Post

The Delay Cost of Investing

Greetings,

We hope you liked our previous post on Education loans in India. In this article we will briefly look at "The Delay Cost Of Investing".

“Lots of people wait around "for the right time". People don't know that there is no such thing as a right time. Time is never right nor wrong. The only negative factor of time is that you can lose it and the only positive factor of time is that you can seize it.”

― C. Joy Bell


Similarly in the investment world, time is as important as money. In fact, time is actually more valuable than money since you can get back lost money but there is no getting back lost time. This is why we need to understand that sitting back and doing nothing has a cost attached to it too and that’s what we’re going to look at in this post.


Delaying your investments because you are waiting for the market to rise or fall is a “fool’s errand.” This is because no one can accurately predict the future and all you’re doing by waiting is eroding your returns in the long run. This is because every minute and every hour that you fail to put your money to work for you, you are losing out on wealth that would otherwise be generating right now.


Let’s use an example to explain this concept of delay cost a bit further. Take an example of 3 different people, who start investing at 3 different ages, say 25, 30, and 35, with a monthly investment of 25000 and a modest annual return of 10%. By the time the first person retires at the age of 60, his investment would be worth more than 100 crores while the second person’s investment would be worth about 60 crores and the person who started last would have around 30 crores. 


That’s a huge difference and not one that you would expect from a 5-year delay. This is because time is the key factor to investing wisely and the more time you have, the longer your investments have to grow. Nelson Mandela was quoted stating “We must use time wisely and forever realize that the time is always ripe to do right.” In our case, doing right refers to doing right with our money and our investments in order to accumulate wealth.


If you look at the third person in our example, they started late but saved 30 crores in 25 years which is not bad. Compare that to the ten year-delay that cost more than 70 crores in delay cost and you realize that he lost more money in ten years than he made in 25. That’s the message we’re trying to get through with this post that it’s more expensive to sit around and do nothing than it is to get up and start investing.


In conclusion, they say “it’s never too late to correct a mistake” but what they don’t tell you and what no one talks about the cost associated with correcting it. Most people invest and save for retirement so they can live a comfortable life, don’t lower the standard of your future by indecisiveness, start investing now.

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Proper Planning Brightens the Future of ...

Traditionally Indians are bound to the practice of Savings. There is a deep-rooted sense of managing the income by spending less and postponing the luxuries of life. But this ‘saving culture’ has come under threat. The change in mindset is very evident with the youth and the EMI fixated middle-aged salary earners, who are impressed with the easy spending consumer culture of the west.
But the recent global pandemic has exposed the virtues of savings. Even after pay cuts people have realised the power of saving money and planning for the future. Today, those who saved and invested wisely are secure in their lives and livelihood. Their past course of action brings to light the quintessential question running in everyone’s mind “How much to save to plan a secure future”.

The truth be told there is no one size fit all planning strategy for savings. But a general thumb rule to start saving is to start analyzing spending.

Income - Expenses = Savings


Spending before saving is a very wrong approach which brings uncertainty to the saving pattern. This leftover savings attitude leads to seldom saving money and doesn’t transpire to a secure or wealthy future.

Income + Loans = Expenses


People with good income have fallen pray to the crime of overburdening themselves with loans. Their short-sightedness or naive nature sucks them into additional loans to meet the regular expenses. Only divine intervention can rescue them from such erroneous financial moves.


Income - Savings = Expenses


The correct approach for wealth management is to make savings a constant and premiere. This approach develops the disciple to save first before spending. Thereby not only mastering income management, but also expense management.

How much should be Saved or Invested?


The recommendation to allocate for the savings or investment plan is to get a clear understanding on the short, medium and long term goals. The start can be as modest as 10% of the net monthly income and increase it to 30%.

Short term Goals


The goals will materialize in the immediate future with an approximate timeframe of 18 month or about. These goals will comprise of:

1. Planning for a vacation
2. Purchase of a car

Medium Term Goals


These are intermediate financial goals with a term of 60 months.

1. Creating emergency fund
2. Purchase of a property

Long Term Goals


These are very important goals with 10 years or above.

1. Investing for kids higher education
2. Retirement Planning for self and spouse
3. Creating a corpus for kids grand auspicious wedding
4. Investing to create a huge financial asset

Fixed Monthly Expenses


The bills and expenses that don’t vary much and require a commitment to paying them on a monthly basis. This should not exceed 30% of the monthly income. These includes rent, groceries,fees, utilities and eats out with friends and family.

Loans and EMI's


The combined EMIs should never exceed 40% of the total monthly earnings to avoid any kind of derailments from the other goals. It is here that the temptation to pay in instalments hampers the joys of the present day. In most cases bankers don’t lend more than 50% of your monthly net income as EMI.

The path to a bright and secure future depends on many small correct choices made in the present for saving and investing. There are always turns off uncertainties but that should never stop the process of preparedness. And its never too late to start the journey of planning.

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Sovereign Gold Bond...

1. What is Sovereign Gold Bond (SGB)? Who is the issuer?
SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of Government of India.

2. Why should I buy SGB rather than physical gold? What are the benefits?
The quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption/ premature redemption. The SGB offers a superior alternative to holding gold in physical form. The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest. SGB is free from issues like making charges and purity in the case of gold in jewellery form. The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.

3. Are there any risks in investing in SGBs?
There may be a risk of capital loss if the market price of gold declines. However, the investor does not lose in terms of the units of gold which he has paid for.

4. Who is eligible to invest in the SGBs?
Persons resident in India as defined under Foreign Exchange Management Act, 1999 are eligible to invest in SGB. Eligible investors include individuals, HUFs, trusts, universities and charitable institutions. Individual investors with subsequent change in residential status from resident to non-resident may continue to hold SGB till early redemption/maturity.

5. Whether joint holding will be allowed?
Yes, joint holding is allowed.

6. Can a Minor invest in SGB?
Yes. The application on behalf of the minor has to be made by his/her guardian.

7. Where can investors get the application form?
The application form will be provided by the issuing banks/SHCIL offices/designated Post Offices/agents. It can also be downloaded from the RBI’s website. Banks may also provide online application facility.

8. What are the Know-Your-Customer (KYC) norms?
Every application must be accompanied by the ‘PAN Number’ issued by the Income Tax Department to the investor(s).

9. Can an investor hold more than one investor ID for subscribing to the Sovereign Gold Bond?
No. An investor can have only one unique investor Id linked to any of the prescribed identification documents. The unique investor ID is to be used for all the subsequent investments in the scheme. For holding securities in dematerialized form, quoting of PAN in the application form is mandatory.

10. What is the minimum and maximum limit for investment?
The Bonds are issued in denominations of one gram of gold and in multiples thereof. Minimum investment in the Bond shall be one gram with a maximum limit of subscription of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities notified by the government from time to time per fiscal year (April – March). In case of joint holding, the limit applies to the first applicant. The annual ceiling will include bonds subscribed under different tranches during initial issuance by Government and those purchased from the secondary market. The ceiling on investment will not include the holdings as collateral by banks and other Financial Institutions.

11. Can each member of my family buy 4Kg in their own name?
Yes, each family member can buy the bonds in his/her own name if they satisfy the eligibility criteria as defined at Q No.4.

12. Can an investor/trust buy 4 Kg/20 Kg worth of SGB every year?
Yes. An investor/trust can buy 4 Kg/20 Kg worth of gold every year as the ceiling has been fixed on a fiscal year (April-March) basis.

13. Is the maximum limit of 4 Kg applicable in case of joint holding?
The maximum limit will be applicable to the first applicant in case of a joint holding for that specific application.

14. What is the rate of interest and how will the interest be paid?
The Bonds bear interest at the rate of 2.50 per cent (fixed rate) per annum on the amount of initial investment. Interest will be credited semi-annually to the bank account of the investor and the last interest will be payable on maturity along with the principal.

15. Who are the authorized agencies selling the SGBs?
Bonds are sold through offices or branches of Nationalised Banks, Scheduled Private Banks, Scheduled Foreign Banks, designated Post Offices, Stock Holding Corporation of India Ltd. (SHCIL) and the authorised stock exchanges either directly or through their agents.

16. If I apply, am I assured of allotment?
If the customer meets the eligibility criteria, produces a valid identification document and remits the application money on time, he/she will receive the allotment.

17. When will the customers be issued Holding Certificate?
The customers will be issued Certificate of Holding on the date of issuance of the SGB. Certificate of Holding can be collected from the issuing banks/SHCIL offices/Post Offices/Designated stock exchanges/agents or obtained directly from RBI on email, if email address is provided in the application form.

18. Can I apply online?
Yes. A customer can apply online through the website of the listed scheduled commercial banks. The issue price of the Gold Bonds will be ₹ 50 per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode.

19. At what price the bonds are sold?
The nominal value of Gold Bonds shall be in Indian Rupees fixed on the basis of simple average of closing price of gold of 999 purity, published by the India Bullion and Jewelers Association Limited, for the last 3 business days of the week preceding the subscription period.

20. Will RBI publish the rate of gold applicable every day?
The price of gold for the relevant tranche will be published on RBI website two days before the issue opens.

21. What will I get on redemption?
On maturity, the Gold Bonds shall be redeemed in Indian Rupees and the redemption price shall be based on simple average of closing price of gold of 999 purity of previous 3 business days from the date of repayment, published by the India Bullion and Jewelers Association Limited.

22. How will I get the redemption amount?
Both interest and redemption proceeds will be credited to the bank account furnished by the customer at the time of buying the bond.

23. What are the procedures involved during redemption?
The investor will be advised one month before maturity regarding the ensuing maturity of the bond.
On the date of maturity, the maturity proceeds will be credited to the bank account as per the details on record.
In case there are changes in any details, such as, account number, email ids, then the investor must intimate the bank/SHCIL/PO promptly.

24. Can I encash the bond anytime I want? Is premature redemption allowed?
Though the tenor of the bond is 8 years, early encashment/redemption of the bond is allowed after fifth year from the date of issue on coupon payment dates. The bond will be tradable on Exchanges, if held in demat form. It can also be transferred to any other eligible investor.

25. What do I have to do if I want to exit my investment?
In case of premature redemption, investors can approach the concerned bank/SHCIL offices/Post Office/agent thirty days before the coupon payment date. Request for premature redemption can only be entertained if the investor approaches the concerned bank/post office at least one day before the coupon payment date. The proceeds will be credited to the customer’s bank account provided at the time of applying for the bond.

26. Can I gift the bonds to a relative or friend on some occasion?
The bond can be gifted/transferable to a relative/friend/anybody who fulfills the eligibility criteria (as mentioned at Q.no. 4). The Bonds shall be transferable in accordance with the provisions of the Government Securities Act 2006 and the Government Securities Regulations 2007 before maturity by execution of an instrument of transfer which is available with the issuing agents.

27. Can I use these securities as collateral for loans?
Yes, these securities are eligible to be used as collateral for loans from banks, financial Institutions and Non-Banking Financial Companies (NBFC). The Loan to Value ratio will be the same as applicable to ordinary gold loan prescribed by RBI from time to time. Granting loan against SGBs would be subject to decision of the bank/financing agency, and cannot be inferred as a matter of right.

28. What are the tax implications on i) interest and ii) capital gain?
Interest on the Bonds will be taxable as per the provisions of the Income-tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long terms capital gains arising to any person on transfer of bond.

29. Is tax deducted at source (TDS) applicable on the bond?
TDS is not applicable on the bond. However, it is the responsibility of the bond holder to comply with the tax laws.

