Thursday, August 1, 2013

Prajna Capital

Prajna Capital


Why you need Financial Advisors

Posted: 01 Aug 2013 07:01 AM PDT

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 

They will help reduce investment risk and ensure consistent review of your portfolio

 

Anita and Amit were a happily married couple. Both of them were in the software industry and based on their current income levels, they borrowed heavily to buy a lavish flat in Mumbai. But within a few years, Amit had to take a pay cut due to the downturn in Information Technology sector. The couple had a tough time repaying their loan.

They had to drastically cut down their expenses, and also stop paying mutual fund payments and insurance premiums. Since they had been paying premiums for less than three years, they lost a lot of money they had paid towards premiums until then. By stopping their mutual fund Systematic Investment Plans they lost the opportunity to build up savings.

Although Anita and Amit continued to service their home loan, they were left with zero savings. Although, they managed to save their home from being taken over by the bank, they would have been able to continue with their loan as well as their savings if they had consulted a financial advisor.

For instance, an advisor would have told them that they can negotiate with their bank to restructure their home loan by reducing the monthly outgo and increasing the tenure. Or they could have shifted their loan to a bank where the interest rates are lower. This would have also helped reduce the monthly EMI. Since home loan pre- payment does not attract any penalty now, they would not have lost any money.

Despite higher incomes, today, people also borrow more. A household with multiple loans ( such as home, car, consumer durable, education) is very common. But despite the high income levels and borrowings, most of the households do not have a proper financial planning process.

This can be for two reasons – lack of time to do so or lack of awareness. Also, people do not realise that financial planning is not a one time process, but a continuous one that requires timely review.

If you do not have a financial plan in place, there can be a major impact on your wealth creation process. So for people who do not have the time or do not understand financial nuances, seeking help of a financial advisor makes a lot of sense. Investment products are becoming more complex and to understand risk and return trade off, needs expertise. A financial advisor can provide the same.

While choosing a financial advisor need to look at the services that he or she offers and the fees charged.

Ideally, a financial advisor should offer the following services:

Expertise in determining the best asset allocation Professional help to sort out investment hassles and estate planning Professional advice to help maximise returns from your investments Advise on retirement planning Before making specific recommendations, agood advisor will ask you questions to gain a whole picture of your past experience, lifestyle and goals, as well as your other investments and current financial situation.

You can consult an advisor even if you are just starting a career. For instance, Ajay a bachelor always felt that there was no need to save and used to spend recklessly. After all he had just started his career and had no dependents. Although his father was retired, the money from his savings took care of the household expenses. But suddenly Ajays father fell ill and the family incurred huge medical expenses. His father did not have health insurance and the treatment ate up a huge chunk of his savings. It was then that Ajay realised the importance of saving and planning fore retirement, especially for eventualities like illnesses in old age.

On basis of the advise of his friend, he met Jagan a neighbourhood financial planner who made him understand the nuances of financial savings. Due to the savings, Ajay was able to meet his fathers medical expenses and also started building his own corpus for future.

How does a financial advisor help :

Develops realistic expectations by providing proper perspective on the risks and rewards of each investment

Helps you match your financials goals with right investment avenues Monitors your portfolio and provides information on the returns being generated Regularly reviews the portfolio to ensure optimal results for you Gives opinion on investments Provides professional advice Mitigates your investment risk These are some normal services that investors should expect from their financial advisors. Other services could include advice on retirement plan, developing tax- efficient strategies, estate planning, home loan advice, etc.

Services and charges :

The fees charged by the financial advisor depends on the type of service availed. Investors should opt for financial advisors with good credentials.

Don't hesitate to ask what are the advisors qualifications. Preferably, look for an advisor who is certified by the Financial Planning Standards Board India.

Make sure he recommend products only based on your needs. If your financial goals change, inform your advisor and take his help to change your savings accordingly. There is no need to stick to the same plan that has been made when you started taking advice. Have regular meetings with your advisor and review your investment portfolio in his presence on a regular basis.

One should be careful while choosing a financial advisor. Don't forget to check his track record and avoid those who assure high and unrealistic returns without explaining the product. Also, beware of fly by night operators Financial advisors have an important role to play in terms of financial planning and implementation. There are plenty of financial advisors available.

However, before selection of financial advisor, please check the credentials in order to ensure safety of your capital.

Good time to invest in equity

 

RETAIL investors have largely taken a cautious approach ever since the 200708 global financial crisis, notwithstanding the recovery of FY10 and FY11.


Their behaviour reminds you of the famous adage ­ "once bitten, twice shy".


