Monday, October 17, 2011

Prajna Capital

Prajna Capital

Alternative Investment Route to create wealth

Posted: 17 Oct 2011 07:15 AM PDT

PE and VC funds, though riskier, could be a good avenue when traditional assets have remained lackluster

With equities seeing red and debt being only marginally ahead of inflation, venturing into alternative assets like private equity (PE) and venture capital (VC) funds is worth considering. These funds, on an average, give 15-30 per cent returns, considerably higher than other investment vehicles.

While the world of PE and VC comes under the more sophisticated investment products, meant for those with high risk appetites, the investment philosophies they follow are not as complicated as one imagines. Traditionally, these funds invest in unlisted companies and start-ups. Once the company grows, they sell their stake to either another PE firm or in the public domain.

When it comes to PE and VC funds, with different funds being at different stages and having different underlying assets they have invested in, it is difficult to gauge the returns. Most funds claim to give returns of 20-25 per cent but actual returns are not publicly available. Domestic PE fund houses such as ICICI Ventures and IL&FS have been successfully running funds for some years and generating returns of 20-25 per cent. The Kotak India Real Estate Fund-I, which started in 2005 and had a seven year maturity period, has already paid investors back their entire principal, as well as given 15 per cent returns. VC funds offer higher returns, in the 25-30 per cent range. These funds are riskier, though, as the investment being made is at a more nascent stage of the company.

In PE and VC funds, investors typically invest in tranches and, in some cases, the payouts made by the funds are also in stages. However, with many of the funds providing returns on maturity, knowing how the funds are doing midway is difficult.

While PE and VC ticket sizes a few years before were in the `5-10 lakh range, the current entry point for most funds is 25 lakh and can go as high as `5crore. However, if the new takeover code guidelines issued by the Securities and Exchange Board of India get implemented, it could raise the minimum investment threshold to `1crore.

Investors usually get into PE and VC funds via their investment banker. Investors directly invest in PE projects as well, often as a group, pooling their money and investing. The advantage here is that investors can leverage the power of multiple investors, getting better deals and attractive valuations. Such investments are riskier than investing in a PE fund, wherein the investor pool is larger and the money collected is diversified amongst various projects and companies.

Another reason these funds make good investments in the current economic scenario is that they get better valuations and deals. In this sense, it is similar to investing in equities or in mutual funds, as a slowdown does provide opportunities as well. Also, with these funds having five to seven-year tenures, the slowdown is less of a concern, as the long investment tenure should ride out the short-term hiccups.

From an investor standpoint, when looking at such a high-risk asset class, going with people who are really good at what they do and understanding their industry and this business well is the key. Here, your banker plays a crucial role, as you would be investing on his recommendation.

Investments in consumer goods, health care and education sectors are on the rise, as these areas have witnessed a lot of asset building. PE investments in India grew 22 per cent last year.

One has to have patience and a long term appetite when investing in these funds. In a portfolio, while five to 10 per cent would be set aside for such investments, these days 15-20 per cent is worth investing in this asset class.

For Indian investors, consumer protection, far lower than that in the West, is an area of concern. A recent World Bank Group report placed India second-last in a list of 170 countries in terms of contract enforcement. "Protection issues for minority shareholders are impacting everyone and the structural bias and lack of protection in terms of payments, returns, inflows and exit clauses has led to investors being weary of such alternate investments.
 

Mutual Fund Schemes With Free Life Insurance

Posted: 17 Oct 2011 04:08 AM PDT


Reliance Mutual Fund has been, of late, promoting its SIP Insure facility heavily. Birla Sun Life is another fund house offering a similar product named Century SIP. Under such schemes, typically, you invest under a list of specified schemes through the SIP (systematic investment plan) mode. Should anything happen to you before the expiry of the scheduled investment period, the insurance cover will get triggered. For instance, under Reliance MF's SIPInsure facility, the sum assured, which is equal to balance SIPs, is invested in the same fund chosen by the insured, in the nominee's name.


