What are Contra Mutual Funds

What are Contra Mutual Funds

Contra mutual Funds are equity oriented mutual funds whose investment objective is to invest in the shares of the companies or sectors which are under-performing mainly due to the short term concerns.


The fund manager follows the contrarian investment approach i.e. buying shares of the companies whose share prices are depressed due to short term concerns. The demand of these shares is very less as they are usually rejected by other investors


These under-performing stocks are usually available at lower price than their fair value or intrinsic value and are likely to perform well in the long run as market price of a share will always tend to move towards its fair price or intrinsic value creating opportunities for traders to generate superior returns in the long run


Contra mutual fund is out of favor or against-the-wind style of investing. Fund managers select companies which are fundamentally strong but whose true potential is not reflected in its share price. The concept is to buy shares at a price lower than its fundamental price or intrinsic value.


Please note that contra mutual funds may not give superior return in the short term but are ideal for investors who have investment horizon of medium to long term. Also, the reward risk ratio is quite high for investors in the long run.


Rajiv Kapoor
Investment Advisor
9839034761

HEALTH INSURANCE

Not having enough health insurance

Healthcare costs in India are increasing at a distressing rate. Based on some estimates, the annual healthcare inflation is the range of 15 – 25%. A hospitalization for a serious illness can cost Rs 5 Lakhs or above and long term hospitalization can be a tremendous financial burden on households.

While health insurance is essential for all, it is even more relevant for senior citizens because health risks increase with advancing age. Employees who are covered under their company’s group health insurance policy usually do not worry about health insurance but you should know that, you will lose your health cover on retirement.

So, it may be prudent to buy individual mediclaim or family floater plan before retirement even if you are covered under your employer’s group health insurance scheme, so that you can continue with the same health insurance plan even after retirement.

We spend so much on things that spoil our health such as fast food, junk food and alcohol and think

so much when it comes to payment of premium for a health insurance policy ……………. ???

Buy a health insurance policy for yourself and your family. You never know of tomorrow.

Know more from me……… !!

What will be the best mutual funds over the next 3 years, with a moderate risk in the market?

 

One of the best strategies to deploy in markets and one which comes with moderate risk is Dynamic Asset Allocation Funds.

Asset Allocation Funds or Dynamic Asset Allocation funds are best to invest in a market for people looking for Moderate Risk.

How Do Dynamic Asset Allocation Funds Work?

Simply put Dynamic Asset Allocation funds work on the principal of “Invest more in Equity when the Markets are low and Invest less in Equity when the markets are high”.

1.)    These funds change their Debt to Equity Asset allocation accordingly.

For example, at a stage of markets these funds could have Debt: Equity ratio as 60:40 and if markets correct (go lower) then it can change to 30:70.

All this is done by the fund manager themselves based on an index which tracks the expensiveness of the markets. The index and corresponding Debt : Equity Allocation could be like this. (please note that this illustration is from an indicative stand point only)

2.) Apart from the fact that you will buy more equity when markets are down, another distinctive advantage is that these funds book profits automatically for you. Once the markets start moving up, the fund managers sell equity and buy more debt and hence it results in profit booking for the investors.

3.) These funds come with equity taxation and the long term capital gains tax are zero. Many of these funds use Equity arbitrage as a strategy to ensure that they remain in the 65% zone for Equity + Equity Arbitrage to get Equity funds taxation.

We have created a Portfolio of the two best Dynamic Asset Allocation fundsavailable in the market. You can start SIP or do a lump sum investment in these funds anytime.

But mind you that these funds are basically conservative in nature and may not give very good returns vis a vis the sensex

Regards

www.rajivfcs.weebly.com

Rajiv Kapoor

Practicing Company Secretary

Kanpur

9839034761

Fixed Deposits Vs Debt Mutual Funds: Which is better?

Fixed Deposits Vs Debt Mutual Funds : Which is better ?

When it comes to financial investments, most individuals are averse to taking risks.

Who would want to lose their hard-earned savings due to misinformed financial decisions?

Most prefer guaranteed returns and avoid volatility. It is no wonder that a bulk of Indian household savings are in bank fixed deposits.

Those who venture out in search of higher returns, fall for Ponzi schemes that promise “high return on capital with no risk.” Thousands of crores of hard-earned money has been lost to chit-fund scams like those of the Rose Valley Group and Saradha Group.

Others may invest in corporate fixed deposits that offer a high interest rate, but these are not backed by strong financials or the management’s intent to repay. In the past, companies such as Unitech, Jaiprakash Associates and companies promoted by Yash Birla that have either delayed or defaulted on payment of interest or principal or both.

Sadly, most individuals are unaware of the benefits of mutual funds. While mutual funds offer several asset classes to choose from, debt mutual funds are a good alternative to bank fixed deposits. However, you need to choose wisely.

With declining fixed deposit rates, the interest in different investment avenues is growing. This article, outlines the key differences between fixed deposits and debt mutual funds while covering the common questions you may have about the two.