30. Who will provide other customer services to the investors after issuance of the bonds?
The issuing banks/SHCIL offices/Post Offices/Designated stock exchanges/agents through which these securities have been purchased will provide other customer services such as change of address, early redemption, nomination, grievance redressal, transfer applications etc.

31. What are the payment options for investing in the Sovereign Gold Bonds?
Payment can be made through cash (upto ₹ 20000)/cheques/demand draft/electronic fund transfer.

32. Whether nomination facility is available for these investments?
Yes, nomination facility is available as per the provisions of the Government Securities Act 2006 and Government Securities Regulations, 2007. A nomination form is available along with Application form. An individual Non - resident Indian may get the security transferred in his name on account of his being a nominee of a deceased investor provided that:
the Non-Resident investor shall need to hold the security till early redemption or till maturity; and
the interest and maturity proceeds of the investment shall not be repatriable.

33. Can I get the bonds in demat form?
Yes. The bonds can be held in demat account. A specific request for the same must be made in the application form itself.
Till the process of dematerialization is completed, the bonds will be held in RBI’s books. The facility for conversion to demat will also be available subsequent to allotment of the bond.

34. Can I trade these bonds?
The bonds are tradable from a date to be notified by RBI. (It may be noted that only bonds held in de-mat form with depositories can be traded in stock exchanges) The bonds can also be sold and transferred as per provisions of Government Securities Act, 2006. Partial transfer of bonds is also possible.

35. What is the procedure to be followed in the eventuality of death of an investor?
The nominee/nominees to the bond may approach the respective Receiving Office with their claim. The claim of the nominee/nominees will be recognized in terms of the provision of the Government Securities Act, 2006 read with Chapter III of Government Securities Regulation, 2007. In the absence of nomination, claim of the executors or administrators of the deceased holder or claim of the holder of the succession certificate (issued under Part X of Indian Succession Act) may be submitted to the Receiving Offices/Depository. It may be noted that the above provisions are applicable in the case of a deceased minor investor also. The title of the bond in such cases too will pass to the person fulfilling the criteria laid down in Government Securities Act, 2006 and not necessarily to the Natural Guardian.

36. Can I get part repayment of these bonds at the time of exercising put option?
Yes, part holdings can be redeemed in multiples of one gm.

Sources : Reserve Bank of India

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Public Provident Fund should be part of ...

The current situation in the world has got a lot of people looking back and wishing they had saved some money for a rainy day because it’s been a pretty rainy year so far. The ability or the inclination towards saving money isn’t really a quality associated with the current generation of “millennials” who could learn a thing or two from generation X in this regard. Now, this isn’t a post about mutual funds, or stocks, or foreign exchange, but rather about the first, most basic, risk-free, baby-step that you can take right now.

If you’ve ever worked a nine to five, you probably already know what a provident fund or PF is. You suffer a little deduction in your salary every month in order to ensure you get a decent chunk of cash when you decide to quit or retire. The public provident fund is similar in the sense that it’s guaranteed by the central government and there’s no way you can lose money on it. The similarities end there, however, as anyone can open a PPF account and you don’t need to be working for an organization.

All you need to do to open a PPF account is walk into bank or post-office with some basic identification and about Rs.500 or you can do it online.The fact that you not only get 7% interest on your money annually, which is more than any fixed deposit or savings account is going to offer you, but also income tax deductions for the amount invested makes this an attractive investment for your portfolio. Additionally, any interest received is exempt from tax, and so is the entire amount on maturity, making the opportunity cost of not having a PPF quite high.

Now saving money takes discipline, especially with schemes with fixed recurring deposits where you incur penalties for failure to pay on time. The reason we call the PPF a “baby-step,” is because even an individual who lacks discipline can see this one through to the end with relative ease. This is because there’s virtually unlimited flexibility in how much you want to invest every year with the minimum being Rs.500 and the maximum Rs.150,000.

While the choice is yours, that’s a really huge range and it can be difficult to set a target and stick to it when you don’t really have to. That being said,flexibility is always a good thing, especially in current times. The only catch, if we have to call it that, is that this is long term investment and maturity is after fifteen years. While there are ways to pay a penalty and cash out after 6 years, the plus side is that even a court can’t order you to settle a debt through your PPF account, so it’s basically safe even if you go bankrupt.

Eligibility: Resident Indians
Returns : Guaranteed
Lock In : 15 Years
Taxation : Tax Benefit under section 80c
Maturity : Tax Free
Minimum Investment :Rs 500/-
Maximum Investment :Rs. 1,50,000/-

In conclusion, getting a PPF account is an essential to your investment portfolio, especially with the higher than average interest rate, risk-free factor, tax benefits, and super-flexible payment options.

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Importance & Methods Followed In Retirem...

While we all have a lot of hopes, dreams, and ambitions growing up, retiring on a quiet beach or in a cozy hill-station is the ultimate happy ending to whatever your life story has been up until now. Unlike in most fairy tales and movies where people grow old and automatically live happily ever after, retirement in real life takes proper planning and a lot of discipline.

Retirement Planning

Keeping in mind the fact that India has no social security schemes or any other kind of government-sponsored elderly care, you’re basically left with three to four choices at best. While option one is to plan and invest for your retirement right now, the alternatives range from compulsory work post the age of 60, depending on your daughter or son, and in extreme circumstances, even living on charity. While the obvious choice here is option one, we have to factor in a number of elements such as your present age, no of years to retire, present income, expenses, and more.
Other variable factors may include family members who are dependent on your income as well as your risk-taking ability with regards to investments. Further complications include life expectancy on the rise due to advancements in medicine, as well as technology, healthcare services, and expenses taking a similar curve. This means that if the plan is to be completely self-reliant, not only do we need to account for a longer period post-retirement, we also need to account for inflation that could easily see expenses go up by 3-4 times exponentially during our retirement phase.
So how do people plan for a dignified and independent retirement while also factoring in the inconsistencies of life? Well, there are two methods followed globally, they are the replacement ratio method and the expense method.

Replacement Ratio Method
The replacement ratio method is quite simple and similar to how a government pension is calculated. For example, a person who is 45 years of age earning five lakhs a month right now, and set to retire in 15 years would earn 10 lakhs a month by the time he is 60. This is calculated keeping in mind a 5% increase in income year on year. Using this replacement ratio method, he can then choose between a replacement income of 50% (5 Lakhs), 75% (7.5 Lakhs), or 100% (10 Lakhs) for the rest of his life.

Expense Method
As the name suggests, the expense method is all about calculating expenses. As a more customized approach that’s tailor-made to each individual, the expense method helps plan for retirement by calculating all the expenses of the entire family while also factoring in future expenses taking inflation into consideration.  For example, a person aged 40 with a monthly expenditure of about Rs.1 lakh, would have a monthly expenditure of about Rs. 2.25 lakh by the time he retires based on a 4% inflation, year on year. Similarly, expenses need to be calculated for every year that we’re retired, while accounting for inflation, all the way up to the age of 85, 90, or even 100. The tricky part, and this is where planning comes in, finding the present cost of investment to meet our forecasted future expenses.

As the saying goes, “the early bird gets the worm,” and this is no more evident than in our daily lives commuting to work. It’s when we’re late that we tend to make mistakes, break rules, jump traffic signals, or generally indulge in risky behavior. The same concept applies to retirement planning and it’s when we start investing early that we can afford to reach our targets by predetermined milestones, safely and without taking any risks. Think of your bank balance as correlating to your time left on this earth, if you have enough money left, you have enough time left, and you can even afford to stop and smell the roses.

In conclusion, the benefits of retirement planning are:
1.Dignity post-retirement.
2.Independence, freedom, self-reliance.
3.More options as to where you would like to retire (The Bahamas, Cabo Beach, Bali etc.)
4.The ability to be an asset to your family rather than a liability in your old age.
5.The ability to pay for expensive medical treatments or procedures without help.
6.Peace of mind not only for yourself, but for your spouse and children as well.
7.Last but not least, guaranteed quality of life post-retirement.

With rising inflation, reducing interest rates in our country, and the current situation in the world being the way it is, unless you plan to inherit a fortune or pull off a money heist, it’s time to start planning and investing. Like we mentioned earlier, the replacement ratio method is a great first stepping stone and gives you a good idea of where you’re at and where you need to be. Please remember, keeping a track of your expenses and being aware of how much you need to save is half the battle won, the rest as we already mentioned, is just discipline.

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Nomination and its importance...

Hi readers, hope our previous article on wealth management and the various strategies associated to it was genesis to your financial discipline. This week, we would like to take you through the importance of nomination in any form of investment/saving choices you make.

As of 2018, the amount of unclaimed deposits in Indian banks and insurance corporations accounts to 34,000 crores INR. And the trend continues to grow north each year. The major factor that contributes to the accumulation of unclaimed money is failure of a nomination or the nominee being unaware of such deposits or investments made.

I am sure your hard earned money does not deserve to go unclaimed and a simple act of choosing to enter a name in the nomination column would ensure that your loved ones gets the benefit of your investments/savings in the event of an unfortunate departure.

What is Nomination?
Nomination in banking/financial terms refer to the process through which an account holder executes his right to appoint a person as the one who is entitled to receive the monetary benefits accrued out of an investment or saving venture in case of death of the investor or the account holder. And this simple and easy step would ensure the very purpose for which the savings/investment was started is served. It is an ideal way to lessen the hardships of the legal heirs in settlement of claims expeditiously in the event of the death of the account holder. A nomination can be typically done either at the time of opening of the account or at any subsequent time during the tenure of the account/investment. There are certain specific nominations forms that you need to complete and submit to the Bank/ Investment for completing the nomination.
 
Who is a Nominee?
A nominee is a person who is selected as the beneficiary for the savings/investments made by the investor or the account holder in the event of death of the account holder. However, you can have multiple blood related person as a nominee for your various accounts/investments.

Who can be a Nominee?
You can nominate any of the below-mentioned members of your family.
   
• Spouse
• Mother
• Father
• Son
• Daughter
• Brother
• Sister

Why is nomination critical?
Nomination enables your loved ones, access to your savings/investments in the occurrence of the eventuality without any hassles and delay at a time when they would be in most need of it.

Things to remember while nomination

Do mention the nominee’s name instead of addressing only their relationship with you (Mention the full name, age and address).
While nominating a minor as a nominee, appoint a person who is a major as a guardian giving his full name, age, address and relationship to the nominee.

What if you have failed to nominate already?
You do not have to worry if in case you have failed to do so. You still have the option to add nominations at any time during the tenure of your investment/savings. Please ensure that your nominee’s information are filled up accurately in the nomination form to avoid any later hindrances for the nominee. Also a nomination can be cancelled or changed by the account holder/investor anytime during his life.
Hope this article was helpful to you in understanding the importance of Nomination in any investment or saving endeavor. We will catch up again with another interesting topic that will help you to make progress in your financial goals. You can also let us know which topic you would want us to write in the comment box below.

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Overview of gold investment and its hist...

Hi Readers,
Hope our previous article on the importance of Nomination was informative and useful for some of you. If you have not yet had the chance to read the same, you can find it here.
This week, we would like to share our thoughts on Gold – India’s evergreen love.

Gold – A metal that is most popular among the ornamental metals has never lost its glory. And the global pandemic is no exception. As a passionate investor, many of you might have already been into gold already. However, the following article will help you make an appropriate investment choice in gold that is tailored for you.