And, obviously, you do not have to pay any premiums for the life cover, usually provided under a group insurance scheme. The costs are borne by the fund house from the fund management charges investors pay. But, redemption under such mutual fund-cum-insurance schemes may not be as simple as a regular fund. There could be additional costs in terms of higher exit loads if one were to redeem these schemes within the no-exit period.


While the concept of putting in place a mechanism to fulfil a goal even in the investor's absence seems appealing, you also need to ascertain whether the attached insurance cover is commensurate with your current liabilities and dependants' future needs.


An overall term cover is much more comprehensive and easy to keep track of while evaluating your life insurance needs in future. It is much better to separate your insurance needs from your investment portfolio. If you were to have a combined insurance and investment plan via a SIP insure, etc, or a Ulip, your asset allocation gets extremely constrained by the funds offered and it becomes much more difficult to administer and rebalance yearly the overall allocations of the portfolio.


Then, such schemes also come with an upper limit on the life cover. For instance, if your MF insurance scheme offers a cover of . 10 lakh, it will not serve your purpose entirely if your requirement is for . 50 lakh.


To the extent of notional premium saved towards the free insurance provided by these schemes, the investor is at an advantage. But one must keep in mind that the primary focus should be on investment and, hence, the premium saved should not be the major consideration in choosing this option. If the scheme one is investing in is good and suits one's investment needs, the added free insurance is one more plus point for the investor.

-----------------------------------------------------------------

 

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

 

Insurance with Covers Bundled in one Product

Posted: 17 Oct 2011 02:34 AM PDT

 


   The idea of getting something free along with your main object of desire is always thrilling. Be it a conditioner with a shampoo or a toothbrush with toothpaste. The financial and investment space, too, has its share of add-on offerings. For instance, mutual fund schemes come with free life insurance cover, credit cards and home loans come with personal accident policies where customers do not have to pay the premium, and, of course, there are zero-cost covers for new cars.


However, skeptics will always point to the age-old axiom that there are no free lunches. After all, the company or the intermediary that offers freebies could have passed on the benefits in the form of lower charges instead, they argue.
Besides charges, there are aspects and implications that you need to take into account before giving in to any such temptation.

Mutual Fund Schemes With Free Life Insurance

Reliance Mutual Fund has been, of late, promoting its SIP Insure facility heavily. Birla Sun Life is another fund house offering a similar product named Century SIP. Under such schemes, typically, you invest under a list of specified schemes through the SIP (systematic investment plan) mode. Should anything happen to you before the expiry of the scheduled investment period, the insurance cover will get triggered. For instance, under Reliance MF's SIPInsure facility, the sum assured, which is equal to balance SIPs, is invested in the same fund chosen by the insured, in the nominee's name.


And, obviously, you do not have to pay any premiums for the life cover, usually provided under a group insurance scheme. The costs are borne by the fund house from the fund management charges investors pay. But, redemption under such mutual fund-cum-insurance schemes may not be as simple as a regular fund. There could be additional costs in terms of higher exit loads if one were to redeem these schemes within the no-exit period.


While the concept of putting in place a mechanism to fulfil a goal even in the investor's absence seems appealing, you also need to ascertain whether the attached insurance cover is commensurate with your current liabilities and dependants' future needs.


An overall term cover is much more comprehensive and easy to keep track of while evaluating your life insurance needs in future. It is much better to separate your insurance needs from your investment portfolio. If you were to have a combined insurance and investment plan via a SIP insure, etc, or a Ulip, your asset allocation gets extremely constrained by the funds offered and it becomes much more difficult to administer and rebalance yearly the overall allocations of the portfolio.


Then, such schemes also come with an upper limit on the life cover. For instance, if your MF insurance scheme offers a cover of . 10 lakh, it will not serve your purpose entirely if your requirement is for . 50 lakh.


