domestic diversified funds.
As for intention to hold across market-cap segments, much would depend on your risk appetite. Given your age, we think it would be safe to assume that you can stomach some risks. You can in such a case go for 10-15 per cent of pure large-cap funds, 40 per cent in mid-cap and thematic funds and the rest in diversified funds with a long-term track record.
— How frequently should I review my portfolio?
— What are the criteria to decide whether a fund is performing or not?
— If it is underperforming should I wait for some more time period or immediately sell it?
I am 30 years old and can invest Rs 5000 per month in mutual funds. What is the allocation to be made across different classes of funds (large-cap, diversified, mid-cap and small-cap)?
Amol Kulkarni
Mumbai
We appreciate your intention to come up with a systematic strategy to review your portfolio. These tricky questions pose a challenge to many investors. We will attempt to answer them by giving you some broad guidelines. As a general rule, you can review the performance of your portfolio at least once a quarter, subject to the following exceptions:
A huge rally in stocks in a short span of time warrants a cautious approach for two reasons: one, it could be a sign of a bubble in which case you would be better off encashing those paper profits; or two, your asset allocation – between debt and equity or amongst large-mid- and small-cap funds - would have gone out of kilter. You may have to review and rebalance the portfolio in such a case. In addition to this, any change in your strategy or risk profile too would warrant a review.
Is a fund performing?
When you review your portfolio, assess the performance of the individual funds and their overall contribution to the portfolio returns. Compare the funds returns with that of its benchmark and with funds belonging to the same category. For instance, mid-cap funds may be compared with their respective benchmarks and schemes with a similar strategy of investing in mid-cap stocks.
For this purpose do not take short periods of say one month. Unless it has been an eventful quarter, even a three-month period does not provide much insight. Look at the performance over 6-month, 1 year and two-year time frame. In markets such as the present one, a one and two-year period would reveal a lot on how the fund has tackled the different market phases. If you have held the fund for a long period of five years or more, then see if the three-year return has seen any significant change since the last time you reviewed it.
What is the extent of underperformance that can be tolerated would be the next logical question. Should you sell a fund because it returned 2-3 percentage points lower than its peer? Perhaps not. You will then have to look at the risk-adjusted return (as represented by Sharpe ratio). The fund which appears to have marginally underperformed may actually be doing so because of its lower risk profile. That means, its risk-adjusted return could very well be superior to some of its peers.
Note that, even between the same categories of funds — say within large-cap funds or mid-cap funds — the risk profile tends to vary. Most funds provide this data in their fact sheet. However, a variance of over 10 percentage points in performance should be a cause for concern.
Once you notice that a fund's performance is dipping, look out for the reasons as well. Has the fund' sector calls not worked well? Is the fund holding too much cash? If the fund is able to beat its benchmark but struggles to keep pace with peers, it could be because of the fund's conservative mandate or the high-risk mandate of its peers. Look for these variances before deciding on the next course of action. However, if the fund continues to be a laggard even after 3-4 quarters, it perhaps may be a time to take a call.
An active equity fund seldom holds over 5-8 per cent in cash and equivalents. It also strives to remain invested in equities at all times. Funds from the HDFC basket are an example of such a strategy. Remember that while wrong sector calls occasionally can be tolerated, underperformance due to prolonged periods of poor participation in equity or high cash holdings isn't a good strategy. It defeats the very purpose of your investing in equity funds.
Sell immediately?
Was your fund in the top-10 list or top quartile of the equity fund list and has now slipped slightly lower in the last three or six month period? First thing: Do not panic and sell right away. You do not have to chase returns at all times. Only prolonged periods of underperformance, as mentioned earlier, should prompt you to sell a fund.
In your entire portfolio, there will always be a few funds that aren't great contributors to the overall returns score. Such funds, unless they are a drag the returns of your funds portfolio, need not be sold. A value-fund or a dividend yield fund for instance, may not be the best performer during bull phases, as was seen in the previous market rallies. However, such funds warrant a definite hold if they outperform their category peers. Besides, their value-investing approach may come in handy during periods of market correction. Gold funds or international funds too qualify as primarily diversifiers. So, do not expect these funds to keep pace with domestic diversified funds.
As for intention to hold across market-cap segments, much would depend on your risk appetite. Given your age, we think it would be safe to assume that you can stomach some risks. You can in such a case go for 10-15 per cent of pure large-cap funds, 40 per cent in mid-cap and thematic funds and the rest in diversified funds with a long-term track record.
Interest rate hikes are not necessarily bad for the equity market
Interest rate hikes are not necessarily bad for the equity market if past experience is anything to go by, feels Mr Nandkumar Surti, Chief Investment Officer, J.P. Morgan Asset Management India. In an interview with Business Line Mr Surti gives his opinion on the short-term concerns in the equity and debt markets and the opportunities the latter offers currently.