Why Gold is precious?
Being a derivate product of a natural resource, gold like oil resources is not abundant. The reasons people tend to make a gold investment are also diverse, as gold is simply ingrained in some cultures as a form of wealth and saving, whilst in other countries and for other individuals, it’s more about hedging financial market risks, as well as wanting to hedge against rising inflation.

Advantages of Investing on gold

Immune to inflation
Gold has historically been an excellent hedge against inflation, because gold has an immune system that withstands the tremors of a global economic crisis. Over the past 50 years global investors have seen gold prices soar.

High on demand - In spite of holding an uptrend in market price most of the times, the demand for this metal superstar has always been there no matter what. The most important reason is that Gold is held prestigious in many cultures of the world, especially in countries like India where almost no auspicious moments are complete without the presence of gold.

Liquidity - Another factor that makes your choice of investing in gold is its liquidity. In any investment, the ease with which you can buy and sell an asset plays an important role, and with over USD $100bn in daily commodity trade is one of the easiest of assets to buy and sell at any time.

Diversification - The key to diversification is finding investments that are not closely correlated to one another; gold has historically had a negative correlation to stocks and other financial instruments. Recent history bears this out:
 
• The 1970s was great for gold, but terrible for international stocks.
• The 1980s and 1990s were wonderful for stocks, but horrible for gold.
• 2008 saw stocks drop substantially as consumers migrated to gold.
 
Source: www.goldprice.org

Historical Gold Performance

In the year of 1974 the gold index was formed 1 ounce (28.35 grams) = 100 US dollars. If you see the above the chart from 1974 – 1981 the gold price moved from 100 USD to 850 USD which is a compounded annual return of 35.7% after which gold price hit a bottom of 350 USD in the year 1983. If you see the chart closely from 1983 – 2002 for about 19 years there was not much appreciation in gold price. In another analysis from 1981 – 2008 in fact gold was underperforming, there wasn’t any appreciation, having said that gold has delivered a positive return of 7% per annum since inception.

Why this international correction has not had a greater influence on the gold price in India?
In spite of the fluctuations in international gold price, it did not had any impact in India as the Indian currency (INR) has been depreciating consistently against the US dollar year on year that negated the depreciation of gold price and made gold prices to not fall down in accordance with international gold price in India. You can see the chart below for the years 1973 – 2020 how the US dollar has appreciated against Indian currency year on year.
1973 - 1 US Dollar = Rs. 7.63
2020 – 1 US Dollar = Rs. 73.77

Source: https://www.chartoasis.com/usd-inr-historical-data-download-cop0/

Types of Gold Investments

Physical Gold- Jewelry, Coins and Bars

Gold Exchange Traded Funds (ETF) and Exchange Traded Commodities

Gold Funds – Investment made in gold mining companies

Should you start investing in gold?

The answer is yes, you must allocate certain amount of funds periodically to invest in gold as an asset class. However, the percentage of investment in gold or any other asset for that matter varies from one individual to another. You need to customize your investment based on your overall income, expenditure, short term and long term goals.
So far, we saw the historical performance of gold, benefit of investing in gold and types of investment options available in gold as an investment. Our next articles we shall take a detailed look in to the Gold exchange traded funds and gold mutual funds.
 You can also let us know which topic you would want us to write in the comment box below.

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Married Women's Property Act...

Greetings,
We hope you found our previous post on the Overview of gold investment and its historical performance both useful and informative. If you haven’t had a chance to read it yet, we’ve put it here so you don’t miss out!

Is your life insurance airtight?
Many consider insurance as the first step to building a savings portfolio, after all, there’s nothing as important as securing what you already have, beginning with the most important asset, your life. Life insurance salesmen are quick to ask the question “what would life be like for your dependents in the case of your untimely demise?” What most of them fail to tell you, however, is that if an unfortunate event does occur when you happen to be in debt, it’s your creditors who are going to benefit from your policy and not your wife or your children as you intended. That’s a pretty terrifying thought since the one thing that gives a person peace is a knowledge that the people who you care about will be looked after once you’re gone.

To elaborate, say a particular businessman passes away leaving behind about ten crores of debt ( outstanding loan) but also invested about  20 lakhs in life insurance for about 15 years which would mean his wife/or children would receive somewhere around 4-5 crores. In such a case the entire payout would go towards repaying the debt, along with any other assets he may have left behind, till the amount is recovered. This leaves us asking the question of whether there is no way for a man in debt to secure his family’s future or invest in life insurance without the proceeds being snapped up by creditors?
Well, of course, there is it’s called the Married Women’s Property Act or MWP Act and was originally set up in order to protect properties owned by women. Section 6 of this act covers life insurance policies and is the part that is most relevant today. According to this section, any married, divorces or widowed man can take a life insurance policy under this act which will cause said policy to automatically function as a trust under the Trust Act. While the trustees can be your doctor, chartered accountant, Advocate or financial advisor and the trustees can be changed at any time, the beneficiary ( wife& children ) can never be changed.
What does this mean, if you have any money invested in a life insurance policy under this act, in addition to it being safe from your creditors, even a court of law cannot attach it to any recovery of outstanding loan in case of your death. Furthermore, even in the case that you outlive the policy, the proceeds will still go to the beneficiary, making for a pretty airtight way to secure your wife and children’s future. A good rule of thumb before making such investments is to consult with a financial advisor or do some research on the human life value method or the capital need analysis method to figure out the ideal insurance cover for you.
If you enjoyed reading this post, please leave a comment or a suggestion on what financial topic you would like to read about next.

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Pradhan Mantri Vaya Vandana Yojana (PMVV...

Greetings,
We hope you found our previous post on the Married Women’s Property Act useful and informative. If you haven’t had a chance to read it yet, we’ve put it here so you don’t miss out.

What a lot of people don’t realize while planning out their retirement is that interest rates for developing countries go down as they progress and develop. If you were sitting around thinking people in the US, UK, Sweden, Switzerland, or any other first-world country for that matter, were raking in big bucks on money sitting in the bank, think again. In fact, in some developed countries like Denmark and Japan, for example, they have negative interest rates and it actually costs you money to use the banks. Additionally, the US interest rate FED is just 0.25% at the moment, down by 1.25% from March this year.

What this means for pensioners or people planning their retirement is that in addition to accounting for inflation, they also need to account for lower returns on money sitting in fixed deposits or bank accounts. India for example, had private banks offering up to 8.25% for fixed deposits in 2015 while the current offerings stand at about 5.15% with an extra 0.50% for senior citizens. That’s a pretty sharp drop and means that if you were counting on interest rates remaining constant, you now have to recalculate and reconsider your retirement options.

A good way to counter the effect of declining interest rates on your retirement plan is by investing in schemes that offer a fixed interest rate over a longer time frame, this way whatever the current interest rate may be, your investment keeps earning at a predetermined rate. As we mentioned before, since rates go down as a country develops, this is a good thing. One such investment option for senior citizens, in particular, is the Pradhan Mantri Vaya Vandana Yojana (PMVVY) government-subsidized pension scheme.

While this scheme was initially announced a few years ago, it ended in March this year and was relaunched in May for a period of three financial years under new terms. In addition to a fixed interest rate over a period of ten years, this scheme also converts the interest into a pension that can be withdrawn monthly, quarterly, half-yearly, or annually. This is a great addition to your retirement portfolio as you can invest a maximum of fifteen lakhs per person which will provide you with a guaranteed monthly pension of Rs. 9,250/- for ten years. If you and your spouse invests fifteen lakhs each then you will receive a guaranteed monthly pension of Rs. 18,500/-

The cherry on the cake here is obviously the fact that in addition to ten years of fixed interest, you also get your principal amount back on maturation, making this a “win-win” situation. The rate of interest for policies purchased this current financial year will be 7.66%, while the interest rates for the remaining two years will be fixed as they commence. Life Insurance Corporation of India is the sole operator of this scheme which also includes a death benefit where as a beneficiary receives a refund of the purchase price in the event of your untimely demise.

In conclusion, with an unprecedented amount of uncertainty in the world today, having a constant source of income for a decade is an invaluable asset, albeit a small one. It’s many drops of water that form an ocean and every bit counts when you’re planning for your retirement. One downside may be the fact that you need to be at least 60 years of age and you have the option to surrender this pension plan under extreme circumstances like a medical emergency for you or your dependents. However, after completion of three years, you can avail of a loan against this policy up to 75% of the purchase price.

If you enjoyed reading this post, please leave a comment or a suggestion on what financial topic you would like to read about next.

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What are the investment options availabl...

Hi Readers,
Hope our previous article on the overview of gold investment and performance was informative and useful for some of you. If you have not yet had the chance to read the same, you can find it here. This week, we would like to throw light on the various investment options available for you in gold:

Physical Gold – An investment method that is most popular among Indians is direct purchase of gold in the form of jewelry, coins and bars, compared to the other forms of gold investments, investing in physical gold still remains a popular method to invest in gold. You can buy physical gold and sell it when you need the money. But when you buy gold as jewelry, there is a downside of making & wastage charges to it which may vary between 8% - 18%.

Digital gold – This is a new investment option that has been on the rise in recent time due to its easy access. You can  purchase digital gold through the following apps:
Paytm, Phone pe, Google pay, and Amazon pay. For example: Paytm has tied up with Kalyan Jewelers for the delivery of physical gold or jewelry. Digital gold allows you to buy and sell gold at market price anywhere anytime. Each gram bought by an investor is backed by an actual physical gold in the vault by the vendor, which can be easily sold back online at market-linked gold rate.

Right now, there are three companies offering digital gold—Augmont Gold; MMTC-PAMP India Pvt. Ltd, a joint venture between state-run MMTC Ltd and Swiss firm MKS PAMP; and Digital Gold India Pvt. Ltd with its Safe Gold brand.

Downside: The price of the gold is higher than the MCX gold. It’s because there are three types of charges levied, convenience fee, trustee fees, storage fees additionally 3% GST and there is no regulator to look after this investment and the companies involved.

Gold Fund - Gold funds are a type of mutual funds that directly or indirectly invest in gold reserves. The money you invest in gold fund is used to invest in stocks of gold producing, distributing and gold mining companies. It is a simplest way to invest in gold without having to purchase it in its physical form. This investment reduces the risk of loss due to market fluctuations that accompanies the direct investment in gold. Gold mutual funds are ideal for investors who would like to diversify their portfolio and save them against the potential risk of loss from other investments. There are so many gold funds available right now in the market.
 
GOLD ETF - A Gold ETF is an exchange-traded fund (ETF) that aims to track the domestic physical gold price. They are passive investment instruments that are based on gold prices and invest in gold bullion. Gold ETFs are units representing physical gold which may be in paper or dematerialized form. One Gold ETF unit is equal to 1 gram of gold and is backed by physical gold of very high purity. Gold ETFs offer both the flexibility of stock market investment and the simplicity of gold investments.

Gold ETFs are listed and traded on the National Stock Exchange of India (NSE) and Bombay Stock Exchange Ltd (BSE) like a stock of any listed company. Gold ETFs are traded on the cash segment of BSE & NSE like any other company stock, can be bought and sold continuously at market prices.

