Tuesday, September 27, 2011

Prajna Capital

Prajna Capital

For senior citizens with group health cover is best suited

Posted: 27 Sep 2011 05:12 AM PDT

Company policies cover pre-existing conditions from the first day IN individual policies for senior citizens there will be a lot of exclusions.

AS THE person ages, his susceptibility to various health disorders and the possibility of hospitalisation increase. It is important for every member of the family to have a health insurance cover and especially for the senior citizens.


Choosing the right kind of health insurance policy for senior citizens involves looking into a lot of factors.


Policy renewers versus new policy buyers: Senior citizens who have not made major claims in spite of having a health insurance policy for many years, the premiums are much lower compared to those people who take a fresh policy after 60 years of age. In cases of the latter, the number of health conditions and treatments excluded from coverage will also be higher.


Group coverage or individual policy: With most corporates providing group insurance cover for employees and up to three additional family members these days, it is wiser to have the senior citizens covered by such group insurance policies as the coverage provided is wider than individual policies.

In individual policies for senior citizens there will be a lot of exclusions and cover for pre-existing illnesses may be effective only after the fourth year.


In corporate group insurance schemes there would be coverage for pre-existing conditions from day one.

Top up policy for higher cover: Group insurance coverage by companies may have sum insured limits of Rs 2,00,000-5,00,000 based on the position of the employee, but those who feel that the coverage is not enough, could go for a top up coverage with lower premium instead of a new policy, Nair says.

If the treatment cost goes above the coverage level provided by the company group insurance scheme, the individual can have the extra expenses covered by the top-up cover.


Companies like National Insurance, United India, Oriental Insurance and Star Health have such top up health covers.


The maximum age limit: Most insurance policies allow senior citizens up to the age of 65 years to take a fresh health insurance policy and a renewable age limit of 70 years. Many public sector insurance companies have no age bar and allow renewal as long as the premium is paid.


Health tests: All senior citizens looking for health insurance coverage through an individual policy or a family policy will have to undergo health tests. For those above 55 years of age with sum insured of about Rs 3,00,000 apart from the basic blood and urine sample tests, many other tests like ECG and treadmill test would also have to be taken.


The best time to take a policy: The time when a person starts working and earning is a good time to start taking a health insurance policy. Most lifestyle related disorders start at 45-years of age. So even for late starters, if they take a policy by the age of 42-45 years, by the time they turn senior citizens it gives an advantage of lower premium payment, especially if their claims are low.

 

Critical illness cover is not cheap, but it's essential

Posted: 27 Sep 2011 04:45 AM PDT

 

LET US discuss or shed some light on modern medicine and its impact on financial planning.

There is a high probability of someone being diagnosed with a critical illness today and there is a high probability of his survival.
However, survival comes at a cost.

Let us look out for a solution called as "critical illness insurance". Critical illness insurance is an indemnity insurance which pays the face amount of the policy to the insured in a lump sum upon the diagnosis of specified illness.


We can even name it as a loss of income insurance. This was designed by Maurice Barnard, brother of Christiaan Barnard.

Medical insurance will hopefully take care of all the direct expenses of the hospitals and pharmacy bills. But the lump sum money which comes upon the diagnosis of critical illness might help them to take care of liabilities and responsibilities of family.

Having a critical illness insurance plan can offset some of the financial stress and help an individual focus on recovery.

A critical illness plan protects your income. We need critical illness benefit not because we are going to die but because we are going to live! The difference between health and medical insurance and a critical illness benefit is your medical insurance pays for your ongoing medical expenses. A person suffers a heart attack; the medical insurance company will pay for all the covered expenses in the hospital. Your critical illness benefit, on the other hand, is one-time lump sum payment upon diagnosis of illness. It does not depend upon severity of the sickness. One could have a heart attack or cancer or stroke; the critical illness benefit will pay the entire amount, as long as, under the medical terminology it is classified as a critical.

But we should absolutely not replace medical insurance with critical illness insurance as they both have different benefits and they complement each other.

