WHAT IS ASSET ALLOCATION?

Dear investors,
     ASSET ALLOCATION is the most important investment decision an investor will make in their portfolio because it explains most of the risk and return.
     WHAT IS ASSET ALLOCATION?
     ASSET ALLOCATION  involves dividing an investment portfolio among different asset classes based on an investor's financial requirements. The right mix of asset classes in a portfolio provides an investor with the highest probability of meeting their need.

LET ME EXPLAIN.......
After the Battering the Stock Markets has recieved, investors are jittery and pegged down their return expectations from a Sky hugging 30% to a Safe return of 8%. As long as their principal is safe and the returns are secure, they are happy. No fancy returns, no volatility, investors has had enough.
     But is this good?. The Drastic changes in investors preferences will hurt the Investor's performance. But Investors, worldwide, tend to base decisions on the immediate past performance of their investments. They will be tempted to buy into Equity, when the markets move up and sell when the markets start going downhill and thus lose on both sides.
This is where ASSET ALLOCATION comes into picture. 

There is no single category of investments that performs consistently across time, be it Equity, Debt, commodities, real estate, gold. All are cyclical in nature and A True Investor's best bet would be to have sensible ASSET ALLOCATION.
     Having 20-30% investment in Debt would insulate you from Equity Crash and help mitigate the overall Portfolio losses.
      ASSET ALLOCATION in practical scenario will help you manage risks in a sensible way by avoiding over exposure to any one single tool of investment. True, with ASSET ALLOCATION the investor has to face the fact that some component of his portfolio will earn a lower return then the best performing compenent.
      Sensible ASSET ALLOCATION is a valuable guard against the misconception of steady and predictable returns from any single investment category.

  

Visit http://goodfundsadvisor.blogspot.com for Mutual funds
visit http://equityadvise.blogspot.com for Stocks and Shares

IS THE TATA MOTORS FD SECURED????

Mr.Akhil sharma had a few more doubts and wrote:

sir,
you said that the Tata Motors Fixed Deposit Scheme is "SECURED".I read the offer document and it says that..
The Company hereby declares that:

(i) The Company has complied with the provisions of the Companies (Acceptance of Deposits)

Rules 1975, as amended upto date; (ii) The compliance with these rules does not imply that the

repayment of deposits is guaranteed by the Central Government; (iii) The deposits accepted/

renewed by the Company are unsecured and shall rank pari-passu with other unsecured

liabilities; (iv) The Company is not in default in the repayment of any or part thereof and any

interest thereon in accordance with the terms and conditions of such deposits.

So will my money be secure even if the company dissolves or is taken by some other company!!
thanks and regards
Akhil Sharma

SRIKANTH SHANKAR MATRUBAI replied :
Dear Akhil Sharma,
By saying "Secured", I did not mean it literally, I meant it only in Good Faith. It is as safe as the company itself. If it files for bankruptcy, then you queue up for your deposit dues.. GoI or FDIC is not giving any guarantee for the deposits..

Though, Their $ credit rating has been downgraded to bb-. Indian rating remains as is. There is also the Tata group name behind it (I doubt if the group will let one of its companies fail).....

Given all this, what do think might be % chance of failure?
Some of the regional and co-operative banks are offering fixed deposits at somewhat similar rates of interest. But the security of money with them is always questionable, especially in the current economic circumstances. If we have to trust any company, the Tata Group is undoubtedly among the favorites. Moreover, successful vehciles like Tata Indica, Tata Safari, Tata Ace etc and anticipatory success of Tata Nano makes the funds more more secure.

The major issue of course: Is Tata Motors going to be solvent? Going by how this stupid government is thinking of bailout a Satyam, I think it's a given that even Tata Motors is going to be bailed out. In Satyam they aren't even letting the shareholders go bust - usually bailouts protect debt holders, but here they're protecting those that took the risk!

Given this mentality it's likely Tata Motors won't be allowed to go bust, but if things get ugly money could be stuck for a while. The financials don't look very good, but that's true of everything. Comes down to trust. So if you like Ratan Tata - and most importantly, if he likes you - this might just be the "alpha" you're looking for.


If you are so worried, you can consider going for FD by State Bank of Bikaner and Jaipur which too has a 3 year FD paying 10.75% compounded Quarterly. Backed by Govt of India!!!! So, by foresaking .25% extra, you are avoiding risk and ensuring safety. There is nothing wrong in it. Go ahead.
Best of luck,
Srikanth Shankar Matrubai.

To this, Mr.Akhil Sharma wrote a thank you letter :
you are the best sir!!!
thanks a lot!
you are a big support to me!!
great going sir!
god bless you n your family!

Visit http://goodfundsadvisor.blogspot.com for Mutual funds
visit http://equityadvise.blogspot.com for Stocks and Shares

WHAT IS TERM INSURANCE??

Mr.Akhil Sharma wrote back :
thanks a lot Mr.Advisor.
You don't know what your recommendations and the information passed on by you means to me.I really hope that somewhere in life even i could be of any help to people.
Thanks again Sir!
But what i want to know from you is "what is term insurance".......can you suggest some product to me so that i can go thru it and understand and get myself insured!

