Want money to multiply?

Get PPF a/c for your kid

Sunil Dhawan, Outlook MoneyFebruary 20, 2007

The public provident fund (PPF) is not only a risk-free way to grow your wealth over a long term it is also a suitable investment for
your kids. PPF allows you to invest your funds in your child's name without adding to your tax liability. Since the interest from PPF is tax-free, any amount invested in your child's name makes the clubbing provision of income tax ineffective. Here's how: If you consider investing the maximum allowed Rs 70,000 in a PPF over 15 years, assuming a rate of interest of 8 per cent, the tax-free maturity amount comes to about Rs 21 lakh (Rs 2.1 million). Though the returns are lower than a mutual fund, PPF guarantees your principal invested and returns. How to go about it? You can contribute up to Rs 69,500 every year to a PPF account in the name of the child, major or minor, and only Rs 500 to your own account. On completion of 15 years, opt for an extension every five years, in case your kids are still young. You don't have to make any further investment and your money continues to grow at the prevailing rate of interest. The same amount of Rs 21 lakh in the example, after another five years, yields about Rs 30.15 lakh, with no additional investment (See table: Prudent Moves).

Prudent Moves For every Rs 70,000 invested in PPF, you save Rs 21,000 in taxes (30% tax bracket). Invest this in a mutual fund (average rate of growth 12%) and see the returns compound.

Term 15 years Amount investment annually (Rs) 70,000 After 15 years (Rs lakh)

Interest 8% After 20 years (Rs lakh)

20.52 Term 15 years

30.15 Interest 12% After 20 years (Rs lakh)

Amount investment annually (Rs) 21,000*

After 15 years (Rs lakh)

8.76

15.40

* The amount saved in taxes and investment in a standard mutual fund

Your PPF investment ensures that you pay less taxes. You could invest what you save as taxes in mutual funds. This way, you are not exposing your entire fund to equities, while getting a safe kicker to generate better returns. Assume that you save Rs 21,000 as taxes on a PPF investment of Rs 70,000. This way you get an additional Rs 8.76 lakh (Rs 876,000) at the end of 15 years, for just 23 per cent of equity allocation in your investment of Rs 91,000.

Sure Shots

You can invest in you child's name without adding to your tax liability. Though the returns are lower than equities, PPF guarantees your principal and interest. You can opt for an extension every five years after the completion of its term of 15 years.

Withdrawals: When the time comes to get your child married off or to send her for higher studies, your withdrawal option would depend on the amount required and other prevailing circumstances. You can withdraw from your PPF account in instalments at the start of each extended period. If you have been continuing with fresh subscriptions, you can withdraw up to 60 per cent of your balance. Remember, if you open a new account, you will not be allowed any withdrawals till the fifth year. In case of any expenditure, use your equity investments first, if they have done well. It is advisable not to use your PPF fund. Even if you need to use it, use only the customary 60 per cent and continue the account to ensure your savings continue to grow. This could take care of your second child's needs, if you have one. In the unlikely event (over a long term) that your equity investments takes a beating, you may have no option but to withdraw from your PPF. Your first choice as an investment option should be your last resort. For withdrawals, before encashing your PPF funds, liquidate your bank deposits, mutual funds and other equity investments. Tap the PPF account at the end.

PPF: Your Child's First Friend If you are a risk-averse individual and looking for the most dependable route to save for your children's future, sample this checklist. You won't find such attractive features anywhere else.

FEATURES Who can open account

PARTICULARS Self, minor or spouse Highest Fixed 8 15 500

REMARKS No joint account; nomination allowed

Safety Returns Interest rate (%) Term (years) Minimum investment (Rs)

Backed by government No market volatility Fixed each year in April Can be extended indefinitely in 5-year periods Penalty of Rs 50, if this is not met Combined limit of one or more accounts After expiry of a period of five years From third to sixth year of account Up to Rs 70,000 u/s 80C No tax on interest No wealth tax Effective return of 8.9. 10, 11.5 per cent for individuals in 10.2, 20.4, 30.6 per cent slabs

Maximum investment (Rs) 70,000 Withdrawal facility Loan facility Tax benefits Available Available Available

Where to invest your money in 2007

Moneycontrol.com

January 03, 2007 11:34 IST

Investing is no longer as easy as opening a bank fixed deposit and parking money in a post office scheme. With so many

attractive avenues in the market today, it is in your best interest to chalk out a plan for 2007 to make the most of the opportunities. And to help you out with this task, CNBC TV 18 spoke to experts Arpit Agarwal of Dawnay Day and Puneet Nanda of ICICI Prudential. In the year 2007, how should one breakup his/her portfolio between asset classes assuming its not a very conservative portfolio, neither terribly aggressive? Puneet Nanda: As you said it rightly, the most important thing to concentrate on is asset allocation rather than things like stock picking and so on. But when one looks at asset allocation, you must answer these three questions: What are your financial goals? What is your risk appetite? What is your time horizon? Markets tend to be very volatile by nature and more so in recent times, which is why one needs to take a long-term call, i.e. three to five years, when one is deciding about asset allocation.

Puneet Nanda says:

Aggressive investor Equity Fixed income, including cash Real estate Commodities, mainly gold Conservative investor Equity Fixed income, including cash Real estate Commodities, mainly gold 30% 30% 25% 15% 60% 15% 15% 10%

However, if one assumes that the objective is simply wealth maximization, then one has to look at the risk appetite. One can probably look at a conservative individual and an aggressive individual. If I was an aggressive individual, I would probably invest 60% in equity, 15% in fixed income instruments. It could include cash, in fact at current point of time it would be a short term instruments. I would invest another 15% in real estate and remaining 10% in a bunch of commodities, which is primarily gold in the Indian market today. But on the other hand, if I was a conservative investor I would look at returns per unit of risk rather than returns per se. That's where the conservatism comes in. I would probably put about 30% in equity at this point of time and another 30% in some kind of fixed income instruments including cash, 25% in real estate and maybe the remaining 15% in commodities, including gold. Arpit Agarwal: Background to what happen in 2006, it has been a dream 2006 and both the investors as well as the manufacturers are in a euphoria that everything is going great. Whatever you put on the table sells or whatever you buy off the table, gives you 20%, 30% or even 40% of returns. With that background, when you move into 2007, aggression will be the underlying scene for investors as well as manufacturers.

So I would say, just be a little cautious and reduce volatility in the portfolio, at the same time, do not get too defensive and start getting into fixed income. Fixed income gives you 7-9%, which in my view is ultra conservative considering the way India is doing today.

