JM BASIC FUND - A DISASTER

JM basic fund SIP

Dear Sir
My sip for jm basic fund(G)expires on 25 jan,it was from last one year.Should i continue or not.I have 8 diff. sip of 1000/pm and plannig for 10 year.Others are sbi Contra,hdfc prudence,hsbc equity,Magnum global,diversi power reliance,rel vision and growth,icici infra.All r growth option.I have to re-arrange portfolio,pl advice.
uday1972

SRIKANTH SHANKAR MATRUBAI replied
Dear Uday,
JM Basic Fund has been one of the Disasters of 2008. In fact, the JM Fund House itself has had a Disasterous Year in 2008. Almost all their Funds lost heavily, in fact more than the Benchmark and some Funds lost even 80%.

Their investment
approach too seems to be losing focus looking at thier portfolio. You are advised to STOP your sip in this Fund and Discontinue the same.
Regarding your other Funds, here is my take on each of them :
SBI Contra - Continue
HDFC Prudence — Continue
HSBC Equity — Continue
Magnum Global - Discontinue and switch to Birla Sunlife Equity Fund
Reliance Divesified Power - Discontinue and Switch your SIP to Fidelity Equity Fund
Reliance Vision - Continue
Reliance Growth - continue
ICICI Infra - Stop and Switch your SIP to ICICI Dynamic Fund

And your JM Basic SIP can be routed to a Better Looking and much more promising Sundaram Select Focus Fund.
BEst of luck,
Srikanth Shankar Matrubai,

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MY VIEW ON LIC'S JEEVAN ANAND

JEEVAN ANAND
At first glance, Jeevan Anand looks attractive. All insurance policies look great while buying and look quite meagre when you receive it.

Sample this -

A 30Y old male person `ll put in 27550 Rs. prem. per annum for a 20Y policy. Now look at the bonus announcements of past years for this policy.

2004-2005 - 43 Rs. per 1000 Rs. Sum assured
2005-2006 - 40 Rs.
2006-2007 - 41 Rs.

From the above bonus rate, u can expact an average bonus rate of around 41 Rs. for all the 20 years (not guaranteed).

So after completing 20 years -

A. Total prem. paid over 20 years = 27550*20 = 551000 Rs.
B. Total accrued simple reversionary bonus = 20*500*41 = 410000 Rs.
C. Loyalty addition = 100000 Rs. (not gtd.)
D. Total Maturity amount after 20 years = 1010000 Rs.

E. Now ur family `ll get 5L Rs. more after ur death from the maturity date of policy, it may happen any time in next 10-20-30 years. = 500000 Rs.

Plz. do note in case ur death occurs, during the normal prem. paying term, the benefit of receiving Sa again after maturity of the policy `ll not be there.

On a simple note, u r not even getting double of ur money after paying for 20 years & the remaining cover of 5L in case of death after maturity, may seems high at present but think for next 45-50-60 years & think about the effect of inflation on this 5L amount.
don`t invest in Jeevan Anand Policy, instead ask ur agent for following 3 policies.

1. 1 Anmol Jeevan - 1 Policy of 10L Sum assured for 25 years
2. 1 anmol jeevan - 1 policy of 15L Sum Assured for 20 years
3. 1 Amulya jeevan - 1 policy of 25L Sum assured for 15 years.

Plz. do note all the above mentioned policies r term plans of LIC & u `ll not get any money back from ur prem. pmt. for these policies but on the other hand, ur total prem. paid for these policies `ll not be more than 25-30K (depending upon ur age) whereas ur Jeevan Anand Policy prem. `ll be around 2.25 to 2.75L per annum (again depending upon ur age). U can invest the saved prem. as per ur choice & by the end of 20 years or 25 years (ur term selected in Jeevan Anand policy) u `ll have more money than Jeevan Anand policy.

Insurance is not Investment. Go for PURE TERM COVER. The difference in premium if invested in mutual funds will give you far higher returns. Remember your insurance agent gets 35 to 40% commission on your first premium .

Insurance is an EXPENSE, not an INVESTMENT. No amount of money put in INSURANCE will make you richer or recover the loss suffered by your dependants in your absence. As policy holder if you receive any money from Insurance - you are a loser because you have taken a policy which is costlier than a basic term cover. As nominee if you receive money - you are the biggest loser . What you receive from insurance will only give you temporary relief. The best thing for a nominee is the policy holder staying alive and earning well. So do not look for returns when you are choosing an insurance policy. As policy holder look for the least premium payable per lakh of sum assured. Best & cheapest is PURE TERM COVER.