Thanks a lot sir
Regards
Akhil Sharma

SRIKANTH SHANKAR MATRUBAI replied :
Dear Akhil sharma,

Term Insurance
The cheapest and the most basic, this is a no-frills life cover that should be one of your first financial instruments. Being a pure insurance cover, it does not return your money if you survive the policy term.

If you don`t, the sum assured is paid to your dependants. So, buy only if you have financial dependants, or you expect to have dependants in the future. If you expect to have dependants till a later stage of your life, look for a plan that has a high maturity age.
For a Term Insurance of 10 lakh, for your age of 24, you will have to pay approx only 3k per annum. My suggestion, take 5 Different Term Plans from 5 Different Ins Co.s which will cost you around 15k per annum.

Keep the highest possible term
Keep the maturity age as long as possible
Talk to 4-5 insurers or visit their websites to get premium rates
Choose the plan that has the lowest premium at your parameters
Undergo medical tests, if required
Keep the nominees informed
Pay premiums every year

As of now for all age groups, the ICICI Pure Protect Classic Term plan is cheapest for Sum assured up to 24.99L Rs. & Pure Protect Elite for SA more than 25L Rs. Plz. note that with Pure protect only ADDBR & WoP Riders r available.

For exact prem. u may check the same from ICICI Pru life website or contact their local agent.

Ha, one more thing, Mr.Akhil Sharma, I am not a Insurance Agent, so I do not know much about Insurance. Do contact your friends/relatives who know a bit about Insurance.
Best of luck,
srikanth shankar Matrubai


Visit http://goodfundsadvisor.blogspot.com for Mutual funds
visit http://equityadvise.blogspot.com for Stocks and Shares

SHALL I INVEST IN TATA MOTORS FD?

A Regular Visitor to my blog, Mr.Akhil Sharma wrote :

Hello Sir,

How are you doing?....i again want to congratulate you for the terrific job you are doing.

Coming to the point i wanted to know about Company FDs.I just saw an advertisement of "Tata Motors Fixed Deposit Scheme".It says earn 12.83% per annum on a 3 years deposit.i have just joined my first job and my salary is around 2,10,000.

I along with my mother wanted to invest in a fixed deposit of Rs.50,000.Is this the right option.what will be the Net return after tax.i mean what will i get after 3 years if i invest Rs.50,000 now.

Or should i go for some Bank FD rather than Company FD.

You can check this link if you want.http://www.tatamotors.com/fixed-deposit-scheme.htm

I want to invest in the cumulative deposit plan!

thanks and regards
Akhil Sharma.

P.S:Thanks for your kind words on my blog Confessions of a delhite!

SRIKANTH SHANKAR MATRUBAI replied :

Hi Akhil sharma,
It is with great pleasure that I recd that the news that you have got your first job. Congrats!!!
I will answer your query later. First of all, I would like you to Insure yourself adequately. For this, you should consider taking Term Insurance as this is the Cheapest form of Insurance available. Only later on, you should think of Investments.
Regarding FDs, as you are young, you are better off investing in Diversified Mutual Funds, which I have already discussed with you earlier. Sure, if you are planning to keep aside the amount for a particular reason, with a fixed time horizon, then go ahead.
For your investment amount of 50000, you should be getting about 62940 after taxes (I have considered you to be in the highest Tax Bracket). If you are in the lower Tax Bracket, you should be getting somewhere around 66400 or so.
With the falling interest rates, the Tata Motors Fixed Deposit Scheme is quite Attractive. Though the Company is going through tough times presently, 3 years is a good enough time for the company to sail through and moreover your investment is secured. So, go ahead and invest but before that, PLEASE NOTE, THAT THE COMPANY OFFERS HALF(1/2) PERCENT EXTRA FOR SHAREHOLDERS. YOU CAN BUY A SMALL LOT OF TATA MOTORS SHARE AND AVAIL A HIGHER RATE ON THE FIXED DEPOSIT!!!!!.
Best of luck,
Srikanth shankar Matrubai
Visit http://goodfundsadvisor.blogspot.com for Mutual funds
visit http://equityadvise.blogspot.com for Stocks and Shares

Best Tax Saving Instruments

This letter by me was published in Financial chronicle on January 27, 2009
Tax-saving tools ¦
DHIRENDRA Kumar’s article Here’s why you should invest in tax-saving mutual funds made very interesting reading.
People tend to ignore investing in tax schemes until the last minute and then rush in to invest in whatever instruments they can without analysing the pros and cons. Equities are the best avenue to invest your hard earned money.
ELSS not only saves taxes but also give consistent returns. The icing on the cake is the very short lockin period of only three years. The biggest advantage of investing in ELSS is that mutual funds are that rare investment avenue, where not only your investment but also your returns as well as principal are all exempted from tax.

Srikanth Matrubai Bangalore

Visit http://goodfundsadvisor.blogspot.com for Mutual funds
visit http://equityadvise.blogspot.com for Stocks and Shares

REASONS FOR FAILURE OF LIC JEEVAN AASTHA

This article by me was published in Financial Chronicle on January 26, 2009 edition.