Arpit Agarwal says:

Large caps, long-term growth stocks Mid caps and small caps Real estate Commodities, mainly gold and silver 30-35% 10-15% 20-25% 10-15%

Fixed income, including bank fixed deposits and cash 10-15%

So probably, what I would do is take about 50% of the portfolio and stay in long-term equities. Typically, within that 50%, I would invest about 60-70% in largecaps, long-term, growth stocks and put the balance 30% or 40% in midcap and smallcaps to get the opportunities. Of the remaining 50%, I would put in 20-25% in real estate but be absolutely sure what kind of real estate you are buying. Do not just go and buy anything or anywhere. Hopefully, by 2007, if we have real estate investment trust coming in, it will make life a lot easier for the investors. Investing in real estate would serve as the hedge against inflation. Now, you are left with about 20-25%. Probably, the investor should diversify into non-ferrous metals; gold, silver is anyway there and you can look at putting in 10-15% of your money in commodities. Now you are left with 10-15% as cash. People keep cash in their savings bank account to take short-term opportunities like arbitrage or sectoral play or individual stock play. Ideally, what they should do is put that money in a long-term fixed deposit in a triple A rated bank. What it gives you is 8-8.5%, 3-5 year interest rate. And then you can borrow against that fixed deposit. Banks will lend you 90-95% at 2% above the deposit rate for these short-term arbitrage opportunities. So you maximize your fixed income portfolio, you have an underlying real estate and a strong underlying 30-40% equity portfolio and you have a good 30-40% left to arbitrage and take short-term opportunities. When you say fixed income what's the best product? Do you mean Reserve Bank of India (RBI) tax saving or do you put it in an actively managed bond fund from a mutual fund basket? What is the best way to approach a fixed income basket? Puneet Nanda: There are a number of instruments like RBI bonds, small saving instruments, mutual funds schemes, bank deposits which is an asset class by itself. Also, insurance companies have these new age products called the unit-linked products wherein again similar options are available in terms of different fund classes. So it could be either in one or in the mix of all. At this point of time, given the view that interest rates probably still have some way to go in terms of going up, it would be more appropriate to either lock in to some kind of fixed rates where there is no market risk. This is the case perhaps in mutual fund or in short-term instrument. For example; if one is looking at the mutual fund option, one should look at short-term funds or liquid funds and so on. Alternatively, one could look at either some kind of small savings instruments, which have a fixed return, like bank deposits or short term fund options in ULIPs so it's not subject to market fluctuations. When you say 50-60% equity for people who are not very active traders or investors and say are medium to high net worth, would you advice them to look at PMSs or structured product from brokerages or go for the vanilla mutual fund offerings? Arpit Agarwal: I would recommend if my equity component of my portfolio is Rs 100, I would put in at least 70-75% with quality long term asset management companies because they have the fund managers who will look after these monies. I can always take away 20-25% of that Rs 100 and go in to PMSs or try doing something of my own.

So, my core underlying portfolio is with qualified investors and they look after it. If I make money on my 25%, I can keep myself excited with that 25% because people don't want to be passive, they actually want to participate. Five percent of the overall portfolio should be kept for that excitement. If they make money then great. What is the best way to play commodities because a lot of people are interested in it but do not want to own physical gold since it is a relatively newer market. How would you advise people to go about investing on that side? Arpit Agarwal: A couple of days ago, we read in the leading dailies that SEBI is looking at launching gold ETFs. By 2007, I would probably see that the regulators may launch probably a gold ETF or another commodity ETF and that would be the best way for those who are in commodities. But I guess commodities will probably feature in more as alternatives into structured products, which manufacturers will throw in and that is how investors should take that.

Buying ULIPs? Read the fine print

Sunil Dhawan, Outlook Money

March 22, 2007

Till a few years back, a return guaranteed on an insurance policy was a good enough reason for you to maybe buy that
policy. During the monopolistic era of Life Insurance Corporation of India, a majority of their policies had a return guaranteed in them. High interest rates during that time also saw a deluge of similar policies. Instead of declaring bonuses based on the profit, if the insurer fixes a return right at the beginning of the term for the entire duration, bonuses take the place of guaranteed addition. In such circumstances, whatever the profits of the insurer, it has to pay an assured return on those polices. Slowly, with falling interest rates, policies with such promises also faded away. Since 2001, when private insurance companies came on to the battlefield of premiums and sum assured, guaranteed returns plans went out of favour. Its longheld position was taken over by the more flexible unit-linked insurance plan. Despite this, guarantees have sneaked back into the insurance industry. In our exercise, we have considered guarantees provided in unit-linked plans only and looked at various options available. The guaranteed returns or additions in a participatory or a with-profit policy is a fixed sum of, say, Rs 60 per Rs 1,000 of sum assured, that gets attached to the policy every year till the end of the term. A higher guaranteed addition does not necessarily mean a higher return. The internal rate of return or the actual effective return of that policy may still be low. Why such guarantees? Unit-linked plans by their very nature are subject to market fluctuations. The investment risk is entirely the investor's, as are its gains and losses. In the long term, these risks are expected to even out and returns over a period of more than 10 years are likely to be around 12-15 per cent. However, if you feel that at least a certain amount of return should be guaranteed or at least your principal should be safe, this option is now available. In the ULIP sphere, two kinds of guarantees are offered - on the premiums paid and of the premiums paid. Returns assured 'on' your premiums: Although few companies provide guaranteed return on the premiums that you pay, this assurance is not on the entire premium that is invested. The guarantee is always on the net premium that is invested after deducting certain charges from it. For example, Flexi Save Plus, Flexi Life Line and Flexi Cashflow are few plans from Birla Sun Life Insurance that come with such guarantees. Minimum guaranteed return of three per cent per annum is on the premium and any top up amounts after deducting all the policy charges from the premium invested. A return generated in excess of this is for the investor to enjoy. At the time of maturity, the higher of the fund value (constituting the actual return generated) or the guaranteed fund value (based on three per cent net returns) is paid to you. Similarly, on death, the nominee receives a higher of the fund value or guaranteed fund or the sum assured. These plans have different terms and you can also limit the premium payment to a lower duration. For example, someone choosing to buy a 25-year plan may pay premiums only for 15 years while the policy continues till 25 years. The expenses also differ based on the tenure of the policy you choose.