For investment go for Mutual Funds. And note, nowadays, even most Mutual Funds do offer you Life Insurance Cover.

Do consult your financial advisor before investing.

Best of luck,

Srikanth Shankar Matrubai






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- Retirement Planning and Son's education

Neha Agarwal wrote :
Dear Sir,
I Just came across your blog and read few suggestions and i really want to say thank you for all your valuable advise to the investors.
I am 32 years old and I have invested in mutual fund by starting from Rs. 500/- from one fund in 2005 and increased year by year. All the funds are having growth option. My investment horizon is +15 years.
I am having 3 year old son and I am investing for retirement and son’s education.
I am the only earning member of my family having 5 members including me.
I am having a housing loan of Rs. 12 lakhs outstanding as on today. I am repaying the principal of housing loan as an when possible.
Please analyse my portfolio and give me the feedback on the funds which I am having and suggest me if I am able to meet my goal.
I am having Life Insurance of Rs. 14, 00,000/-.
I am having following SIP.
The bold ones are the core portfolio as per my views.
Reliance Equity saving – Rs.500/- from 2008
Reliance Growth – Rs.1500/- from 2008 and Rs 500/- from 2006 to 2008
Reliance Vision – Rs.1000/- from 2008 and Rs.500/- from 2006 to 2008
Reliance Diversified Power – Rs.500/- from 2007
Sundaram Select Midcap – Rs.1000/- from 2008 and Rs 500/- from 2006 to 2008 Sundaram India Leadership – Rs.500/- from 2006
Sundaram Select Focus – Rs.1000/- from 2008
Sundaram Capex – Rs.1000/- from 2008 and Rs 500/- from 2006 to 2008
SBI Contra – Rs.500/- from 2005
DSPML tax saver – Rs.1000/- from 2008 and will discontinue as I don’t require any ELSS.
DSPML top 100 – Rs.1000/- from 2008
Kotak Tax Saver – Rs.500/- from 2007 to 2008
HDFC top 200 – Rs. 1000/- from 2008
ICICI Infrastructure Rs. 1000/- from 2007.


I had also invested in following NFO

Reliance Long Term Advantage – Rs. 5000/-
Reliance Natural Resources – Rs. 5000/-
DSPML Mid and Small Cap – Rs. 5000/-
Sundaram Select thematic Energy – Rs. 5000/-
Sundaram Equity – Rs. 5000/-
Sundaram Small Cap – Rs. 5000/-
J M Contra – Rs. 5000/-
Birla Long Term Advantage Fund – Rs. 5000/-
HDFC Midcap – Rs. 5000/-
SBI Tax saver series I – Rs. 15000/-
SBI Blue Chip – Rs. 5000/-
UTI Contra – Rs. 5000/-
UTI Infrastructure Series I – Rs. 5000/-
My question is am i too much betting on Sundaram BNP Paribas</span>?The core portfolio which i indiacted in Bold is it correct ?
I am planning to shift my equity MF investment to balance fund at the age of 45. if this is correct ?
Regards
Amit & Neha





SRIKANTH SHANKAR MATRUBAI advised :

Dear Amit and Neha,

First of all, I thank you for your kind words on my blog.
It is good to see that your faith in Mutual Funds has not diminished even after the mauling the Stock Markets has received in 2008.
Before analysing and commenting on your portfolio, I take pleasure in appreciating on your foresight for creating a Buffer for your Retirement and Son's education.

ANALYSIS AND COMMENTS:
Shockingly, you have got 27 funds in your portfolio. You seem to have become a "collector" of funds. Your portfolio needs a complete overhaul. Some funds are outright sell, even at a loss.
I will go through each fund one by one.
1. Reliance Equity Saving (Sip 500 from 2008) :
Probably you mean to say Reliance Regular Savings Fund (Equity). This fund has had a terrific 2007-08 and since then like other funds, has taken a big beating. This fund focusses on Mid-caps and Samll Caps. I advise you to STOP your SIP in this fund immediately.

2. Reliance Growth :
This fund has been a Star Performer since inception. Though it faltered in 2008, looking at its portfolio, I continue to maintain a positive view on the Fund. CONTINUE.