MISSED target ¦
APROPOS to the report that LIC failed to garner targetted funds through Jeevan Aastha.
It must be mentioned that Jeevan Aastha failed because of huge misrepresentation by agents and even by LIC itself where it hides the real picture by using weasel words. The insurer claimed 10 per cent guaranteed return on the scheme but it’s not compounded.
An investment of Rs 48,000, as shown in their own illustration, gives Rs 1 lakh after 10 years. That’s about 7.5 per cent compounded, much less than the 10 per cent claimed. The “10% guaranteed return” was a marketing gimmick, and it’s very much likely that the whole marketing infrastructure was paid obscene amounts of money and commissions to push the plan through. In a time when every asset class is losing value, people seem to clutch on to anyone who will guarantee a return, even if it’s low.
The policy is not suitable for any age class. For Young people (20-35 age), investments in market-linked instruments such as equity and debt funds can better returns for a 10 year period than the returns given by the policy. For older people also the returns from the policy is also not much attractive.

Srikanth Matrubai Bangalore

Visit http://goodfundsadvisor.blogspot.com for Mutual funds
visit http://equityadvise.blogspot.com for Stocks and Shares

STAR PERFORMERS OF THE WEEK

Star Performers
Fund Nature 1 Yr Return %
UTI SPREAD Fund Arbitrage Fund 10.92
ICICI Prudential Blended Plan A Balanced 8.70
Birla SL Intl Equity Fund Plan A Equity -27.96
Sundaram BNP Paribas Taxsaver Equity-ELSS -48.19
HDFC Index Sensex Plus Plan Equity-Index -46.99
UTI Gold Exchange Traded Fund ETF 14.81
LICMF Floating Rate Fund-STP Floating Rate 10.19
ICICI Gilt fund Investment Plan Gilt 35.85
Canara Robeco Income Income 30.57
Birla Sun Life MIP II-Savings MIP 21.32

For the Week ended January 16, 2009
Source : FAAIDA

Visit http://goodfundsadvisor.blogspot.com for Mutual funds
visit http://equityadvise.blogspot.com for Stocks and Shares

INCOME FUNDS' NAV TOO COULD FALL.....

INCOME FUNDS' NAV TOO COULD FALL.....

A Guest asked,
"Can you pl enlighten me on what`s happening to the Income Funds ? It was considered a safe haven and I moved some of my Equity Funds into Income Funds last week. Now, to my dissappointment, the Income Fund NAVs have started falling especially in the last week and have given negative returns last week.

How do you see returns from Income Funds developing / unravelling going forward ? "

Srikanth shankar Matrubai's REPLY :

Many income fund investors were surprised to see falling NAVs in income and Gilt funds last week and the reason was
After bond yields continued to touch new lows for more than a month following monetary easing by RBI, there was a sudden turn in yield movements over the past few days after the announcement of the revised schedule for government borrowing last week. Under the revised schedule, the actual quantity of issuances for the rest of the fiscal year overshoots the government’s initial plan.

When bond supplies are tipped to rise, yields usually fall. However, despite the government’s increased borrowing intention, yields shot up this time around as the bond market had discounted further borrowings with the Fiscal Responsibility and Budget Management Act, which stipulates fiscal restrain on part of the government, having already been put on the backburner.
The yield on the 10-year benchmark paper, had risen to 9.55% in July last year. With RBI progressively cutting rates, yields started falling, hitting a low of 4.86% early last week, only to rise to 6.19% in subsequent sessions. When bond yields rise, prices fall and vice versa. This rise in bond yields have caused NAVs to drop.

Income funds hold either gilts(govt bonds) and/or other co. papers with a fixed int coupon. Dep. on the interest rate swings,likelyhood of extra bond issue by Govt (and hence fiscal rating of Govt) and liq.position the price of these papers(or bonds) vary on daily basis as they r actively traded in money mkt by inst players.So the NAV of the M.fund scheme varies.Hence its a 2 way street for the NAV of these schemes.and there there can be depreciation of original invested amt !!

Best Managed Income Funds may Grow @ 10-12% Per year by Investing in Govt.Securities & Corporate Bonds as well as FD in case Interest Rates are Falling.

In case Interest Rate start going up, these Funds may give 4-5% Returns.

In short Term these Funds may be Volatile.

In 2004 most of Funds Generated Almost ZERO or slightly negetive returns.

In 2009, one can Expect 10-15% Returns from Efficiently Managed( not all ) Income Funds. Follwing Income Funds are better Performer.

Birla Sunlife Income PLUS Fund
Canara Robeco Income Fund
HDFC High Interest Fund
ICICI Income Fund
IDFC Super Saver Investment Fund
Reliance Income Fund
UTI Gilt Advantage Fund

But with Interest Rates already fallen too much, too fast, there is very little scope for returns as specatular as seen in the last six months.
You may as well consider Arbitrage Funds.
Best of luck,
Srikanth Shankar Matrubai


Visit http://goodfundsadvisor.blogspot.com for Mutual funds
visit http://equityadvise.blogspot.com for Stocks and Shares

POST SATYAM FIASCO, CONTINUE WITH SUNDARAM SELECT FOCUS??

One Guest by name RR asked,

Hi,

I would like to have views about Sundaram Select Focus after Satyam fiasco. The MF has an exposure of 25.38 crores(abt 3.26%) investments in Satyam. How much do u think MF would be affected by the downfall in Satyam price?
I have a SIP of 2k per month on it. Do you all think i should continue with the SIP?