What are debt mutual funds? How are they different from fixed deposits?

Unlike fixed deposits, where the rate of interest is known before investment, debt mutual funds diversify your investment over money market securities such as commercial papers and certificate of deposits, government securities, corporate bonds or corporate deposits. The allocation to these securities depends on the investment objective of the scheme.

To put it simply, under fixed deposits, you directly invest your money with the issuer. In debt funds, you invest the money indirectly through the fund house. The fund manager decides in which securities to invest, keeping in mind the investment objective of the scheme and focusing on high risk-adjusted returns.

How do debt mutual funds work? Do they pay a fixed interest like fixed deposits?

While fixed deposits either pay or accumulate the interest at a set date, the return of debt mutual funds is represented by their Net Asset Value (NAV).

As the underlying securities are traded in the market, similar to stocks, the value fluctuates depending on the liquidity and the direction of interest rate. Thus, when interest rates rise up, the value of the bonds and in turn your NAV falls. When rates head lower, the reverse happens. Thus, when RBI cuts interest rate, the value of the debt fund investment is expected to increase and earn a higher return.

As these are interest bearing securities, the yearly interest is divided by 365 (no. of days in the year), and the debt fund’s NAV goes up daily by this small amount.

Under debt funds, there are dividend options also available, which can be monthly, quarterly, or yearly. Therefore, similar to the interest pay out of fixed deposits, you may choose one of these options if you are looking for regular income. Please note, that the dividends paid out are post deduction of dividend distribution tax (DDT) of 28.84% (including surcharge and cess). Hence, this option is beneficial only if you are in the highest tax bracket.

Do debt mutual funds earn a higher return than bank fixed deposits?

There isn’t a straight answer to this question. As explained earlier, the returns of debt mutual funds are market linked. Therefore, the returns vary based on the schemes investment mandate, prevailing market conditions, and tax regime.

Schemes that invest in money market instruments or debt securities with a maturity period of a few days to some months, such as ultra-short term funds or liquid funds, carry a low risk; hence, the returns too may be lower. However, certain schemes in the category are able to deliver a higher return than bank FDs if the market conditions are conducive.

Short-term debt schemes invest in maturity assets of up to 1 year or more. Here the returns, though higher, may be more volatile than liquid schemes. Over a period of 2-3 years, most short-term debt schemes have the potential to deliver a higher return than bank FDs.

Income funds invest in securities of various maturities. Under most such schemes the portfolio is skewed to instruments with longer maturity. Income funds and similar long-term debt funds are more volatile, and the interest rate cycle plays a crucial role. In a period of rising interest rates, debt funds that invest in longer term securities may not offer the best returns; hence, these may trail the returns of bank deposits. However, in a falling interest rate scenario, these same schemes will be able to deliver high returns on investment.

What about the tax implications?

Debt mutual funds and bank fixed deposits are taxed differently.

The interest earned on bank fixed deposits are added to your total income (under the head ‘income from other sources’) and taxed as per your income tax slab. While in the case of debt mutual funds, if you redeem your investment before three years, the gains (also known as Short Term Capital Gains (STCG)) are added to your income and taxed accordingly.

For redemption of units which are held for a period of three years or more, the Long Term Capital Gains (LTCG) are taxed at a rate of 20% with indexation. The indexation benefit, aids to lower the tax impact, and is useful, especially for those in the higher tax brackets… and this is where debt funds score over bank fixed deposits. Due to a lower tax on investments greater than 3 years the debt fund tend to score a higher post-tax return as compared to bank deposits.

It is always important to keep up-to-date with the prevailing tax laws. If the Government changes the tax rules – like it did in 2014 – the benefits may get impacted. Earlier, withdrawal from debt funds attracted LTCG tax of either 10% (without indexation) or 20% (with indexation) and the holding period to qualify as long term was just 1 year.

What are the risks associated with debt mutual funds?

Debt funds primarily run two risks: the interest rate risk and the credit risk.

The market value of tradable securities held in a debt fund drops when the interest rates in the economy rise, and as a result, the Net Asset Value (NAV) of a fund drops. Since securities are redeemed at par value on maturity, those who can hold out until maturity don’t suffer much, but speculators who try to time interest rate movements do.

The credit risk, or risk of default, is a much bigger concern for debt fund houses. This is because, if the company issuing securities goes belly up, debt funds incur losses that can’t be recovered easily. Therefore, it is essential to check if your fund is investing in highly rated debt securities. Low rated debt securities offer a higher interest rate, but with higher risk.

Credit opportunity funds that adopt an accrual strategy benefit from this, with an increased credit risk to generate a higher yield. Schemes that have a high concentration of low quality assets should be clearly avoided. Liquidity too, is a cause of concern in low-rated debt securities. It can get worse if the credit rating deteriorates and the fund manager is unable to sell his holdings.