The benefits of including critical illness in our financial planning is to provide a lumpsum funds. This helps us to retrain for a less stressful career and lifestyle which will reduce or eliminate debts.

Lumpsum money helps us pay off our mortgage balance if we suffer from any of the critical illnesses such as a heart attack, stroke or cancer. Finally on the event of a critical illness we can be rest assured that all your routine financial obligations are met.

Having a critical benefit insurance is costly, but it is costlier if you do not have it.

The premiums are based on age, sex and health. Factors like smoking and family history play a very significant role in our critical illness benefit. People with family history of diabetes or heart attack or cancer run a 40 per cent higher risk of contracting one of the three major sicknesses.

Critical illness is costly living benefit and since the probability of claiming on a critical illness policy is much higher that life insurance the cost of the policy is also higher.

Critical illness insurance is becoming more expensive than a life insurance because with medical advancement because of which chances of survival are higher today. Critical illness insurance is not cheap, but it is an essential part of financial planning.

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Invest in Sundaram Mutual Funds Online

 

Invest in Birla Sunlife Mutual Funds Online

 

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Mutual Fund: What Is An Index Fund?

Posted: 27 Sep 2011 04:04 AM PDT


The concept of index funds is still at a nascent stage in India. For the uninitiated, index funds are equity funds that invest in the selected benchmark index. The fund manager simply mimics the index by investing in all the constituent stocks in the same proportion as in the index. In other words, as an investor in an index fund, you end up buying the index.


Index funds are good solutions for investors who want to invest in equities at a very low cost. As the fund portfolio mimics the index, there is no fund manager risk and investors need not lose money just because the fund manager got it wrong by a wide margin. Many times, investors do not understand which fund to invest in or don't have the time to find out one. In such a scenario, an index fund can be a better vehicle to invest in equities.

Checklist For Investment

However, before you commit your money to an index fund, there are two important factors you need to consider. First is the tracking error – the deviation in the returns of an index fund from the returns offered by the underlying index. It measures how closely a fund follows the underlying index. Always invest in an index fund with the minimum tracking error.


The second factor is the expense ratio – the lower the ratio the better. So it pays to invest in a fund that offers you returns similar to that of the index and at the cheapest cost. For example, the Nifty Benchmark ETS offers to invest in S&P CNX Nifty index and comes with an expense ratio of 0.5% and tracking error of 0.09%.


The ease of purchasing and selling is another important aspect. Many investors prefer to invest in exchange traded index funds than their traditional counterparts. The only additional risk investors face when they invest in an exchange traded fund is that they may not get to exit at the fund's NAV in volatile markets. To overcome this problem, it makes sense to invest in a large-sized ETF that is fairly traded on the stock exchange. If you are a small investor and not really clear about which ETF to choose, it is better to invest in a traditional index fund using the paper route, which will ensure that you get entry and exit at the NAV, albeit for an extra cost.

What is the down side?


But index funds are not without flaws. Since the fund manager does not take a call on the equity markets, you cannot expect him to book profits. During extreme bull runs, the fund manager remains invested fully in the index and investors do not get the opportunity to book profits. A fund manager of a diversified equity fund may increase the cash level in his portfolio at higher levels and protect downside. But there is a way out. "If you stick to your asset allocation and keep rebalancing your portfolio at regular intervals, you will get to book profits.

 
Let us understand this with an example. Assume that you have invested . 1,00,000 in the ratio of 60:30:10 in equity, fixed income and gold. After a year, your equity investment doubles, the fixed income portfolio grows to . 33,000 and gold goes up to . 17,000. Your portfolio value soars to . 1,70,000. In that case, it makes sense to sell equities worth . 68,000 and transfer that money to the fixed income portfolio. That helps you to take money off the table in a systematic manner.

Options For A Portfolio

Over a period of time, with the entry of new players in the mutual fund business, Indian investors now have multiple options in the index investing space. If you have a view on a specific sector, you may choose to invest in a sectoral index fund. For example, after the recent fall in the banking stocks, long-term investors are finding the space attractive. Such investors can look at funds like Banking BeES and Kotak PSU Banking ETF. If you are bullish on the infrastructure space, you can invest in Infrastructure BeES. For investors looking for Shariah-compliant equity investing, there is Shariah BeES.

