Wednesday, August 13, 2014

Prajna Capital

Prajna Capital

Budget 2014 and effects on debt funds

Posted: 13 Aug 2014 05:13 AM PDT

 

Budget 2014 and effects on debt funds

 

The most severely affected will be those who have existing investments in FMPs of periods greater than one year but less than three years.

 

To understand the impact, let's first look at what the Finance Minister actually said:

In the case of Mutual Funds, other than equity oriented funds, the capital gains arising on transfer of units held for more than a year is taxed at a concessional rate of 10% whereas direct investments in banks and other debt instruments attract a higher rate of tax. This allows tax arbitrage opportunity. This arbitrage has hardly benefited retail investors as their percentage is very small among such Mutual Fund investors. With a view to remove this tax arbitrage, I propose to increase the rate of tax on long term capital gains from 10 percent to 20 percent on transfer of units of such funds. I also propose to increase the period of holding in respect of such units from 12 months to 36 months for this purpose.

 

Here's what the impact will be:

1.       Almost all bond fund investments are made for periods of less than one year. These returns were already short-term capital gains. Since receiving returns in the form of dividends creates a lower tax liability, such investments were mostly in dividend plans. In bond funds, these plans generate no capital gains so there is no impact.

2.      A retail-oriented category of mutual fund that will be affected are MIPs and other debt-oriented hybrid funds. Investments in these are generally for more than three years. The tax outgo on the returns of these funds are calculated after cost-indexing, which generally leaves very small taxable returns. The net rupee effect of the tax increase is likely marginal.

3.      The largest impact will come in FMPs (fixed maturity plans). These will still be more tax efficient than bank fixed deposits but will have to be held for three years to realise the benefits. The cost-indexation factor will apply to the same degree as MIPs (see above). The class investors who will be really caught out are those who have existing investments of greater than one year and less than three years. When their redemption comes, the returns will be treated as short-term instead of long-term capital gains. Currently investors have R1.43 lakh crore investments in FMPs of which 92 per cent has a term ranging between 1- and 3-years.

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

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Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

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Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Franklin India Bluechip
      4. ICICI Prudential Top 100 Fund

B. Large and Midcap Funds Invest Online

      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
      4. Birla Sun Life Front Line Equity Fund
      5. Franklin India Prima

C. 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
      5. Birla Sun Life Dividend Yield Plus
      6. SBI Emerging Businesses Fund
      7. HDFC Mid-Cap Opportunities Fund
      8. ICICI Prudential Discovery Fund

D. Small and MicroCap Funds Invest Online

      1. DSP BlackRock MicroCap Fund
      2. Franklin India Smaller Companies

E. Sector Funds Invest Online

      1. Reliance Banking Fund
      2. Reliance Banking Fund
      3. ICICI Prudential Banking and Financial Services Fund

F. Tax Saver Mutual Funds Invest Online

1. ICICI Prudential Tax Plan

2. HDFC Taxsaver

      1. DSP BlackRock Tax Saver Fund
      2. Reliance Tax Saver (ELSS) Fund

G. Gold Mutual Funds Invest Online

      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund
      4. Birla Sun Life Gold

H. International funds Invest Online

1. Birla Sun Life International Equity Plan A

2. DSP BlackRock US Flexible Equity

3. FT India Feeder Franklin US Opportunities

4. ICICI Prudential US Bluechip Equity

5. Motilal Oswal MOSt Shares NASDAQ-100 ETF



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How much Health Insurance you need?

Posted: 13 Aug 2014 03:36 AM PDT

 

How much Health Insurance

With the rising cost of healthcare in our country, health insurance is an essential investment in ensuring our family's critical healthcare needs. Healthcare costs in India are increasing at a distressing rate. Based on some estimates, the annual healthcare inflation is in range of 15 – 25%. A hospitalization for a serious illness can cost Rs 5 lakhs or above. In the absence of health insurance, a serious illness in your family can cause financial distress or leave a big hole in your hard earned savings, at a time when you least expect it. However, an important question as far as health insurance is, like how much health insurance or Mediclaim cover, do you need? I have seen some financial advisers suggesting Rs 3 lakhs Mediclaim cover, others suggesting Rs 5 lakhs and some others suggesting even more, up to Rs 10 lakhs Mediclaim cover. While all of them may be right, it is almost next to impossible to generalize how much health insurance cover you need. Health is a very personal aspect of our lives, and it is very difficult to apply a rule of thumb, as to how much health insurance you need. However, there are several factors that can help you determine, how much Mediclaim cover you need. We will discuss these factors in this article.

  1. How much can you afford: This is the most important consideration. How much you can afford, depends on your income. Your health insurance adviser may suggest Rs 10 lakhs Mediclaim cover based on a variety of factors, but if you cannot afford to pay the premium for that amount of Mediclaim cover based on your annual income then, you will simply have to settle for a lower Mediclaim cover. Life insurance, retirement planning, children's education and other long term financial goals, are all important financial planning objectives. What you need to have, is a balanced approach towards all these important objectives, including health insurance or Mediclaim. However, health is the most important aspect of life. Nothing is more important. Therefore, you should give it the due importance as far financial planning is concerned. But how do you deal with conflicting priorities? You need to exercise prudence based on your past experience and take a well informed decision, after comprehensively factoring in various considerations. This is where a financial planner or adviser, who evaluates and manages the entire spectrum of your insurance and investment needs, is more useful.