For example, in Flexi Cash Flow if the premium paying period is kept at 15 years, the charges would be 65 per cent of the first year premium, 7.5 per cent for next two years and five per cent for subsequent years. This means that a premium of Rs 50,000 in the first year gets reduced by Rs 32,500 and only the balance of Rs 17,500 is invested. Here, you need to note that the guarantee is on Rs 17,500 and not on the actual amount invested. Other policy charges could further reduce the net amount. The effective guaranteed rate is actually around one per cent. Assurance 'of' your premiums: Aviva Life Insurance has a slightly different kind of guarantee across most of its policies. Of the three fund options - growth, balanced and secure funds - the guarantee is that on maturity, the fund value of the secure fund will not be less than the price of units as and when purchased through paying of premiums. This gives an assurance that even if the market goes down, the principal invested is safe and would never erode. The stipulation: there should not be any switch to or from the secure fund in any year. Here, you need to take note of the fund composition, which has a range of 60-100 per cent for debt securities, up to 20 per cent for equities and equal percentage for money market instruments. The return as on 22 February, over the last one year in its secure fund has been around seven per cent with equity exposure of just eight per cent of the total corpus. This is an option for investors looking to park their funds after exhausting the Rs 70,000 limit in a public provident fund. ICICI Prudential and Reliance Life Insurance also offer plans that carry a guarantee of the premiums that you pay. The sum total of all premiums paid is guaranteed on death or on maturity of the plan. Here, assurance is on the entire premium paid and not just of the net premium. Invest Shield Life with maximum equity exposure of 40 per cent and Invest Shield Cashback with zero percent in equities, are two such plans from ICICI Prudential. Reliance Life Insurance has Money Guarantee Plan in this sphere with equity exposure ranging between 40 and 60 per cent as per your choice. Boundaries No guarantee comes unconditionally. One feature in almost all Ulips is the cover continuance option. Under this, if one is not able to pay the premiums anytime after paying for the first three years, your policy would not lapse and the life cover continues. The life cover sustains because of the mortality charges (life coverage charges) that continue to be deducted from your fund value. In order to avail the premium guarantee benefit, one needs to make sure that all premiums have been paid and the cover continuance option is not being used at all. A single missed premium will bereave you of this guarantee. Another similarity lies in the maximum equity exposure that these plans take. Do not expect to ride the equity wave when the markets are in full swing, as a maximum of about 60 per cent of your money would be invested in equity depending on the insurer. The trade-off In plans where premiums are guaranteed, charges over the years are slightly higher than a plan without any such guarantees. The fund management charge may be slightly lower as the exposure to equities is not high. As on 31 December 2006, the one-year return in ICICI Prudential Invest Shield Life Plan was 17.62 per cent, which had an equity exposure of just 27.37 per cent. Compared to that, the returns of the Maximiser Fund of the same insurer, which had 97.91 per cent exposure to equity, in the same period was 36.56 per cent. The low equity dimension keeps the returns on the lower side. Should you invest ULIPs are bundled products that simultaneously take care of your investment and insurance needs. Buying them separately would cost you less. Make sure you hold a ULIP for a horizon of not less than eight to 10 years to actually derive its advantage. Be clear of the portfolio composition. Risk coverage of both - one's life and the capital invested - is something these plans attempt to offer. If you are looking to take moderate risk and willing to expose your neck a little into the stockmarket, the premium guarantee plans could be the answer. In the long run, expect a return in the range of a balanced fund.

ULIPs With Guarantees Name of plan Guarantee available on Equity exposure (%) No. of fund options

Reliance Life Money Guarantee Plan ICICI Prudential Invest Shield Life

Sum of all premiums paid Sum of all premiums paid

40-60 0-40 0 0-35 0-20

3 1 1 3 1

ICICI Prudential Invest Shield Cashback Sum of all premiums paid Birla SunLife Flexi Save Plus Aviva Life Insurance How They Work? Annual premium (Rs) Sum assured (Rs) Term (years) Total annual premiums paid (Rs) Guaranteed maturity value (Rs) Projected maturity value at 6% (Rs) Projected maturity value at 10% (Rs) Effective yield at 6% (actual return) Effective yield at 10% (actual return) 3% of net premium Value of secure fund

30,000 3 lakh 20 6 lakh 6 lakh 9,00,292 14,21,751 3.72% 7.65%

Amar Pandit

4 stock market mistakes to avoid

April 10, 2007

Worried that your neighbour is making more profits in the stock markets than you are? Wondering how to
beat her/him at the sweepstake? This is the trap that all stock market investors find themselves in when they try to surpass others who make more money than they do. Ask any behavioural finance expert and they will tell you that this is the biggest mistake that investors make. Apart from this ordinary investors fall prey to a host of other allurements and lose their money as well as their sleep. Here are 4 basic mistakes that investors should avoid to succeed in making money in the stock markets. Never buy a stock based on its past performance Stock markets move in cycles. It goes up during one phase and comes down during another. In short, the stock market follows the economy of a country. If the economy of a country is doing well stock markets go up and vice versa.

A stock giving more than 30 per cent returns during the last four years stands no guarantee that it will continue to do so year after year. A time will come when returns on this particular stock will dwindle or may even give negative returns. You get negative returns when the stock price of a company goes below your purchase price. You will lose 20 per cent on a stock if your purchase price is Rs 100 and its market price is Rs 80. Despite this caveat, the first question that you will ask yourself is how much has the stock price grown in the past few years. Though, it is always good to know the past performance of a company's stock market price it is risky to base your buy decision primarily on this information. Beware of stock market experts When the going is good, all are bulls (advice you to buy stocks expecting prices to go higher after you buy) and you can see most of the market experts doing a happy song and dance sequence about the new peaks that the Sensex and Nifty can scale and how more and more money is entering the Indian markets. However, when the markets take a reverse turn, everyone becomes a bear (advice you to sell stocks expecting prices to fall after you sell) and you will be considered unfashionable not be on television and rant reasons for doom. Experts who disappear during rallies (when stock markets move up) suddenly appear on the circuit and start their gloom gyan again. All this compounds the confusion existing in the mind of investors as to what they should be doing. Don't be unrealistic with your expectations It will be foolish on your part to think that stock markets can give huge returns every year. Never be unreasonable with your expectations from the stock markets. Historically, stock markets have given between 15-20 per cent returns over a period of 20 years. If you think that your money should grow 50 per cent every year then stock market is not the right place for you. Though there are people who promise you the moon the best you can do is keep away from them. More often than not you will come across a friend or acquaintance telling you how s/he was taken for a ride by believing in unrealistic plans. Charles Ponzi launched one such scheme in the 1920s. He promised investors to double their money in just 90 days! There is no need to ask if investors lost their shirt investing in such a scheme. 40,000 US investors lost some $ 15 million in a span of few years! Understand the consequences of failure on your portfolio Remember that at the end of the day it is your portfolio (number of stocks that you own make up your portfolio) and your money. If you make losses it is you and your family that will suffer because of it. Your job does not get over once you create a portfolio of good blue chip stocks. In fact, you have to keep a close watch on your portfolio because of the current volatility shown by the markets. Check out the performance of individual stocks over a period of three months, 6 months, 9 months and a year. This will help you to understand the performance of your portfolio. Normally, investors tend to forget about their stocks once they build a good portfolio. Stock markets being what they are the chances of your portfolio losing money will always be far higher. Don't put all your money in the equity markets expecting high returns. If returns are high risks are higher.

Finally do not panic and make radical changes to your portfolio. Do a review of your situation, needs and portfolio and see how you can make adjustments to your portfolio if any. Whatever you do in the end, your ability to sleep well during such volatile times is paramount. The author is a certified financial planner and runs the Mumbai-based firm My Financial Advisor.

How to identify best mutual funds

April 02, 2007

The world of mutual funds is indeed huge. With so many funds and the umpteen number of schemes they
launch, it is very easy to get lost in them. Which are the best mutual funds? How do you identify them? These are a few of the problems nagging investors all the time. The other questions are: Should one invest in gold mutual funds? Is there a scientific method to identify the best fund manager? What should be the basis of investing in a mutual fund? What kind of returns can you expect by investing through systematic investment plans, SIPs? Get Ahead money expert T Srikanth Bhagavat answered these and other mutual fund related queries in a chat with Get Ahead readers on March 29. For those who missed the chat, here is the transcript. Part II -- Earn Rs 50 lakhs in 20 years

chr asked, Hi Srikanth, Pls tell me 3 best MF from Equity Dividend for long term investment. Bhagavat answers, Looking at a 5 year track record of consistent performance, the three equity funds which stand out are Magnum Contra, HDFC Equity and Reliance Vision.

vin4u asked, What should be the expected return of real estate mutual funds? Bhagavat answers, Real estate mutual funds have not yet been approved by SEBI. It is expected to happen soon!

himanshu asked, there are 4 days for SIP monthly investment, how to decide which date to choose ? Bhagavat answers, When the plan is to do a systematic investment over a few years, it really does not matter which date you choose. For the sake of convenience, you could choose a date when you will be having clear funds available in your account.

docl asked, hi shri i have invested in mutual funds a few days back. The market is going down since then i am scared. Pls advice. Bhagavat answers, Equity markets by nature are volatile, that is, continuously changing in both directions. The best way to make the market work in your favor is to continuously make investments (on a regular basis) to average the market and to ensure that you have a 5 year time frame for the returns to happen. Given that we

are in a growing economy, the growth is bound to reflect in the stock prices of the companies participating in the growth. Give it time to happen.