 
Investors also have options like fundamentally weighted index fund. Motilal Oswal Asset Management Company has launched a fundamentally weighted index fund that invests in Nifty stocks based on the weights arrived at by using company valuations and financial parameters.


In a market capitalisation weighted index, investors end up buying a higher percentage of relatively expensive companies and a lower percentage of relatively cheap companies. In comparison, in a fundamentally weighted index, investors end up buying more of fundamentally sound and relatively cheaper companies.


Then there are also index funds that allow investors invest overseas. The Hangseng BeES and Motilal Oswal Most Shares Nasdaq 100 two such funds.
Investors can introduce meaningful diversification in their portfolio by investing in Nasdaq 100, which is expected to offer healthy earnings growth and has low correlation with Nifty. Though there are limited options available to invest overseas, it becomes imperative that investors consider such options to qualitatively improve their portfolios.


Within the asset allocation limits, an investor can consider phased exposure to such products.


Investors can use index funds to effectively build a strong equity portfolio. If you do not intend to take efforts of ascertaining the best fund to invest in or don't have the time to do research to pick a fund, it is better to construct the equity portfolio using index funds.

 

 

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Invest in DSP BlackRock Mutual Funds Online

 

Invest in Reliance Mutual Funds Online

 

Invest in HDFC Mutual Funds Online

 

Invest in Sundaram Mutual Funds Online

 

Invest in Birla Sunlife Mutual Funds Online

 

Invest in IDFC Mutual Funds Online

 

Invest in UTI Mutual Funds Online

  

Invest in SBI Mutual Funds Online

 

Invest in L&T Mutual Funds Online

 

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Mutual Fund Review: SUNDARAM SELECT MIDCAP

Posted: 27 Sep 2011 02:40 AM PDT

 

Midcap, though rewarding, is a relatively risky category and an investment in this space calls for caution. If you are ready to stay invested for a long period, despite the embedded risk, then you should consider Sundaram Select Midcap as an investment bet


Sundaram Select Midcap has been able to sail through both the bullish and the bearish phases of the market with its strategy of holding on to its core equity portfolio for a fairly long period of time. A focus on valuations and growth, and a well diversified portfolio of about 50 stocks with an investment limit of 5.0-5.5% per stock has helped In 2008, the plan's NAV fell about 58% against a 67% fall in its benchmark index — the BSE Midcap. But, in 2009, the surge of about 115% in its NAV was impressive even as the BSE Midcap rose by about 108% then. Even this year it has managed to restrict the decline in its NAV to about 3% against a 10% fall in the BSE Midcap.

 

 

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Also, know how to buy mutual funds online:

 

Invest in DSP BlackRock Mutual Funds Online

 

Invest in Reliance Mutual Funds Online

 

Invest in HDFC Mutual Funds Online

 

Invest in Sundaram Mutual Funds Online

 

Invest in Birla Sunlife Mutual Funds Online

 

Invest in UTI Mutual Funds Online

  

Invest in SBI Mutual Funds Online

 

Invest in Edelweiss Mutual Funds Online

 

Invest in IDFC Mutual Funds Online

 

 

 

 

Birla Sun Life Mutual Fund Merges Birla Sun Life Basic Industries and Birla Sun Life Freedom with its other funds

Posted: 27 Sep 2011 01:51 AM PDT

 

 

Birla Sun Life Mutual Fund has announced the merger of Birla Sun Life Basic Industries Fund into Birla Sun Life Infrastructure Fund and Birla Sun Life Freedom Fund into Birla Sun Life 95 Fund, with effect from October 21, 2011.


Investors of Birla Sun Life Basic Industries Fund and Freedom Fund have the exit option from September 22, 2011 to October 21, 2011. They do not have to pay any exit load during this period.
 