In the past, JPMorgan India Short Term Income Fund and JPMorgan India Treasury Fund bore the brunt of its corporate debt holding in Amtek Auto. The Amtek Auto security was de-rated to junk status, which led to severe mark-to-market losses for the fund. Due to the lack of buyers, the fund was unable to sell its holding.

At the same time, it is important to note that fixed deposits too are not devoid of risk. While your investments in well-known banks may be relatively safe, you should avoid entrusting your hard-earned money to shady and not-so-strong co-operative banks. Many cooperative banks in India have gone bust in the past; hence, it is best to stay away.

If you are opting for a corporate fixed deposit of an NBFC or others, due diligence is critical before parking your hard-earned money. Corporate FDs are not guaranteed investments; hence, you need to check the credit rating and financials of the company before investing.

Where should you invest—Debt mutual funds or fixed deposits?

Remember, compared to banks FDs and some Small Saving Schemes, the rates for which have been a downhill, investing in debt mutual funds can prove more rewarding and tax efficient.

But you ought to take enough care when selecting winning debt mutual fund schemes for your investment portfolio, because debt funds aren’t risk-free. It is therefore suggested that you should seek guidance of your financial advisor before you invest in any debt fund.

On the other hand, if you don’t have a stomach for risk and prefer stable and guaranteed returns, then stick to fixed deposits. Open an account with reputed private or public sector banks where the risk of going bust is low.

In my view it would be imprudent to invest at the longer end of the yield curve, which is in long-term debt funds holding longer maturity debt papers. It is vital to note that most of the rally has already been captured at the longer end of the yield curve.

Going forward, if RBI increases policy rates by any chance (enabled by the change in monetary policy stance from ‘accommodative’ to ‘neutral’) and if inflation pops up its ugly head, it could be perilous for your investments in long-term debt funds.

So, it would be better to deploy your hard earned money in short-term debt funds if you’re risk averse, but ensure you’re giving due consideration to your investment time horizon.

For an investment horizon of upto 2 years, consider investing in short-term debt funds.

If you have an investment horizon of 3 to 6 months, ultra-short term funds (also known as liquid plus funds) would be the most suitable.

And if you have an extreme short-term time horizon (of less than 3 months), you would be better-off investing in liquid funds.

Don't get swayed by distributors, relationship managers, or wealth managers who push hybrid mutual fund schemes such as Monthly Income Plans (MIPs) or Equity Savings Schemes (ESSs), or balanced funds as alternatives. These schemes include an equity component in their endeavour of wealth creation, which may be unsuitable if you were to evaluate investment avenues against bank FDs, due to the high risk involved. When you invest, ascertain your risk profile prudently; so as to have suitable investment avenues in your portfolio.

WHAT IS STP

What is a STP?

Systematic Transfer Plan (STP) is a tool provided by Mutual Funds that help transfer money automatically between two schemes at a predefined frequency.

How it works?

Mr X had invested Rs 60 thousand in scheme A (Liquid – Debt Scheme). Now, he wants to transfer Rs 10 thousand every month in scheme B (an Equity scheme). With STP, he can invest in scheme B using his existing investment in scheme A, simply by following a one-time registration process.

Different Types of STP

Fixed – Transfers amount is fixed.

Capital appreciation – Transfers only profit amount

Flexi STP – Transfers variable amount based on liquidity

Strategies to use STP

Fixing liquidity problems 
Face liquidity problems but want to invest regularly? Simple, once you get money, invest lump sum amount in liquid scheme and start STP into an Equity scheme – it works like SIP.

Doing value based investing 
Rebalance the portfolio across assets based on market valuation, using STP. When markets look overpriced, start STP from equity scheme to liquid scheme and vice versa.

Managing asset allocation for goal based investing 
Investors who are nearing the goal either in term of amount and /or time can transfer investment from equity to liquid scheme using STP to manage portfolio volatility better.

Planning your tax savings better 
Let say you have liquidity issue and still want to invest in an ELSS, start an STP from an existing investment in equity scheme to an ELSS and save tax.

WHAT ARE THE BEST INVESTMENTS YOU HAVE EVER MADE ?

Reply to a question posed by a friend  .....

WHAT ARE THE BEST INVESTMENTS YOU HAVE EVER MADE ?

My Answer: 

The best investments I ever made was at the age of 28, though I regret for having started so late.

I some how got attracted to good books while I spent time on railway platforms waiting for the trains and could eventually manage to buy the following books:

1. Rich Dad Poor Dad by Robert Kiyosaki.

2. How to Avoid Loss and Earn Consistently in Stock Market by Prasenjit Paul

3. Value Investing and Behavioral Finance by Parag Parikh.

4. Intelligent Investor by Benjamin Graham.

These books introduced me to a complete new world, the world of value investing.

Today, I fully attribute my success in investing to the above books.

I followed the principles and practices of the great authors relentlessly and with full faith, which eventually helped me to build up a strong portfolio of diversified assets for myself with ease.

I am sure, I couldn't have done better by working hard or otherwise chasing money.