Mukesh asked, I want to invest through SIP with an aim to acquire a handsome lumpsum at the end of certain period (say 10 Years), without taking much risk. Can you please suggest some scheme? Bhagavat answers, Among large cap funds, the top performers have been HDFC Equity Fund, Reliance Vision, DSP Merrill Lynch Equity Fund and Magnum Contra. Among Mid Cap funds, the top perfromers have clearly been Sundaram Select Mid Cap and Reliance Growth. It would be useful to have your investments regularly reviewed by a financial planner.

patel asked, Sir, there are so many Mutual fund schemes now that we ordinary investors get confused. How to cut thru the nonsense and focus on good ones? Bhagavat answers, Yes, it is a problem for many. The best way is to look at a 3 year or 5 year track record of performance. Check whether this peformance is among the top five in the category. I generally consider what is called the Sharpe Ratio of the fund, which is a risk adjusted return, and ensure that the fund I am choosing has the highest such number.

asiff asked, Hi Srikanth, what is the best time to sell the fund, how long is it advisable to hold them? Bhagavat answers, If the fund you own continues to be among the top perfroming set, there is no need to sell. A good way to decide is, check 1) Do you need the money? 2)Has the performance dropped? 3) Any significant change in the management of the fund? If the answer to any of them is yes, you could sell.

Rajat asked, Hi, Can you please tell me , i have to invest Rs 50 lakhs in Mutual funds, kindly advice where to invest. Bhagavat answers, The portfolio will depend on your investment horizon and risk appetite.

fun asked, I invested in following funds last year through SIP. Can you pls review these if some one needs to be replaced with better performing funds. DSP BALANCED FUND - GROWTH ,HDFC PRUDENCE FUND - GROWTH PLAN ,SBI MAGNUM BALANCED FUND GROWTH, HDFC MIP-LTP-GROWTH, RELIANCE MONTHLY INCOME PLAN GROWTH PLAN, DSPML SMALL & MID CAP FUND - REGULAR PLAN - GROWTH , HDFC LONG TERM ADVANTAGE FUND - GROWTH** HDFC TAX SAVER - GROWTH PLAN** PRUDENTIAL ICICI TAX PLAN GROWTH** SBI MAGNUM TAX GAIN SCHEME** ,SUNDARAM BNP PARIBAS SELECT MIDCAP - GROWTH ,SBI MAGNUM SECTOR FUNDS UMBRELLA CONTRA -GROWTH. Bhagavat answers, Prudence and Magnum Balanced funds are doing well. DSPML Balanced does not have as high a score on risk adjusted returns basis. It is lower on returns and higher on risk. Among MIPs, both your MIPS are doing fine. Among Tax Saving funds, Magnum and HDFC Tax Saver have done well. Your mid caps are also among the top. Overall, you are invested in the best of funds. As an observation, you do not seem to have any large cap funds, which offer better stability to your equity portfolio.

Rajesh asked, Hi Srikanth, could you tell me whether it is wise to invest in gold mutual funds?

Bhagavat answers, As an asset class, I am of the opinion that gold should have a presence in the portfolio, albeit in a smaller way. And a convenient way to own gold is by buying units of a gold fund. It tracks the price of gold faithfully and also removes the hassle of storing gold at home!

mamu asked, Sir, if I have to invest in a MF based on the fund manager, how should I proceed? How important is the role of a fund manager in the success of a MF scheme? Bhagavat answers, Ideally, the performance of the fund should not depend on a single person or a star. But if you must, there is a performance measure called Alpha, which measures the fund manager's contribution to the returns of the fund. In a way, it measures his stock picking skills.

gaurav k asked, sbi magnum or HDFC Tax Saver, which fund is better in both funds? Kindly advice. Bhagavat answers, Magnum is higher in returns at 61% per annum versus 50 per cent per annum over the last 3 years. But it has taken a higher risk than HDFC Tax Saver to do so.That is to say, it has been more volatile than HDFC Tax Saver.

Earn Rs 50 lakhs in 20 years

April 03, 2007

Do you think this is for real? Can investment in systematic investment plans, SIPs, make you a millionaire in
20 years? How much do you need to invest every month to hit the Rs 5 million mark? Can you save on tax while investing in mutual funds? If yes, which is the best mutual fund that can help you do this? Should you invest directly in the stock markets or take the mutual fund route? What are fixed maturity plans? What are open-ended and close-ended schemes? Get Ahead money expert T Srikanth Bhagavat answered these and other mutual fund related queries in a chat with Get Ahead readers on March 29. For those who missed the chat, here is the transcript. Part I: How to identify best mutual funds

prisca asked, how much interest would I get if I would like to invest Rs 10,000 in a mutual fund? Can you suggest which mutual fund is the best? Bhagavat answers, Mutual funds do not pay out interest. Instead, a (bond) fund invests in interest bearing securities of various companies and the interest so earned by the fund is paid out as a dividend to the unit holders. A liquid fund, which is a safe bond fund, has earned in the range of 7 per cent per annum tax-free.

manuji asked, As the market has fallen considerably, and it's expected that the quarterly results may not be up to the expectations, suppose market falls another 1,000 points. Won't it be wise to put a lump sum amount (about Rs 30k-40k) in mutual funds? or should I stick to SIPs? Bhagavat answers, Sticking to an SIP is always the safest option. Timing the market, really, has more to do with luck. If no more bad news follows after the point you thought was the lowest, you may be lucky -- if not, unlucky!

Debashree asked, Please let me know how is Tata Infrastructure fund and how about investing in that through SIP for next one year?

Bhagavat answers, As an infrastructure fund, it has been an underperformer as compared to Pru Infrastructure and DSP Tiger. But the sector promises performance. Do remember that concentrating investments in any one sector is always risky. In my view, sector funds should not occupy more than 10 per cent of your equity portfolio. More is aggressive.

ravichandran asked, IS SBI magnum contra reliable fund? Bhagavat answers, Contra has a good performance track record over the last 5 years. It has an aggressive philosophy of buying stocks in beaten down sectors. In the recent past, it has underperformed the Nifty. Much of its past performance may be attributed to its exposure to mid caps. The fund does have a good backing in terms of SBI.

rengs asked, Why TATA contra fund is not performing well? Is this the right time to exit? Bhagavat answers, Though the investment philosophy may show results only in the long term, the fund has seen too many changes in fund managers. You could evaluate your options again.

Akshay asked, Hi Srikanth I find it very difficult to invest in Fixed Maturity Plans as the application forms are not easily available. Bhagavat answers, Pick them up from the Mutual funds directly. It is worth the additional effort!