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Also, know how to buy mutual funds online:

 

Invest in DSP BlackRock Mutual Funds Online

 

Invest in Reliance Mutual Funds Online

 

Invest in HDFC Mutual Funds Online

 

Invest in Sundaram Mutual Funds Online

 

Invest in Birla Sunlife Mutual Funds Online

 

Invest in IDFC Mutual Funds Online

 

Invest in UTI Mutual Funds Online

  

Invest in SBI Mutual Funds Online

 

Invest in L&T Mutual Funds Online

 

Invest in Edelweiss Mutual Funds Online

 

ULIP Review: Kotak Wealth Insurance Plan

Posted: 26 Sep 2011 10:52 PM PDT


Kotak Wealth Insurance is a Type II unit-linked insurance plan (Ulip) that provides triple benefits of sum assured, fund value and a lump sum equal to outstanding premiums as death benefit. The scheme is fairly flexible with different premium payment options as well as policy terms. The only downside to the scheme is its high cost structure. However, this gets well compensated with returns from equity funds.
   
Our View

Although the scheme appears a bit expensive, this gets offset by the benefits provided in it. There are a few other features like alteration in sum assured and riders that make the policy pliable. Over 80% of the fund is invested in A-category stocks. This indicates both safety and outperformance of equity funds over benchmark.

Unique Feature

The scheme provides an extended death cover by way of lump-sum benefit, which is equal to the outstanding premium. For instance, the policyholder dies in the seventh year of a 10-year-tenure policy. The nominee will get premium outstanding for three years along with basic sum assured and fund value.

For Existing Customers

Those already invested in it should remain invested as the scheme provides an adequate insurance. On the investment side, the plan is a little weak. Investors should raise their insurance to 25 times the annual premium and switch to balanced fund.

For Those Looking to Invest

Though the plan appears costly, its benefits are equally good. Investment funds, though, have not generated outstanding returns, they have performed well in the market.

 

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Also, know how to buy mutual funds online:

 

Invest in DSP BlackRock Mutual Funds Online

 

Invest in Reliance Mutual Funds Online

 

Invest in HDFC Mutual Funds Online

 

Invest in Sundaram Mutual Funds Online

 

Invest in Birla Sunlife Mutual Funds Online

 

Invest in IDFC Mutual Funds Online

 

Invest in UTI Mutual Funds Online

  

Invest in SBI Mutual Funds Online

 

Invest in L&T Mutual Funds Online

 

Invest in Edelweiss Mutual Funds Online

 

Some strategies to beat the risks associated with Debt instruments

Posted: 26 Sep 2011 07:57 PM PDT

   Many investors take it for granted that returns from debt instruments are safe and reliable. The portfolio of a risk-averse investor is dominated by fixed income instruments. While the quantum of risk could vary significantly from equity investments, debt investments aren't entirely zero risk products.


   Rising interest rates has many investors flocking to lock their surplus in fixed instruments. However, before investing your hard earned money in fixed income instruments, you must judge whether you are prepared to take on the associated risks.
   
Here are some risks associated with debt instruments:

1) Interest rate risk    

The interest rate risk is the possibility of a change in interest rates that could eat into your returns. Returns on bonds, for instance, are directly impacted by interest rate fluctuations. There exists an inverse relation between interest rates and bond prices. If the interest rates rise, bond prices usually decline. If the interest rates decline, bond prices usually increase.


   New bonds are usually issued with higher yields as interest rates increase, making the old bonds less attractive.

2) Inflation risk    

With returns usually in single digits, a spiraling inflation could chew into your returns. So, your real returns could be far less than what is apparent. With inflation gradually marching upwards, the real returns on some old fixed instruments are actually negative.


   Assume a bank promises nine percent interest on your deposit per year. If the inflation rate is currently eight percent per year, then the real returns on your investment would be merely one percent.


   While the real value of your investment will climb up by only one percent during the one year period, imagine the predicament if inflation crosses into double digits. The real returns would be negative. Tax component, if considered, could reduce the real returns further.

