Amazing Return from Equity Mutual Fund

Spectacular Return of Reliance Growth Fund

A few days back I have got one mail from Etica Wealth Management Pvt Ltd about one of reliance mutual fund scheme. I am share that same mail with all of you for your knowledge point of view.

Did you know that Rs 1,00,000 invested in Oct 1995 in Reliance Growth Fund has grown to Rs 50,11,800 in Dec 2012. This works out to a whopping 50 times growth in 17 years i.e an annualized return of 25.61% p.a. Doesn't it sound incredible? Which other investment avenue has given such fabulous return consistently over such a long period and that too completely tax-free. Investors generally talk about Real Estate and Gold as the best form of investment but if you look at the past data, equity as an asset class has outperformed both these popular form of investments quite comfortably. Few days back, we saw an article in ET of a flat being sold in Samudra Mahal (one of Mumbai's most iconic residential apartment in Worli at a price of around Rs 1,10,000 per sq ft which sounded almost unbelievable. But if you dig little deeper, you would know that this only works out to a return of around 12-13% p.a over the last 30 years. On the other hand, the BSE Sensex has given an average return of 17% p.a in the similar period which goes completely unnoticed.

But the sad part is, though the fund has generated such meteoric returns, investor never makes such kind of money. Peter Lynch, one of the greatest fund managers of all-time has once said "My fund has made money, but my investors hasn't". He was referring to the performance of Fidelity Magellan fund which has generated a return of 22% p.a since 1963 till the time he was the fund manager, while the investors have hardly made any returns depending on when they entered and exited. Can't believe it? The reason is simple. When the investor makes quick returns in the fund, he withdraws the money too soon thinking that he will put it back when the market comes down which somehow never happens. While in Real Estate / Gold, people just buy and forget it and naturally in the long term, the asset value grows. Whereas, the moment an investor buys a stock or invest in a mutual fund, he will start tracking the value from the next second even though he promises to be a long term investor. And this is the reason, he exits too early. This is called the "ticker effect" i.e he continuously starts tracking the price on CNBC (the moving line which displays stock prices). But in Real Estate because there are no minute by minute price updates, he has no choice but to hold it.

Finally, it is easy to create wealth in the long term, provided we have the patience. Just like Rome was not built in a day, wealth creation will not happen overnight. Stay through the course and you will also be proud of your financial life some day.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

More detail about (RGESS) Rajiv Gandhi Equity Saving Scheme

After a long waiting for which instruments would be made available for investing in the (RGESS) Rajiv Gandhi Equity Saving Schemes, SEBI finally has come with norms and clarified it through a recent circular, which securities will be eligible scheme. It is clarified that the following securities would be considered eligible for RGESS. The following investment product would be eligible for this scheme:

(A) Close-ended mutual funds (which are traded and listed on stock exchanges)

           (B) Exchange Traded Fund (ETF) except Gold ETF

          (C) Equity shares of BSE-100 , CNX-100, Maharatna, Navaratna and  Miniratna Public Sector Undertakings (PSUs)  including their Follow-on Public Offers (FPOs) and only those IPOs of PSUs with Government stake not less than 51%, having revenue of Rs 4,000 crore in the last three years                                   

RGESS scheme provides a 50% tax rebate to new retail investors or first time investors who invest upto Rs 50,000 in the aforesaid eligible securities and whose annual income is below Rs 10 lakh. RGESS has an overall lock-in period of 3 years, but investors are allowed to sell / pledge / hypothecate their securities after the expiry of the mandatory lock-in period 1 year. The period after the end of the mandatory lock-in period, which is called as the flexible lock-in period can be used to trade in the eligible securities provided you as a new retail investor ensure that the demat account under the said scheme is compliant for a cumulative period of a minimum of 270 days during each of the two years of the flexible lock-in period. If investments done in instalments then 1 year mandatory lock-in and 2 years flexible lock-in period would be consider from last investment date.

The Government in its notification has permitted  grace period of three trading days from the end of the financial year so that the eligible securities purchased on the last trading day of the financial year also get credited in the investor’s demat account and such securities shall be deemed to have been purchased in the financial year itself. However, the deduction claimed will be withdrawn if the lock-in period requirements of the investment are not complied with or any other condition of the scheme is violated.

Now the question, who is eligible for this scheme as a new or a first time investor. It would be certified by the depositories to that an investor is a new investor or first timer. They have the power to seek information from exchanges on investor transactions through their RGESS designated demat account. After the expiry of the period of holding of the investment of RGESS,the demat account automatically converted into ordinary demat account.

By this scheme government has attemped to increase retail participation in capital market and helped them to create wealth creation through long term investment.