Srikanth Shankar Matrubai advised ;

Dear RR,
Sundaram Select Focus has been a consistent performer both during Bull Runs as well as Bear Runs. The Satyam Shockers has left many Fund Managers stumped and Sundaram was not alone. And even prudent Fund House like HDFC, Big DII like LIC too had a Bigger exposure than Sundaram. However, note that nowhere is any information available to the latest holding. Everyone is relying on Dec 2008 holding. Many Fund Houses would/could have already sold as some Funds like ICICI have clarified.

The break up of Sund. select Focus`s portfolio `ll be available at the end of this month & u can check the same from fund`s as well as other websites

Almost all the MFs have dumped Satyam shares from their portfolio, yes due to sudden price erosion some effect on NAV is there but after exit from satyam, the MFs r redeploying the money in other stocks, which `ll help u to recover ur losses on account of value erosion in satyam. .

Also note, even if the Fund house has had an exposure to Satyam after the fiasco, its NAV would have already reflected the same and there is no use selling the Fund after the NAV has already gone down.
Above all this, you are investing through SIP, which will protect from the downside More than a LUmpsum investor.
My sincere advise would be that you should continue your SIP investment in the Fund, as Sundaram Select Focus Fund has been a Better Performer than most Diversified Funds at any Given time.
Best of luck,
Srikanth Shankar Matrubai,

Visit http://goodfundsadvisor.blogspot.com for Mutual funds

visit http://equityadvise.blogspot.com for Stocks and Shares

SHORT TERM TAX DOUBTS CLARIFIED

Sir,
I am aware that short term capital gains can be booked against short term capital losses. And similar action can be taken for long term capital gains and losses. I will take the liberty of putting some issues in question form, so as to be clear.
1. Is there no difference between gains/losses from debt funds and equity for the said booking of gains/losses?
2.All Short Term If I have capital loss of 2 lakh from sale of one particular stock and capital loss of 1 lakh from sale of another stock, and capital gain of 50 thousand from redemption of debt mf, is it right to carry fwd loss of 2.5 lakh.
3. All Long Term If I have capital gain of one lakh from one stock, capital loss of fifty thousand another stock, and capital of sixty thousand from debt fund, what will be the tax treatment?
4. Is Equity Arbitrage Fund to be treated just like equity for tax treatment? My doubt arose because there is no STT being charged for equity arbitrage fund.
5. Is Gold ETF to be treated just like a debt fund, for the purpose of tax on capital gains.



REPLY :

answer for ur queries 1 by 1.

First of all Plz. note in case of Eq. MFs as well as Eq., as the LTCGs r tax free, hence u can`t claim LTCL also from Eq. funds/Eq. to sat off against ur LTCG from other capital assets (debt funds, physical gold, property etc.)

1. STCL from Debt as well as Eq. funds can be set off against STCG as well as LTCG from debt funds, physical Gold, property & STCG (only) from Eq. funds.

LTCL of debt funds can be set off against LTCG of Debt funds, Physical gold & property.

2. Yes u r right, ur total STCL is 2+1=3L Rs. out of which 50K STCG `ll be sat off. Hence the final STCL for carry over `ll be 2.5L Rs. only

3. As i already stated, for Eq. funds & Eq. LTCG r tax free hence LTCL r also not available for sat off. So in this case, u can carry over ur LTCL from Debt funds of 60K (incidently u forget to posted- is it a loss or a gain, i assumed it as a loss).

4. Yes Eq. Arb. funds r to be treated as Eq. Funds for tax treatment. Plz. clarify from ur invested Eq. Arb. fund why they r not charging STT?

4. Yes GOLD ETFs r to be treated on par with other debt funds.


Visit http://goodfundsadvisor.blogspot.com for Mutual funds
visit http://equityadvise.blogspot.com for Stocks and Shares

STAR PERFORMERS FOR THE WEEK

Star Performers
Fund Nature 1 Yr Return %
UTI SPREAD Fund Arbitrage Fund 9.57
ICICI Prudential Blended Plan A Balanced 8.29
Sundaram BNP Paribas Taxsaver Equity ELSS -46.95
UTI Index Select Equity Fund Equity Index -49.88
UTI Gold Exchange Traded Fund ETF 20.26
LICMF Floating Rate Fund ST Plan Floating Rate Fund 10.18
JM G-Sec Fund-Regular plan Gilt 32.73
Canara Robeco Income Income 28. 85
Birla Sun Life MIP II - Savings 5 Plan MIP 19.30

*For the week ended January 09, 2009
Source : IFA Connect


Visit http://goodfundsadvisor.blogspot.com for Mutual funds
visit http://equityadvise.blogspot.com for Stocks and Shares

ICICI PRU HEALTH SAVER

There is a new plan "ICICI Pru Health Saver" in market. This is being called as ULIP and which boast of availing tax benefits u/s 80D for the entire amount invested.
Being a ULIP, Because of benefits u/s 80D It looks attractive.

Here is the analysis of the same for your Benefit.