Now my aim is to help people gain the right knowledge about stocks, paper assets and to help them adapt the practices of value investing.

My suggestion to all my friends .... start investing as early as possible, the power of compounding helps in a big way to create wealth AND stick to appropriate asset allocation without greed and fear.

Nurture your investments as you nurture a plant or a child.

Happy Investing ...... May all my friends create wealth for themselves.

RAJIV KAPOOR
9839034761

3 STEPS GUIDE TO HELP YOU INVEST WHEN MARKETS AT RECORD HIGH

Retail investors eager to invest in equities are facing an age-old dilemma. With stock markets at record high i.e. Sensex at over 31,000 and Nifty near 9,700, many feel they may be timing the market wrong because a fall may be just around the corner.

However, history has shown otherwise. Nobody knows when markets will fall next, and staying invested gives you a far better chance of becoming wealthy. At least, it is better than waiting for that elusive bottom.

Here is a 3-step process that will help you start investments, even if markets are at their so-called peak.

1. The longer your time horizon, losses vanish

Unlike many traders or short-term investors looking to make a quick buck, retail investors today are of a different kind. They know that they are not traders.

Hence, they invest for the long-term i.e. 5 to 10 years. If you have a longer time-horizon, the level of the index will have very little bearing. If you choose to directly invest in fundamentally researched stocks, or indirectly through mutual funds and unit-linked plans, the possibility of losses falls sharply beyond a 7-year holding period.

This means your chance of recording a loss becomes infinitesimally low when your investments spends a large amount of time in the stock market. Of course, this doesn't mean you will get away by putting your money in get-rich-quick schemes!

2. Start with some, and then hike exposure

When kids are afraid of jumping into a swimming pool, we dip their toes to acclimatise them with water. Swimming comes easier once there is some confidence.

This is the same approach you should take if you are feeling hesitant. Stocks are the only asset that can beat inflation and gives solid risk-adjusted returns. However, your vision may be clouded because of Sensex@31K or Nifty@10k.

The simple thing to do is to take a small exposure, and then increase it. There are some financial products that have 20-30 percent exposure to stocks and then rest in fixed income.

If you are investing in stocks directly, allocate 5-10 percent of your money in blue-chip shares that preferably pay a perky dividend.

You will soon gain confidence, and invest more. If you are convinced about the fundamentals of a product or a stock, buy more when prices dip.

3. Markets hit highs, and then hit new highs

When the Sensex hit 6,000 level in 2000, many people doubted if markets were strong enough. By 2005, it was near 9,500. In 2006, it hit 14,000 mark before ending below.

Then came a period of lull, underlined by the fear mongering around the global financial crisis. The Sensex fell to multi-year lows, before slowing creeping up. By 2013, the Sensex was near 21,000 and today in 2017, Sensex @32000 is just round the corner.

As corporate earnings, investment inflows and economic reforms happen, markets have taken out new highs regularly.

So, the belief that this time market is at its 'peak' is probably a fear. Just like Virat Kohli is challenging Sachin Tendulkar's batting records, stock markets also challenge their old records and make new ones.

Imagine the plight of an investor who took out his money from equities when Sensex was at 2000! In 17 years, his money would have grown 5 times or even more. Do you want to be the investor who missed out?

Summary: Stop looking at index levels before you invest. Instead, your investment goals should dictate the nature and quantum of your investment.

LET ME BE SOLUTION TO ALL YOUR FINANCIAL WORRIES

Let me be solution to all your financial worries, anxieties, apprehensions and dilemma. All that is needed from you is your 10 minutes. Do you have those 10 minutes ?

Start SIP in Equity Mutual Funds for long term wealth creation.

Transact through most efficient, technologically upgraded platform with full control of all your investments on your finger tips. 

Take help of a qualified professional, who himself is a big investor and who is passionate to help you in your journey of wealth creation.

Rajiv Kapoor FCS

9839034761

Investment and Financial Advisor

MITIGATE YOUR RISKS BY INVESTING THROUGH STP MODE

MITIGATE YOUR RISKS BY INVESTING THROUGH STP MODE

The best way of investing a lump sum in equity funds is through an STP. But how long should an STP run? ………. Source Article by Dhirendra Kumar

For those who follow the commonsense rule of investing only gradually in equity mutual funds, investing large sums of money becomes a problem. Normally, gradual investing works out well when one is doing an SIP from a monthly income. Every month, a fixed sum flows into the investment, leading to cost averaging and eventual high returns. This pattern of investment often generates good returns quickly and investors who sticks with it for a couple of years become faithful followers of SIP investing.

The problem arises when they come into a big sum which is outside of their regularly scheduled inflow. This could be a bonus from an employer, or an asset sales, or maybe a very lucky pre-Diwali night. For anyone who has understood the efficacy of SIP, the right way to go about this kind of an investment is to put it into a liquid fund, and then do a monthly transfer from there. This regular transfer from one fund to another is called an STP (systematic transfer plan).