3) Liquidity risk    

While fixed deposits are immune to interest rate risk, they are exposed to credit and liquidity risks. Credit risk arises when borrowers are unable to make payment of interest or principal in a timely manner. Bonds carry considerable risk of default that amounts to the inability of the issuer to make further income and principal payments.


   Another associated risk to consider is the liquidity risk.


   In essence, fixed income instruments are not the guaranteed products that they appear to be. If you do not research well before investing, you could end up with peanuts in your portfolio.
   
So tips for investors in debt products:

1) Look for new avenues    

Explore beyond traditional products that are novel and promise higher returns. A wide platter of options is available in debt mutual funds that vary in terms of risk-returns, liquidity and safety.


   You can select from short term funds, money market funds, gilt funds, fixed monthly income plans and so on based on your risk profile and asset allocation strategy. Returns on short term funds are on par with fixed deposits. Factor in the exit load and other charges when assessing returns from these funds.

2) Consider laddering    

In an increasing interest rate scenario, it becomes difficult for an investor to judge the best time to lock his money in fixed deposits. What if the rates climb higher tomorrow?


   In laddering, instead of locking your entire money in one fixed deposit, break it into smaller portions and lock them in different deposits having different maturity dates. This technique helps reduce the adverse impact of rate fluctuations, increases liquidity and draws maximum returns.


   What if the rates fall? You can be glad you have locked a portion of the surplus at higher rates.

3) Fixed maturity plans    

Fixed maturity plans (FMPs) that invest in high quality bonds are a safe bet. With tenures ranging from 3-15 months, these plans hold the bonds till maturity. Hence, certainty of returns is assured in case of FMPs.

4) Rebalance periodically    

Dimensions including risk appetite, liquidity needs and age impact an investment pattern. As one grows older, the quantum of risk he is willing to take shrinks. Further, relative asset allocation between fixed returns instruments, equity, real estate and precious metals changes with time. Rebalance your portfolio periodically to regain the original asset allocation.

5) Diversify    

Build a well-diversified portfolio with a mix of both safe and high risk-returns products. Even if you are risk-averse, a small exposure to equity is not a bad idea, especially in times of high inflation.
 

Post Retirement Investment: Liquidity, safety is a must

Posted: 26 Sep 2011 10:25 AM PDT

Retirees receive a considerable amount from provident fund accumulation and superannuation and gratuity benefits. Many prudent ones would have accumulated a corpus through disciplined investing as well.

They must make many investment decisions to channelise the retirement corpus thus accumulated. The first decision will be to determine the asset allocation mainly between equity and debt. A 70:30, debt:equity ratio suits many but a proper analysis current investments and passive income streams must be done first.

Debt gives stability to the portfolio and can be used to generate regular income streams to meet monthly expenses. Whereas, equity gives long-term returns and helps beat inflation.

Fixed deposits (FDs), Senior Citizens Savings Scheme (SCSS), Post Office Monthly Income Scheme, debt mutual funds and pension plans by life insurance companies are the various options available on the debt side.Of these, FDs and SCSS are your best bets in the current scenario.

The SCSS has been a huge hit since its launch in 2004, due to its attractive interest rate of nine per cent and sovereign backing. FDs, on the other hand, have been considered unattractive as their posttax returns didn't even beat inflation. However in recent times FD rates have gone up considerably and can be considered as an alternative to SCSS. Most banks are offering FD rates for senior citizens between 9 -10 per cent. Before making a choice, retirees must considerthe following factors.

INTEREST RATE

Comparing the interest rates is probably the first step but not really a deciding factor. FDs are offering 0.5 - 1 per cent higher rates than SCSS, which essentially converts into a higher monthly income for you. A sum of `15 lakh parked in SCSS will fetch you a monthly income (payout is actually quarterly) of 11,250, whereas an FD with 9.5 per cent will give you `11,875.

TERM AND WITHDRAWAL

This can be a big deciding factor. SCSS carries a term of five years and can be extendable by another three years, with interest rates prevailing at that time. Any premature withdrawal will attract a penalty of 1.5 per cent between one and two years and one per cent above two years. Whereas, FDs offer the flexibility of deciding the term in line with your convenience. Banks also give loans on FDs for emergency purposes.

