Wednesday, October 12, 2011

Prajna Capital

Prajna Capital

HDFC Mutual Fund - Its Schemes

Posted: 12 Oct 2011 06:41 AM PDT

 

This article contains the list of top performing HDFC Mutual funds. The funds which come under the equity category are taken for analysis and are given below for your reference. The investors can pick the top schemes from this and can add into their basket of portfolio.

Please note this order of the top schemes is given below based on their 1 year performance as top criteria.

·                           HDFC Equity Fund – Dividend and Growth Options

·                           HDFC Long Term Equity Fund – Dividend and Growth Options

·                           HDFC Growth Fund – Dividend and Growth Options

·                           HDFC Top 200 Fund – Dividend and Growth Options

·                           HDFC Long Term Advantage Fund – Dividend and Growth Options

·                           HDFC Mid Cap Opportunities Fund – Dividend and Growth Options

·                           HDFC Capital Builder Fund – Dividend and Growth Options

These are the top performing equity Schemes. Systematic Investment plans are also available for most of these schemes. So you can also go for online investment for these schemes.
 

Premium is not the only criteria of health Insurance

Posted: 12 Oct 2011 01:29 AM PDT

 

It's important to check if your policy has a higher sum insured

Insurance companies revise the premium rates of their products depending on their loss ratios and rising medical costs. Therefore, besides the premium amount, one should look at the following key factors in deciding the right cover.

Is higher sum insured available?

A person may be in his 30s and may find a Rs 2,00,000 cover adequate, but as age progresses and with medical costs rising, he may require a much higher sum insured after a few years which may not be available in the policy. If he switches to another insurer, he may lose out all the portability benefits and pre-existing diseases coverage. Do check if the policy has a higher sum insured.

How much of the sum insured can be enhanced?


Choose a cover that permits you to enhance your sum insured. Policies offered by some private insurers allow a person to increase his sum insured from 10 per cent to 50 per cent of his current sum insured. Choose a cover that allows you to enhance your sum insured to the maximum.


Limits and sub-limits: With rising losses in health insur ance, a few insurance companies have introduced copayment for claims made by insured over 60 years. Copayment in insurance parlance is making the policyholder pay a portion of the claim amount. Does your policy have co-payment in the higher age bracket? Also avoid a cover that has sublimits on doctor's fees and procedures.

A person buying a health insurance cover should consider the number of day care procedures, critical illnesses that will be covered in the policy besides the limits on daily expenses. Time excesses for different diseases: Insurance companies do not cover certain diseases such as heart ailments, cataract, hernia, fistula, piles, fibroids in the initial years of the policy. Also, certain diseases are completely excluded from the policy. A person should check the waiting period of the diseases that are hereditary or he may be susceptible to.

Renewability: Ensure that the cover has high renewability. Most public sector insurers allow policyholders to renew their cover till 70-75 years. Also, some standalone health insurers have introduced products that offer lifetime renewability.

Age for undergoing medical tests: Most insurers do not ask a prospective policyholder to undergo medical tests if he is below 45 years of age.
The higher the exemption age, the better it is.
 

Inheritance Tax

Posted: 11 Oct 2011 10:27 PM PDT



In recent times, a number of Indian promoters have generated substantial wealth by selling their stakes or a part of it. The booming capital markets have also contributed to significant wealth creation. This has resulted in a class of Indians that is suddenly growing richer, whereas the mass remains where it is currently, resulting in increased inequalities in income and wealth. An estate duty or an inheritance tax seeks to reduce inter-generational inequality. In other words, it seeks to reduce the advantage that children of the rich start out with versus the children of the not-so-rich. Looking at the future where unprecedented wealth creation at present might increase inter-generational inequality, the government is considering reintroducing inheritance tax into the Indian tax system.


Estate duty, the name by which such a tax was known when it existed, was a part of the system till 1985. Estate duty was payable by the executors of the estate of a deceased under the Estate Duty Act, 1953, till June 16, 1985, after which it was abolished.