To the extent of notional premium saved towards the free insurance provided by these schemes, the investor is at an advantage. But one must keep in mind that the primary focus should be on investment and, hence, the premium saved should not be the major consideration in choosing this option. If the scheme one is investing in is good and suits one's investment needs, the added free insurance is one more plus point for the investor.

Mutual fund dividend or growth option, which one is better?

Posted: 16 Oct 2011 11:55 PM PDT

 


   Mutual fund investments come with a few options as far as dividends are concerned. You can go for the dividend payout option, where the dividend is paid to you as and when it is declared by the fund. You can also opt for the growth option, where the profits are reinvested in the fund as and when declared.

 
   Choosing a proper option is essential. There are many factors that guide you on this. The two major considerations are your cash flow requirements and the tax implications.

Dividend option    

In this case, the fund does not reinvest the profits. You receive the dividends as and when declared by the mutual fund. So, there is a continuous flow of funds. This option suits those who invest with the objective of receiving a continuous stream of income. Also, you have the flexibility of investing the dividends in other options. You can then diversify your portfolio, rather than restricting it to one particular fund.

   The dividends can be invested in other funds or fixed income options. The only hitch is the dividends are not guaranteed. You may get good returns one year and nothing in another one.

   Dividends from a mutual fund are not taxed. However, the fund pays a dividend distribution tax (DDT). The rate of DDT in case of liquid funds is 25 percent (plus surcharge or cess). For non-liquid fixed income funds, the DDT for individual investors is 12.5 percent (plus surcharge or cess).

Growth option    

In this case, all the profits made by the fund are ploughed back into the scheme. This causes the NAV of the fund to rise over time. In case you don't have an immediate requirement for funds, you can go for the dividend reinvestment option. The dividends declared are reinvested in the same fund. The number of units is increased.

   The reinvestment is made at the market price of the units prevailing on the date of dividend reinvestment. So, you do not receive any immediate cash.

   The NAV of this option will always be higher than that of the dividend option because money is going back into the scheme and not given to investors.

   You can make money later by selling the units at a higher NAV.

   If you are looking at a long-term investment option and if you are not interested in returns at regular intervals, this is a better option.

   In the growth option, the gains are taxable in the hands of the investor. There is no DDT. The tax depends on the holding period - returns from mutual fund units held for a period of less than a year are called short-term capital gains (STCG), and from a holding of more than a year are long-term capital gains (LTCG).

   STCG is taxable at the slab rate applicable to you. In case of LTCG, you can pay income tax either at 10 percent (plus cess) without taking the benefit of cost inflation indexation or at 20 percent (plus cess) after taking the benefit of cost inflation indexation.

   So, if you are planning to invest for less than a year, the dividend option is better as the individual DDT rate of 12.5 percent is lesser than the STCG rate of 30 percent. However, in case you are planning to invest for a longer term, the growth option is advisable. In case of the growth option, the tax rate of 10 percent (without indexation) is lower than the DDT rate.

 

-----------------------------------------------------------------

 

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

 

Credit Cards With Accident Covers

Posted: 16 Oct 2011 10:22 PM PDT


Several credit card issuers and banks offer accident covers along with the cards. Again, the company buys a group cover for the purpose and no premium is to be paid by the user for the cover. Their structure and claim process are mostly similar to a regular personal accident policy from a nonlife insurer. In the event of the holder's death, a lump sum is paid out to the nominee. Such covers could come with permanent disability riders, too, to provide succour to the insured if s/he meets with a debilitating mishap.


They may not cover loss of wages in case the policyholder is temporarily incapacitated and is not able to resume work. Also, there is a possibility of you becoming dependent on the bank or the issuer merely because of the cover. You would do well to consider buying a basic cover, independent of such products.


To sum up, ensure that you focus on the merits of the main product. If it fits into your financial plan and serves your purpose, go for it. Any additional benefit would be a bonus.
Posted by at

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)