Excerpts from the interview:
Have the inflationary/interest hike concerns and credit crisis in certain European economies affected fund flows into emerging markets?
In the short term, the developments in Europe will affect the fund flows to the emerging markets. By and large, Asia will adopt the interest rate normalisation process in the course of CY2010. This is likely to be non-disruptive for most of the markets. What one has to realise is that we are seeing a much better growth in the Asia region as compared to the rest of the world. We believe that once the current crisis is resolved, one should see money chasing growth economies and India along with China is obviously the fastest growing economies.
Even as earnings hobble to normalcy, higher raw material costs and interest rate hikes could be threats once again to corporates. Do you believe the turnaround could be short-lived?
Rising input costs as growth finds a stronghold is obviously something which corporate India will have to contend with. In general, we have seen raw material costs rise and margins compress. But this is likely to be compensated by a gradual rebound in volumes.
Also, as mentioned earlier, we see the interest rate reversal more as a rate rationalisation process rather than a tightening. We see liquidity conditions to be, by and large, comfortable. Even though the RBI will start raising the repo/ reverse repo, we see lending rates, by and large, stable as spreads continue to be very attractive.
There could be some short-term pressures in the first half of the next fiscal on account of the borrowing programme. But that presents more of an investment opportunity on the bond side.
Do you believe that the market has fully factored in inflationary concerns, monetary tightening and the impending rollback of stimuli?
The worst expectations on the street are a close to lower double digit on inflation. The bond markets are more concerned about the imminent government bond supply rather then the rate increase. We expect the government borrowing programme as well as rate hike to be front-loaded in FY2011. Liquidity mismatches amidst higher supply could put some pressures on rates.
However, we see the bond markets at the short end of the curve aggressively pricing in rate hikes of close to 150 bps in the next year. We see this as an investment opportunity. We have seen in the past that interest rate hikes are not necessarily bad for the equity market.
An ascending interest rate scenario can spell trouble for long term debt funds?
We see interest rates more a function of high government bond supply rather then the fear of RBI rate hikes. 10-year government bonds could trade in the range of 8-8.25 per cent in the first quarter of FY-11 on the back of the large supply.
However, we see lot of value in corporate bonds in up to three-year segment where we see bonds trading at a much higher spread compared to our assessment of RBI rate hike.
With improved performance by corporates has the risk perception of corporate bonds come down?
In the worst of 2008, we have seen only a few corporates being affected by the liquidity/ credit crisis. This is largely on account of the derivative/ forex exposure of these corporates. With improved fundamentals, good local and internationally liquidity, we see the worst for the corporate bonds to be over.
With narrowing credit spreads, does corporate bond market offer good investment avenues for debt funds? What is JP Morgan's strategy with its debt fund?
AAA Corporate bond spreads have narrowed in the bench mark 5 and 10 years. In the segments up to 3 years, we see bonds trading at much higher yields on account of temporary factors like CRR hike and impending traditional March tightness. We see value in these segments.
What should a debt fund investor's strategy be at this point in time?
We are advising our clients to increase asset allocation to short-term bond funds. A short-term bond with high current cash exposure stands a very good chance to build portfolio for next 3-6 months by taking advantage of the current high short-term rates. We believe that investors should avoid long bonds for the next three months and wait for more clarity on the borrowing calendar and the RBI's April Monetary Policy Review.
Q What is your reading of the Q3 earnings in India? Have valuations run ahead of earnings growth?
The aggregate financial performance of corporate India for the quarter ending December 2009 was in line to a little better than expected. Excluding oil PSUs (where quarterly data can be misleading due to subsidy etc.), operating profit of Sensex companies rose about 22 per cent YOY, about 1 percentage point higher than estimates. Net profit for Sensex companies rose about 17 per cent YOY, 2 percentage points higher than estimates. A broader universe of corporates delivered faster growth with aggregate operating profit rising 34 per cent YOY (higher by about 3 percentage points) and net profit by about 26 per cent YOY (in line).
With the correction in the equity market from the middle of January we believe that valuations are actually starting to look reasonable. With more evidence of accelerating growth emerging we would expect market to get valuation support in case it continues to correct owing to external or macro factors.
Q. Can India Inc's revenue growth be said to be back on track? Is the growth indicating volume as well as pricing power traction?
GDP for current fiscal is expected to grow at 7.50 per cent and for FY2011 at 8-8.50 per cent and inflation at an average 6 per cent. Given this, a 13-14 per cent nominal growth of the economy is expected. Within that one can expect better managed companies to post a 20-25 per cent earnings growth. Some of the growth we have seen in the last 6-8 months has obviously been aided by the fiscal and monetary policies in India. We have seen latest IIP number at 16.8 per cent, with a sharp upward movement in the index itself. This is a very positive sign. We see fiscal and monetary environment to be reasonably conducive to growth. While we see volumes coming back, we think that corporate India would allow volumes to pick rather then look for aggressive price increases.