INCOME VERSUS ACCUMULATION

SCSS offers regular payout of interest rates on a quarterly basis. FDs offer regular interest payouts as well as the cumulative option. If you have a decent regular income stream (say house rentals or pension) you may not require additional regular income from investments in the years immediately following your retirement. In this case, opt for the cumulative option of FDs to grow the investment corpus. The compounding works well even with debt investments.

TAXATION

The returns from both instruments are taxable and get added to your income while calculating the tax.

However, investments in SCSS are eligible for Section 80C benefits, where regular senior citizen FDs don't qualify (except tax-saver term deposits, typically with a fiveyear-plus tenure). So, if you fall in the taxable bracket and wish to avail of this tax benefit, SCSS works better. However, ensure you aren't already investing in other tax-saving instruments like life insurance or Public Provident Fund.

In conclusion: it makes sense to invest your retirement corpus in FDs to build your debt portfolio in this scenario. Make use of the prevailing high interest rate environment while it lasts, but only after evaluating all the factors.
 

Inheritance planning

Posted: 26 Sep 2011 10:05 AM PDT

The best time to do it is now. Will is most common part of such planning but it is important that besides asset distribution, a will should also include liability settlement

TO HAVE children who stay bonded and united as the Pandavas in Mahabharata could be the dream of every parent. But, it is a Utopian idea in days like these, when money is the universal religion and consumerism is a celebrated virtue.


Planning the way one's wealth would be divided among the children is as important as the earning wealth, if not more.

When a great business tycoon and visionary like Dhirubhai Ambani died, without leaving a will, the succession drama between his sons played out in the open. The incident was an eye-opener on what could possibly happen if a person does not decide during his lifetime on how his assets would be divided between his children.


When to start Inheritance planning is a I continuous process and the right time to begin is today, according to financial experts. Wealth keeps evolving as year pass. Since, circumstances and our priorities also change as time passes by, inheritance planning is a continuous process.

Once someone starts a family, there are two things he should do, according to the financial experts; one, take a life insurance policy and two, clearly mention in writing on who would inherit the assets after one's demise.


Nominations: Nomination is the most A basic form of inheritance planning. Since, financial assets like life insurance policies, bank fixed deposits or demat accounts for shareholdings require a person to mention a nominee who could claim the asset after the account holder's death, there is no room for confusion.

One should, however, revisit the nominations mentioned as the priorities may also change with change in circum stances like marriage, divorce or death of a family member.

It is advisable for all possible financial accounts to be held jointly, say by the husband and wife in addition to having a nominee for the assets, in case the both the asset holders succumb to any mishap.


Writing a will: This is the most common part of inheritance planning. A will should not only reflect the assets and how they would be shared but also the liabilities and how they would be settled.

On passing every major landmark in life, such as retirement, children starting to work or getting married, it is important to refresh the will to ensure that it reflects the present priorities of the individual.

Apart from mentioning the inheritor of assets such as houses, land and bank deposits, a will should also clearly mention how other assets like the family jewellery, expensive antiques and paintings would be divided among the members of the family.

Also, if there is a conflict between the nominee of a bank deposit as mentioned in the account and the inheritor of the money as mentioned in the will and the interested parties are not able to arrive at a mutual agreement, then the case could be contested in the court.


Family business: In family-run businesses I there are many members of the family, like brothers, uncles, cousins who work together. "In an active family business, it has to be clearly mentioned as to who would assume which role in the business and who would inherit which part of the business," says Rajesh Bhojani, a certified financial planner.

In Marwari families the usual practice is that all the sons get an equal share in the family business but it is the elder son who gets to head the business.


Liability planning: It is as important to mention about the liabilities in a will as it is to mention the way the assets would be distributed among the family members.