The sticky issue is the period over which to spread the investment. The STP could be done over anything from three or four months to many years and investors are frequently at a loss as to how many monthly installments to break up the investments into. Since there is no underlying inflow as in the case of a salary that feeds an SIP, this is entirely at the discretion of the investor.

The right way to decide is to stop and consider the motive behind investing a lump sum gradually, in bits and pieces instead of in one lot. Clearly, we do it so that we don't catch a market peak. Consider the example of someone who came into R20 lakh in December 2007 and then invested it all in an equity fund. In four months, the money would be reduced to less than R10 lakh. In some funds, could have gone down to R5 or 6 lakh. Such a person would never invest again. It would take about six years to break even.

However, suppose this investor had invested gradually over 12 months. In that case, only about a tenth of the money would lose a lot of its value. Overall, averaging over a year, the acquisition cost would be such that the investment would hardly ever be in a loss. Of course, I've taken an extreme example to illustrate the concept, one that takes shifts the investor from an all-time high peak to a low point. You could have started a little earlier, say in 2006 and then spread the investment over a longer period.

However, if you actually look back at the markets over the last decade, you will realise that while an STP generally helps one avoid a market peak and average costs, they're not a foolproof device. If the markets keep rising for many years, as they did from 2003 to 2008, and then fall sharply, then even an STP cannot eliminate losses. Equity is equity and there's no way of doing away all risk. However, based on what has happened over the last two decades in India, stretching an investment over two to three years is likely to capture enough of a market cycle to significantly reduce risk.

At the end of the day, the key question that an investor has to ask is the trade-off between the risk of short-term equity market gyrations and the long-term returns that one can generate from equity. A lump sum investment is weighed completely towards the former, while a period like two to three years is a better trade off. And as for cycles that are long as well as extreme, like the one from 2003 to 2008, those are like a natural calamity. You can prepare for them, but there's nothing that will make you 100% safe.

RAJIV KAPOOR

9839034761

Secrets of Wealth Creation .... Know more from me ....!!

Secrets of Wealth Creation .... Know more from me ....!!

I am sure that there are some secrets that wealthy people know and others don't know. Of late, I have been carefully studying people around me in day today life whom I really consider wealthy. Sharing with you my small understanding on wealth creation ........

We don’t need to be lucky to become wealthy. However this is a paradox that there are people who are wealthy because they were lucky. Like everything else in our life, wealth is the result of our conscious manifestation.

Conscious manifestation is the science of altering and experiencing reality as we wish.

It's not taught in schools.

The key word here is ‘conscious’. Because we are manifesting all the time, whether we are aware of it or not!

Health, relationships, abundance or even poverty - we attract in reality what we want to experience.

We carry our own respective wealth blueprints.

Each of us carries our personal equation with wealth. If we experience wealth struggles, chances are that we are carrying an unconscious tendency to mistrust, fear or shrink from inviting abundance into our life.

Resolving this problem is the first step towards transforming our wealth equation.

Most often, the answers lie in our past relationship with wealth - ideas we were fed as children, past failures, or some decisions we made.

With simple understanding and awareness, one can alter his conscious equation with wealth.

The unconscious ideas we carry about wealth are deeper and more difficult to uproot. But it’s not impossible!

It's not a desire, it's my belief that I will create good wealth in couple of years from now. My journey of wealth creation has already begun. It's an experiential truth for me.

It's so simple, you too can come along.

Want to Create Wealth .......  Know more from me...... !!

Rajiv Kapoor
9839034761

6 things to know why equity mutual funds are a good option for making investment

6 things to know why equity mutual funds are a good option for making investment

The scheme gets compounded returns which help in multiplying your money over a certain period of time.

Amongst the various investment avenues present in the financial market, equity mutual funds are one of the best category funds for an investor to invest their money.

Equity mutual funds not only help you in getting capital appreciation, but also help in getting tax savings. For that purpose you need to go for the options available under equity mutual funds which are specially designed to give you a tax benefit. These funds may even provide you inflation-beaten returns in the future.

They can be linked to financial goal

Most of the funds are open-ended, which makes it easy to link the investments with any of the financial goals, like child marriage, child education, vacation, retirement planning, wealth creation etc. Investors can achieve their financial goals, as the schemes comfortably fit in the duration of any goal which they wish to get it fulfilled. However, make sure that the financial goal you are opting for should not be less than five years.

They are diversified

The amount invested through equity mutual funds are spread in substantial sectors and have holdings in various companies which allows the fund manager to spread the risk and reduce the future losses due to market volatility. However, equity funds having a well-diversified portfolio cannot escape all risks. Therefore, you should never put all eggs in one basket.

They are tax-saving

Investors can avail tax benefits by investing in ELSS (Equity linked saving scheme) funds. These equity-linked tax saving investment schemes which provide investors a total tax saving benefits of Rs 1.5 lakh under section 80C of the Income Tax Act 1961.