Earlier the combo of Health Plan & ULIP was available from LIC as well as Reliance but in both these policies, the 80D benefit was not available on investment part. So ICICI Prudential Life Ins. cos. has moved with this cleverly drafted policy. Here the investment part of ur prem. or in other words fund value can only be redeemed against medical treatment/expenses. This policy is a combo of usual mediclaim policy & ULIP. Just dig deep into the skin of this policy & you will come to know the real truth.

First understand what this policy offers?
Apart from a normal mediclaim benefit, due to investment component from 3rd policy years onwards u can claim more than ur standard Sum assured with a ceiling set by company. Say ur original SA is 3L Rs, after completing 3 policy years u can claim a normal claim of 3L rs. under mediclaim benefit & another 20% of ur accumulated fund value. In other words u can redeem ur fund upto 20% value of fund. This fund value ceiling `ll increase with the years pass & after 10 policy years u can claim 100% of fund value.

As per the product brochure of this plan, This policy can be taken as individual plan as well as family floater plan.

Here r the negative aspects of this plan.

1. High Prem. allocation charges - 20% for 1st year, 2 & 3 year 9%, 4-10 years 2% & Nil from 11 year onwards.
2. In case of family floater option, in case of death of primary insured (the eldest member of family), the policy `ll be terminated immediately.
3. Regular prem. pmt. is compulsory for first 5 years for cover continuance option i.e if u don`t want to pay prem. in future to keep policy in force u `ll have to pay prem. for first 5 years.
4. No surrender of policy is allowed except the first 15 day free look period window.
5. Ins. charges for general mediclaim policy as well as policy admin charges `ll be recovered by cancellation of UNITs which `ll impact u severely in prolong bearish phases like the current one.
6. For individual plan option the mly. policy admin charge is 60 Rs. where as for family floater option the same is 90 Rs.
7. A long list of exclusion, which i can`t post here in this limited space.
8. Actually the health saving option of this policy is similar to our general practice of dipping into our savings to set off the medical bills.
9. Plz. note the prem. for general mediclaim benefit (known as Hospital insurance benefit in this policy) `ll be charged on ur actual age every month by cancellation of ur UNITs. this is not the case in normal mediclaim policies of Gen. ins. cos. where u pay prem. as per age band of say 31-35, 36-40...... Again this monthly cancellation of UNITs `l impact more in case of bear phases as more UNITs `ll be cancelled to pay insurance prem. per month.

For individual Plan - Min. entry age is 25 years completed & max. age is 55 years.

For family floater Plan - Min. entry age is 90 days & max. age is 55 years.

In each of the above policy the maturity age is common i.e. 75 years.

Recommendation
The same effect of mediclaim & saving can be achieved by purchasing a cheaper mediclaim policy as well as investing the surplus amount as per our comfort level in Eq. or Debt funds or anywhere else. So this policy should be avoided.

If there is anything that is good about this product, then that is, salaried persons who can't afford to pay for Health Premium after retirement, can take this policy as the Fund Value will take care of your Premium allocation and you can still continue to enjoy the Health Policy benefits.


Thanks to Ashal for valuable inputs

Visit http://goodfundsadvisor.blogspot.com

for more indepth info and analysis on Mutual Funds

Formula for Calculating SIP Return

Here is the formula for SIPs return calculation.

A = S*R*(R Power n -1)/(R-1)
In the above formula -
A = maturity amount
S = SIP amount (plz. note in case of multiple monthly SIPs it`s advisable to clubbed all SIPs considering a big single SIP)
n = Time duration of SIPs
R = 1 + r/100 (where r is mly. rate of return)

Plz. note if the SIP frequency is qtly. adjust the rate of return to it`s frequency.

The above formula is some what complicated to calculate manually so it`s advisable to use EXL sheet.


Thanks to Ashal for valuable inputs

Also visit my other blog goodtravelplanner.blogspot.com, http://buycall.blogspot.com and http://indiahotelstariff.blogspot.com/

MY TARGET -- 1 CRORE IN 10 YEARS

Mr.Prakash Punekar wrote :
Hi Srikanth,

I visited your blog(goodfundadvisor.blogspot.com). I appreciate your good work.
I am new to mutual funds and want to seek advise from you.

I have started SIP since jan 06, 2009 (actually, I was about to buy satyam shares but did't) :
1. UTI Dividend Yield Fund - Growth (UT189) - 1500/month for 5 years.

I am planning to have 3000-4000 rs per month in couple of more funds for 5-10 years of horizons.
Right now I am in USA.
I would appreciate your advise on selection of funds. plan to am expect good returns in next 10-12 years through these investments.

Thanks for your time and efforts.
Prakash Punekar.

SRIKANTH SHANKAR MATRUBAI replied
Dear Prakash Punekar,
Thank you for your kind words.
It is really a matter of Great Luck that you didn't buy Satyam Shares. Just see what a Bad turnaround it had. My God, such a Big Fraud, and no one had even a Clue to it.
Anyway, coming to your investments. Right now your money is going into a Right kind of Fund for this Market, continue with your investment in UTI dividend Yield Fund.
But do keep a track on the same and reconsider if there are any significant changes in the market scene or the portfolio composition.
For your further investment plan of 3k-4k, I would suggest 5 funds, out of which you can choose as per your convenience. The fact that you investment horizon is more than 5 years makes my job easy and you too will have a fairly good chance of earning Better Than Markets Returns.

