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| Debt Mutual Funds and Capital Safety Posted: 27 Aug 2013 01:59 AM PDT Invest In Tax Saving Mutual Funds Online Call 0 94 8300 8300 (India)
THE recent movements in the debt market have caused a lot of panic among investors as they have found that several of their plans have come unstuck. This has happened as the liquidity squeeze in the debt markets have ensured that the yields have gone upwards, which has played havoc with the net asset value (NAV) of debt oriented funds. Here is a look at the issue and how the investors can ensure that they are able to tackle the issue in an effective manner.
Change of trend:
One of the biggest impacts that the liquidity squeeze has on the investment climate in debt oriented funds is that the trend that was prevalent earlier has completely changed. An expectation of a rate cut in the coming days which would accelerate and then lead to a fall in yields was the reason why a lot of investors were looking at long-term debt funds like income funds and gilt funds. The situation has turned in the sense that the yields are actually rising and in the very near term, the expectation of a rate has all but gone. This is important because the overall base for the entire decision making now needs to be geared to a position where there might not be any rate cuts and hence this should be the guiding force.
Debt can lose:
For all those who were thinking that it is only the equity oriented funds that can end up with losses for their investors, the past couple of weeks have come as a rude shock. The fall in the long-term debt funds on the day when RBI initially applied the liquidity squeeze was anywhere between 3-5 per cent which is a huge sum, and this might not even be seen in several equity oriented funds. This has sent returns for several investors crashing and for those who entered in recent times there is actually a loss on the portfolio.
The bottom line is that debt can actually end up with losses for an investor because unlike steady normal debt, the instruments that are held by the mutual funds are actually traded and hence these are subject to fluctuations.
This means that there can be a capital loss on these investments, which will mean a reduction in the net asset value of the fund. Investors need to keep this in mind when they are looking at their investments and hence this becomes a crucial factor whenever they are making their investment choices.
Risk and return:
The way to go about choosing a debt fund is that the investor would have to look at the time horizon that they want to put their money for. This will require them to decide the exact period for which they need to remain invested because the choice of the fund depends only on this factor.
The risk element needs also to be brought into the picture because if the appetite of the investor is for taking some risk, then they should venture into long-term funds including gilt funds. If this is something that the investor does not want to do then they need to ensure that they stick to lower risk funds. Here the risk would be low but they should also not expect very high returns. When this is matched with the time period then it should match appropriately. This is important so that the entire investment structure is created properly.
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 )
------------------ Best Performing Mutual Funds
|
| Posted: 26 Aug 2013 08:06 PM PDT Invest In Tax Saving Mutual Funds Online Call 0 94 8300 8300 (India)
L&T Mutual Fund announced to change the exit load of its triple ace bond fund from August 12. The revised load will be 1.5 per cent for investments redeemed within nine months. 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 )
------------------ Best Performing Mutual Funds
|
| Posted: 26 Aug 2013 06:59 PM PDT Invest In Tax Saving Mutual Funds Online Call 0 94 8300 8300 (India) Invest in recurring deposits or other tax- effective instruments, in addition to your health cover When Ramesh Kumar went to his financial advisor to file his tax returns, the advisor noticed that he did not have a receipt for the health insurance premium paid in the previous year. When asked, Kumar said that he had retired from a government organisation during the previous year and as per the organisations policies, he enjoyed free medical care at a renowned suburban hospital campus for lifetime. Kumar was lucky since his former employer provided for one of the most critical expense that people face post- retirement. But what about those who are not employed with government organisations? How do they provide for their long- term medical care post- retirement? According to a recent study by Fidelity Investments, an average 65 year old couple, in USA, is estimated to spend approximately $ 220,000 on their medical expenses through their retirement. This translates to about ₹ 1.3 crore. In India too medical costs are estimated to be increasing at a rate of around 15 per cent. Long- term medical care refers to facilities/ provisions for medical care post active employment/ working phase. This is equally applicable to the organised and unorganised sectors. People employed in companies are provided with a group medical cover for themselves and also their families. Many companies cover employees' parents on payment