These are tax-free

Equity mutual funds, which are invested for more than one year of time horizon, are tax-free. Even dividend received from mutual fund scheme is also tax-free in the hands of investors. Therefore, you get the desired appreciated capital without any tax getting deducted from any source.

They are highly return oriented

The scheme gets compounded returns which help in multiplying your money over a certain period of time. You earnings get reinvest and returns are calculated on every sum of the final earnings which includes return earnings of the previous years. The more you remain invested, the more you will be able to increase the potential of your inflation beaten investment earnings.

They are easily redeemable

It is very easy to redeem your money from open-ended equity funds. These mutual funds offer easy to invest facility through which investment can be done through the ECS mode. Whenever you want to withdraw your free units, it can be done very smoothly through redemption process. You can even stop your SIP at any point of time without getting into too many formalities. After signing the redemption form, it takes a maximum of three working days to get your money in the registered bank from where you have started your investments.

Rajiv Kapoor
9839034761

Can You Trust Your Bank Relationship Manager?

Can You Trust Your Bank Relationship Manager?

What happens when you go into your bank to deposit a large sum of money or if you have a huge balance in your savings bank account.

Probably someone from the bank staff would approach you with an excellent investment option for your cash or your bank balance. This person is your Relationship Manager.

You'll be told to divert your money into a product as the money that is lying in your account is generating very low return while their investment product will deliver way better returns.

So, shall you do as he says? Since he's your banker and there exists a relationship of trust between the bank and the customer, and you entrust your hard earned money with the bank, because you trust the bank.

The answer to this is simple, “No”

We often hear about instances wherein individuals were fooled by their Relationship Managers, and were made to invest in a product which were far from suitable for them.

A 60 year old man approached his RM, he wanted to invest a part of his retirement corpus in a product which could give him a better rate of return than his saving account. He wanted to keep this money as his emergency fund, so there should be safety of principal and flexibility of withdrawal.

The RM sold him a long term single premium endowment plan.

Now what will the poor old guy do with this policy. He has to dedicate a huge amount today which will be locked in for a long period of time, probably until he dies. Moreover, it didn't serve the purpose of an Emergency Fund. And the worst part is, he didn't even know that he bought an insurance policy.

In another instance, a 32 year old man who was on the lookout for a good tax saving option, asked his Relationship Manager for advice. The RM suggested him a product which had the following features:

1. The investment is eligible for deduction u/s 80C and 10D

2. He would get a life insurance cover of Rs 15 Lacs

3. He will get a fixed return of 12% p.a.

What else could he ask for? The RM was a Messiah for him.

Was he really?

Probably Not.

The reality was, the first two points were true. The third point had a small glitch, and that was Fixed Return, it was actually a return of upto 12%. It could be 4%, 5%, anything below 12%. And another very important point that the RM forgot to mention was, this product had a lock-in of 22 years.

The investor was quite confident about the product, but then he decided to consult his wise uncle before investing. This decision helped him from being screwed up big time. The Uncle could sense there's something fishy because of the over enticing features of the product. So, he researched and revealed the truth to this investor, that this product was not just meant for him.

There is no end to such mis-selling stories. Your bank RM should be the last person to seek investment advice from. The advice can cost you dearly.

But why do the Relationship Managers sell the wrong product to the investors?

So, they mis-sell because of the following three factors:

1. The Relationship Managers get Commissions on the investments that you do through them. And each investment product has a different commission percentage attached to it. And generally, the commission paid on a product and the quality of the product are inversely related. This means an investment product which bears a high risk and offers low return will offer a higher commission, compared to a product which bears a lower risk and offers high returns. So it goes unsaid, that the RM will pitch that product which will bring him the highest Commission.

2. The Relationship Managers get sales Targets. They get overall targets as well as targets to sell specific products. So, in order to achieve their targets, the RM would make you as their target, and will try to sell those products to you, where they are falling behind.

3. The Relationship Manager will offer those products to you which are lying on his shelf. The bank will have a tie – up with limited number of companies, so they have only those products to offer which are offered by those companies. For Eg. You want to buy a Term Plan. Now you ask your bank RM to suggest the best Term Plan for you. Since your bank has a tie up with let's say two Insurance Companies, so your RM will give you options from those two companies only. Whereas, there are so many Term Plans available in the market which are way better than the ones suggested by him. But because he has only two options to offer, so he would advise you to go for either one of them.

So to conclude, your investment is a product of the RM's Commission, his targets and the products available with him.

The only way to avoid falling prey to the trap is be updated, and take a well researched and informed decision. The idea is you should not blindly trust anyone when it is about your hard earned money and not that after reading this article, you look at your Relationship Manager with an eye of suspicion and run away whenever he comes towards you. It is because not everyone mis-sells, he might have something good for you.

You should rather research, consult your financial advisor whenever you get investment advisory from someone else.

So, the crux is banks are a good place for taking loans, for depositing money, but not for seeking investment advice.