In its earlier avatar, estate duty was a very complex piece of legislation. Duty was levied on an 'accountable person', ie a person having a right of disposition over property of the deceased, in respect of the property passing on to that person through various different types of settlements and dispositions. Property passing two years prior to death was not taxed, but any disposition within two years of death potentially was liable to estate duty. The legislation was very complex with different valuation rules for different kinds of property. The estate duty was payable on a slab basis. The levy started at a threshold of . 1 lakh with a rate of 7.5% and the maximum rate was 40% of the principal value of the estate in excess of . 20 lakh. Due to its complex structure, the legislation predictably got embroiled in an inevitable litigation tangle and the litigation continued long after the duty's abolition. Due to insignificant collections from estate duty (only about . 20 crore), and the complex web of litigation around it resulting in a very high collection cost, the government decided to do away with its levy in 1985. Consequently, estate duty was not payable in respect of the estate of a person who expired after March 16, 1985. Incidentally, most developed countries have some form of inheritance tax. Interestingly, however, many high-growth countries like China, Malaysia, Russia, etc, (these are India's closest competitors today) do not levy inheritance tax.


In a country like India, where along with the assets of a deceased, the inheritors morally also inherit all his obligations, there could be a serious case against the reintroduction of inheritance tax. Of course, such a tax, if at all it becomes a reality, would hopefully be levied after a high threshold and at a moderate rate. It, however, is quite possible that inheritance tax encourages wealth creation offshore through establishment of complex structures, trusts being just one of them. India, at this point in time, needs all the capital it can get to fuel its quest to become one of the players to reckon with in the global economic order.

On the other hand, where concerted efforts are being made to attract foreign capital to invest in the country, the levy of inheritance tax, which could lead to potential flight of capital offshore, may be seriously questioned as being counter- productive. Also, in the upcoming Direct Taxes Code Bill 2010, the wealth tax net is proposed to be spread wider, which arguably should achieve at least part of the objective behind the levy of an inheritance tax (one already has a quasi 'gift tax' in the form of the recipient paying income-tax on property received for no or inadequate consideration from non-relatives). Property passing to heirs on succession is subject to stamp duty and also probate/succession fees and tax thereon being collected not by the Centre, but by the states.


Finally, one is really not sure if the country is ready to face the consequences of the levy of an additional complex tax where challenges both on valuation and administration could very well occur again.

 

What is Risk Management?

Posted: 11 Oct 2011 09:20 PM PDT

Risk is a part of our life, at every step we are overshadowed by various risks as each activity we do during the day involves some level of risk. It is a condition where there is a possibility of hazard from the desired outcome that is expected. For those who define risk as uncertainty, the greater the uncertainty, the greater is the risk. In other words, higher the probability of loss, greater is the probability of an adverse deviation from what is hoped for and therefore, greater is the risk.

However, these adverse effects or risks can be controlled and avoided through proper risk management. In other words, risk management involves identification, analysis and controlling risks which can threaten our life and assets.

Steps in Risk Management

Risk management involves various steps, which have to be taken into consideration in order to eradicate risk.

  • Identification of Risk

The first step in risk management is the identification of risk. Risk are events that causes problems, therefore it is essential to get to the root of risk. Risk identification must be recognized as the most important step as it involves digging into the source of risk which may be internal or external.

  • Risk Analysis

Once the risks have been identified, the next step is to analyse and measure that risks. Further, it is essential to study the risk and the hazard that an individual is exposed to.

  • Risk Assessment

Risks can be assessed depending upon the following factors:

a) Frequency of risk
b) Financial severity
c) Impact of the risk

Risk assessment involves measuring the frequency of occurrence of risk and the loss that it would result in. Some risks require prior attention to others depending upon the severity they would cause.

Dealing with Risks

We all are exposed to risks at all times, while travelling, while working, while driving, etc. Its just that some risks are more severe than others. Financial risks can be treated by the following four methods:

  • Avoiding Risk

The first step in risk management is to avoid the risk. This can be done by not undertaking activities that might cause risk. Like avoiding the risk of financial loss by not investing in the stock market. Despite being beneficial to manage risks, avoiding them would also mean avoiding the opportunities accompanied by a task.

  • Controlling Risk

Once the risk has conquered, the best method is to control the risk in order to avoid excessive loss that might be caused. For example, installing sprinklers and fire extinguishers in a petrol station, to control the loss that fire can cause.

  • Retaining Risk

The third step in risk management is retaining or accepting the risk. Risks that cannot be avoided are usually accepted. Self insurance is a method of accepting risks. A perfect example of this is life insurance. We cannot avoid risk to our life but accept the risks that we are exposed to. We cover ourselves in order to reduce these risks.