If you have any query regarding investment please feel free to ask.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Mantra for wealth creating in long term

When you have read the above heading before read the entire article it seems very exciting. Most of the person may think that there would be a unique formula for wealth creation in this article but I would share some important guideline and principle which seem very simple but I am sure implementing this is not so simple. For implementing these mantras of growing wealth, one need to understand the logic and the concept of wealth creating from root level. So now I am going to share with you some principal to become successful investor.

(A) Find a good financial planner and discuss with him about your near and future financial goal, your current asset and liabilities and other vital information asked by the planner. A financial planner will definitely help you to educate about basic money management, to know your risk profile, make financial plan, informed  investment decision and goal based financial plan.

(B) Make regular investment through SIP (Systematic Investment Plan) and get benefit of rupee cost averaging. Recommended SIP by your financial planner will help you to create wealth in long term. Patience is the key to successful investing. Stay invested through entire market cycle whether bull or bear. Never try to time the market, invest in both bull and bear market and reap the benefit of wealth creation.

(C) Be in touch with your planner and discuss about the market environment. If need then rebalance your portfolio according to market phase after discussing with your planner. 

(D) Stay away from complex product like ULIP. Keep simple approach towards investment, not indulge with these product which you don’t understand properly. Invest in those products which are transparent and you understand better.

(E) Never mix your insurance and investment need. There is not a single product in the market which fulfill your insurance and investment need both.

(F)  Choose your financial planner very carefully because it is like your family doctor. Ask educational and professional qualification and assess the knowledge of your planner.

(G) Start investment as early as possible. If you delay one year your investment you will loose as much as you cannot imagine. For understand it better discuss it with your planner.

(H) Don’t invest not only for tax deduction purpose, understand risk, return and your need also. Make your tax plan at the beginning of financial year and avoid march month tax saving race.

The above mentioned few mantras are essential for every successful investor. For understanding it in detail contact any qualified financial planner. Keep it in your mind and think about this before you going for any investment.

If you have any query regarding investment please feel free to ask.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

REC Tax Free Bonds

REC Tax Free Bond : Is it right tax saving instrument for every tax payer ?

Rural Electrification Corporation (REC) is the first company to start offering tax free bonds in this financial year 2012 – 13 and their issue opens on December 3rd 2012 and ends on December 10 2012. Such type of issues may come sure in next 3 months. Now the common question among investors whether they should invest or not in this tax free bond issue.

Why you should invest ?

First of all it is ideal instrument for 30% or 20% tax bracket investors only. There is not much difference in different companies tax free bond. More or less almost all companies offer same return and for the security issue of your investment amount, these all issues are secured by government’s support. If you invest in bank fix deposit, the money insured up to Rs 1 lakh only. So for security of your investment amount these bonds have more score than bank fix deposit.
Interest income on these bonds being tax-free, the returns are higher than the after-tax returns on bank fixed deposits for investors in the 30 per cent tax bracket. The maximum highest interest rate available on bank deposits is 9.5 per cent compounded quarterly after tax adjusted return it gives 6.8% to 30 percent tax slab investor. So it is much lower than the REC tax free bond offer. It is the best option for 30% tax bracket investors. For 20 % tax bracket investor it is not much attractive for return wise but at the safety point of view they also can consider it. The interest rate on tax free bonds is also capped to the average G-Sec yield of the same maturity so there’s not much you can expect in terms of a better rate.

Features of REC Tax Free Bond Issue

There are two series of bonds, one with a 10 year maturity and another with a 15 year maturity and then there are 4 categories of investors that can invest in them. Retail investors are under category IV an get 7.72 % for 10 year and 7.88% for 15 years tenure.
It is available in both physical and dematerialized form. It means that no demat account is necessary to buy these bonds. Bonds will be listed within 15 days of closing of issue on both NSE and BSE. This bonds are exempt under Section 10 (15)(iv)(h) of the Income Tax Act 1961.
There are four categories of investors for these bonds and the last category of investors which is the retail category get a higher interest rate (half a percent). A retail investor is someone who invests less than Rs. 10 lakhs in these bonds.
It has got excellent rating from rating agencies. They have been rated CRISIL AAA/Stable by CRISIL, CARE AAA by CARE, IND AAA by IRRPL and ICRA AAA by ICRA. The interest on the REC tax free bonds will be paid once a year on December 1st.
If you purchase it from secondary market then you will get lower rate from primary market (directly from company) and this difference is half percent.
In the last I would like to say that it is good investment avenue for 30 % and 20% tax bracket investor. But keep in mind first plan your sec 80(c) tax deduction benefit and after that you should plan such types of bonds.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com