Rajiv Kapoor
FCS
Investment Advisor
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Delay in Investing

Nurture Investments
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Rs 2.35 lacs after 10 years which means Rs 1.31 lacs in todays worth (discounting inflation @6%), this is what procrastination costs you if you delay by just 6 months in taking a small decision of opening an SIP in an equity mutual fund.

You delay your investment decisions month on month and then wonder how your friend is wealthier than you ..... Isn't it ??

WHAT ARE MIP's - DO THEY GIVE MONTHLY INCOME?

Do MIP or Monthly Income Plans give Monthly income? – Answer is NO

They are wrongly named.

So then, does it deserve your money?

Have you come across fund schemes given below?

·         Birla Sunlife MIP II – Savings 5

·         Birla Sunlife MIP II – Wealth 25

·         HDFC Children’s gift fund

·         HDFC MIP

·         HDFC Multiple Yield Fund

·         HDFC Retirement savings fund

·         ICICI Pru Child care plan

·         ICICI Pru MIP

·         SBI Regular Savings Fund

·         Sundaram Regular Savings Fund

There are many more similar ones from almost each and every fund house.

All these schemes fall under a category called Monthly Income Plans or MIP. While several of them have the words MIP or Monthly Income Plan included in their names, that’s not a prerequisite. See the examples used before.

What is a Monthly Income Plan or MIP?

An MIP is what you call a hybrid investment with a mix of debt and equity components. The debt portion is typically more than 70%, rest is invested into equity.

The idea behind an MIP is to attract that investor who is not so happy with the returns of aBank Fixed Deposit and is willing to take a small risk to get a better return.

So, the financial engineers working at the mutual funds created the MIP. The debt portion provides the safety to the portfolio where it relies on bonds to bring in more certainty. The equity portion is expected to bring in that extra kicker of returns.

So, do you get a monthly income?

To get a monthly income, you will have to choose a monthly dividend payout option. Strange as it may sound!

The irony is you can actually choose a growth option in a Monthly Income Plan where the value of your holding keeps going up.

By the way, the dividends are not guaranteed. If the fund manages to make money, it will announce a dividend. If push comes to shove, they may even sell existing investments within a fund to generate cash to pay the dividend (income).

Then why are they called MIP?

Well, that’s the job of the marketing department. To enhance its appeal to a low risk, income seeking investor, it was named as an MIP. In fact, they went a step ahead and used some emotional hooks such as child, retirement, etc. See the example names mentioned at the beginning.

What about taxation?

That’s an important question. An MIP is taxed like a debt fund. It means that if you sell the fund before 3 years of buying, the capital gains are taxed as per your income tax bracket.

However, if you sell it after 3 years, you get to index your cost and pay a lower tax at 20% of the cost indexed capital gains.

From a taxation point of view, it is more efficient on a 3 year plus holding basis, as is any other debt fund.

Also, while the dividends are tax-free in your hands, the fund pays a 28.84% dividend distribution tax on your behalf, which is ultimately charged to the fund expenses.

Ah, expenses. What kind of expenses do these funds charge?

Expenses is a touchy topic. If you were to look at the structure of MIPs, the most aggressive ones hold about 25 to 30% equity and the rest in debt. The debt portfolio is also in medium to long term bonds.

The expense ratio of Birla SL MIP – 25 is about 0.89%. For HDFC MIP – Long term plan, the expense ratio is at 1.26%. The number for ICICI Pru MIP is 1.81%.

Does it make sense to invest in an MIP?

The benefit of having an MIP is the auto rebalancing in the fund. Since it strives to maintain a pre-defined ratio of debt:equity, it keeps rebalancing the portfolio to maintain the ratio.

For those who cannot take the effort (basically, you are lazy) to maintain a similar asset allocation may be better off using an MIP.

But overall it is a disaster. You see you include equity investment in a fund, take on the risk associated with equities and yet get taxed like debt.

If you know, an equity fund after 1 year of holding attracts zero tax on capital gains. But for MIP, the taxation is as mentioned earlier.

What’s the alternative?

The alternative is to choose a pure debt fund or bonds for upto 70% of the portfolio and invest the remaining money into an equity fund.

The further caution is don’t chase the returns only. A Birla SunLife MIP was able to deliver a 21% 1 year return for specific reasons in investment choice. It is unlikely to replicate it in the future.

As far as returns are concerned, your expected returns will be in line with the broad asset class expectation. 