3. Reliance Vision :
This Fund has been living on Past Glory. STOP YOUR SIP.

4. Reliance Diversified Power :
I am never in favour of Theme/Sector Funds. STOP YOUR SIP.

5. Sundaram Select Midcap :
A Great Performer which has gone off-track of late. AVOID. STOP YOUR SIP.

6. Sundaram India Leadership :
CONTINUE.

7. Sundaram Select Focus Fund :
A Truly Quality Performer and Must Have in everyone's portfolio. CONTINUE.

8. Sundaram Capex Fund :
Could struggle going forward. Best to Avoid and STOP YOUR SIP.

9. SBI Contra :
Not a Contra Fund in True Sense. More of a Diversified Fund with a Large Cap Bias. CONTINUE YOUR SIP.

10. DSPBR TAX SAVER :
As you do not require any ELSS, it is good that you are discontinuing.

11. DSPBR TOP 100 :
Excellent Performer in Both Bull and Bear Markets. CONTINUE.

12. KOTAK TAX SAVER :
Has been an average performer. Switch to K30 fund on completion of Lock-in period.

13. HDFC TOP 200 Fund :
One of my favourites. Has been a very very consistent performer. CONTINUE YOUR SIP AND ADD MORE IF POSSIBLE.

14. ICICI INFRASTURCTURE :
One of the best Infra Funds. But does not deserve to be a part of Core Holdings, especially since you are the sole earner. STOP YOUR SIP and switch to other funds suggested below. Under the Same Fund House, you can switch to ICICI Growth fund.

NFO :

Reliance Long Term Advantage – Rs. 5000/- (After Lock-in Period is over, switch to Reliance Growth)
Reliance Natural Resources – Rs. 5000/- (Retain your holdings. The fund should start delivering as it still holds significant cash and has invested in Quality Stocks)
DSPML Mid and Small Cap – Rs. 5000/- (Even at a loss switch to DSPBR Top 100 Fund)
Sundaram Select thematic Energy – Rs. 5000/- (Take a decision when the Lock-in Period ends.. which is still 2 years away)
Sundaram Equity – Rs. 5000/- (Continue to hold as the Fund has performed better than its Benchmark and has good holdings in Large Cap Blue Chips)
Sundaram Small Cap – Rs. 5000/- (Holds nearly 93% in Small and Mid Caps which do not promise a bright future. Better to switch even at a loss to SUNDARAM SELECT FOCUS).
J M Contra – Rs. 5000/- (Has a taken a huge beating. No Other option but to wait and pray for better times. )
Birla Long Term Advantage Fund – Rs. 5000/- (Close-ended. Take a call when the Fund becomes Open ended).
HDFC Midcap – Rs. 5000/- (Close-ended. Take a call when the Fund becomes Open ended).
SBI Tax saver series I – Rs. 15000/- (Close-ended. No other option to stay invested)
SBI Blue Chip – Rs. 5000/- (Even though invests in Blue Chip, has not had a great run. But its holdings do inspire some confidence. Continue to hold and take a call after a year)
UTI Contra – Rs. 5000/- (Even at a loss switch to UTI Dividend Yield Fund)

UTI Infrastructure Series I – Rs. 5000/-(Even at a loss switch to UTI Dividend Yield Fund)

Out of your existing ongoing SIP of Rs.11500, I have suggested you to stop Rs.5000 and Rs.1000 will be stopped from DSPBR Tax Saver.

For this 6000, I suggest you to invest in the following funds
HDFC PRUDENCE FUND (1000 * 2 sips at different dates)
FIDELITY EQUITY FUND (500 * 4 sips at different dates)
BIRLA SUNLIFE EQUITY FUND (1000 * 2 sips at different dates)

so, ultimately your CORE portfolio will look like this....


RELIANCE GROWTH FUND
SUNDARAM SELECT FOCUS FUND
SUNDARAM INDIA LEADERSHIP FUND
SBI CONTRA
DSPBR TOP 100 FUND
HDFC TOP 200
HDFC PRUDENCE FUND
FIDELITY EQUITY FUND
BIRLA SUNLIFE EQUITY FUND

If you observe, I have added a Balanced Fund HDFC Prudence Fund to your Core portfolio and your portfolio now looks tilted towards Large Caps, which is how it should be.

Continue to retain your existing holdings in the Funds where I have suggested to STOP YOUR SIP. Do try to reduce/sell out when the situation improves and shift to Quality Funds as suggested.

Your Life Insurance Coverage of 14Lakhs looks inadequate to me, especially when seen in the backdrop of you being the only earning member in a Family of 5.

Try to get a Term Insurance, as this is the Cheapest Form of Insurance.

Also while investing in Reliance Growth and Birla Funds, there is Free Life Insurance available, get the details about the same from your Mutual Fund Advisor and invest through them, which will also increase your Life cover.