In cases where the liabilities are not mentioned in the will, they will have to be settled by the executor of the will from the corpus of the deceased. The remaining wealth would be distributed as mentioned in the will. Who to consult will, even if written in an ordinary sheet of paper, would be valid. But, to avoid disputes and ensure a smooth transfer of assets, experts advice taking the assistance of a lawyer and doing the whole process legally. Banks and private wealth managers also offer advice on wealth distribution. In cases where there are two or more wills written by a person, the last written one would be the one that is valid, experts say.


Family trust: In cases of division of wealth between members of a very large family, probably running a family business together, usually a family trust is set up. In such cases, all the assets are transferred to the family trust through a will and then the asset holder appoints a trustee to oversee the process of wealth transfer. The persons who set up the family trust to pass on their wealth, also called settlors, would have to clearly define the beneficiaries of the trust and the person who would act as the trustee and execute the process.


Why a trustee?

Trustee or executor is imA portant not just to handle a large family trust but also to execute a will. A trustee cannot be a beneficiary of the assets and should be a third party with an arms-length distance to the whole wealth sharing process. For a will, written by the husband, the wife could be the trustee. A friend or a family member or even a lawyer could be a trustee for a will.


Intestate death: If someone dies intestate, I the rightful inheritors of the assets would be decided, based on the Hindu Succession Act in the case of Hindus, Buddhists, Jains, Sikhs, the Indian Succession Act, in the case of Christians and the Shia Law of Succession and Hanafi law of Succession, in case of Muslims.

The amendment, to the Hindu Succession Act in 2005, allowed daughters an equal right as the sons in the inheritance of assets as well as liabilities.

 

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Also, know how to buy mutual funds online:

 

Invest in DSP BlackRock Mutual Funds Online

 

Invest in Reliance Mutual Funds Online

 

Invest in HDFC Mutual Funds Online

 

Invest in Sundaram Mutual Funds Online

 

Invest in Birla Sunlife Mutual Funds Online

 

Invest in IDFC Mutual Funds Online

 

Invest in UTI Mutual Funds Online

  

Invest in SBI Mutual Funds Online

 

Invest in L&T Mutual Funds Online

 

Invest in Edelweiss Mutual Funds Online

 

Key to investing is Discipline

Posted: 26 Sep 2011 08:56 AM PDT

 A lot of us save or invest without any particular goal in mind, paying the price in terms of lower returns. The financial journey can't be given up because the goals look remote or there are difficulties on the way. One has to keep moving to attain financial liberty. This continuous journey can be described as regular, or, systematic investment. If we see equity markets in a growing economy like India, they keep rising over a period of time. Surely, there can be extended periods of downturn, but, eventually, indices start going up.

The BSE Sensex has risen 83 times over the last 30 years, or, 10 times in the last 20 years, or, 6 times over the last decade. It makes sense to invest in the Sensex and forget about it. All of us know the statistics. The rising trajectory of the Sensex is known to all savers. Inspite of the towering performance, equity remains under-owned. Worried about the volatility of the markets, savers don't invest in equity. The fear of losing capital — even for a temporary period — on a notional basis stops savers from investing in equity.

If you make regular investments in a market which is moving up and down like the road to the holy shrine, you will still meet your final goal. The hardship of notional losses in the intervening period can be easily brushed aside, focusing on the ultimate goal. Returns from systematic investment plans (SIPs) across blue-chip stocks, Sensex, Nifty or mutual fund schemes over the last 10, 15 or 20 years have been phenomenal. Probably, such returns are not going to repeat themselves again.

Regular investment across a basket of blue-chip stocks, equity index or mutual fund schemes will deliver good returns. A common error an investor should safeguard himself against is the tendency to discontinue SIPs when the markets are down. When there is a sale in the market, it's time to buy more, rather than stop. Don't stop your SIPs just because the markets are falling. If at all, one should consider stopping them only when the markets become expensive on valuation. Another thing investors should keep in mind is that the amount of the SIP should increase with the increase in income. An SIP started 10 years back, when the income was much lower than today, is not adequate. The quantum must increase in tandem with the income. Regular and early investments are simple, yet most effective
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