Take these facts into consideration before you make your investment into an MIP.

www.rajivfcs.weebly.com

Rajiv Kapoor

Practicing Company Secretary

Kanpur

9839034761

21 Thumb Rules of Financial Planning:

21 Thumb Rules of Financial Planning: 

1. 30 % of your income must be used for monthly living expenses.
2. 30% of your income must be used for Liabilities repayments, if any... 
3. 30% of your income must be SAVED and INVESTED for your future LIVING.
4. 10% of your income must be spared for entertainments, vacations.
5. 6 Months Expenses must be available for emergency fund (should be invested in LIQUID FUND, FD Etc) 
6. Home Loan must be registered and apply on both Husband and Wife name. (Both can get benefits on Home Loan Tax benefits) 
7. Buying Second house for investment is not advisable (Survey reports - it will fetch you only around 3% return) 
8. After 45 Years of age, not supposed  to  enter  into  any BIG LIABILITIES (Higher education of children and wedding of children will happen around 45 to 50 only, so plan now for the same.) 
9. Have proper nomination at Bank accounts.
10. Property must be registered on both Husband and wife name. (As per law – after husband first legal heir is wife, after wife it will go to children only) 
11. Regular check on Nominations at all financial instruments, if not nominated, do it now...
12. Only in Insurance Policy, Claims payable to Nominee. In other financial instruments legal heirs certificate is must to get back the settlement.
13. Must have Term Insurance to financially secure future of your dependants.. 
14.  Don’t take any financial investment decisions EMOTIONALLY, and also Avoid last minute tax saving investment decisions, plan well in advance.. 
15. MEDICLAIM is must (in spite of Group mediclaim coverage given at office) (After retirement there is no mediclaim coverage, after 50-55 years of age, it's very tough and costly to enter into mediclaim) 
16. For your jewelery LOCKER, only one lakh is payable by bank, if theft or fire happen at bank, provided insurance has been done. 
17. Like same way Government guaranteed only one lakh for your FD also. (Fixed deposits with Banks up to Rs. 1 lakh only are backed by deposit insurance) 
18. Must know all Tax implications. You cannot avoid paying tax. But you can minimize by way of tax planning and investments... 
19. All Financial Documents must be kept safely and keep family members informed of the same... 
20. Financial Investments must be followed through personal financial advisor...
21. Review your portfolio at every six month.

These are general suggestions, personal Finance and investment decisions depends upon case to case.

Have a Healthy and Wealthy Financial Year 2017-2018

RAJIV KAPOOR

BSc, LLb, FCS

SEBI Authorised Investment Advisor

Kanpur

9839034761

Your Attitude Is Everything

Your Attitude Is Everything

ASK AND YOU WILL RECEIVE 

SEEK AND YOU WILL FIND 

KNOCK AND IT WILL BE OPENED TO YOU

What is attitude? It a settled way of thinking or in simple terms it is feeling about something. One's attitude is a way of his life. In day to day life, we have a choice regarding the attitude we embrace for that day. We distinguish days as GOOD DAY & BAD DAY. But the reality is that a good day and a bad day is our attitude. Can we change our past? Can we change the way certain people think? Can we change what's inevitable? The answers are no definitely NOT. However, the only thing we can possibly change to deal with situations better is our attitude.

Our attitude determines the outcome of our actions. This truth is accepted by most of the successful people of the world, whether it is a doctor going for a surgery, or a businessman launching a new venture. Edge off to win or to lose is mainly depend upon one's attitude. So we can say correct and perfectly positive attitude is the key to success.

One's behavior is reflected from his attitude. Our attitude towards the other people, determines the other's attitude towards us. If one behaves politely at the other, the other may treat you politely back; while if one acts hard-nosed with the other, the other is likely to snap at him.

Every human being is the master of his own destiny. Everyone can very well control his grief or happiness, by choosing the correct attitude. One can overcome his grief with the correct attitude and also he can enjoy the pursuit of happiness. Attitude is the foundation sustaining all successful people.

You need a solid foundation to achieve goals of your life. If you are hungry for success then you must learn to overcome fear and to deal with rejection and failure. At the starting stage, you must improve the attitude which you hold towards yourself. It is very hard to engage others to believe in you, if your attitude projects something opposite. One must learn to monitor his own attitude and he should also assess its impact on your performance, relationships and everyone around you. This would definitely lead to achieve your greatest potential in life. It is well known that our mind is a computer that can be programmed. So it is on our side to choose productive program or unproductive.

Habitual bad attitudes are often the product of past experiences and events. You can go forward with an attitude talk. Attitude talk is a way to delete your past negative programming and reprogramming your mind with a conscious, positive internal voice that helps you in achieving a new higher goal.

Opportunity 'knocks' at every door. It depends upon one's attitude whether to utilize it or forget it. Proper reactions to opportunity lead to success. Every problem that we face is nothing but an opportunity, which can leads to success, by learning how to conquer it. For a person having perfect attitude, a problem is only a temporary setback. He treats these problems a stepping stone to success.

Soul of all above discussion

1. Create the Right Attitude.
2. Have consideration for the other person, and you will receive the same consideration, from others, in return.
3. Avoid criticism, especially in public.
4. Always have a positiveness while the interpretation of another. Don't get paranoid and expect the worst. It is always better to give a person the benefit of the doubt. 
5. In order to learn anything new, you need an exchange of ideas. 
6. Always be grateful for all that you are enjoying.

RAJIV KAPOOR

BSc, LLb, FCS

SEBI Authorised Financial Planner

Kanpur

9839034761