In short, buying a Gold ETF would mean, purchasing gold in an electronic form. You can buy and sell gold ETFs just as you would trade in stocks. However, when you redeem Gold ETF, you don’t get the physical gold, but receive the cash equivalent of the quantity of gold. Trading of gold ETFs takes place through a dematerialized account (Demat) and a broker, which makes it an extremely convenient way of investing electronically in gold. Gold ETFs offers complete transparency of its holdings because of its direct gold pricing. Further, due to its unique structure and creation mechanism, the ETFs can lower your selling expenses as compared to physical gold investments.
Source: https://www.amfiindia.com/

Gold Sovereign bond - Sovereign gold bonds are RBI mandated certificates issued against grams of gold, allowing individuals to invest in gold without the burden of protecting the same. To know more about sovereign gold bonds, please read our earlier article on the same here.

Hope this article was helpful to you in understanding the investment opportunities in gold. We will catch up again with our insights on ‘Human Life Value and the science behind it’ which will help you to make progress in your financial goals. You can also let us know the topic that you want us to write about in the comment box below.

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A good initiative from insurance regulat...

While most of the world is witnessing an economic slowdown of unprecedented proportions, India’s life insurance companies witnessed an 11.36% growth in their collective income during the fiscal end of March 2020. This has also been accompanied by a deluge of different life insurance products that can sometimes make it difficult for customers to navigate through the maze of policies and covers. Additionally, the absence of a standardized product can lead to miss-selling, as well as insurers contesting claims on various grounds.

We saw this happen in the health insurance sector during the pandemic, where a number of insurers were rejecting claims on grounds of misrepresentation or non-disclosure. While a standardized product called Arogya Sanjeevani was soon launched for the health sector, the life insurance sector was still lacking a standardized product. However, come January 2021, all Indian life insurance companies are mandated to provide a standardized life insurance policy called Saral Jeevan Bima, prefixed with the name of the Indian insurance provider.

In a statement released by the IRDAI, officials were quoted stating “customers often cannot devote adequate time or energy to make informed choices,” and “products may not be available for the intended sum assured.” This is why the new Saral Jeevan Bima is set to have “simple” features as well as standard terms and conditions. The policy can be availed of by anyone between the age of 18-65 with a maximum age of 70. Minimum and maximum terms are 5 and 40 years respectively, while the life insurance cover is between Rs. 5-25 lakh.

With the new guidelines in place, anyone who avails of this policy will receive ten times the annualized premium in case of the death of the policyholder, as well as the assured amount and 105% of all premiums paid as of the date of death. Additionally, single premium policy holders will receive 125% of all single premiums in addition to the assured amount. Last but not least, this policy will have no exclusions except a suicide clause. In conclusion, it’s about time the life insurance sector received some standardization, and such measures only serve to benefit consumers.

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Human Life Value...

Greetings,
 
We hope you found our previous post on the Pradhan Mantri Vaya Vandana Yojana both useful and informative. If you haven’t had a chance to read it yet, we’ve put it here so you don’t miss out.

While the Mesopotamian shekel, the oldest known form of currency, was first used to trade over 5,000 years ago, it wasn’t till the 1920s that Dr. Solomon S Huebner managed to calculate what a person’s life is worth. Yes, the process of buying and selling human beings probably predates our earliest historical records, but what we’re talking about here is human life value in the context of insurance coverage. Human Life Value or HLV is an economic theory to put a monetary value on a human’s life in order to select appropriate life coverage.

This is quite simply the process of calculating the total economic loss caused to a person’s next of kin, which comes in addition to the obvious mental and emotional trauma that comes with a death in the family. While you can’t put a price tag on the latter and only time can heal such wounds, it’s the economic loss that we are interested in putting a price tag on. It may sound disconcerting at first to have to assign a monetary value to a person’s life, but the reality is that without such preparedness, grief would undoubtedly be accompanied by financial troubles as well.
This is probably why Dr. Solomon S Huebner talked extensively about developing a sense of responsibility among the general public and in particular, doing away with the myth that a person’s responsibility to his family is limited to his time in this world. Additionally, Dr. Huebner looked at any such shirking of responsibilities as a “crime of not insuring,” and even encouraged a “finger of scorn” to be pointed at anyone who was not interested in securing the future for their dependents.

Humans are social beings who depend on each other for strength and support. When you talk about Human Life Value, it’s basically the current, future, and potential financial support that you create for those who depend on you. This is done by taking into account a number of factors like your present age, what age you plan to retire at, annual income, employment benefits, and more. When you calculate all the variables and finally boil it down to one number, what you get is the final amount required to ensure that your death won’t affect the people you love financially.



Image Source : https://www.slideshare.net
Now ideally, you don’t want your dependents to have to depend on your life insurance coverage, but rather on the interest which is generated from the deposit of the insured amount. So while a simple way to calculate Human Life Value is obviously to calculate your monthly income from today till the time you retire, we’re going to look at four different levels of life insurance coverage.
 
1.Minimum level: The minimum level is where you cover yourself for up to 100 times of your monthly net income. For example, a man with a monthly income of Rs. 100,000 insures himself for 1 crore, which is 100 times his monthly income. This means his dependent can put this in a savings account at a 6% interest rate to earn Rs. 50,000 a month, which is 50% of his monthly income.

2.Adjustable level: In the Adjustable level you cover yourself for 150 times your monthly net income so the same 6% return on deposit would generate 75% of your monthly income.

3.Comfort level: The comfort level is where you get covered for 200 times of your net monthly income so, in case of any eventuality, your spouse will get the same amount as you were contributing to the family.

4.Considering future inflation: It is always wise to take into account future inflation and in such a situation it is recommended to cover yourself for 300 times of your monthly income so that your family receives 150% of your monthly income in the event of an unfortunate circumstance.

 The interest rate, inflation and coverage differ from person to person & country to country. To find out the exact values kindly contact us.

 In conclusion, death is hard to talk about, a lot harder to deal with, and most importantly, filled with uncertainty as no one knows when they’re going to die. That being said, the knowledge that you do know exactly how much your life is worth to your family and that you can prepare to have those needs met accordingly, is both comforting and reassuring.

 If you enjoyed reading this post, please leave a comment or a suggestion on what financial topic you would like to read about next.

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Highlights of Union Budget 2021-22...

General

1. First digital Budget in the history of India

2. Vehicle Scrapping Policy. Vehicle Fitness Test after 20 years in case of Personal vehicle and 15 years in case of commercial vehicles

3. 64,180 crores allocated for New Health Schemes

4. 35,000 crores allocated for Covid Vaccine

5. 7 Mega Textile Investment parks will be launched in 3 years

6. 5.54 lakh crore provided for Capital Expenditure

7. 1.18 lakh crore for Ministry of Roads

8. 1.10 lakh crore allocated to Railways

9. Proposal to amend Insurance Act. Proposal to increase FDI from 49% to 74 %.

10. Deposit Insurance cover (DICGC Act 1961 to be amended). Easy and time bound access of deposits to help depositors of stress banks.

11. Proposal to revive definition of ‘Small Companies’ under Companies Act 2013. Capital  less than 2 Cr. and Turnover Less than 20 Cr.

12. Disinvestment: IPO of LIC, Announced Disinvestment of Companies will be completed in FY 2021-22

Direct and Indirect tax

1. Senior Citizens: Reduced Compliance burden. 75 years and above. Proposal not to file ITR if only pension income and interest income.

2. Reduction in time for IT Proceedings: Reopening of Assessments period reduced from 6 years to 3 years except in cases of serious tax evasion cases

3. Proposal to constitute ‘Dispute Resolution Committee’. (Taxable income 50 lakhs and disputed income 10 lakh).

4. National Faceless Income Tax Appellate Tribunal Centre

5. Relaxations to NRI: Propose to notify rules for removing hardship for double taxation.

6. Tax Audit Limit: Proposal of tax audit increased from 5 Cr. to 10 cr. (Only for 95%  digitized payments business)

7. Propose to provide relief on advance tax liability on dividend income.

8. Propose to include tax holidays for Aircraft leasing companies

9. Prefiling of returns (Salary, Tax payments, TDS etc.)  Details of Capital gains from listed Securities, dividend income, etc. will be prefilled

10. Small Charitable Trusts. Increased from 1 crore to 5 crores (Compliance limit)

11. Late deposit of employee’s contribution by employer will not be allowed as deduction

12. Incentive to startup: Tax holiday exemption for one more year

13. Duties reduced on various textile, chemicals and other products

14. Gold and Silver (BCD reduced)

15. Agriculture Products: Custom duty increased on cottons, silks, alcohol etc.

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Introduction to Mutual Funds...

What a lot of people don’t realize, is that there’s a lot more to mutual funds than the fact that they’re subject to market risk, and offer documents should be read carefully before investing.

While people who have a lot of money to invest can afford professional “money-managers” and diversified portfolios, mutual funds give the common man access to such professional money managing services. Think of it as a common fund or pool of money, where the public contributes and the collective amount is then invested by experts, according to the investment objective of the fund.

The different types of mutual funds are:
Equity funds - funds that invest in stocks
Debt funds - funds that invest in fixed income instruments
Money market funds - funds that invest in short-term money market instruments
Hybrid funds - funds that divide investments between equity and debt to create a balanced or diversified portfolio.

In this post, we’re going to take a closer look at Equity funds, in particular, as well as some variations of them. Equity Funds invest in stocks of companies and may further be classified in terms of the market capitalization of the target investment objectives.

These are:
Large-cap funds: These are open-ended equity funds that invest at least 80% of their assets in large-cap (1-100)stocks meaning big, established companies with excellent track record. These stocks are dependable and risk is comparatively less than mid-cap and small-cap.

Mid-cap funds: These are open-ended equity funds that invest around 65% of their assets in equity and equity-related instruments of mid-cap companies(101-250) or companies that are growing and progressing well but still no big enough to be classified as large-cap. The fact that many of these companies may soon progress to large-cap makes this segment quite lucrative for investors.

Small-cap funds: These are open-ended equity funds that invest around 65% of their assets in small-cap stocks(more than 251st) whic refers smaller companies. While these funds generally have an immense potential for growth, with a higher level of risk, of course. These funds are generally for investors with a high risk profile or to balance out a portfolio.

Microcap funds: These are open-ended equity funds which invest around 65% of there assets in publicly-traded companies that have a market capitalization less than small-cap companies. Like small-cap stock, micro-cap carries an even higher risk with explosive growth prospects.

All equity Funds can be classified into Active and Passive, where the fund is run by a team of experts and a passive fund mirrors a popular market index like Sensex, BSE.

The main advantage of investing in a mutual fund is that each investor, no matter how small the investment, gets access to professional money management service. Additionally, it would be quite difficult for an individual investor to build a portfolio that’s as diversified and spread out as a mutual fund on their own.

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The Art Of Risk Calculation In Mutual Fu...

People often associate risk with luck, and while that may be true to an extent, the major difference is that unlike luck, risk can be measured. Now before we get into the ratios that help us measure how much risk is attached to a particular mutual fund, an important concept to understand is volatility. Volatility is basically the measurement of how erratic a particular fund is, so if a particular fund is highly volatile, what this means is it has a tendency to either rise or fall sharply in a relatively short period of time. This is why volatile funds are generally considered high risk.

Alpha

With an Alpha ratio, instead of comparing a fund's performance to its own average like some other ratios, we’re comparing its risk-adjusted return with a benchmark (example Sensex, Nifty). This is why an alpha ratio can be either negative or positive, with a negative ratio indicating a fund that is underperforming in comparison with its benchmark. For example, an alpha ratio of +3 indicates a fund that outperformed its benchmark by 3%, while -3 would indicate a shortfall of 3%.