Even last year, when the domestic stock market was pretty buoyant and foreign institutional investors (
FIIs) pumped in a lot of money ($24 billion), retail investors used the rebound to cut their equity exposure by redeeming mutual funds (MFs). They continue to shun equities this year with the NSE Nifty being more or less flat. Equity MFs have seen outflows worth Rs 6,000 crore year-to-date (YTD).

Given the challenging macro-economic backdrop, what strategy should retail investors adopt? We believe retail investors, who have been patiently waiting for some decent returns from equities for the past five years, should not lose heart. With expectations of subdued returns from gold and real estate, this is the right time to look at equities for long-term growth of one's investment portfolio.

Under-ownership among retail investors, coupled with expectations of a gradual economic recovery and undemanding valuations (12.0x FY15 earnings) make equity a fairly attractive investment option.

Our view on the domestic markets is positive over the next couple of years, as India's economic growth will start to look up slowly but surely on the back of better agriculture sector growth and increased government spending in the run up to general elections. Barring food prices, inflation has been brought under control and is not expected to rise anytime soon. Fiscal consolidation remains well on track. In fact, the FY13 fiscal deficit came in at 4.90 per cent of GDP opposed to the budget estimate of 5.20 per cent. The finance minister has expressed confidence in meeting the FY14 fiscal deficit target of 4.80 per cent of GDP .

Good southwest monsoon is likely to boost agriculture output, while large current account deficit (CAD) is also expected to moderate in FY14 on lower gold imports. The upcoming Lok Sabha polls will lead to some pick-up in fixed investments as tends to happen in a pre-election year.

The domestic stock market's valuation remains supportive at 12.0x FY15 earnings, which is below the long-term average of 15.0x to 16.0x one-year forward earnings. Retail investors can thus expect good returns from domestic equities over the next two years and recommend increasing allocation towards the same.

Retail investors can take exposure to equities via MFs. A variety of equity MF schemes are available in the market. One can opt for systematic investment plans (SIP) in one or more MF schemes -large-cap funds, large-cap cum mid-cap funds and balanced funds. If one is not shy of a direct equity exposure then one can buy large-caps and quality midcaps. Stagger your investments rather than putting a lump sum and stick to a disciplined approach by regularly reviewing your strategy.

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 )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

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

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Debt Fund Investments are for Short Term Goals

Posted: 01 Aug 2013 05:43 AM PDT

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 

Such investments generate higher returns than Bank FDs, and also help save on taxes on the investment


Usha Kamble (name changed), a media professional, was recently planning to buy a health insurance policy for her family of three. She was fine with the yearly premium amount. But she was concerned that every year around the same time, she would have to cut down on some of her regular expenses to take care of the premium amount.


She was given two solutions which could lighten her burden. One was to start a recurring deposit with a bank for 12 months which, at the time of maturity, should take care of her annual premiums. The other was to start a systematic investment plan (
SIP) in a debt mutual fund, from which she could redeem the premium amount each year.


The first option, a bank RD, is nearly risk-free. On the other hand, while an SIP in a debt mutual fund may not be as safe as the first one, it has the potential to earn Kamble a better tax-free return in addition to some extra returns in terms of capital appreciation too.


People in their daily lives may face a number of such situations like Kamble — it could be paying the annual tuition fee for a child, or the six-monthly payment for a coaching class, taking care of the family's annual holiday expenses, or even planning for a new car after three years.


In India, mutual funds are mostly understood as long term investment vehicles. However, the fact is there are solutions within the fund space which one can use intelligently and judiciously for better returns and also for better peace of mind. All the above mentioned expenses, and also emergency ones, can be taken care of by various debt schemes.


Most debt schemes come with some tax advantage over comparable products and, hence, chances are you would get something more than what you are actually planning for. The point to note here is that equity schemes are not suitable for meeting such short- and medium term financial goals.


For example, for meeting your short-term needs, like a payment that has to be made every six months, you can use ultra short term funds. While, for meeting your annual payments you can go for dynamic bond funds or another debt fund that does not charge exit loads for redemptions above one year. This is important because if you have to pay an exit load (which some of the debt funds charge), then your total corpus would be reduced by the amount of the exit load.


Another caveat is that ultra short term funds carry some credit risks, but given how Sebi regulates the industry, the chance for you to not meet your target is low. On the other hand, the chance of you getting more than what you are aiming from a competing product is high in case you are invested in a fund scheme. On top of all these, you also tend to enjoy better tax advantages when you invest through the fund route.