  • Transferring Risk

The fourth and the most commonly practiced method of dealing with risk is to transfer it. This refers to shifting the responsibility of the loss to another party. It is usually done by purchasing an insurance policy. It is a contract where the insurance company does not take over the risk but compensates certain percentage of the loss incurred by the risk. Thus, risk management involves identifying the risk and taking effective measures in order to control or reduce it.

 

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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

 

Get the most out of your fixed deposit investments

Posted: 11 Oct 2011 08:37 PM PDT

 

 

ONE OF the main questions for investors in fixed income instruments is the manner in which they should tackle the present situation on the interest rate front. The Reserve Bank of India (RBI) has recently increased interest rates and this will impact all individuals who are investing in fixed deposits.


There is, however, some work that needs to be done before this entire process is completed and, hence, here are some of the steps that they need to take on this front.

Do not rush: One of the first things that the individual has to do is to ensure that they act only after they have all the necessary information with them. The tendency for people is to rush to complete an investment whenever they hear about a specific point and that is something that the investor must avoid at this stage. One of the reasons for this is that while, the RBI has indicated higher rates in the economy, the banks have not yet acted on this in all cases. This could mean a situation whereby the action on the interest rate front could actually be visible after a period of time. This would result in a situation where the rate could change after some time and, hence, if there is a rush to get into the deposit at this stage without checking the bank's action, then there could be a potential loss of opportunity in the times ahead.

Check bank details: The other thing that the investor must do is to check the position with the specific bank where they are planning to invest the fixed deposit. The details that they need to check is the times when the bank has raised rates and what the present rate for different maturities are and how these actually stand up with respect to the other banks around them. This is important, because, unless, this kind of information is known, there could be a decision made on incomplete information that might not be the best one.

This can also give an indication as to when the rate rise can be expected if any and how this will impact them as to when the deposit is to be made.


Think about maturity: The investor also needs to think about the time maturity of the fixed deposit that they will invest in. This is important because they need to make the most out of the situation of high interest rates. The idea for the investor is to ensure that they are locked into the deposit with a longer-term maturity so that they will be able to earn a higher rate of interest continuously for a longer time period. If they choose a deposit with a short maturity, then they could find that they have ended the investment after a short period of time and then, they have a lower interest rate that they will earn from then on.


Existing investments: There are also the existing investments that need to be taken into consideration. If there are existing deposits that are already earning a high rate of interest, then it does not make much sense to do anything with them. However, if there are some that are coming to an end, or, that there is a very low rate of interest on a few of them, then there has to be action on this front. This will ensure that the entire fixed deposit portfolio is in tune with what is required and it is earning a high rate of interest. This kind of alignment will be better for the investor and will help them in their overall efforts.
 

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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

 

Mutual Funds: Monthly Income Plans (MIPs)

Posted: 11 Oct 2011 10:10 AM PDT

Monthly income plans are traditionally popular but volatile due to inherent risk in equities

AS OF the quarter-ended March 31 this year, with an aggregate average quarterly corpus of about Rs 29,000 crore, MIPs made up for a little over 10 per cent of all debt funds (excluding liquid funds) and around 20 per cent of all open-ended debt funds (excluding liquid funds).

Monthly income plans, or MIPs as they are popularly called, have been an old favourite of many retail investors who, besides the characteristics and track record of MIPs, like the sound of the word `monthly income' which denotes a steady flow of money on their investments.

Some investors could confuse an MIP with a SIP but the two are completely different. SIPs refer to the feature of systematic investment plan that asset management companies (AMCs) offer investors, mostly in equity funds.

A SIP is not a separate scheme nor is it one of different options with the same scheme such as dividend and growth. It is simply a feature which enables investors to automatically make new subscriptions to a particular individual scheme at a fixed pre-determined interval, usually monthly.

MIPs, on the other hand, are funds or schemes in their own right. MIPs are usually categorised as debt funds but they are not pure debt funds as, in their investment objectives, they retain the leeway to invest a little bit in equities. This little bit can go up to as much as 20 per cent of the total corpus in some cases. Despite an equity component in their portfolio, MIPs are not balanced funds since balanced funds debt-equity ratio would not be too far way from 50:50.

As per data from Capitaline NAV India, there are 50-odd MIPs across AMCs.


Two of them, HDFC Monthly Income Plan-Long Term Plan and Reliance Monthly Income Plan, had large average assets under management (AAUM), Rs 9,902 crore and Rs 8,393 crore respectively as of March this year, putting them among the largest 10 funds in the entire mutual fund industry including the liquid funds which attract heavy institutional and corporate treasury investments.