Raman asked, Is there any mutual fund with Tax Benefit. Required by an elderly person of 85 years. ULIP won't help, because of his age. Bhagavat answers, There is a category called equity linked savings schemes (ELSS), where you could invest upto Rs 1 lakh per annum under Sec 80C. There is lock-in period of 3 years.

RRN asked, Hi Srikanth, Post dividend announcement, how does this reflect in the growth funds? Bhagavat answers, Dividends do not impact growth options of the funds.

Mihir asked, Why MF performance varies with market? Does the same get even out in long run? Bhagavat answers, Funds are eventually invested in equities (if it is an equity fund). They cannot buck the trend. In the long run, it should be alright.

Debashree asked, How can I achieve Rs 50 lakhs in next 20 year through Mutual fund route? Tell me how to plan it. Bhagavat answers, An SIP of Rs 2,228 for 20 years in a Balanced portfolio should do it. Half in, say, HDFC Equity Fund and half into liquid fund such as Deutsche Money Plus Fund.

sgupta asked, Hi Which is better to enter market -- through MF or direct for a long term perspective say above 10 years? Bhagavat answers, A mutual fund route is definitely safer, since the task of stock selection will be the fund manager's and not yours!

Santosh asked, What are open-ended and close-ended schemes? Bhagavat answers, Open-ended funds allow investors to buy and sell units anytime, without restrictions, as opposed to a close-ended fund.

robinverma asked, Hi Sir, Please respond to my query. I want to invest in TAX saving funds, which can give me the maximum returns. Should I choose Franklin Templeton Taxshield 96? Or can you suggest anything else? Bhagavat answers, Among the most aggressive tax saver funds are the Magnum Tax Gain.

Bhagavat says, Thank you all for participating in the session. It is only due to paucity in time that I am unable to answer all the questions! This is Srikanth signing off!

Simplifying mutual funds for you

Sachin Lele
March 27, 2007

What is it that makes mutual funds such an attractive investment option? Here is a look at the basic factors
that are necessary in a sound mutual fund, and some dos and don'ts you must keep in mind before signing up. Understand your expectations and the risk involved Before deciding to invest in a mutual fund, you need to have a clear idea about what your expectations from your investment are (how much you expect your money to grow) and whether you are comfortable with the level of risk involved (how much of its money does the mutual fund invest in the stock market). It is important that you are clear about the risks you want to take, so that you are not disappointed in the long run. Think first, choose later Understand what you need the money for, and let that decide the future course of your investments. Let the risks that the fund takes match the risk that you are comfortable taking. Here are some steps that might help you pick the right funds: ~ Carefully assess the portfolio to check for the sectors it is focusing upon. Choose a fund where your level of comfort with their preferred sector is higher. In an ideal scenario, choose a fund that does not have a heavy focus on any particular sector; this cuts down the risk the fund is taking. ~ Understand whether your fund subscribes more to the 'value philosophy' or the 'growth philosophy'. This will give you an impression of the nature of risks the fund will be taking in the future. It is probably a safer investment to choose a mutual fund that does not buy and sell stocks too often if you are looking for a long-term investment and stability. This is also known as the 'value philosophy'. 12 mutual fund terms you must know

If you are comfortable affording a higher risk and choose to ride the markets, then you might opt for a fund that makes the most out of current booming sectors. This is the 'growth philosophy'. A bird in hand... Most investors are restricted by the degree of risk they can take with their investments. Give good thought to your investment process and also to the time horizon of the intended investment (the amount of time you are willing to give to the intended investment to grow). Don't change mutual funds just to make a quick buck. Patience pays in the long run. If you stick with a particular mutual fund scheme for more than two years, the chances of earning a decent profit on it increases. However, if you often sell units of one scheme to buy units of some other scheme, you may end up paying more in terms of fees than earning any profits. Instead, stick to a few funds that you think will give you good returns. Mathematically too, the chances of making money are far higher with investing small amounts regularly than with speculation. Remember, there is no way of perfectly timing the market (selling when the markets go up and buying when they fall; no investor has ever been able to succeed in this department). Unless there is a compelling reason, exiting a fund might not be the prudent choice. Avoid putting all eggs in one basket As a rule, always diversify the risks associated with your investments no matter what your ability to take risks may be. For instance, assume you have invested Rs 100,000 in a mutual fund scheme. And it would not make any difference to you even if the value of your investments come down to Rs 50,000. If this is your risk-taking capacity then you will be better off by investing Rs 50,000 in two different schemes, say one in an equity scheme and the other in a debt scheme. This will help you manage your risks better. A few pointers to cutting down on risk are: ~ Average out the risk in each category; invest in different asset classes like equity, gold, real estate, commodities etc. Equity investors would cut down on risks by investing a portion of their funds in debt. Diversifying even within a class like either debt or equity might be prudent. Why your fund manager is important

~ Split your investments across fund managers. Every fund manager has his own areas of strength when it comes to investing. There is no 'ultimate fund manager'. ~ More often than not, the quirks in the market decide who ends up maximising the returns. This will cut down on your profit margins a bit, but will also heavily bring down the risk. Success is nine parts observing, one part investing There are merits to studying and following the markets regularly. If you do not plan to invest for the next two months, it does not mean you should ignore the ups and downs in the markets for that period. You can never be sure when to enter or exit the market, but you can better your chances by being systematic. The basic philosophy of rupee cost averaging would suggest that if you invest regularly through the highs and lows of the market, you would stand a better chance of generating higher returns than the market for the whole duration.

Systematic investment plans, SIPs, offered by all funds helps you invest regularly. Simply issuing post-dated cheques to the fund takes care of most of your worries. In the case of a majority of funds these days the amount is directly debited electronically from your account. There is no substitute for research Regardless of the investor category you belong to, it is important that you have your basic research in place. This is how you should go about your research systematically: Understand all aspects besides just the risks associated with your investments. Get information on the growth in the sector, government policies, FII inflow and any information that makes you better informed. Remember, in the stock markets, information is where the money is. Ask intermediaries in case you need easier information. Research also gets you in touch with varied fund managers with diverse expertise, which might help you invest in more diverse stocks. Which is the right fund for me? Debt funds have lower returns. It is of higher importance to find funds that charge a low fee, as the fee charged eventually goes from the pocket of the investor. Funds can be utilised in saving tax. Investors of equity should use the dividend payout option. This is since all dividends are currently tax-exempt in India, and this will help in reducing tax-liabilities. Debt investors should avoid the payout option, as they will be taxed dividend distribution. If the market enters a bearish period, equity investors can minimise losses by switching to debt funds. And it is never a problem to switch back to equity once the equity markets start rising. When to throw in the towel? On meeting with the initial expectations of the fund, you should immediately book profits, that is, sell your units and take home the profits made. At times, it may not be advisable to continue with the current fund. Some of these pointers may help in deciding when to quit: ~ In case the fund is not performing relatively in the long run. If a fund has not performed as well as most of its peers in the past, then quitting might be an option worth exercising. When comparing funds, however, ensure that comparisons are drawn between parallels and across the same category. For example, do not compare debt funds with equity funds. A fund for your spare cash

~ Changes in the Asset Management Company (one mutual fund company buying out another, leading to a change in the management and the fund managers), open-ended funds changing to close-ended funds (in open-ended funds, investors are free to sell their units anytime but in close-ended funds investors cannot sell their units for a minimum period of time decided by the fund running that scheme) and any change in the premises from the offer document might be reason to quit (like a fund changing its objective from a debt fund to growth fund). ~ Significant rise in the fund's expense ratio leading to lower returns. ~ In case a fund does not comply with its objectives. For example, if some diversified equity funds had large exposures to ICE (Information technology, Communications, and Entertainment) sector scrips, then it adds to the volatility and also defies its objective.