My picks are :

1. Birla sunlife Equity Fund

2. DSPBR Top 100 Fund

3. Fidelity Equity fund

4. HDFC Prudence Fund

5. Sundaram Select Focus Fund.

Out of the above Funds, Fidelity (500) and Sundaram (250) have Minimum Sip Investment of less than 1000, and therefore, in these funds you can also consider investing at different Dates to maximise returns making use of NAV Volatility.

However, your Target Return Expectation of 1 Crores in 10 years out of these investments look Overoptimistic. Assuming a Realistic Return of 18%, you need to invest Rs.32354 monthly to get your target return of 1 crores.
However, if a assume a slightly Higher Return of 20% compounded, even then you need to invest monthly Rs.29044!!!

With this investment of Rs.5500/- per month for a period of 10 years, at a Return of 20%, The End value of your investment would be only 18,93,711 on an Amount Actually Paid by you of Rs.6,60,000.

For this 5500monthly to grow into 1 crore at 20% return, you need to wait for 18.5years.
The best option is to increase your Sip input value, if not now, as and when it is possible.

Best of luck,
Srikanth Shankar Matrubai,


Also visit my other blog goodtravelplanner.blogspot.com, http://buycall.blogspot.com and http://indiahotelstariff.blogspot.com/

Are my SIPs into Good funds??

Mr.Rakesh wrote :
Hi Srikant,
My name is rakesh, came acorss your blog. Its amazing, very hepful and has very good articles, keep up the good work. I just wanted ur opionion on my MF investments. At present i have started sip in foll. funds from sept'08 -

Reliance Growth - 500 * 4 = 2000
HDFC Top 200 - 1000 * 1 = 1000
DSPML Top 100 - 2000 * 1 = 2000
Sundaram Select focus 500 *4 = 2000

Please advise if these funds are safe and good for longterm. I also have a host of other funds both diversified and ELSS which i have bene investing since last 3 years, i will send u that info soon.
Thanks in advance for ur time and advance.

Regards,
rakesh

SRIKANTH SHANKAR MATRUBAI replied :

Dear Rakesh,
Thank you for your kind words.
Your ongoing SIPs are going into absolutely Top Class Funds.
Do continue the same. It is a rare sight indeed and pleasantly surprising to
see such Excellent Funds in any investors's portfolio. Do continue your sips
and enjoy the fruits and benefits of SIP Investment.
By the way, it would have better if you had also sent me your exising Fund
Holdings.
Best of luck,
srikanth Shankar Matrubai,


Also visit my other blog goodtravelplanner.blogspot.com, http://buycall.blogspot.com and http://indiahotelstariff.blogspot.com/

"Charges in ULIPs & Mutual Funds"

My friend Ashal's answered this query recd from a guest. I found it very very interesting and thought you may like the same.


Mr.Vivek asked :
My insurance agent told me that There are many internal charges in MF which are charged by MF companies but these charges are not visible to Normal investor.

He suggested : In case of ULIP, there are 2 things :

- charges are completely transparent then MFs
- And in long Term (10-15 yrs), ULIPs are cheaper than MFs in terms of charges.

Please suggest and draw some clear picture about charges.

-vivek


Dear vivek, there is totally opposite picture what ur Insurance agent had advised u. Let me explain.
In case of MFs there r only 3 types of charges applicable -
1. Entry Load - It can be avoided if u invest directly to ur MF bypassing ur MF agent.
2. Exit Load - It can also be avoided by remaining invested for certain time period in that particular plan.
3. Fund Management Charge - It`s charged as a %age of total assets under the plan. Normally it varies from 0.25% to 2.5% depending upon type of funds (Debt to Eq.) as well as expertise of fund co. for a same set of MF plans, lower FMC Plan is always advisable for investment.

In case of ULIP following 4 types of charges r applicable.
1. Prem. allocation Charge - It may vary from as low as 1% to as high as 65-70% of ur first year prem. & reduced year after year or may remain same at a constant level say 4% or 5%.
2. Mortality Charges = It`s the basic cost of insurance & again it varies among Ins. cos.
3. Policy admin charges - Some ULIPs charge as low as 20 Rs. per month where as some charge as high as 200-300 Rs. per month. Again not constant among Ins. cos.
4. Fund Management charges - From 0.5% to 2.5% depending upon the type of Fund (debt to Equity).

From the above list u can judge urself that in case of MFs there is only 1 charge FMC, which u `ll have to pay but in case of ULIPs there r several charges & no common benchmark is there to see the impact of these charges. I do hope the message is clear to u.



Also visit my other blog goodtravelplanner.blogspot.com, http://buycall.blogspot.com and http://indiahotelstariff.blogspot.com/

Is my portfolio correct??

Lalitesh wrote back,
Thanks a ton, for your kind suggestion on my prvious mail. sorry that i didn't reply on that ealier.