 

  1. Where do you live: If you live in a small or mid-sized town, then the hospitalization for a major illness can cost you up to Rs 2 – 3 lakhs. If you live in a large city, then hospitalization costs for a major illness can go up to Rs 4 – 5 lakhs. You should choose your Mediclaim cover, based on estimated expenses for major illness. Where you live, is obviously an important consideration.

 

  1. How much cover does your employer's group health insurance plan provide: It is quite common for employees, covered under their employer's group health insurance plan, not to buy additional individual Mediclaim. But is the cover provided under your employer's group health insurance plan adequate? The group health insurance plans of many companies provide a cover of Rs 2 lakhs. But it may not be enough. As discussed above, if you are living in a metro city, a major illness in your family can cost you Rs 4 – 5 lakhs. You should check what kind of benefits your employer's group insurance policy offers. Check, what is the total amount and nature of illnesses that your company's group insurance covers. Does the policy cover your spouse, children, parents and other dependents? If your company's group insurance is not adequate for your needs, then you should buy additional Mediclaim to protect your family's healthcare needs.

 

  1. What is your family situation: If you have a family or dependents to take care of, your health insurance needs will go up. You should always ensure that your entire family is covered in your health insurance policy. If you are newly wed or have dependent parents, make sure that your spouse and your parents also have Mediclaim cover. However, if you have dependents it does not mean that you have to buy Mediclaim policies for each one of your dependents. The probability of all your family members getting hospitalized in the same year is low. Therefore, if you have a family, it makes more sense to buy a family floater plan. In this type of plan, the entire family is covered for the amount they share and the benefit is that, per person premium is lower compared to the scenario if they would have taken individual plans. Having said that, there is no denying that, your healthcare costs will go up, once you have family and dependents. Therefore, you should increase your Mediclaim cover once you have a family. How much you need to increase, depends from situation to situation. For example, if you are planning to start a family, the cost of maternity and childcare should be estimated and added to your cover. If your dependents have pre-existing medical conditions, then you should estimate the associated costs and include it in your cover as well. As we had earlier discussed, the amount of cover that you should buy, depends from situation to situation. You are the best judge.

 

  1. Your past experience on healthcare cost: Last but not the least, your past experience on medical costs for you and your family, is one of the most important basis of determining your Mediclaim cover. For example, if you have been spending Rs 4 lakhs every year, for the past few years, on medical expenses like tests, procedures, medications etc for your family, you should opt for a Mediclaim cover of at least Rs 4 Lakhs, if not higher. You should not try to save on Mediclaim premium by opting for a lower cover, because Mediclaim does lower the cost of your family's healthcare. Let us assume you are 30 years old. We will take two scenarios, one where you take a Mediclaim cover of Rs 2 lakhs and another, where you take a cover of Rs 4 lakhs. Let us now, examine what your cost will be in either scenario, if your medical expense was Rs 2 lakhs, Rs 3 lakhs and Rs 4 lakhs respectively. The table below shows the economics if you opt for a lower cover or higher cover (Rs 2 lakhs versus Rs 4 lakhs Mediclaim cover). Please note that, the premiums in this example are based on Max Bupa Mediclaim plans (premiums of other Mediclaim plans may be different).

Therefore, by paying only Rs 1,000 extra in premium every year, you can save almost Rs 1 – 2 lakhs, as seen in the example above. You should determine your cover, based on your past experience with medical conditions and expenses in your family. You should always err on the side of caution, when making such a determination.

Conclusion

In this article, we had discussed several factors that will help you determine, how much health insurance or Mediclaim cover you need. You should consult with an experienced financial adviser, who will work with you, to determine your health insurance cover and help you select the plan that is most suitable for your needs. If you have adequate health insurance that meets a wide variety of medical needs of your family, you will be free from health related financial concerns and focus on other important financial goals.

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

Leave a missed Call on 94 8300 8300

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 Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Any Fund Application Forms

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

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Franklin India Bluechip
      4. ICICI Prudential Top 100 Fund

B. Large and Midcap Funds Invest Online

      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
      4. Birla Sun Life Front Line Equity Fund
      5. Franklin India Prima

C. 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
      5. Birla Sun Life Dividend Yield Plus
      6. SBI Emerging Businesses Fund
      7. HDFC Mid-Cap Opportunities Fund
      8. ICICI Prudential Discovery Fund

D. Small and MicroCap Funds Invest Online

      1. DSP BlackRock MicroCap Fund
      2. Franklin India Smaller Companies

E. Sector Funds Invest Online

      1. Reliance Banking Fund
      2. Reliance Banking Fund
      3. ICICI Prudential Banking and Financial Services Fund

F. Tax Saver Mutual Funds Invest Online

1. ICICI Prudential Tax Plan

2. HDFC Taxsaver

      1. DSP BlackRock Tax Saver Fund
      2. Reliance Tax Saver (ELSS) Fund

G. Gold Mutual Funds Invest Online

      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund
      4. Birla Sun Life Gold