Why ULIP is not the best insurance product

Amar Pandit

March 23, 2007

Selling insurance is considered to be a tough job by some industry insiders. Well not exactly by some hot shot
MDRTs. In case you didn't know, MDRT stands for Million Dollar Round Table and this is the most coveted title in the insurance sales industry. And there's no prize for guessing why insurance policy advisors and agents of all hues sell you those high costing insurance products like the unit linked insurance plan, ULIP. Now becoming a MDRT does not mean that you have advised your clients in their best interests; it simply means that you have sold more policies and hit targets required to qualify for MDRT. But most of the agents tout MDRT as if this were any substitute for good advice that they give and some sort of a qualification. Below I have given two common conversations in the insurance industry to highlight some finer points. They sell you what you don't want Mis-selling (Selling insurance products without understanding your needs) is rampant and whether you are a newborn or a 60 year old, insurance will be the first product sold to you. Selling insurance is a business and you better understand what's under all their sweet talk and projects. Don't mix insurance with investment. They are two separate decisions having different impacts on your life. Generally insurance is sold through friends, and family and hence there is a social obligation to buy the policy. So even if you have to honour a social obligation, buy a term plan. First conversation Suresh (Agency Manager): We need to hit our targets this year and become the number one branch of our company in terms of lives covered and premiums received. Ramesh: I have one client who wants to opt for a term plan. SIP or ULIP? Which is better?

Suresh: Boss why don't you offer him our ULIP. He will not be able to exit for the next 7 years (even though we say that he can exit after 3 years). ULIP premiums will get you closer to the MDRT faster, plus there is an additional bonus that you will get for selling this product. (Also, you can sell him more because even after buying this policy, he will still be underinsured). Ramesh: Why do you say that he will not be able to exit the policy after 3 years? Suresh: The 30 per cent costs that go towards covering mortality charges and other expenses while buying ULIPs are charged upfront and considering the state of the market, it would take at least 6-7 years for our product to break even. Ramesh: I get it now, Sir. Second conversation Bank Manager: Why don't you buy our Child Plan. It's a great product and has given 30 per cent return in the last few years.

Client: My financial advisor told me that I could opt for a term plan and a combination of stocks, mutual funds and Public Provident Fund (PPF) investments for my child's better future. Bank Manager: I will show you some calculations and you can see that this insurance is a long term product and the higher costs that you incur today evens out in the later years whereas mutual funds and stocks are short term offerings. So a term plan and a mutual fund is not a great combination. ULIP charges: The main culprit Now let's take a real world example of how you would have fared if you had bought a ULIP in the last 4 years or so. Cover: Rs 1 Lakh Premium paying term: 15 years Premium: Rs 8,592 per annum Option: Enhancer (35 per cent exposure to equity)

Transaction Details for the period 1-Jan-2003 to 29-Jan-2007 Date 11-Mar-03 Description Deposit Gross Amount (Rs) Charges (Rs) Net Amount (Rs) 8,592 -122.75 -122.75 -122.75 -122.75 -122.75 -122.75 -122.75 -122.75 -122.75 -122.75 -122.75 -122.75 -5,132.4 0 0 0 0 0 0 0 0 0 0 0 0 3,459.6 -122.75 -122.75 -122.75 -122.75 -122.75 -122.75 -122.75 -122.75 -122.75 -122.75 -122.75 -122.75

11-Mar-03 Cost of Insurance 11-Apr-03 Cost of Insurance 11-May-03 Cost of Insurance 11-Jun-03 Cost of Insurance 11-Jul-03 Cost of Insurance 11-Aug-03 Cost of Insurance 11-Sep-03 Cost of Insurance 11-Oct-03 Cost of Insurance 11-Nov-03 Cost of Insurance 11-Dec-03 Cost of Insurance 11-Jan-04 Cost of Insurance 11-Feb-04 Cost of Insurance

11-Mar-04

Deposit

8,592 -227.25 -227.25 -227.25 -227.25 -227.25 -227.25 -227.25 -227.25 -227.25 -227.25 -227.25 -227.25 -125.95 8,592 -125.95 -125.95 -125.95 -125.95 -8.15 -125.95 -8.15 -125.95

-592.2 0 0 0 0 0 0 0 0 0 0 0 0 0 -592.2 0 0 0 0 0 0 0 0

7,999.8 -227.25 -227.25 -227.25 -227.25 -227.25 -227.25 -227.25 -227.25 -227.25 -227.25 -227.25 -227.25 -125.95 7,999.8 -125.95 -125.95 -125.95 -125.95 -8.15 -125.95 -8.15 -125.95

11-Mar-04 Cost of Insurance 11-Apr-04 Cost of Insurance 11-May-04 Cost of Insurance 11-Jun-04 Cost of Insurance 11-Jul-04 Cost of Insurance 11-Aug-04 Cost of Insurance 11-Sep-04 Cost of Insurance 11-Oct-04 Cost of Insurance 11-Nov-04 Cost of Insurance 11-Dec-04 Cost of Insurance 11-Jan-05 Cost of Insurance 11-Feb-05 Cost of Insurance 11-Mar-05 Cost of Insurance 14-Mar-05 Deposit

11-Apr-05 Cost of Insurance 11-May-05 Cost of Insurance 11-Jun-05 Cost of Insurance 11-Jul-05 Cost of Insurance 11-Jul-05 Service Tax

11-Aug-05 Cost of Insurance 11-Aug-05 Service Tax

11-Sep-05 Cost of Insurance

11-Sep-05

Service Tax

-8.15 -125.95 -8.15 -125.95 -8.15 -125.95 -8.15 -125.95 -8.15 -125.95 -8.15 -128.05 -8.36 8,592 -128.05 -8.36 -128.05 -10.04 -128.05 -10.04 -128.05 -10.04 -128.05

0 0 0 0 0 0 0 0 0 0 0 0 0 -394.8 0 0 0 0 0 0 0 0 0

-8.15 -125.95 -8.15 -125.95 -8.15 -125.95 -8.15 -125.95 -8.15 -125.95 -8.15 -128.05 -8.36 8,197.2 -128.05 -8.36 -128.05 -10.04 -128.05 -10.04 -128.05 -10.04 -128.05