Excerpts from the interview:
Have the inflationary/interest hike concerns and credit crisis in certain European economies affected fund flows into emerging markets?
In the short term, the developments in Europe will affect the fund flows to the emerging markets. By and large, Asia will adopt the interest rate normalisation process in the course of CY2010. This is likely to be non-disruptive for most of the markets. What one has to realise is that we are seeing a much better growth in the Asia region as compared to the rest of the world. We believe that once the current crisis is resolved, one should see money chasing growth economies and India along with China is obviously the fastest growing economies.
Even as earnings hobble to normalcy, higher raw material costs and interest rate hikes could be threats once again to corporates. Do you believe the turnaround could be short-lived?
Rising input costs as growth finds a stronghold is obviously something which corporate India will have to contend with. In general, we have seen raw material costs rise and margins compress. But this is likely to be compensated by a gradual rebound in volumes.
Also, as mentioned earlier, we see the interest rate reversal more as a rate rationalisation process rather than a tightening. We see liquidity conditions to be, by and large, comfortable. Even though the RBI will start raising the repo/ reverse repo, we see lending rates, by and large, stable as spreads continue to be very attractive.
There could be some short-term pressures in the first half of the next fiscal on account of the borrowing programme. But that presents more of an investment opportunity on the bond side.
Do you believe that the market has fully factored in inflationary concerns, monetary tightening and the impending rollback of stimuli?
The worst expectations on the street are a close to lower double digit on inflation. The bond markets are more concerned about the imminent government bond supply rather then the rate increase. We expect the government borrowing programme as well as rate hike to be front-loaded in FY2011. Liquidity mismatches amidst higher supply could put some pressures on rates.
However, we see the bond markets at the short end of the curve aggressively pricing in rate hikes of close to 150 bps in the next year. We see this as an investment opportunity. We have seen in the past that interest rate hikes are not necessarily bad for the equity market.
An ascending interest rate scenario can spell trouble for long term debt funds?
We see interest rates more a function of high government bond supply rather then the fear of RBI rate hikes. 10-year government bonds could trade in the range of 8-8.25 per cent in the first quarter of FY-11 on the back of the large supply.
However, we see lot of value in corporate bonds in up to three-year segment where we see bonds trading at a much higher spread compared to our assessment of RBI rate hike.
With improved performance by corporates has the risk perception of corporate bonds come down?
In the worst of 2008, we have seen only a few corporates being affected by the liquidity/ credit crisis. This is largely on account of the derivative/ forex exposure of these corporates. With improved fundamentals, good local and internationally liquidity, we see the worst for the corporate bonds to be over.
With narrowing credit spreads, does corporate bond market offer good investment avenues for debt funds? What is JP Morgan's strategy with its debt fund?
AAA Corporate bond spreads have narrowed in the bench mark 5 and 10 years. In the segments up to 3 years, we see bonds trading at much higher yields on account of temporary factors like CRR hike and impending traditional March tightness. We see value in these segments.
What should a debt fund investor's strategy be at this point in time?
We are advising our clients to increase asset allocation to short-term bond funds. A short-term bond with high current cash exposure stands a very good chance to build portfolio for next 3-6 months by taking advantage of the current high short-term rates. We believe that investors should avoid long bonds for the next three months and wait for more clarity on the borrowing calendar and the RBI's April Monetary Policy Review.
Q What is your reading of the Q3 earnings in India? Have valuations run ahead of earnings growth?
The aggregate financial performance of corporate India for the quarter ending December 2009 was in line to a little better than expected. Excluding oil PSUs (where quarterly data can be misleading due to subsidy etc.), operating profit of Sensex companies rose about 22 per cent YOY, about 1 percentage point higher than estimates. Net profit for Sensex companies rose about 17 per cent YOY, 2 percentage points higher than estimates. A broader universe of corporates delivered faster growth with aggregate operating profit rising 34 per cent YOY (higher by about 3 percentage points) and net profit by about 26 per cent YOY (in line).
With the correction in the equity market from the middle of January we believe that valuations are actually starting to look reasonable. With more evidence of accelerating growth emerging we would expect market to get valuation support in case it continues to correct owing to external or macro factors.
Q. Can India Inc's revenue growth be said to be back on track? Is the growth indicating volume as well as pricing power traction?
GDP for current fiscal is expected to grow at 7.50 per cent and for FY2011 at 8-8.50 per cent and inflation at an average 6 per cent. Given this, a 13-14 per cent nominal growth of the economy is expected. Within that one can expect better managed companies to post a 20-25 per cent earnings growth. Some of the growth we have seen in the last 6-8 months has obviously been aided by the fiscal and monetary policies in India. We have seen latest IIP number at 16.8 per cent, with a sharp upward movement in the index itself. This is a very positive sign. We see fiscal and monetary environment to be reasonably conducive to growth. While we see volumes coming back, we think that corporate India would allow volumes to pick rather then look for aggressive price increases.
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