| What is nomination? And who can be nominee? Posted: 13 Apr 2013 03:40 AM PDT Invest In Tax Saving Mutual Funds Online Call 0 94 8300 8300 (India) Nomination is a facility where the account holder or investor appoints a person who can claim the proceeds of deposits, investments, sum assured etc. post demise of the account holder/investor/insured. Where it makes the claim process easy for the nominee, financial institution's liability also gets duly discharged after making payment to the nominee. Sounds simple? That's why you don't pay much heed on appointing a nominee with a proper thought. Now let me give you a shock here - Nominee is not the legal owner of the proceeds. He'll just act as a trustee and custodian of those assets/deposits and has to transfer all to the legal owner/heir. In other words, nominee just gets a right to receive and not right to own. What if there's no nomination? Make your family members aware about the court procedures. As if there's no nomination mentioned in the investments than they have to arrange for death certificate, probate, succession certificate, affidavits, no objection certificates …and so many such documents as demanded by the bank, mutual fund houses etc. So rather than pushing your family members or legal heirs in such sort of legal hassles, I think giving nomination is easy. How WILL is related to nomination? Nomination is just the right to receive the funds after the demise of investor or account holder, but it does not make the nominee the owner of the funds. Owner will be decided by the WILL written by investor or if WILL is not there than the amount /proceeds will be distributed as per the Succession laws applicable on the investor (Hindu Succession act'1956, Indian succession act'1954, Mohmmedans law) Thus even if you have appointed a nominee in your account, he's not authorised to use it unless he's one of the legal heir as per the WILL or succession laws. Lets understand this by example. Mr H has bought one life insurance policy before his marriage for a Sum assured of Rs 1 crore. He's appointed his mother as a nominee in the policy. After his demise, though the policy proceeds will be paid completely to his mother, but his mother will not be the complete owner of the insurance proceeds. The proceeds will be divided in the ratio as mentioned in the WILL or if there's no WILL then as per succession laws. Now, lets assume that mother predecease Mr H. Can you figure out the hardships that the family would have to face to claim the insurance proceeds? Or if the nominee was the brother and after Mr H's demise, he refuses to part with the insurance proceeds, which calls for long court cases. I believe no one of us wants to put our family in such situation. That doesn't mean that appointing a nominee is useless activity. The solution is writing a proper WILL, along with nominating the right persons in your financial instruments. Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com --------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C. Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving) Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications These Application Forms can be used for buying regular mutual funds also Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds ) - ICICI Prudential Tax PlanInvest Online
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| Returns on NPS Funds Only Marginally Better than EPF Posted: 13 Apr 2013 12:26 AM PDT Invest In Tax Saving Mutual Funds Online Call 0 94 8300 8300 (India)
National Pension Scheme (NPS) funds for government workers have not been able to beat the debt-based Employees' Provident Fund (EPF) by a significant margin in the past five years. The five-year returns on the NPS fund managed by UTI Retirement Solutions, assuming that the investor was following a systematic investment plan (SIP), work out to 8.78% while the EPF has yielded 8.62% during the same period.
The calculation is based on the internal rate of return (IRR) of monthly contributions from April 2008 till March 2013. There cannot be a significant difference because the government allows only 15% of the corpus to be invested in equities.