As i have said that i do have started some other portfolio after long discussioin/analysis with you guys.
First of all i have started portfolio of 8k whose time horizon is upto 4-5 yrs (it may vary too, infact its for the vehcile purpose , and as per me this is not basic requirement so time horizon may vary).
Time Horizon : 3-4 yrs
Portfolio size : 8K/month
Port2(8k)
DWS Inv. Opp N/A 1,000

HDFC Top 200 N/A 1,000

UTI Spread Fund 1,000 N/A 1,000

Kotak Floater LTP(G) 1,000 1,000 1,000

DWS Alpha Equity Fund 1000

Next folio is of 6k, its for the purpose of child's education, time horizon has not been decided but definately it will be for long term (ll be continuing for more than 10yrs) so have all the equity funds here.
Time Horizon : >10yrs
Portfolio size : 6k/month
Port3(6k)
Sundaram Sel Foc 1,000.00 N/A 1,000.00

DSPMLT100 1,000.00 N/A 1,000.00

Reliance Growth N/A 1,000.00

DSPML Equity N/A 1,000


Next and the last one is for childs marriage, since its having long time to invest (infact we have'nt planned for kid itself yet :) , but good to start saving for any reason )

Time Horizon : > 20 yrs
Portfolio size : 1k/month
Port4(1k)
HDFC T200 N/A 1,000.00

Since i do have time for the last portfolio (for child's marriage , 1k/month) so will be adding some more fund into this.may be once i will close the portfolio for house down payment.

Freind, now its time for your deep analysis and expert commnet, is this portfolio looks fine of it needs change. i have enrolled for all the above funds with one year of SIP and will be re-shuffling them at that time (if required).

I could understand that you would be held up with lot's of work, please reply at your own ease.

Best Regards.
Lalit.


SRIKANTH SHANKAR MATRUBAI replied :
Port2(8k)
DWS Inv. Opp N/A 1,000

HDFC Top 200 N/A 1,000

UTI Spread Fund 1,000 N/A 1,000

Kotak Floater LTP(G) 1,000 1,000 1,000

DWS Alpha Equity Fund 1000

This portfolio looks quite good though I wish you swap the fund investment in UTI Spread Fund and Kotak Floater fund.



Next folio is of 6k, its for the purpose of child's education, time horizon has not been decided but definately it will be for long term (ll be continuing for more than 10yrs) so have all the equity funds here.
Time Horizon : >10yrs
Portfolio size : 6k/month
Port3(6k)
Sundaram Sel Foc 1,000.00 N/A 1,000.00

DSPMLT100 1,000.00 N/A 1,000.00

Reliance Growth N/A 1,000.00

DSPML Equity N/A 1,000

As explained in earlier mails to you, always spread your investments across fund HOuses rather having a concentrated amount in one Fund House. So, here, you can consider switching your investment from DSPBR EQuity fund to fidelity Equity Fund.

Next and the last one is for childs marriage, since its having long time to invest (infact we have'nt planned for kid itself yet :) , but good to start saving for any reason )

Time Horizon : > 20 yrs
Portfolio size : 1k/month
Port4(1k)
HDFC T200 N/A 1,000.00

For this, you couldn't have chosen a Better Fund. Well done, stick to it.
You are doing a great job Lalitesh. I wish at least 10% of my investors plan like you, my job will become much much easier. Hats off to you.
Best of luck,
Srikanth shankar Matrubai,
Bangalore
http://goodfundadvisor.blogspot.com





Also visit my other blog goodtravelplanner.blogspot.com, http://buycall.blogspot.com and http://indiahotelstariff.blogspot.com/

INDIA WILL BOUNCE BACK

Read my Article in Today's(1/1/2009) Financial Chronicle on Page 12 on "INDIA WILL BOUNCE BACK"

BOUNCING back ¦ AS AN investor and a financial advisor, I am relieved to see the year 2008 being consigned to history. It was a year in which the financial crisis held the entire world in its grip. Equity markets crashed in nearly every country, while most financial institutions across the world were looking up to their respective governments to bail them out of the mess. Though India escaped relatively unhurt from the financial market turmoil, it was badly hit by the slowdown in the commodities market and real estate. Besides, the US recession badly affected the country's information technology (IT) sector. The outlook for 2009 is not too rosy either. With general elections due in April/May, we cannot expect the government to be aggressive on the reform front. The strong dollar is holding back the foreign institutional investors (FIIs) from pumping money in Indian markets. The continuing global recession will be a dampener on the inflows. The key takeaway, however, is that India will see growth when the world continues to be in a fullblown recession.

Thankfully, there is good news too. Falling crude prices will ease the pressure a bit on the country's balance of payment.

The government has admitted that the economy is faltering and taking pro-active steps to stem the rot before it gets out of hand. Easing interest rates have made companies breath easy.







The RBI is looking to make the housing sector as attractive as before and this is one sure shot way of igniting the spark back in the economy as most sectors such as cement and steel are directly and indirectly depended on the real estate sector. Giving stimulus to infrastructure would complete the picture and the recovery would be put on the fast track. Experts have diverse opinions but majority are optimistic that by mid-2009, we should be looking at a recovery and an eventual bounce-back by the Indian economy.

Srikanth Shankar Matrubai, Bangalore


Also visit my other blog goodtravelplanner.blogspot.com, http://buycall.blogspot.com and http://indiahotelstariff.blogspot.com/

Why go for ELSS?

What else but ELSS?