11-Oct-05 Cost of Insurance 11-Oct-05 Service Tax

11-Nov-05 Cost of Insurance 11-Nov-05 Service Tax

11-Dec-05 Cost of Insurance 11-Dec-05 Service Tax

11-Jan-06 Cost of Insurance 11-Jan-06 Service Tax

11-Feb-06 Cost of Insurance 11-Feb-06 Service Tax

11-Mar-06 Cost of Insurance 11-Mar-06 13-Mar-06 Service Tax Deposit

11-Apr-06 Cost of Insurance 11-Apr-06 Service Tax

11-May-06 Cost of Insurance 11-May-06 Service Tax

11-Jun-06 Cost of Insurance 11-Jun-06 Service Tax

11-Jul-06 Cost of Insurance 11-Jul-06 Service Tax

11-Aug-06 Cost of Insurance

11-Aug-06

Service Tax

-10.04 -128.05 -10.04 -128.05 -10.04 -128.05 -10.04 -128.05 -10.04 -128.05 -10.04

0 0 0 0 0 0 0 0 0 0 0

-10.04 -128.05 -10.04 -128.05 -10.04 -128.05 -10.04 -128.05 -10.04 -128.05 -10.04

11-Sep-06 Cost of Insurance 11-Sep-06 Service Tax

11-Oct-06 Cost of Insurance 11-Oct-06 Service Tax

11-Nov-06 Cost of Insurance 11-Nov-06 Service Tax

11-Dec-06 Cost of Insurance 11-Dec-06 Service Tax

11-Jan-07 Cost of Insurance 11-Jan-07 Service Tax

*Cost of insurance here includes the mortality charge, fund management charge, administrative details of Rs 22 per month etc. This figure varies from year to year. Reality check If you notice here the charges are deducted from the number of units that you have and not from the NAV. So if the NAV of this fund has increased by 30 per cent it is of no relevance to you as the charges are so steep in the first year that it will just take several years for your investment to break even. Get your insurance priority right

Now let's take stock of your policy value in January 2007:

Portfolio details as on 29/1/2007 Fund Name Individual Life - Enhancer Allocation in per cent Number of units Unit price (Rs) Unit fund value (Rs) 100 Total Fund Value (Rs) This is the premium you paid from 2003-2007: Rs 8,592.00 * 4 = Rs 34,368 Despite a roaring bull market for the last four years, the policy has still not broken even and is down a whopping 21 per cent. 1,160.024 23.3926 27,135.88 27,135.88

Now let's consider a term plan and an investment in Templeton India Pension Plan which invests around 35 per cent in equity and the rest in debt. Term plan premium for a cover of Rs 1 lakh: Rs 400 Balance available for investment: Rs 8,592 ? Rs 400 = Rs 8,192 Actual amount invested in Templeton India Pension Plan considering an entry load of 1 per cent and expenses of around 2 per cent (That are charged upfront): Rs 8,192 * 0.97 = Rs 7,946.24 Current value of your investments = Rs 50,633.44 This is Rs 50,633.44 ? Rs 27,135.88 = Rs 23,497.56. Almost 87 per cent more than if you had opted for the ULIP. Just think about the compounding effect this can have on your returns and its good enough to debunk the theory of comparing the costs of insurance plans with other investments and saying that costs even out in the long run. Just because 50,000 fools say so, it does not make ULIP the right product. As you can see ULIPs lag the 'Term + Invest the Rest' theory by a huge margin of 87 per cent even after 4 years of spectacular stock market returns. ULIP is not the best insurance product The reality is that most of the ULIPs take more than 5 years to break even. Policies where the costs are 65 per cent and upwards have not even recovered the principal despite the strongest bull market we have ever witnessed. Buying mutual fund units? Do it your way

One of our acquaintances was recently shocked to see Bajaj Allianz charging a 70 per cent cost on his policy. He along with around 30 more employees of a renowned hospital in Mumbai was shocked to see why only 28 per cent of the money was invested. The best part is that the private bank that sold it to them belonged to the same management as the hospital and hence people are reluctant to take an open stance. Calls to Bajaj Allianz yielded the response 'It is not our responsibility. It is the bank's responsibility'. This is a very common case where insurance companies often wash their hands off after such bouts of misselling and often look for scapegoats. At the same time, insurance companies dangle the carrots of paid foreign trips & more money and ensure that the interests of policy buyers are not aligned with the interest of policy sellers. Unless this happens, such stories are bound to be common. Amar Pandit is a certified financial planner and runs the Mumbai-based firm My Financial Advisor.

Buying mutual fund units? Do it your way

Amar Pandit
March 16, 2007

Recently I read an article written by a senior executive of a leading mutual fund house. The article was well
written and made couple of interesting points that industry folks do not like to admit. He mentioned two of the points given below which is 100 per cent true.

Never try to predict the future performance based on its past Even fund managers cannot predict market direction

Yet I find it ironic that most of the mutual funds use these very points as baits to entice investors. Past performance is touted all the time and fund managers are accorded god-like status. A mad race for the assets Passing the buck is one of the favourite games that insurance companies and mutual funds seem to play. In the race for being number one whether in terms of assets under management, AUM (the total amount collected by a mutual fund across different schemes) or premiums collected, to boost egos and to earn fat bonuses, you see everyone talk about investor education and interest but rarely do you see fund houses do what is best in the interest of their investors. Innovation is certainly good and healthy for the growth of the mutual fund industry, which is still in its infancy in India as compared with the US mutual fund industry. Is the Indian insurance market saturated? Compare our $ 62 billion (Rs 300,000 crore) mutual fund industry with the US mutual fund industry with $ 10 trillion under management. Fidelity, Vanguard and American Funds itself manage $ 1 trillion each. Do you trust your insurance agent?

This goes to show how miniscule our mutual fund industry is as it barely manages assets around 0.6 per cent of the US mutual fund industry's AUM. This also goes to show that there is a lot of potential for the industry to grow over a period of time. One statistic that I often come across is that around 52 per cent of the US population is invested in mutual fund products as against the 4.5 per cent that we have here lately (up from the 1.2 per cent earlier). US plans vs Indian plans Retirement plans in the US through 401Ks, 403b and education plans such as 529 are predominantly done through mutual funds. Compare this with retirement corpus growing options available to people through their employers (Employee Provident Fund which guarantees 8.5 per cent interest that changes from year to year based on political compulsions). All this is set to change with the launch of pension products in the country. Additionally with a lot of asset management companies, AMCs (companies that manage investors' funds through mutual fund schemes), such as Goldman Sachs, AIG, JP Morgan planning to start operations, choices are bound to go northwards which will create more confusion in the minds of people. Investors' interest at heart? Despite all the changes and competition what is lacking in the industry is the nerve to do what's in the best interest of the investor. Buying insurance? Beware

In the rat race to garner more assets (money from investors) and reach the coveted numero uno position, mutual fund houses look for distributors who can sell more (never mind how the sales are done). Incentives, lavish parties, vacations are given to sell more. The barriers to entry being lower, very little attention is paid to the quality and education of advisors.