Beta

Also called the beta coefficient, this one is a little different than the others since the value is going to be a fraction above 1 or a fraction below 1. What it is, is a measurement of the fund’s tendency to shadow the market as a whole, or to shadow a particular benchmark or index. So a value below one, like 0.7 for example, would indicate a fund that shadows the market up to 70%, so for every 1% change in the market, up or down, you can expect a 0.7% change in the fund. Similarly, a value above one, like 1.3, would indicate a fund that’s 30% more volatile.

Standard Deviation

This one is quite simply what we just explained with the definition of volatility, and is the measurement of how volatile a particular fund is, in relation to its own average. To elaborate, if a particular fund has an average return of 20% but also has a standard deviation of 10%, this means it could go 10% to 30%, or down 10%.

R-Squared

Since the Beta can be calculated against the market as a whole or any other benchmark, this can be misleading if the benchmark in question isn’t appropriate. This is why we have the R-Squared ratio which indicates the “relationship-level” between the fund and the index that’s being used to measure the Beta. R-Squared ratios go from 0-100, and while a 70 - 100 indicates an appropriate benchmark is being used and the Beta ratio can be trusted, anything below implies the Beta ratio is not a useful indicator.

Sharpe’s Ratio

Last, but definitely not least on our list, is the ratio developed by renowned economist and Nobel laureate William Sharpe, and is probably the most interesting of them all. Suppose a particular fund is performing really well and you are feeling really good about increasing your investment. What Sharpe’s ratio will tell you is whether the previous returns were due to smart choices by the fund manager or just higher risks being taken. This is why going by just one ratio can often be misleading as there are always a number of factors that need to be taken into consideration.

In conclusion, while everyone always talks about mutual funds being subject to market risk, no one tells you that market risk is tangible, can be measured, analyzed, balanced, and most importantly, accounted for.

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Meet the Money Market Mutual Funds...

When you think about mutual funds, the first thing that generally comes to mind is equity and the stock market. What a lot of people don’t realize, is that’s only half the story. For the more cautious investors, there are mutual funds that invest exclusively in fixed-income securities, that unlike equity, carry a lot less risk and deliver much better returns when compared with general banking products.


Mutual funds that invest in fixed-income securities are called debt funds and investments include corporate bonds, government securities, commercial paper (CP), certificates of deposit (CD), treasury bonds, and money-market instruments. Money-market instruments are funds that finance businesses for short periods of time in order to create a cash buffer to negate the gaps in payment cycles. These are great if you’re looking for a quick turnaround as investment options range from overnight to a year.


So the obvious question here would be “why doesn’t everyone invest in debt funds instead of putting their money in the bank?” The answer, debt instruments aren’t generally available for purchase because the minimum investment requirements put them out of reach of most retail investors. This is where mutual funds come in and make these fixed-security investments available to everyone who has a little cash to spare. Additionally, since these funds are all tied to some sort of corporate debt, they appreciate when interest rates fall.

Now there are about a dozen different types of debt funds and to keep it sweet and simple, we’re going to keep the definitions as short as possible.
First, we have them categorized by maturity period:

1. Liquid funds: Pretty self-explanatory, the main factors here are minimum investment period is 1 day, maximum period 91 days, and funds are invested in debt instruments that can be liquidated at any time. This is why liquid debt funds don’t have any lock-in period and redemption is typically processed in 24 business hours. Investments include different types of debt securities like treasury bills, certificates of deposit, commercial paper, and more.
2. Ultra-short-term funds: These have a slightly longer “wait-time” than liquid funds, come with a maturity period of anywhere from 3 to 6 months, and investments are exclusively in money-market and debt securities.
3. Low duration funds: Investments are in money-market and debt instruments while the maturity period is 6 to 12 months.
4. Short duration funds: Investments are in corporate and government bonds while duration is 1 to 3 years.
5. Medium duration funds: Investments are in corporate and government bonds while duration is 3 to 4 years.
We also have them categorized by investment portfolio:
6. Money-market funds: Investments are predominantly in money-market instruments and maturity is up to 1 year.
7. Corporate bond funds: Investments are predominantly in corporate bonds with a high rating (AA+ and above) and maturity is up to 1 year.
8. Credit risk funds: Investments are predominantly in corporate bonds with a rating of AA and below, and maturity is up to 1 year.
9. Banking and PSU fund: 80% investment in banks, public sector undertakings, and public sector financial institutions, the maturity period is 1 to 10 years.
10. GILT Funds: 80% invested exclusively in government securities, maturity period 3 to 5 years.
11. Floating rate funds: Since rising interest rates in the economy adversely affect banking and PSU funds, floating-rate funds offer more agility by investing at least 80% in fixed-income securities with variable interest rates. This means while the maturity is up to 7 years, the interest typically gets adjusted every 30-90 days.
12. Fixed maturity funds: Investments in high-rated debt securities and corporate bonds, investment is only available during a new fund offer, and maturity is predetermined.
In conclusion, if you don’t want to risk the stock market to get better returns on your money, debt funds are the next best thing. Not only do they come with quick turnaround times, they also minimize risk by investing in fixed-income securities.

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Low-Duration, Low-Risk Funds...

As we looked at the different types of debt securities in our previous post titled “Meet the Money Market,” in this post, we’re going to look exclusively at money market funds and how they are a great way to make some extra returns in under a year. As we mentioned earlier, money market funds invest in money market instruments, and since the investment period is only 1 year, the portfolio is strategically diversified in order to maximize returns over that 1 year period.
These funds are highly secured since investments are only made in money market instruments issued by organizations with strong credit ratings. Think of it like this, instead of putting your money in a fixed deposit for a year, your lending it to organizations that have an excellent credit history, hence the two main characteristics of money market funds, low-duration, and low-risk. These instruments include certificates of deposits, commercial papers, treasury bills, repurchase agreements, and more.

Now while returns are not guaranteed, based on the liquidity of investments as well as the track record of the issuing companies, these funds are virtually risk-free. Additionally, it’s impossible to put your money to work on a corporate level of this scale as a retail investor, especially because the minimum “buy-in” is quite high. Money market funds, on the other hand, have low to no minimum investment requirements and are typically open-ended meaning additional investments can be made at any time.

The big question here obviously is “how much does it all cost,” and the answer is that while fund houses typically charge a TER (total expense ratio) based on the NAV (net asset value), as of September last year, SEBI has capped that at 1.05%. NAV is the current value of all the securities held by the scheme, minus liabilities, and this means fund houses cannot charge investors a TER that’s more than 1.05% on the NAV. This not only ensures malpractices like misselling and churning are avoided, but it also makes money-market funds more transparent and affordable at the same time.

As opposed to NAV which as we already mentioned, is net asset value minus liabilities, AUM or assets under management, is the cumulative sum of all the investments made by a mutual fund.

Now while all these funds have a 1-year option that gives better returns than most banking products, there are also 3-year and 5-year options that have higher returns.

In conclusion, Money market mutual funds are designed and calibrated for low-risk, low-duration returns that have minimum investment requirements and are available to the general public. Contact us for more information on how you can put your money to work, financing organizations with impeccable credit, from the comfort of your home.

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Open-Ended Debt Funds, Fixed Maturity Pl...

To carry on where we left off with our previous post about money market funds, we’re now going to talk about the one single drawback to debt instruments, as well as the remedy. As we all know, debt instruments like corporate bonds, for example, decrease in value as prevailing interest rates go up. This is because when interest rates go up, people would rather put their money in banks than invest in bond funds at lower interest rates, causing the bonds to decrease in value. The inverse is also true here which means if prevailing interest rates fall, corporate bonds that were issued before the fall, will increase in value.

Maturity roll-down

As we mentioned in our previous post on the money market, floating rate funds try to negate this effect by investing in bonds with interest rates that change in accordance with prevailing interest rates in the economy.  However, this is typically accomplished by increasing risk by investing in sub-par bonds and in some cases, debt that is close to junk status. This is why floating-rate funds are considered high-risk and definitely not for the cautious investors looking for high-quality corporate paper or government bonds. What then is the solution to reduce the risk of rising interest rates on debt instruments?

Now with money market funds in particular, we have open-ended funds and we have fixed-maturity funds, both of which are affected adversely by rising interest rates, the only significant difference being you can’t enter and exit any time in a fixed-maturity fund. Bringing you the best of both worlds, are Maturity Roll-down funds which give you a fixed-maturity period while still remaining open-ended. This serves two purposes, to give investors the predictable returns of a closed-end fund, while also allowing the freedom to enter or exit on any business day.

Using the yield curve

How does a fixed-maturity fund remain open-ended is the obvious next question here, the answer to which is the fact that the fund invests only in papers that match the remaining tenure of the fund. So for a 25 year fund where investments are made in corporate bonds with a duration of 25 years during the first year, during the second year investments will only be made in bonds that have 24 years remaining, and so on, and so forth till the fund reaches maturity. This is done without increasing risk like floating rate funds and is the reason why returns are more predictable.

The next question, how does the fund achieve this without increasing risk? The answer, yield curves are always upward sloping so the longer the maturity, higher the yield. This is why holding a fund till maturity over a longer period of time is the best way to negate the effects of rising interest rates. Now let us assume you invest in a 25 year bond that’s currently trading at 6.7%, while a 20 year bonds is trading at 6.5%. What will happen after 5 years is that you will have a 20 year bond with an extra 0.2% yield which investors will be ready to pay more for.

This is because an older bond with higher yield and is more valuable than a newer bond with lower yield having the same residual maturity. Additionally, since the duration of the bond reduces over time, so does the risk of rising interest rates. That being said, lets take a look at a new fund offering from Nippon India, that’s an open-ended, fixed maturity scheme with roll-down strategy.

Nippon India Nivesh Lakshya Fund

Average Maturity: 24.06 years (as on 10th February 2021. Source: Nippon India Mutual Fund).
Modified Duration: 11.19 years (as on 10th February 2021. Source: Nippon India Mutual Fund).

Investment portfolio: This scheme predominantly invests in long-dated Government Securities (25 to 30 years maturities). G-Sec is a lot safer than corporate bonds and a lot harder to invest in as an individual.

Yield: The current yield to maturity (YTM) of the scheme is 6.7% (as on 10th February 2021. Source: Nippon India Mutual Fund).

Like we already discussed, since the scheme employs a maturity roll-down strategy, as the remaining tenure reduces, so does the interest rate risk, which will continue to reduce over the investment tenure.

Credit risk: The scheme only invests in Government Securities which means there is virtually no credit risk since Government Securities come with a sovereign guarantee which means interest and principal payments are guaranteed by the Government.

Investing long-term

In conclusion, given the steepness of the curve at present, there’s really no substitute for investing long-term and holding on to high quality corporate or G-Sec funds till maturity. That being said, if you’re looking for good money-market products that offer all the features discussed in this post, particularly, products built with longer maturity and quality corporate or government papers, feel free to contact us for further details. Remember different player, different playing style, so don’t hesitate to contact us for a tailor made strategy to suit your risk-profile.

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Understanding ESG Funds...

Greetings,

We hope you found our previous post on open-ended, fixed maturity funds, both useful and informative. If you haven’t had a chance to read it yet, we’ve put it here so you don’t miss out!

While 2020 ushered in a global crisis on a scale that humanity had never seen before, 2021 continues to teach us hard lessons earned over decades of practicing unsustainable economics. Pollution, strip-mining, deforestation, over-fishing, and hunting animals to extinction are just a few examples of the effect our economies have on the environment. As the world tries to move forward from the mistakes of the past, one of the things we’re trying to focus on is sustainability, and not taking more from the environment than we can put back. This focus is being delivered right at the root of our financial ecosystem by changing the way responsible investors invest their money.