Rebalance your portfolio periodically, ideally, every two years. Make a gradual shift from Equity Heavy to Balanced and then to Debt Heavy, without compromising on returns/risks.

Do consult your Financial Advisor before taking action on my suggestions.
Best of luck,
Srikanth Shankar Matrubai




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SAFE DEBT FUNDS FOR AN NRI

Mr.Tyagi wrote :
HI, Mr.Srikanth,



First of all I cannot fin dout any space in your blog where I can ask questions. Can u educate me where am I suppose totype in my question?



My actual question is I'm a NRI and woul dlike to park my money in safe Debt funds. Can you suggest some safe Debt funds that I can invest in? Also let me know is it safer to invest in Long term debt funds or short term debt funds?



REgards

Thyagi

SRIKANTH SHANKAR MATRUBAI replied:

Mr.Tyagi,
I am not a Technical Person, hence there is no provision to type your question in my blog. My email is the only solution.
Your idea of investing in Debt Funds is very good considering the State of Equity Markets today. And moreover, Indian Debt Securities offer Higher Interest Rates compared to Developed Markets making the Debt Funds an attractive Option.
While investing in Debt funds, please note that the Currency Rate Fluctuations could also affect your returns. Another Caveat is that Debt Funds are not risk-free like Bank Fixed Deposits. However, an Appreciating Rupee would obviously work in your favour.
Considering the Falling Interest Rates, you would be better off investing in Long Term Debt Funds rather than Short Term as these would not yield much.
My Top Picks would be
ICICI Prudential Income Opportunities Fund
Birla Sunlife Income Plus
Canara Robecco Income(Growth) Fund
and my all time Favourite
HDFC Income Plan

You could also consider investing in TATA Capital NCD which is giving Attractive Rate of 12%. You can see more details about the same in my blog http://goodfundadvisor.blogspot.com
Best of luck,
Srikanth shankar Matrubai



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SHALL I INVEST IN TATA CAPITAL NCD?

Ms.Shalini asked :
Dear Sir,

What are NON-CONVERTIBLE DEBENTURES (NCDs)?
How safe are Tata capital's recently open secured NCDs? Is Income from them is taxable?

Shalini

SRIKANTH SHANKAR MATRUBAI replied :
Dear Shalini,
How are you?. I remember answering your query in August last year. Hope you are sticking to your investment in HDFC Top 200 Fund....
Non Convertible Debentures (NCDs) are those that cannot be converted into equity shares of the issuing company, as opposed to Convertible debentures, which can be. Non-convertible debentures normally earn a higher interest rate than convertible debentures do. NCDs have a fixed maturity.

Tata Capital has come out with a NCD issue of Rs.500 Crores with an option to retain oversubscription of upto 1000 crores. It offers an attractive interest rates : 11% for the monthly option, 11.25% for the quarterly option and 12% for the annual or cumulative option.
Due to Strong Promoters and Tax Benefits (due to listing in NSE), no TDS and relatively easy liquidity, I recommend you to consider investing in this NCD.
The NCD is secured and shall rank pari passi with other credit holders. Even Banks and Company FDs do not offer this safety. The Company also proposes to create a Debenture Redemption Reserve towards maturity. The NCD offer is also rated by ICRA at LAA+ indiciating Investment Grade.
The NCD offers Monthly, Quarterly, Annual and Cumulative Options. Of all the options, the cumulative option appears most attractive, as it allows investors to reinvest the interest proceeds at high coupon rates of 12 per cent. This instrument is shielded from the interest rate and re-investment risks. For Rs 10,000 invested today, a cumulative amount of Rs 17623 pre-tax can be earned at the end of five years.
Best of luck,
Srikanth Shankar Matrubai

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SUGGEST BEST TAX SAVING FUNDS

Mr.Sumit Gupta wrote :
Hi,

I am looking to invest around 35-40k in MF to avail the tax saving as well.
searching the option around about now, i got SBI Magnum Tax Gain (Dividend), i can go with now.
could you please suggest some good investment now, looking the market scenario




Thanks & Regards
Sumit Gupta

SRIKANTH SHANKAR MATRUBAI replied :
Dear Sumit,
Mutual Funds are the best avenue for Tax Savings.
The Best ELSS/Tax Saving Fund is that which is not Baised towards any Sector or Theme and my Pick would be :
1. Birla Sunlife Tax Relief 96 Fund
2. DWS Tax Saving Fund
3. Fidelity Tax Advantage Fund
4. Franklin Tax Shield fund
5. Principal Personal Tax Saver
6. Sundaram Tax Saver
I am not in favour of SBI Magnum Tax Gain 93, which is everyone's favourite, mainly because of its bloated fund size.
My favourite in recent past has been DWS Tax Saving Fund, not only because of good performance since its inception but also because it offers Free Life Insurance upto 5 times your investment.