of an additional premium to their group cover. In addition to this, many employees also buy individual /floating medical policies to increase their coverage. For the self- employed; a standalone medical cover is a must. In both these cases, the individual who pays the premium enjoys a tax- deduction on the premiums paid under section 80- D of the Income Tax Act, 1961. While this is extremely important and continuing the same is advisable, these policies only provide coverage for the policy holder's current medical emergencies. With rising age, the premiums become costly and beyond age 60; the premium cost also becomes prohibitive for certain individuals. So, while a health insurance policy is an excellent must- have for the present medical care; how does one provide for long- term care? Countries round the world have responded to growing long- term care needs through various measures. For example, in Germany, funding for long- term care is covered through a mandatory insurance scheme, with contributions divided equally between the insured and their employers. In Canada, funding for the long term care facilities is governed by the provinces and territories, which varies across the country in terms of the range of services offered and the cost coverage. In USA Medicaid is a government program that will pay for certain health services and nursing home care for older people with lower income and resources. In the absence of any such organised facilities or programs in India, how do individuals secure their longterm care like Kumar? During the course of his employment there was a fixed contribution that was deducted from his salary towards this longterm care. This cost was in addition to costs borne for the medical cover enjoyed during employment. This implies that every individual, with the help of a little discipline on their side, can attempt to provide for their own long- term care corpus. The best way to set- up this corpus is to start a Recurring Deposit (RD) with a bank or any other institution offering fixed- income RDs. A recurring deposit allows people with regular incomes to deposit a fixed amount every month in their RD account and earn interest at the rate applicable to Fixed Deposits. The RD can be funded by Standing Instructions by the customer to the bank/ institution to withdraw the fixed sum of money from the designated bank account and credit to their RD account every month. These RDs should be strictly labelled for long- term care only and should not be utilised for any other purposes during the contribution phase. Lets take the example of a 30 year old who wishes to set- up this corpus for his retirement at age 60, has 30 years to accumulate his savings. Borrowing the principles of time value of money, an amount of ₹ 5,000 saver every month from age 30 to 60 in a RD yielding an average rate of 8 per cent per annum will help the individual accumulate an amount of approximately ₹ 45 lakh plus for his long- term medical care. RDs are offered for different maturities ranging from one to five years. The above calculations assume the reinvestment of the RD maturity amounts into FDs yielding an average rate of 8 per cent per annum till the end of 30 years. You can also opt for other taxeffective instruments or equity- based instruments, based on your discussions with their financial planner, since the investment period involved here is very long and the average returns could be higher. Typically, interest is compounded on quarterly basis in a RD. Interest earned on RDs is not subject to Tax Deduction at Source, however, the interest earned is taxable. The tax paid on the interest earned can be regarded as a cost which should be met out of the individual's current income. For instance, in the above mentioned example, the annual interest earned on the monthly RD of ₹ 5,000 at the end of the first year would be approximately ₹ 2,000. At the highest tax bracket, the tax outgo on the interest would be approximately ₹ 600, which is definitely a cost to the individual's pockets. But keep in mind that this is for securing acover in the long- term. Likewise, in case of a health insurance policy, where in the premiums are paid annually for an annual coverage, if the individual pays a premium of ₹ 10,000; he gets a tax- deduction of ₹ 3,000. However the balance amount of ₹ 7,000 is a cost to him in case no claims are made during the year. Individuals bear this cost as it helps them to safeguard themselves against any medical emergencies in the near future. The tax- cost on the RD interest, too, can be borne in order to safeguard against medical emergencies in the distant future. WHile it is advisable to invest in an RD to build a corpus for long term health expenses, you must have the financial discipline and ensure that the money invested in the RD is not used for any other purpose. YOUR CORPUS FOR LONG- TERM HEALTH CARE: |Invest in a recurring deposit to build a corpus for long term medical care |Re- invest the RD maturity amounts in a fixed deposit |Can also look at other taxeffective, or equity- based instruments |Maintain financial discipline and dont use the investment for any other purpose
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 )
------------------ Best Performing Mutual Funds
|
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