Despite their popularity among retail investors, MIPs are not exactly conservative with their returns.


Their attractiveness lies in the kicker returns promised out of the equity exposure.
But this is exactly what makes the performance of MIPs uncertain belying the assurance emanating from the term `monthly income' in their nomenclature.

An analysis by of one-year, three-year and five-year returns offered by the monthly dividend payout option of about 30 MIPs, having a minimum track record of five years, reveals a wide disparity between the best, and the worst, performer (see table). The highest average return across the three time periods came from Reliance MIP with a compound annual growth rate (CAGR) of 10.94 per cent in five years, 14,37 per cent in three years and 6.48 per cent in one year. Its last available equity exposure was 19.61 per cent of total AUM.

The lowest average return came from Sundaram MIP-Moderate which posted a 5-year CAGR of 3.92 per cent, 3-year CAGR of 3.60 per cent and one-year CAGR of 0.57 per cent. Its latest equity exposure was 15.21 per cent.

In the 30 MIPs, equity exposures varied widely but there was no fixed pattern of a very high, or a very low, one leading to higher, or lower, returns. For instance, Birla Sun Life MIP II Wealth 25, had the highest latest equity exposure of 24.78 per cent but ranked 15th in one-year CAGR returns. The one with the lowest latest equity exposure was Templeton India Low Duration Fund with a zero per cent exposure to equities and it fared better in one-year CAGR returns ranking third out of 30 MIP funds. But in the average of CAGRs of the three periods it ranked ninth. MIP fund managers are open to changing their equity exposure levels as frequently as they desire depending on their views. This subjectivity, and the inherent risk in equities, can make MIPs deliver much better than pure debt funds when the markets are rising and much worse when the markets are sliding or stagnant.

Investors need to be, therefore, cautious before jumping in the MIP bandwagon.

 

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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

 

Taking gold loan - Watch out for these……

Posted: 11 Oct 2011 07:53 AM PDT

 

Lower interest rates are attractive, but watch out for extra charges Experts advise it is a loss if you are not able to get your gold back as you get only 70 per cent value as loan

TAKING loan against gold is shown to be the easiest way to raise money either for business or to buy an asset like a house. With Kerala-based gold loans companies Manappuram and Muthoot Finance taking the gold loans business pan-India there are advertisements galore on the benefits of taking a gold loan.

But gold loans are not for everyone and there is more than what meets the eye when raising loans against gold. Here is a checklist on what to look for when taking a gold loan.
Do you really need a gold loan? Gold loans were earlier taken mostly by traders and businessmen to meet the credit shortfall in their business cycle. Today, the salaried class is also being encouraged by the companies to take gold loans since the interest rates are low compared to personal loans or credit card cash advances.

Taking a gold loan to meet a shortfall in the down payment of housing loans is okay but taking a gold loan to trade in the stock markets or to service credit card dues is a certain no-no.


How much money can be raised through gold loans?


It depends on the amount of gold pledged. On paper NBFCs are believed to give 75 per cent of the value of gold against 60-65 per cent by banks but due to the stiff competition many NBFCs are giving even 85-90 per cent of the value of gold as loan. The loan amount could vary anywhere between Rs 25,000 to about Rs 10,00,000 while few NBFCs offer loan amounts more than that.


What are the interest rates on gold loans?

Here again there is a difference between NBFCs and banks. NBFCs charge 20-24 per cent as against 12-14 per cent interest rates charged by public sector banks but NBFCs are believed to be faster in disbursing gold loans with many promising loan processing time as low as five or even three minutes.


What are the other charges? One should not get carried away by the attractive interest rates on gold loans as there are half a dozen other charges for gold loans like the handling and processing fee of about 0.25-0.50 per cent, gold assessing charges of about one per cent and also custodial charges for safekeeping of your gold. Like most other loans gold loans too come with pre-closure charges though a few NBFCs promise exemption of the charges.


How is the repayment process?

Many NBFCs allow the borrower to repay the loan as soon as he gets the money and retrieve his gold. Here the interest would be charged only on the basis of the number of outstanding days of the loan, which could be as less as three days. Banks on the other hand have an organised repayment structure like any other loan.

When it comes to gold loans, what many experts advise is that one can take a loan against gold only when one is sure of repaying the loan and getting the gold back otherwise, there is a possibility of losing the gold despite having taken only 70 or 80 per cent of its value as a loan.

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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

 

 
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