HDFC Tax Saver is also a good choice but keep in mind that it is a Mid-Cap Oriented Fund.
Franklin Tax Shield has not been performing very well since the last 2-3 years but due to its Focus on Large Caps, it should be a Good Performer going forward.

Best of luck,
Srikanth shankar matrubai,




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http://goodfundsadvisor.blogspot.com



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GOLD CONTINUES TO GLITTER...

The Uncertain times, we are living in, is reinforcing that Gold as the Best Investment Option in times of Distress. Gold Share indices have nearly doubled from October 2008 lows, though Gold has been up by 35%. The strong investment interest in gold has been fueled by concerns about the falling health of the US financial system. US President Obama's stimulus package is not enthusing many.
In these times of tight liquidity, many were pleasantly surprised when Gold Major Newmont's $1.5 billion deal sailed through quite easily, indicating renewed interest in Gold Companies.

The increasing printing and supply of US Dollar will only make the Dollar depreciate further making Gold all the more attractive. Gold's limited supply, rising demand is only adding fuel to the fire. And with the Marriage Season on in India, the World's Largest consumer of Gold, Gold seems to be only on one direction, up.

GOLD FUNDS ARE A GOOD OPTION :
Instead of buying Gold Directly with its associated quality risks, you have the option of Buying Gold through Gold ETFs. Here you do not face the problem of either Storage Risk or Quality Risk as the Gold is bought and sold in Paperless Form. And moreover, it is tax efficient too.

Apart from Gold ETFs, you have the option of investing in Gold Equity Funds like AIG World Gold Fund and DSPBR World Gold fund, which invests in stocks of Gold Mining Companies worldwide. These Funds, however, tend to be more volatile compared to Gold as their fortune also depends on the Equity markets. And, as they invest overseas, they also face Currency Risk. Thus, invest in these Funds, only if you ready to ride out volatility. These Funds are for Medium Risk-Medium Return type of Investors. For others, there is always Gold ETFs like UTI Goldshare, Reliance Gold, etc.

Best of luck,
Srikanth Shankar Matrubai,
Bangalore

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SUGGEST ME GOOD TAX SAVING FUNDS

Mr.Naveen Ekbote Wrote :
Hi Srikanth,

Nice to know you work on mutual fund investments.

I have made two SIP investments of Rs.1000 each in HDFC Tax saver and Franklin templeton Tax saver from last 1 1/2 year. Unfortunately I have lost heavily due to fall in the stock market. Almost to the tune of 50%. Do you suggest to hold on for lock in period of 3 years? What is your suggestion.

I also want to take one Mutual fund SIP in my wifes name which gives tax benefit. Pls suggest.

Thanks

Naveen

SRIKANTH SHANKAR MATRUBAI replied :
Dear Naveen Ekbote,
Thank you for you nice words.

Both of your SIP investments, HDFC Tax Saver and Franklin Templeton Tax Saver are going into good funds. Though I am not so pleased with the performance of Franklin Templeton Tax Fund.
This Market Meltdown has not spared anyone and you are no exception. My sympathies are with you. You have got no other option but to stay invested till the lock-in period of 3 years. Unlike other Tax Saving Tools, Mutual Fund Equity Linked does not allow you prematural withdrawal. In a way, this is good as Equities tend to deliver better returns over longer periods of time.
Consider stopping your existing SIP in Franklin and starting a SIP in Sundaram Tax Saver which has been a very consistent performer.
To invest in your wife's name, I would have been happy if you have given your goal, term for the investment. If you wife does not have any Insurance and is under insured, start with investment in DWS Tax Saving Fund (offers Free Life Insurance 5 times your investment amount) or Birla Sunlife Tax Relief 96 (which too offers Free Life Insurance)

For details on the above schemes/offers, you visit my site http://goodfundsadvisor.blogspot.com

If Insurance is not an issue, but Returns are, then you should consider investing in Fidelity Tax Advantage Fund or Principal Personal Tax Saver or Sundaram Tax Saver Fund among others.
Best of luck,
Srikanth Shankar Matrubai,
Bangalore

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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!

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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


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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
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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

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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

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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


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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,

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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.


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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

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for more indepth info and analysis on Mutual Funds

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,


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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,


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"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.



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