Measuring sustainability
Sustainability today is measured in terms of E, S, and G, which stands for environmental, social, and governance respectively. Organizations that wish to be ESG compliant need to adhere to a stringent set of standards and regulations. While the environment score is determined by carbon footprint and the impact an organization has on the environment, the social aspect pertains to gender equality, social diversity, racial diversity, as well as diversity based on sexual orientation.

The governance aspect, today, has a lot to do with the ESG data that an organization makes available to the public, the quality of that data, as well as its transparency in operations. This is because financial disclosure and transparency are key aspects of ethical governance and organizations that are in compliance automatically become a much safer choice for investors. Given a choice between full disclosure and ambiguous operations, most investors would choose the former.

Indian ESG Funds
While assets managed by ESG funds globally reached a total of $1.65 trillion as of the December quarter of 2020, assets managed by ESG funds in India reached about 45 billion INR and continue to grow steadily. This is undoubtedly due to the effect the global pandemic has had on people and businesses around the globe. ESG funds weren’t that common pre-pandemic, however, 2020 saw a number of large asset management companies launch ESG schemes in India like the ones listed below.

Aditya Birla Sun Life ESG Fund
1.Started in December 2020 and managed by Mr. Satyabrata Mohanty.

2.Management is active while investments are 60-80% in large cap and remaining in mid and small caps.

3.Portfolio is focused 40-50 ESG compliant companies.

4.The fund retains the right to invest 35% of the fund’s net assets in ESG compliant international securities.

Axis ESG Fund
1.Started in February 2020 and managed by Mr. Jinesh Gopani.

2.This fund is focused on 52 ESG compliant holdings, the top 5 of which include Bajaj Finance, Kotak Mahindra Bank, HDFC Bank, Avenue Supermarts, and Tata Consultancy Services.

3.Management is active and return are at 31.20% since the fund’s inception on December 23, 2020.

4.Investments are 80% in stocks that rate highly on ESG factors.
 
ICICI Prudential ESG Fund
1.Started on October 2020 and managed by Mr. Mrinal Singh.

2.This fund is focused on 30 ESG compliant holdings, the top 5 of which include HDFC Bank, Kotak Mahindra Bank, Housing Development Finance Corp, Infosys, and Reliance Industries Ltd.

3.Management is active and return are at 10.90% since the fund’s inception on December 23, 2020.

4.Investment are predominantly in companies with a high ESG score. Stock selection is based on internal research as well as the Nifty ESG universe. The fund also reserves the right to invest in international organizations that are ESG compliant.

SBI Magnum Equity ESG Fund
1.Originally named SBI Magnum Equity Fund, this fund was relaunched as SBI Magnum Equity ESG Fund in May 2018 and managed by Mr. Ruchit Mehta.

2.This fund is focused on 39 ESG compliant holdings, the top 5 of which include HDFC Bank, Infosys, Tata Consultancy Services, Reliance Industries Ltd, and ICICI Bank.

3.Management is active and returns are at 10.84% as of December 23, 2020.

4.Investments are 80% in ESG compliant equity, while the remaining 20% in other equities, debt, or money market instruments.
 
Kotak ESG Opportunities Fund
1.Launched on December 2020 and managed by Mr. Harsha Upadhyaya.

2.This fund is focused on 48 ESG compliant holdings including Infosys,Bharti Airtel, HDFC Bank, Tata Consultancy Services, Eicher Motors,Larsen and Tourbo, Axis Bank, Ultratech Cement, Cipla, and more.

3.Investment is 95% in ESG compliant Indian stocks, 57.84% of which is in large-cap stocks, while 17.95% is in mid-cap stocks, and 9.63% is in small-cap stocks.

In conclusion, the world has changed in terms of environmental awareness and social consciousness and as responsible citizens of the world it is our duty to follow suit. Please feel free to contact us for more information on investing in ESG funds.

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Systematic Withdrawal Plans...

Greetings,
We hope you found our previous post on ESG funds both useful and informative. If you haven’t had a chance to read it yet, we’ve put it here so you don’t miss out!

A steady cash flow is the most important aspect of any retirement plan, and a lot of people look to Mutual Funds to either create or supplement a regular income. While a number of schemes exist that provide monthly or quarterly dividends, these are completely dependant on profits and hence cannot be classified as guaranteed returns. This is where SWPs or systematic withdrawal plans step into the picture and provide investors with a tax-efficient way to maintain a guaranteed cash flow while also outperforming a fixed deposit.

Disciplined withdrawals
A lot of people talk about discipline while investing, but not many about discipline while withdrawal which is an equally important aspect of maintaining a steady cash flow post-retirement. An SWP helps maintain discipline during withdrawal by redeeming a fixed amount of mutual funds every month, irrespective of the state of the market. This effectively does two things, it protects you from selling lump sums when the market is down, as well as overinvesting when the market is on a high, both of which are counterproductive if your aim is to create or supplement a steady income.

Now unlike a fixed deposit where you only withdraw the interest and your corpus remains intact, with an SWP, you’re actually withdrawing both, a part of your capital, and the interest. So say for instance you invest one lakh rupees to buy 10,000 units of a fund (NAV 10) and want a 5,000 INR monthly withdrawal. What will happen here is every month, 5,000 INR worth of units, based on the “Rupee-cost-average,” will be sold every month to supplement your income, irrespective of the state of the market.
Tax efficiency
This benefits investors in a number of ways, as opposed to a lump sum withdrawal which is subject to a single NAV at any particular point in time, Rupee-cost-averaging gives investors the ability to withdraw their funds at an average NAV that is collected over a longer period of time. This not only supplements your cash flow with fixed monthly returns but also gives your investment a longer period of time to grow and consolidate. Additionally, as opposed to interest earned from a fixed deposit that is classified as income and taxable as such, in an SWP, only the growth or profit is taxable as income.

To further elaborate, If 10,000 units of a fund that you bought for one lakh rupees grown to a value of 1.1 lakh rupees INR, registering a 10% growth, only 10% of your monthly withdrawal is taxable as income. Using the above example where the goal was to create a 5,000 INR monthly cash flow, only 500 INR will be taxable as income. When compared with the interest earned on a fixed deposit that is completely taxable, SWPs make a pretty good argument as a tax-efficient way to create a steady cash flow. To know more about SWPs and which ones are best for your portfolio, age, and risk profile, feel free to contact us.

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Balancing Health & Wealth Management...

Greetings,

In case you missed our previous post on systematic withdrawal plans, we’ve linked it here so you don’t miss out!

Greek physician Herophilus (325-280 BC), the father of anatomy, credited with the first ever scientific human cadaveric dissection, and arguably the greatest anatomist of all time wrote: “when health is absent, wealth becomes useless.” Fast forward to the 20th century and Mahatma Gandhi (1869-1948) famously said: “it is health which is real wealth, and not pieces of gold and silver.” While the timelines involved here are drastically different, what rings true across the centuries is the comparison between health and wealth, and the realization that one is quite useless without the other.

While both the distinguished gentlemen mention above hit the nail on the head while asserting that the pursue of wealth at the cost of one’s health is a rather useless endeavour, in today’s world, both are equally important. The connections between financial, physical, and mental health are undeniable. While poor health and healthcare bills can have a seriously negative impact on one’s financial life, poor finances can leave you unable to tackle a medical emergency or unable to recover from the cost of a medical procedure.

So if we can all accept that both are equally important, the problem then lies in the fact that while most parents and teachers instiil in us all the good habits to stay healthy, it’s a very rare occurence where someone teaches us about wealth in the same way. Luckily enough, since most people already knows the habits to stay healthy like brushing their teeth in the morning, drinking a lot of water, and getting enough sunshine and exercise, we can have some fun drawing parallels between good health habits and good wealth habits.  

1.Waking up early in the morning: This one is pretty straightforward, similar to “the early bird get’s the worm” philosophy, building wealth and investing as early on in life as possible is probably the biggest advantage you could ask for.

2.Eat a balance diet: If wealth was your food, this one would translate to maintaining a diversified investment portfolio. Similar to the “don’t put all your eggs in one basket” philosophy, spreading out your investments across sectors and risk-profiles is a great way to minimize risk while also increasiong the potential for growth.

3.Drink lots of water: This one is easy, maintain liquidity! Liquidity is essential so staying afloat, and while the temptation to overinvest or over commit oneself while investing is always high, having enough liquidity is key to maintaining wealth.

4.See a Doctor if you’re feeling under the weather: The worst thing you can do in an unhealthy situation is to try and Google a cure or diagnose yourself. While self diagnosis and self medication can be downright dangerous to your health, similarly with finances, seeing a professional financial planner is a basic fundamental to living a wealthy life.

In conclusion, you can’t really have one without the other and while a healthy man may be able to work hard and earn himself a living, earning and maintaining  wealth is another thing altogether. For more information on wealth management feel free to contact us.

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Quick Look At - Aditya Birla Sun Life - ...

In today’s post we’re going to take a quick look at a new fund offering called Aditya Birla Sun Life Multi-cap fund, along with a summary of its investment philosophy and key benefits. A multi-cap fund is an equity-oriented mutual fund scheme that invests across market capitalizations. What’s important to note here is that markets regulator Securities and Exchange Board of India (SEBI) on September 11 announced changes to the constitution of multi-cap funds. According to the new constitution, these funds are now required to invest a minimum of 75 percent of their total assets in equity and equity-related instruments, as well as a minimum of 25 percent each in large, mid, and small-cap stocks.

In reference to this update Mahesh Patil, Chief Investment Officer, Aditya Birla Sun Life AMC, was quoted stating: “The economy is expected to grow at a much faster rate in the next three to five years. Many small-cap companies are expected to report healthy earnings growth, making them good investments for the medium term.” Similarly, A Balasubramanian, MD & CEO, Aditya Birla Sun Life AMC, said that while large-caps are proven quality compounders and must-haves for any portfolio, from a long-term perspective, it’s the mid and small-cap segment that is proving to be rewarding.

 This fund will be an open-ended equity scheme investing across large-cap, mid-cap & small-cap stocks with a minimum of 25% portfolio allocation each to large, mid, and small caps. The NFO is open from April 19, 2021, till May 3, 2021.

Investment Profile:

1. The scheme will invest 25-45% in Large-cap and a minimum of 25-35% each in Mid and Small-cap segments
2. The scheme will follow a bottom-up approach of stock selection

Key Benefits:

1. Combines the stability of large-caps and the high growth potential of mid & small-caps in one portfolio.
2. Disciplined market cap allocation and active rebalancing provide the opportunity to invest in fast-growing sectors/companies across the spectrum.
3. A bottom-up approach helps build a portfolio of high conviction ideas to enhance return potential.
4. Ideal portfolio to play high growth cycle

In conclusion, India is expected to be among the top 3 economic powers within the next 15 years. An open-ended fund that has no restrictions on sector or market cap is definitely a lucrative investment options for those who want to grow with India. That being said, however, whether this particular fund is a good investment option for you is completely subjective and depends largely on your existing investment portfolio. For more information on what funds best suit your age and risk profile, feel free to contact us.

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Four Critical Components Of A Good Estat...

Tennessee Williams once famously said: “Ignorance of mortality is a comfort.” While ignorance is indeed bliss, it’s also a comfort that people with loved ones and dependents, cannot afford to have. In today’s post, we’re going to look at the importance of estate planning, as well as the benefits of designating heirs for your assets in case of your untimely demise.