The current allocation of the UTI managed scheme is not known but as on September 30, 2012 it had 8% of its corpus invested in stocks. The PFRDA wants that government employees should also be allowed the same investment choices as other investors in the NPS. The ordinary investor in the NPS is allowed to define his asset allocation and can put up to 50% of his corpus in equity funds. He can also change his asset allocation or switch his pension fund manager once a year. Once the government makes the monthly contribution to the employee's NPS account, its responsibility ends. It should not stipulate how that money should be invested. The equity funds of the five pensions fund managers for the general public have also performed poorly since their launch four years ago in May 2009 casting doubt on the theory that a greater exposure to equity could have driven up returns. Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com --------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C. Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving) Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications These Application Forms can be used for buying regular mutual funds also Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds ) - ICICI Prudential Tax PlanInvest Online
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- DSP BlackRock Tax Saver FundInvest Online
- Reliance Tax Saver (ELSS) FundInvest Online
- Birla Sun Life Tax Relief '96 Invest Online
- IDFC Tax Advantage (ELSS) FundInvest Online
- SBI Magnum Tax Gain Scheme 1993Invest Online
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- DSP BlackRock Top 100 Fund
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- HDFC Top 200 Fund
- UTI Dividend Yield Fund
- Mid and SmallCap Funds Invest Online
- Reliance Equity Opportunities Fund
- DSP BlackRock Small & Midcap Fund
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| Debt Mutual Fund Terms You Need To Know Posted: 12 Apr 2013 10:37 PM PDT Invest In Tax Saving Mutual Funds Online Call 0 94 8300 8300 (India) Right now, we are in a falling interest rate scenario. If your financial planners, advisors and wealth managers, and bank relationship managers have not yet recommended debt mutual funds to you, they certainly will do so now.
When investing in debt mutual funds, there are some parameters to be considered and compared before you finalize which fund to invest in, based on your risk appetite, tax bracket, time horizon and liquidity requirements / investment time horizon.
But since most investors don't know what these parameters are, or have heard of them but don't understand them, the questions go un-asked and therefore un-answered.
Before we go into the details, first lets lay some groundwork.
From the beginning of this article, you have drawn the conclusion that a falling interest rate scenario is good for debt mutual funds, which hold bonds in their portfolios. Why is this so?
Because Interest rates and bond prices share an inverse relationship. When interest rates in the economy move down, such as right now, prices of bonds issued at the earlier rate (i.e. higher than the new rate) go up as they are more valuable to own because they give a higher interest rate than the new available bonds.
For example: A few months ago a fund manager bought a bond issued at its face value of Rs. 100 which pays interest at 9% p.a. for 5 years. Now, if the rate of interest for a fresh series of bonds with the similar maturity and risk profile earns 8.25% due to a fall in the interest rate, then the bond which the fund manager bought a few months ago will gain value and now will trade at a price above its face value i.e. above Rs. 100. It's price will go up, as interest rates go down.
So we have now understand that bond prices and interest rates are inversely related, which is why in a falling interest rate scenario, bond prices will go up, so debt mutual funds which hold these bonds in their portfolios will gain value, so you as an investor holding the now-more-valuable debt mutual funds will make more money on your investment.
But, back to our original question, how do we decide which debt funds to own? What are the parameters we need to check and compare?
Let's see what the main parameters are:
Yield
Yield denotes the rate of return on your bond investment. It takes into consideration income accrued by way of interest only. This means it does not consider any capital gain on the bond in the secondary market.
There are different ways of calculating yield on bonds.
Current Yield
As you know, bonds can be bought at par (at their face value), at premium (by paying more than their face value) or at discount (by paying less than the face value). Even so, the coupon rate (rate agreed to be paid throughout the life of the bond by the issuer) remains the same for you, no matter whether you are buying the bond at par, at premium or at a discount, but a noteworthy point is that the yield though will differ.
For example, say a fund manager bought a bond with a face value of Rs. 100 at par with a coupon rate of 10% p.a. current yield will be 10%. But the same would drop to 9.80% if he would have bought it at Rs. 102. Similarly, if he would have purchased a bond at a discount of Rs. 2 to the face value - i.e. at Rs. 98, then the current yield on the bond would have moved up to 10.20%.
Yield to Maturity (YTM)
YTM is nothing but the anticipated rate measuring the time adjusted total returns that one will make on a bond as an investor, if he holds the bond till maturity. YTM takes into account the current market price, the face value, the interest payment that will fall due on the bond and years left in its maturity. This calculation of the returns is based on several assumptions which are: - Coupon payments will be made on time, and will be reinvested at the same rate
- The bond is held till its maturity
Example: A 5 year bond with an annual coupon rate of 10%, paying semi-annually and bought at Rs. 95 (Face value 100) exactly at the completion of 1 year will have YTM of 11.94%. Similarly, when the same bond is priced and bought at Rs. 105, at the completion of one year, the YTM will be 8.68%.