Chintan has to make investments for this financial year in order to avail of tax benefits. Though he knows about a few investment instruments that will help him reduce his overall tax liability, he is unable to decide upon an investment strategy that will help him maximize returns and save taxes too. He approaches his friend Gynanesh, a financial advisor with over 15 years of experience, who explains to him the benefits of investing in an Equity Linked Savings Scheme (ELSS).

Chintan: I need to plan my tax investments for this financial year in order to avail maximum tax benefit u/s 80C. I have heard of ELSS. Can you provide more insight about it? Does it give me any tax benefit?
Gynanesh: Equity Linked Savings Schemes (ELSS) is an ideal way to save on tax as well as enjoy the benefits of staying invested in the equity markets. There are a plethora of tax-saving instruments like the National Savings Certificates (NSC), Public Provident Fund (PPF), Bank term deposits which have a fixed maturity period and fixed returns. On the other hand, ELSS provides you with an opportunity to access market linked returns as ELSS invests in equities and equity related instruments. Under section 80C of the Income Tax Act 1961, investments upto Rs 100,000 are eligible for deduction from your gross total income thus reducing your total taxable income.

Let’s consider two different instances. Scenario I invest in tax saving instruments & Scenario II does not invest in tax saving instruments (which clearly highlights the advantage of claiming deduction u/s 80C).

Assume that your annual gross income is Rs 500,000 and out of this you have invested Rs 100,000 in tax-saving instruments (while you can invest the entire Rs 100,000 in ELSS). The computation of your taxable income for the Financial Year 08-09 will be as follows:

Particulars Amount (Rs.)
Scenario I(with Sec 80C) Scenario II(without Sec 80C)
Gross total income 500,000 500,000
(-) Deductions U/s 80C (100,000) Nil
Taxable income 400,000 500,000
(-) Tax liability* (36,050) (56,650)

Illustrated for an individual male assessee below the age of 65 years.* includes education cess of 3%

Chintan: What are the benefits of investing in ELSS over other tax-saving instruments?
Gynanesh: Let me list down some of the benefits of ELSS for you: · Investments in ELSS will enable you to claim deductions under section 80C. A maximum of Rs 100,000 can be invested.· Since this is an equity-linked scheme, the earning potential is high (although at a high risk) as compared to other tax-saving instruments. Therefore, a Systematic Investment Plan (SIP) can be used effectively to invest in ELSS as the concepts of rupee cost averaging and the power of compounding work well.· The lock-in period is the one of the shortest, 3 years, as compared to other tax saving instruments. The maturity period for NSC and PPF is 6 years and 15 years respectively.· According to current tax laws, long-term capital gains on investment in equity oriented funds and the dividends received on these investments are tax-free.

Comparison of ELSS with conventional tax saving options:

Parameter PPF NSC ELSS
Returns Fixed Returns Fixed Returns Market Linked returns
Interest Receipt On maturity On maturity Dividend received incase of Dividend option as and when declared(Depends on performance)
Taxability of Income Tax-free Interest Taxable Tax-free
Tenure 15 years 6 years Minimum 3 years
Maximum Investment Rs. 70,000 p.a Rs. 100,000 p.a No upper limit*


* There is no upper limit on investment is ELSS. However, investments of only upto Rs 100,000 are allowed to be claimed as deductions under section 80C.

Chintan: Can I redeem my investment before the lock-in period ends? Is there any liquidity option in ELSS investments?
Gynanesh: No. The amount cannot be withdrawn before the end of the lock-in period. However, ELSS is definitely beneficial as compared to other tax-saving instruments, as the lock-in period is just 3 years compared to the maturity period of NSC (6 years) and PPF (15 years) respectively. Premature withdrawal from other tax saving instruments may be allowed on specific conditions.The earning potential of ELSS is high, although at a relatively higher risk. You can opt for the dividend option in ELSS; dividends are tax-free, thus ensuring some liquidity and the opportunity to book profits during the lock-in period.

Chintan: My father has invested in mutual funds, but what is the difference between diversified equity schemes and ELSS?
Gynanesh: ELSS and diversified equity schemes mutually carry the same risk profile. They are high risk - high return investment avenues. One of the major differences is in terms of the mandatory lock in period of 3 years applicable to ELSS.It is always advisable for investments in equity linked instruments to be for the long term, as it is over this time period that equities have the potential to unlock value and outperform other comparable assets. The lock-in period fixed for ELSS supports this view and also allows the fund manager to plan a strategy that will be beneficial in the long-term.Not to forget the tax benefits associated with ELSS which makes them look even better than those of diversified equity funds.

Chintan: Lastly, what should be my investment strategy for ELSS funds?
Gynanesh:· Be Rational: First, you need to calculate how much you need to invest in tax-saving instruments and then accordingly evaluate your risk appetite towards each of the investment avenues. Take an informed decision; invest taking into consideration the risk – reward inherited in each tax saving instrument.· Invest in a staggered manner: Use the Systematic Investment Plan (SIP) method for investing in tax-saving funds. Not only does it do away with the need for timing markets, but it also reduces the strain on your wallet at the end of the financial year when others are still conducting their tax-planning exercise.



Also visit my other blog goodtravelplanner.blogspot.com, http://buycall.blogspot.com and http://indiahotelstariff.blogspot.com/