While the word “estate” might mislead readers to think this is only for large landowners, estate planning is for anyone who has assets that they would like to leave behind for loved ones or dependents. The main goal here is to make sure that all your assets are distributed as per your wishes, while also minimizing taxation on whatever you leave behind.

Additionally, estate planning isn’t just about distributing wealth and you can also delegate responsibilities like in the case where you have children, you can delegate a legal guardian to care for them in case fate doesn’t permit you to. Protecting what you leave behind from taxations by the government is another important aspect of estate planning and it is best to get professional money management services for this.

There are 4 critical components of a good estate plan that we are listing below:

    1) A will that clearly identifies:

    a. The heirs to your assets
    b. Your children’s guardian
    c. The executor of your will

    2) A power of attorney that will enable:

    a. Someone to make financial decisions on your behalf
    b. Someone to pay bills and make legal decisions on your behalf
    
    3)   A medical power of attorney to:

    a. Enable your doctor to make medical decisions for you in case you are unable to

    4)   A Trust to:

    a. Minimize estate taxes
    b. Control how your assets are distributed

In conclusion, as Surya Das put it so well. “If we accept and internalize the fact of our own mortality, then, by definition, we have to deal with the essential questions of how we live and spend our allotted time.” This means not only making peace with the fact that one day we have to leave this world, but more importantly, ensuring that all our affairs are in order before we go. This not only helps ease the situation for your loved ones who are coping with grief and loss but also prevents ugly legal battles caused by the lack of a proper estate plan.

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Why Life and Health Insurance Should Be ...


Greetings,

We hope you liked our post on maintaining a balance between health and wealth management and we’ve put it here in case you missed it!

Steve Jobs was famously quoted saying “No one wants to die. Even people who want to go to heaven don’t want to die to get there. And yet, death is the destination we all share. No one has ever escaped it.”


That being said, there’s a certain comfort in the knowledge that no matter what happens, we not only have the means to pay for our medical treatment if required but also the means to provide for our families in the case of any eventuality. If life insurance & health insurance don’t feature on your list of priorities when it comes to building an investment portfolio, you’re not building it on a very strong foundation.


In fact, life and health insurance are the very foundation that the financial pyramid, (explained in our post on building a wealth management portfolio), is built on. This is because safeguarding what you already own, Even if It’s just your own health is more important than creating new wealth. The new disease, in particular, has made it more critical than ever to be well prepared for any unforeseen circumstances.


Life Insurance  

Life insurance comes with a death benefit which is usually in the form of a payment or payments to your next of kin.

As an example, if you take two people with similar wealth portfolios, say 5 crore INR, one with a life insurance cover of 10 crores and the other without any life insurance. In the case of their eventuality, the first person will leave his family with 15 crores, while the second, even though he had a similar portfolio, will leave his family with just the 5 crores. This 5 crores represents all the wealth he has left behind and will be soon spent by the family on regular expenses, kids education, marriage and other miscellaneous expenses.


In the case of family with 10 crores of life insurance. They will find it lot easier to manage their expenses and will not have to dig into savings, withdraw from investment portfolio or sell any property to continue the same standard of living. As seen in the above example, in addition to a death benefit, a life insurance policy effectively protects your investment portfolio, property, and any other assets you may leave behind. A revisit to our post on human life value will give our readers a quick recap on how to calculate the right amount of life insurance for yourself and your family.


Health Insurance

Health insurance is in place to ensure you’re financially covered in case you need any kind of medical attention. This is equally if not more important than a death benefit, especially with the situation in the world today where hospitals are working at their peak capacity causing medical care to cost a lot more.

Additionally, medical expenses don’t really end with treatment at a hospital and post-treatment consultation, medical check-ups, diagnostic tests, and medicines can often cost more than the actual treatment itself. This is why it’s imperative to understand your health insurance plans and the coverage that they offer for different types of ailments, medical procedures, and post-operative care.

There are also fixed-benefit health insurance plans that pay a fixed amount on the contraction of any diseases that feature on a predetermined list of diseases that you are most likely to contract. While these plans may cost a higher premium, a lot of the time, especially where medical care is concerned, time is of the essence. These plans typically pay cash upfront on the submission of a first diagnosis report, without wasting time asking for details.

In conclusion, life insurance and health insurance are both essential aspects of a safety net meant to protect us and our families from the potential financial stress that could come from unforeseen circumstances. Health insurance also helps pay for preventive care which is critical to avoid a more serious condition later on. Lastly, while planning finances, life & health insurance need to be looked at as priorities, as well as necessities, and depending on one’s living situation, one can also opt for a family plan to cover the whole family in one policy.


    “Insurance is just risk management. We transfer the risk from families who can’t afford it, to insurance companies who can. That’s all it is.” — Tony Garden


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Three Main Categories Of Systematic Tra...

Greetings,

In our previous post, we covered Life and Health Insurance, In this post we’re going to look at Systematic Transfer Plans and the many associated benefits.

Since the tag line that goes with all mutual funds is that they are subject to market risk, financial experts recommend Systematic Transfer Plans (STP) to spread investments out over a longer period of time in order to mitigate risk as much as possible. As opposed to investing a lump sum amount in one go, you invest a fixed amount periodically in order to reduce the propensity to market fluctuations.

Now in case you’re thinking that this sounds like Systematic Investment Plans, STPs are actually different. How they work is that your entire investment is first parked in a liquid or liquid plus funds where it generate steady returns at prevailing interest rates, while a fixed amount is earmarked for periodic investment in prospective schemes under the same fund house. There are three main categories of STPs:

Fixed STPs

In the case of a fixed systematic transfer plan, the total amount to be transferred from one mutual fund to another remains constant and you can choose between annual and periodic investments. Annual investments can be 1 year, 2-year, and 3-year investments, while periodic investments are weekly, fortnightly, and monthly. While daily investment is also available when the market is open from Monday to Friday, this isn’t advisable.

A good example of a fixed STP is if you had 5 crore rupees to invest & invested in 5 different STPs at 1 crore each and set them all to fortnightly investment (15 days ). What you would effectively have is ( 5*48) investments, or 196 investments, spread across 2 years. This effectively does two things, gives you the benefit of rupee cost averaging so instead of buying at one particular NAV, you buy at an average, hence reducing the associated market risk. Secondly, your corpus that’s parked in a liquid or liquid plus funds are still earning interest and compounding.

Flexible STPs

With flexible STPs, the amount and periodicity aren’t fixed and are decided upon as and when the need arises. These funds are typically actively managed and investments are made based on current market volatility as well as a number of calculated predictions.

Capital STPs

Here only the profit or capital gain on a particular fund is then transferred to another fund that shows more promise or potential for growth. An important point to note, with regard to all three types of STPs that we’ve covered is that funds can only be transferred from a mutual fund scheme to another scheme of the same mutual fund house and not across different fund houses.

The power of averages

With regard to market risk in particular, in an ideal world, we would buy when the market is low and sell when the market is high. If anyone could correctly predict that, however, there wouldn’t be any need for financial experts or even mutual funds for that matter. While the reality is that the market is and always will be unpredictable, risk can be mitigated by investing wisely while also maintaining caution and discipline. Please feel free to contact us to know more about STPs and which one would best suit your investment profile.

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All you need to know about the education...

Greetings,

Education, as we all know, is most vital asset in the modern world. And when it is from prestigious institutions it widens our horizons more. But accessing it can be difficult for quite a lot of students due to finance. This is where education loans can help.

Indian banks provide wide range of education loans. Loans for studying in India, abroad, for higher education in IITs, IIMs, NITs, etc (with special benefits) and loans even for vocational courses.

 Eligible Courses

Graduation, Post-graduation courses approved by UGC/ AICTE/ IMC/CIMA (Chartered Institute of Management Accountants) - London, CPA(Certified Public Accountant) in USA, etc.

Teacher Training/ Nursing courses approved by Central government or the State government.

Courses run by Industrial Training Institutes (ITIs), Polytechnics, training partners affiliated to National Skill Development Corporation(NSDC)/ Sector Skill Councils, State Skill Mission, State Skill Corporation.

Certificate/Diploma/Degree issued by such organisation as per National Skill Qualification Framework (NSQF) are eligible for a Skilling Loan.

 Expenses Covered

 Fees payable to college/school/hostel.

 Examination/ Library/ Laboratory fees.

 Purchase of books/ Equipment/ Instruments/ Uniforms/ computers.

 Caution deposit/ Building Fund/ Refundable deposit.

 Travel expenses for studies abroad.

 Expenses to cover study tours, project work, etc.

 Repayments

 Usually Loan to be repaid in 15 years.

 Repayment commence one year after after completion of course.

 Accumulated simple interest during the moratorium period and course period is added to principle and repayment is fixed in EMI ( Equated Monthly Instalments) .

 If full interest is paid before the start of repayment , EMI is fixed based on principle amount only.

 Vocational courses Loans have repayment period between 3 to 7 years depending on the amount. ( Maximum loan amount under Skill courses is generally 1.5 Lacs).

 Salient Feature of loans designed for studying in India and abroad

 Schemes like Student Education loan (SBI), PNB Saraswati, Baroda Gyan, IBA Model Education loan (Canara Bank), PNB Udaan (for studies in abroad),Baroda Scholar ( for study abroad) , AXIS Prime Domestic, Axis Prime Abroad, Skill Loan Schemes, etc provide loan for studies in India and abroad. There are many common features among these schemes with slight modifications.

 Loan Amount

 For studies in India - Medical Course upto 30 Lacs, Other courses upto 10 Lacs and higher amount is considered from case to case basis with maximum amount upto 50 Lacs

 For Studies in Abroad - Upto Rs. 7.5 lacs, Higher loan amount is considered from case to cases basis while some banks have upper limit of 1.5 crore, few have no upper limits. This amount depends on the type of course and also the ranking of institute.

 More loan amount can be provided if the student secures admission in prestigious institutions like IIT, IIMs, NITs.

 Rs 50,000 to Rs 1.5 Lacs for vocational or Skill courses.

 Security

 Upto Rs 7.5 lacs : Only parent/ Guardian as co-borrower, No collateral Security or third party guarantee

 Above Rs 7.5 lacs : Parent/Guardian as co-borrower and tangible collateral security.

 Meritorious students can avail unsecured loans (i.e. collateral free) upto Rs 40 Lacs from almost any bank though with slightly different interest rates.

 No collateral or third party guarantee will be taken for Vocational or Skills Loans. However parent/Guardian required as joint borrower.

 Money margin

 It is the amount paid by the borrower while the rest of the amount is paid by the bank. Margins can be FD/ Scholarships/ initial fee paid to the institute.

 Upto 4 lacs - Nil ( i.e. bank will finance total expenses)

 Above 4 lacs - 5% for studies in India and 15% for studies in abroad.

 100 percent financing for students securing admission in premier institutes in India or abroad.

 ICICI bank charges no margin upto Rs 20 Lacs for non-premier institutes as well.

 Nil money margin for Vocational or Skill Loans.

 Interest Rates

 Interests rates are set according to RLLR ( Repo Linked Lending Rate) , MCLR (Marginal Cost of funds based lending Rate) . These reference rates are subject to change upon which Rate of Interest is calculated. Every bank has therefore slightly different interest rates because these metrics are internal to banks.

 State bank of India bank

 Upto 7.5 lacs - Effective Rate of Interest is 8.65 % . 0.5% concession in interest for girl students.