Doctor, heal thyself This is one industry where doctors and pharmacy owners are seen in the same lens and pharmacy owners score over doctors as they can very well call themselves doctors. Distribution and advisory are two separate things and this is better understood by the mutual funds themselves. Even the media awards to the so-called best advisors are given on the basis of AUMs to outfits, which are pure distribution (intermediaries between you and the mutual funds, who convince you to buy a particular scheme for a commission from the mutual fund) houses. One has to realise that though a pharmacy might have multiple locations and sales in crores, it can never win the award of being the best doctor. But financial advisors are rewarded for how many mutual funds they have sold. Five ways to invest in a mutual fund

Never mind the countless churning and unnecessary selling that takes place at the end. And yes if things were to go wrong then pass the buck on the agent or distributor, as he/she is the front-end to the investor. You have to protect your own interest Make sure you understand why you are buying a fund in the first place and how it fits into your portfolio. Ask yourself this question: Which goal or objective can this fund help me attain? Understand your risk tolerance and how you behaved during the May crash and the recent correction. Did you have sleepless nights? In one month (May-June), net asset values, NAVs, of most mutual funds were down by 30 per cent and the worst by 38-45 per cent. Look at risks as well as returns. Remember that the days of making 30-40 per cent returns per annum are over whether it is equity, property or art. Resist the temptation of investing in schemes by just looking at the returns on the investment. Discount the advertisements promising fancy returns and take it with a pinch of salt.

Investment tips for YOU

Meenakshi Subramaniam
March 12, 2007

Women are taking on bulls and bears, with inflation moving up again. Though income tax basic exemption
limit has been raised to Rs 1,45,000 for eves, in practice there will be a saving of Rs 1,000 only, in tax. Women are, hence, looking for not just plain vanilla stuff, but attractive investment products. A flurry of tailormade offers, tossed up in the market merits scrutiny. ING Vysya's Mahilanivesh A woman can put her money in ING Vysya's Floating Rate Fund, which gets transferred to ING Dividend Yield Fund in 12 installments. The former is an open ended (no lock-in period; investors are free to buy or sell their units anytime) liquid scheme, while the latter is an open-ended equity one. This is better than a Systematic Investment Plan (SIP) because it ensures regular dividend and spurts, when stock shoots up.

Consistency and high returns are both assured, while risk is low. The Floating Fund too yields higher returns than a bank's savings account. The initial investment is Rs 12,000 and you will have to fill only one form to complete all the formalities. Max New York Life's scheme for women An investment scheme has been launched for women, where income doubles after six years. The offer is, however, open only till March 31. UTI Bank's SIP The UTI Bank's Systematic Investment Plan (SIP) for women minimises risks greatly. The bank arranges monetary affairs in a way that many units are bought when prices are low and few units are purchased, when prices are very high. LIC's Jeevan Sneha This is a with-profits plan for women, where after 5 years bonuses are awarded. Premiums paid regularly for 2 years ensure cover. Even if premiums are not paid for the next three years, the policy does not lapse. Card power HDFC Bank's Silver credit card for women affords more benefits than the high-sounding Gold card because a household insurance of Rs 1 lakh comes free along with it. A Citibank Silver card brings in household insurance, up to Rs 50,000, eliminating worries about insuring household goods like furniture, refrigerators, TVs etc. ICICI Bank's recurring deposit scheme There is no Tax Deduction at Source (TDS) on a recurring deposit opened by a woman. Moreover, you can start by depositing a mere Rs 500 every month instead of Rs 1,000 applicable to other schemes. Gold mutual funds The yellow shining metal, if kept in bank burdens you with a hefty monthly rent and service tax. If sold, even hallmarked variety is accepted for a lesser price. An approved institution like MMTC does not buy gold bars and coins. How could you bring the shine back? Invest in gold mutual funds to get the glow back. A savvy woman investor can park earnings in recently launched gold mutual funds, like UTI Mutual Fund's UTI Gold and Benchmark Mutual Fund's Gold BeEs where gold units are traded on stock exchange like shares on a daily basis. Dwell on this ? a house In a place like Delhi, where the stamp duty payable for house construction is lesser for women (6 per cent) against men (8 per cent), investment by women in a house really pays off. As everyone knows, this levy is most burdensome while purchasing a house. Fixed deposit schemes for women and men Irrespective of you being a man or woman study the investment schemes available to make the buck go a long way. Here are products, in which quick action may fetch quick returns for both men and women. SBI's Platinum Account fixed deposit scheme will give you an interest of 9 per cent and the money has to be put in bank for three years. The minimum deposit is Rs1 lakh, but as interest rate is lucrative, the returns are on the higher side. Again, the scheme is open only till March 31. Getting a credit card? Beware

Invest in FDs for risk-free returns

Punjab National Bank's Mahabachat Term Deposit Scheme is also a fixed deposit investment for 3 years and yields a 9 per cent interest, which is again attractive. The scheme is open till April end. IDBI's fixed deposit is an 800-day scheme, which yields 9 per cent interest. The minimum deposit is Rs 10,000 only. ICICI Bank has put out a 890-day fixed deposit, which gives 9 per cent interest. Here too, the minimum deposit asked for is Rs 10,000 only. ICICI Bank's scheme offers 9.5 per cent interest, but remember it's a five-year investment. Kotak Mahindra Bank's tax saver deposit gives 9 per cent interest and also runs for five years. Apart from good returns they can also be used as tools for tax planning. Fixed deposits are on top In present scenario, women should remember that a bank fixed deposit is surging ahead of other market instruments. The National Savings Certificate and Public Provident Fund offer 8 per cent interest, while a fixed deposit may give 9 per cent plus interest if compounded quarterly in banks, and half-yearly in National Savings Certificate and annually in Public Provident Fund. The maturity time is also shorter for a bank's FD scheme. Bancassurance is better One can also go for a bancassurance product, where all services are offered as a package. Here deposit ? savings, recurring or fixed is tied up to insurance, making for an almost free cover, instead of spending a lot on a separate insurance policy. A group cover for total family can be advantageous, for only half the money put on policies is needed. The traditionals ? be cautious RBI Bonds have lost their sheen after the new budget because tax on interest income will be deducted at source. A bond yields 8 per cent interest, but TDS, which was put on hold in 2004, has been brought in again in this budget. If interest income exceeds Rs 10, 000 tax would now be deducted at source. Have you filed your tax returns?

The post office monthly income scheme, too, has already lost shine, with removal of 10 per cent bonus from last February. While mutual funds are great to invest in, the move to raise dividend distribution tax, DDT, may trim down the returns for investors. A mutual fund scheme that distributed Rs 56.75 to investors on a profit of Rs 100 before would now give only Rs 54.79 only because of DDT. Know your investments inside out You should find the nitty-gritty of any investment product, before putting money. Here are pointers to choose picks: If an eve invests in a scheme like ING' Mahilanivesh, she should read daily NAVs in newspapers and ask for quarterly annual statements, which are published on a mandatory basis. A gold mutual fund should always be examined from point of entry load and exit load. If they are 4 per cent and 3 per cent respectively, then think twice before investmenting in such a fund.

Kotak's Gold Fund and ICICI Pru's golden mutual fund have to be watched, as they may also enter the market. An entry load of 1 per cent and exit load of 0.5 per cent are ideal in a gold fund. So, do find out who offers what. Some organisations like Citibank have free financial advisory services for women, which can be availed of. Private outfits like Geojit have special women investor divisions, which guide a woman through puzzling investment phases. Penalties must be understood, as for example, withdrawal from a post office scheme within 1 year leads to imposition of 2 per cent tax, at once. The mutual funds dividends may undergo a change after April 1, when the companies would start announcing their dividend payouts and hence, it's prudent to wait and see whether your profit would go up or remain the same and then, invest. Meenakshi Subramaniam is a former IRS officer