The two accompanying articles, one by Surya Bhatia and the other by Jiju Vidyadharan, give two varied perspectives to the same idea — that of using debt schemes to meet your short- and medium-term financial needs.

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 )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

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

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Risks in debt funds

Posted: 01 Aug 2013 04:22 AM PDT

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 

 

Debt funds are not entirely risk-free, as events in the wake of the RBI's July 15 measures demonstrated



Every time there is a fall in the net asset value (NAV) of debt funds, there is panic. Investors inevitably ask: if there is no default and the fund is receiving its interest income, how and why should the NAV fall? A drop in the NAV of a debt fund can trigger alarm and lead to a precipitous closure for some, as happened in 2008. The market risks in mutual funds are not widely understood, leading to accusations that these should have been avoided somehow.


Investing in a debt fund is quite different from doing so in a bond or fixed deposit. In the case of a fixed deposit, the investor agrees to an unrealistic freeze in rupee return, in exchange for convenience and simplicity. The government no longer determines interest rates in our economy, nor are they dictated by powerful institutions. We have transitioned to a market for interest rates, and this market enables money to be lent and borrowed based on the needs and views of a large number of participants.


In such a market place, there are only prices and clearing. There is no right and wrong. If a borrower is willing to pay 8% for a year, and a lender agrees to it, the exchange of money is cleared at the agreed rate. Alternatively, the borrower might be in the market today believing that rates are set to rise and, therefore, wanting to borrow today; the lender might hold the view that rates are set to fall and, therefore, may be eager to lend. We will never know the motivations, nor will we be able to identify why rates move up or down. At the end of the day, as long as everyone keeps their promise, we have a market where rates are determined efficiently and fairly.


When an investor chooses a bank deposit, he does not select the market. This is the reason he settles for a 4% rate on his savings bank account, while the bank itself lends its surplus balance for 8% in the call market. The bank is in the market for overnight funds, lending and borrowing as needed, while the saving bank depositor is standing outside, content with a fixed rate What happens when such an investor chooses a debt fund? He simply steps into the market place for borrowing and lending. Here rates change based on demand and supply and the views of various players. This investor makes 9% on his liquid fund, when money market rates are high; he makes 4% on his gilt funds, when interest rates have risen; he makes 12% on his income fund, when credit spreads fall; and he makes 16% on his short-term fund, when rates correct sharply.


A debt fund also pools in money and creates a portfolio much like an equity fund, except that it buys debt securities issued by governments, banks and companies. If a five-year bond is issued at an interest of 10%, and the fund buys it, it earns this interest like any other investor. However, since a debt fund is an open-ended product in which investors come and go as they please, it accounts for the interest income on a daily basis.

Therefore, the NAV of all debt funds will hold a component that represents this steady accrual income. This income will come to the debt fund unless there is a default. However, if interest rates move up to 11%, while this bond continues to pay 10%, you cannot have a market where the same good (same issuer, same structure, same rating, same tenure) has two prices. The old bond is less valuable since it pays less than the current market rate of 11%. Its price falls. The NAV has to correct for this new value. This is the market risk in debt funds.


Why do interest rates change? If market participants expect inflation to change, they will modify their expectations for rates. Or if they desperately need money, they will offer a high rate, as they do in March every year. Or, they may seek a different rate given their preferences arising from their own balance sheets.


Rates can sometimes change unexpectedly. Last week, the RBI decided to curb speculative positions that may be abetting the rupee's depreciation against the dollar. It wanted to make the rupee scarce to arrest its slide. A 2% hike in bank rates and in marginal standing facilities was announced. This hurt liquidity in the market and, in response, rates went up sharply.


What happened to debt funds? They were holding bonds and debt instruments, including money market instruments that were issued at historical rates. The RBI action also precipitated a change in market expectations, where players began to think that the RBI would increase policy rates too. An increase in market rates meant that the value of debt securities in the portfolios of debt funds fell.


A debt fund's steady accrued income of, say, 2p a day (that is 7.4% a year), may not be enough to cover steep changes in the value of bonds arising from variations in interest rates. However, the steadiness of 2p will also ensure that these losses are recovered over time. The funds with longer tenures have too many cash flows in the future and, therefore, correct more when interest rates increase. The shorter tenure funds typically correct less when rates change. However, if the change is both unexpected and steep, as happened on 15 July, the correction is significant.


Some investors will continue to dislike market risks and seek deposits; others will take the ups and down in their stride as long as they know the pricing is fair. Each to his own.

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 )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

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

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

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