H. International funds Invest Online

1. Birla Sun Life International Equity Plan A

2. DSP BlackRock US Flexible Equity

3. FT India Feeder Franklin US Opportunities

4. ICICI Prudential US Bluechip Equity

5. Motilal Oswal MOSt Shares NASDAQ-100 ETF



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Buy Gold Mutual Funds Invest Now

Infrastructure Sector Funds

Posted: 13 Aug 2014 01:59 AM PDT

 

Infrastructure Sector Funds

We can see in the chart above that infrastructure funds have outperformed diversified equity funds within the last one year. However, over 2 years or more, infrastructure funds had been lagging behind diversified equity funds for reasons that are well known. The rally in equity market leading up to the recently held Lok Sabha election, was riding on the expectation of a reversal of the policy paralysis situation that characterized the previous government. Stocks in the infrastructure sector have been among the biggest beneficiaries of the pre-election rally. The election results did not disappoint the market, with NDA and BJP getting absolute majority in the Parliament. Post elections, the structure of the new NDA government has been viewed by the market as one that will enable faster decision making and will kick start the stalled infrastructure projects. Consequently, post elections infrastructure funds have continued to perform well. Infrastructure stocks and funds are expected to gain further strength in the pre budget rally, currently underway. Since the beginning of this year, infrastructure funds as a category have given over 50% returns.

The top performers in this category have given over 70% returns in the last one year. In the last six months, top funds in this category have given over 55% returns. The top performing infrastructure sector fund, in terms of last 1 year returns, Escorts Power and Energy (Growth Option), has given trailing return of nearly 85% in the last one year. While infrastructure sector funds as a category has outperformed diversified equity funds, it is important to note that, from a risk perspective, diversified equity funds offer more risk diversification compared to sector funds. Unlike diversified equity funds which aim to diversify unsystematic risks (i.e. stock specific and sector specific risks), infrastructure sector funds are exposed to sector specific risks. Infrastructure funds are affected by central government policies, either in a positive or in a negative way. These funds are also impacted in the short term by the monetary policy of the Reserve Bank of India. As such, investors with a short time horizon should stay away from infrastructure sector funds. However, for well informed active investors, infrastructure sector funds can be good investment opportunities in the medium term, due the reasons mentioned above. The table below lists the regular plans of the top 10 infrastructure sector funds, in terms of 1 year returns.

Future Outlook of Infrastructure Funds

The outlook of Indian equity market is bullish. A recent Economic Times report suggested that the Sensex may touch 31,000 before the end of FY 2014 – 2015. It is very likely that, the infrastructure sector will play a major part in the Sensex rally, after the Budget. Fund managers of leading mutual fund houses are very bullish on this sector. However, investors need to have a three to five year horizon, when investing in infrastructure sector funds. Since the Union Budget is just around the corner, investors may want to wait, to go through the Budget announcements benefitting the infrastructure sector, before investing in infrastructure sector funds.

Conclusion

In this article, we have discussed that top performing infrastructure funds have given very strong returns in the last one year timeframe. As discussed earlier in our blog, timing is an important aspect of investing in thematic or sector funds. As far as infrastructure sector funds are concerned, this is a good time to invest in such funds. However, since sector funds, especially those related to cyclical sectors like infrastructure, are more risky compared to diversified equity funds, investors must ensure that these funds are aligned with their individual risk profiles and financial objectives. Investors should consult with their financial advisers, if infrastructure sector funds are suitable for their investment portfolio.

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

Leave a missed Call on 94 8300 8300

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 Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Any Fund Application Forms

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

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Franklin India Bluechip
      4. ICICI Prudential Top 100 Fund

B. Large and Midcap Funds Invest Online

      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
      4. Birla Sun Life Front Line Equity Fund
      5. Franklin India Prima

C. 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
      5. Birla Sun Life Dividend Yield Plus
      6. SBI Emerging Businesses Fund
      7. HDFC Mid-Cap Opportunities Fund
      8. ICICI Prudential Discovery Fund

D. Small and MicroCap Funds Invest Online

      1. DSP BlackRock MicroCap Fund
      2. Franklin India Smaller Companies

E. Sector Funds Invest Online

      1. Reliance Banking Fund
      2. Reliance Banking Fund
      3. ICICI Prudential Banking and Financial Services Fund

F. Tax Saver Mutual Funds Invest Online

1. ICICI Prudential Tax Plan

2. HDFC Taxsaver

      1. DSP BlackRock Tax Saver Fund
      2. Reliance Tax Saver (ELSS) Fund

G. Gold Mutual Funds Invest Online

      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund
      4. Birla Sun Life Gold

H. International funds Invest Online

1. Birla Sun Life International Equity Plan A

2. DSP BlackRock US Flexible Equity

3. FT India Feeder Franklin US Opportunities

4. ICICI Prudential US Bluechip Equity

5. Motilal Oswal MOSt Shares NASDAQ-100 ETF



Invest in Tax Saving Mutual Funds Download Any Application Forms
Buy Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now

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