 Above 7.5 lacs  and  Above 20 Lacs and upto 1.5 Cr (for studies in abroad) - Effective Rate of Interest is 8.65 % . 0.5% concession in interest for girl students. 0.5% concession for students availing of SBI Rinn Raksha or any other existing life policy assigned in favour of SBI bank.

 List AA institutes - Effective ROI - 6.85% to 6.95%

 List A institutes - Effective ROI - 7% to 7.15%

 List B institute - Effective ROI - 7.15% to 7.65%

 List C institute - Effective ROI - 7.15% to 8.15%

 Skill Loan Scheme : Upto Rs 1.5 Lacs - Effective ROI - 8.15% with no further concession.

 Punjab National Bank

 For studies in Indian and Abroad - Upto 7.5 lacs - RLLR  - 6.8% ( w.e.f. 1.09.2020) + 2.00%

                                               Above 7.5 lacs - RLLR + 2.75%

 Loans irrespective of amount where 100% tangible collateral security is available - RLLR + 2%

 For PNB employees where employee is either a co-borrower or guarantor - RLLR + 0.25%

 Institutes like IITs, IIMs, XLRI Jamshedpur and NITs - Upto 7.5 Lacs- RLLR + 0.65%

                                                                                      Above 7.5 Lacs - RLLR + 0.15%

 Institutes such as IIM Ahmedabad, IIM Bengaluru, IIM Kolkata - Above 7.5 Lacs - RLLR + 0.10%

 PNB Kaushal - Vocational Education and Training - RLLR + 1.50%

 Bank of Baroda

 For studies in India

 Upto 7.5 lacs : BRLLR (Baroda Repo Linked Rate) - 6.75%(w.e.f. 15/03/2021) + 1.85%

 Above 7.5 Lacs : BRLLR + 1.6%

 0.5% concession in rate of interest to loans for girl students not in premier institute.

 For studies In abroad

 In Premier Institute : BLLR + 1.5%

 In non-premier institute : BLLR + 2.15%

 Premier Institutions for studies in India

 List AA/ A institutions : BLLR - 6.75%

 List B : Upto 7.5 Lacs : BRLLR + 1.10%

            Above 7.5 Lacs : BRLLR + 0.85%

 List C : Upto 7.5 Lacs : BRLLR + 1.85%

            Above 7.5 Lacs : BRLLR + 1.60%

 Baroda Skill Loan Scheme - BRLLR + 1.50%

  Canara Bank

 Upto 7.5 Lacs - MCLR ( 7.35%) + 2%

 Above 7.5 Lacs - MCLR + 1.5%

 0.5% concession in ROI ( Rate of Interest) to girl students.

 0.5% concession for timely repayment of interest during moratorium.

 Selected IIMs/IITs/NITs/IISc/ISB (Hyderabad and Mohali) and other reputed institutes - 7.35%

 IBA Skill Loan Scheme - MCLR + 1.50%

 AXIS Bank

 Upto 4 Lacs  - Effective ROI - 15.20%

 Loan greater than 4 Lacs and upto 7.5 Lacs - Effective ROI - 14.7%

 Loan greater than 7.5 Lacs - Effective ROI - 13.7 %

 ICICI Bank

 Secured Loan - Starting at 10.50%

 Unsecured Loan - Starting at 10.75%

 Interest rates will vary depending on the institutes and courses.

 HDFC Bank

 For studies in India

 Min APR (Annual percentage rate which includes additional costs or fees) - 9.4%

 Max APR - 13.34%

 Preferential rate of interest for prestigious institutions..

 For Studies in Abroad

 Effective Rate of Interest - 8.64%

 Interest Subsidy Schemes

 Central Scheme of Interest Subsidy for education loans - For Economically weaker sections to pursue technical/professional courses.

 Padho Pradesh Scheme of Interest Subsidy for education loans - For students of minority communities to study abroad.

 Dr. Ambedkar Central Sector Scheme of Interest Subsidy - For OBCs and economically backward classes to pursue education abroad.

 Central Sector Interest Subsidy Scheme (CSIS) - For providing full interest subsidy during the moratorium period on modern education loans without any collateral security and. third party guarantee, for pursuing technical/professional courses in India.

 Vidya Lakshmi (Vidya lakshmi)

 This is an online portal designed in collaboration with different government ministry where students can view, apply and track the education loans from different banks. The portal links students to National Scholarship Portal also. Students can avail information on loans offered by 34 banks and can apply to three different banks with single form. Applying involves less paper work and it takes almost 15 days for the loan to be processed.

 While applying for education loans, one should clearly asks bank about the hidden costs such as processing charges, documentation charges, penalties in case EMI is not deposited on due dates. Also banks provide insurances specifically in case of unsecured loans in which premium amount is added to loan amount. Lastly, any kind of loan is a liability, it needs to be repaid, so one should think thoroughly about whether their college and courses will provide them good platform to land into a good job so that repayment is a stress free routine.

 Useful links

 Know your College - knowyourcollege-gov.in

 Ranking of higher Education in India - nirfindia.org/Home

 National Scholarship Portal - scholarships.gov.in

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The Delay Cost of Investing...

Greetings,

We hope you liked our previous post on Education loans in India. In this article we will briefly look at "The Delay Cost Of Investing".

“Lots of people wait around "for the right time". People don't know that there is no such thing as a right time. Time is never right nor wrong. The only negative factor of time is that you can lose it and the only positive factor of time is that you can seize it.”

― C. Joy Bell


Similarly in the investment world, time is as important as money. In fact, time is actually more valuable than money since you can get back lost money but there is no getting back lost time. This is why we need to understand that sitting back and doing nothing has a cost attached to it too and that’s what we’re going to look at in this post.


Delaying your investments because you are waiting for the market to rise or fall is a “fool’s errand.” This is because no one can accurately predict the future and all you’re doing by waiting is eroding your returns in the long run. This is because every minute and every hour that you fail to put your money to work for you, you are losing out on wealth that would otherwise be generating right now.


Let’s use an example to explain this concept of delay cost a bit further. Take an example of 3 different people, who start investing at 3 different ages, say 25, 30, and 35, with a monthly investment of 25000 and a modest annual return of 10%. By the time the first person retires at the age of 60, his investment would be worth more than 100 crores while the second person’s investment would be worth about 60 crores and the person who started last would have around 30 crores. 


That’s a huge difference and not one that you would expect from a 5-year delay. This is because time is the key factor to investing wisely and the more time you have, the longer your investments have to grow. Nelson Mandela was quoted stating “We must use time wisely and forever realize that the time is always ripe to do right.” In our case, doing right refers to doing right with our money and our investments in order to accumulate wealth.


If you look at the third person in our example, they started late but saved 30 crores in 25 years which is not bad. Compare that to the ten year-delay that cost more than 70 crores in delay cost and you realize that he lost more money in ten years than he made in 25. That’s the message we’re trying to get through with this post that it’s more expensive to sit around and do nothing than it is to get up and start investing.


In conclusion, they say “it’s never too late to correct a mistake” but what they don’t tell you and what no one talks about the cost associated with correcting it. Most people invest and save for retirement so they can live a comfortable life, don’t lower the standard of your future by indecisiveness, start investing now.

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Investing psychology...

Everyone wants to be a great investor. And Why not? Investing is challenging, best way to have financial freedom and thereby live life the way we want to live. But market study has suggested that an average investor loses more money than he gains while doing investing or stock trading. Why does this happen? Does it have to do with technical knowledge like fundamental analysis, stochastic analysis, ability to reach charts diligently, knowledge of useful patterns, etc.

Well! Expert investors say quite contrary to this. According to them, an average investor remains average because he/she lacks the temperament, the character and above all lack the way successful investors think. It all boils down to psychology.

Behavioral psychologists have pointed many limitations which leads to error in our decision making process. Whenever we make decisions we have plenty of information available. But that information contains noise as well. Eliminating noise is quite important while doing investing. Noise include price fluctuations which makes it difficult to perceive what’s genuinely driving market forward. Noise traders are usually reactionary who base their decisions on trending news circulating in social media. They have tendency to think that every reaction in a trend is the beginning of a new trend. Always look for long-term results and avoid short-term gains.

Investing is speculative but a good investor tries to move away from mere guessing. He gives time and energy in understanding the company in which he decides to invest his hard earned money. Understanding company’s products, industry, customers, employees, management is his foremost task.

Loss aversion is a kind of behavior wherein investor prefer to avoid loss than making profit of same amount. Psychological impact of a loss is twice that of same amount of profit. This makes investors to hold on to loss making commodity even when there are better alternatives - thereby making more losses. Practicing detachment is crucial in coping with loss aversion behaviour.

Hindsight bias is an occurrence that makes investors believe that they accurately predicted an event after it happened. This leads to overconfidence which in turn allow investors to be in illusion that they can predict further events. Once we know the outcome, it is easier to create a plausible explanation for that event. We selectively remembers only the information which suits our conclusions and perceptions. We see things as we want to see and create a story which supports our arguments.

Good investors think about what other people are thinking because then they are able to know herd mentality. This allows them to avoid asset bubbles, panic buying and panic selling.

Herd psychology helped us to survive physically in our evolutionary journey but today it has more dangers than benefits, specifically in finance and investment. Now, our natural tendency is to move with crowd, with culture, and doing something contrary to it can bring fear of being lonely and fear of missing out (FOMO). Average investor succumbs to these fears to avoid subconscious pain.

“To follow the good principles and not let fear, greed and hope interfere with your trading is tough. You are swimming upstream against human nature.” - Richard Dennis

Often impatience and frustration leads an average investor to sell just because that share or stock is showing little progress. He is bored of slow progress. Other times, he clings to bad investments out of stubbornness. A seasoned investor understands the difference between greed and making profits. Greed let him act only when the bull market has passed entirely.

Sticking to simple routines appears easy but more than often mind falls for complicated. Not that these methodologies are not useful but the idea is to find simple routine which works for you and repeating it. Complication overwhelms the mind. Simple is not easy or boring.

“We could post our trading rules on the front page of the Wall Street Journal, and still people would not be able to make money from them” - Quote from an expert Investor

Expert investors will say this happens because of fear. Fear of being wrong, Fear of missing out, Fear of losing money, Fear of leaving money on the table. Constructively using mistakes and losses builds up emotional resilience which is the best bet for being a successful investor. Even good traders are only 50% correct in their decisions. Market cannot be predicted. Accept this fact as an investor. Embrace losses. No one can be fearless but the concept is to not let stimulus of fear override the rationality and intuition.

Charlie D’s counter intuitive advice - “The time you know you have become a good trader is that first day you were able to win by holding and adding to win positions. There are many people that have traded for a long time and who have never added to a winner.”

Rather than taking half-profits, 1% goes more deeper. ‘I am winning, So i am reducing my stake’ -Using this logic, normal investor tries to avoid subconscious pain. But such a decision is based on fear of not losing. Creative investor welcomes pain and disturbances through continuous feedback rather than settling permanently in a mediocre mindset.

Financial marker doesn’t work like a super-market. Bargaining is good when you are shopping in the super-market but bad mindset for gaining profits in financial market. Financial market is uncertain. Be ready to see unexpected in this business. As an investor, you also cannot predict the market heights, so it is better to not think in terms of boundaries. Example of this is bitcoin. It had such a tremendous rally and downfall of over 50 percent in recent times.

Let’s sum this up with key points.

Consistency and sustained focus

Be creative

Learn from mentors and great investors

Emotional endurance

Not settling down, always working to improve the game

Understanding mind as a whole.

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