Another conclusion that can be drawn from YTM...
If YTM > Coupon it means the Bond is trading at a discount
If YTM = Coupon it means the Bond is trading at par
If YTM < Coupon it means the Bond is trading at a premium
Duration
In finance, duration has a specific connotation. It measures (in number of years) the time taken by all expected future cash flows of the bond to repay the time adjusted true value of the bond.
Factors affecting the Duration - Number of years left in the maturity of the bond
- Coupon Rate and yields
- Credit Ratings
Duration of bonds bearing high coupons and lower maturities would be lower as higher coupons would take lesser time to equate the time adjusted true value of the bond. Duration of a bond is an useful measure as bonds with higher durations witness high price volatility than bonds with lower durations.
For example: A bond bearing an annual coupon rate of 10% and the yield of 10% maturing after 3 years would have a duration of 2.73 years. On the other hand, bond with an annual coupon and the yield of 9% having tenure of 5 years would have duration of 4.24 years. However, credit rating plays a crucial role in determining the duration; as bond with lower rating would usually quote higher coupon thereby realising the true time adjusted value of a bond faster.
A bond with higher duration is more sensitive to the interest rate movement. As maturity nears even a longer term bond would become less vulnerable to the interest rate risk.
Modified duration
A varied form of duration, measures the effect of each percentage change in yield on the duration. It measures the effect that each percentage change in interest rates will have on the price of the bond.
We have already seen that the bond with a coupon and the yield of 9% having tenure of 5 years would have duration of 4.24 years. Assuming the bond is trading at par and pays interest on an annual basis, the YTM will be equal to the coupon rate of 9%. Now, for a percentage increase in YTM; the duration of the bond will decline to 3.89 years. In simple terms, the bond price will decrease by 3.89% with a one percentage increase in interest rate and vice-versa.
Average Maturity
The average maturity of the portfolio determines the time involved in maturing of all the debt assets in the portfolio of the debt mutual fund. Higher the average maturity of the portfolio greater would be the interest rate risk on the portfolio of the debt mutual fund. Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com --------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C. Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving) Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications These Application Forms can be used for buying regular mutual funds also Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds ) - ICICI Prudential Tax PlanInvest Online
- HDFC TaxSaverInvest Online
- DSP BlackRock Tax Saver FundInvest Online
- Reliance Tax Saver (ELSS) FundInvest Online
- Birla Sun Life Tax Relief '96 Invest Online
- IDFC Tax Advantage (ELSS) FundInvest Online
- SBI Magnum Tax Gain Scheme 1993Invest Online
- Sundaram Tax SaverInvest Online
- Edelweiss ELSS Invest Online
------------------ Best Performing Mutual Funds - Largecap Funds Invest Online
- DSP BlackRock Top 100 Fund
- ICICI Prudential Focused Blue Chip Fund
- Birla Sun Life Front Line Equity Fund
- Large and Midcap Funds Invest Online
- ICICI Prudential Dynamic Plan
- HDFC Top 200 Fund
- UTI Dividend Yield Fund
- Mid and SmallCap Funds Invest Online
- Reliance Equity Opportunities Fund
- DSP BlackRock Small & Midcap Fund
- Sundaram Select Midcap
- IDFC Premier Equity Fund
- Small and MicroCap Funds Invest Online
- DSP BlackRock MicroCap Fund
- Sector Funds Invest Online
- Reliance Banking Fund
- Reliance Banking Fund
- Tax Saver MutualFundsInvest Online
- ICICI Prudential Tax Plan
- HDFC Taxsaver
- DSP BlackRock Tax Saver Fund
- Reliance Tax Saver (ELSS) Fund
- Gold Mutual Funds Invest Online
- Relaince Gold Savings Fund
- ICICI Prudential Regular Gold Savings Fund
- HDFC Gold Fund
 |
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