ULIP or Equity MF- Which one better?

ULIP or Equity MF – Which one better?

I have often seen very confused investor for which one is good for investment either ULIP or Equity MF. Both are long term investment product. Investors often lure with the ULIP for very catching word insurance. Whereas equity mutual fund do not offer any insurance but great return as the efficient wealth creator in long term.

Although, Unit-linked insurance plans (ULIP) offers many types of funds from equity to debt segment. If you compare its return over the five year period, it has performed very bad when we compare it with equity fund return.

Recently a very informative financial magazine has done a study about the return of ULIP and equity mutual fund schemes. The Top 10 ULIP funds has given an average anuualised return of 16.61% while mutual fund schemes has delivered an average return of 22.20%. If we compare top 25 ULIP funds and top 25 equity mutual funds, ULIP delivered an average return of 15.28% and MF schemes return has been 20.71% in the same period.

ULIPs published their NAV before adjusting fund management cost and other cost while equity mutual funds published NAV after adjusting all cost. It is the reason investors are not getting right comparison between ULIP and equity MF funds. Returns from ULIP would be more worst after deducting charges like premium allocation charge, mortality charge and other charges. These charges are different for ULIPs managed by various financial entities. Only fund management charge is adjusted in unit price of ULIPs funds. MF schemes unit prices are calculated after deducting all expenses. This makes equity mutual fund return more superior than ULIP funds.

The fund management charge, of around 1.35% may attract investor towards ULIP as it appears lower than expense ratio of equity mutual funds. But when we consider other costs of ULIP- in most cases- it goes up to above 3% in the initial years of investing in ULIP. In an analysis of 237 ULIP funds, more than 50% of ULIP funds underperformed the Sensex over a period of 5 year ended in Feb 2015.

IRDA has put some cap on various charges after 2010. But still the costs of ULIP are much higher than equity MF. If you are looking for good long term investment option with low cost, equity mutual funds are still good choice.

If you have doubt about investment product and want more information regarding investment or you need investment services, feel free to ask us. We also conduct the seminar on investment and financial planning. If you are interested for conducting seminar in your city, just drop the mail.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

SIP return beating other instrument..?

SIP return beating other instrument ?

Yes, as I always say that SIP (Systematic Investment Plan) is always good option for investment and create the wealth. You can read today’s Time of India, Mumbai edition on page no. 11 for your belief. Even worst of SIPs would have given you more than your PPF (Public Provident Funds) returns.

Regular investments in mutual fund equity schemes have been rewarding for investors in the last 15 years. Investments in equity schemes done through SIPs have outperformed traditional products such as Tax-saving fixed deposit and PPF.

Tax saving fixed deposits and PPF have returned a little over 9% every year in the last 20 years. Meanwhile, average returns in equity schemes through SIPs- an equivalent of recurring fixed deposits of banks over a 15 years period have been 21.54% every year with the worst performer giving 13.71%.

So I still advise to all of you start a some amount of SIP in equity mutual fund for your 15 -20 years goal like retirement, child education etc. It would be your most prudent investment decision. For more information you can touch with me also.

If you have doubt about investment product and want more information regarding investment or you need investment services, feel free to ask us. We also conduct the seminar on investment and financial planning. If you are interested for conducting seminar in your city, just drop the mail.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

SUKANYA SAMRIDDHI YOJNA

SUKANYA SAMRIDDHI YOJNA

Modi government has launched campaign ‘Beti Bachao Beti Padao’. Under this scheme the government has launched Sukanya Samriddhi Yojna Account. It is a small saving deposit scheme for the girl child to support her education and marriage. This account can be opened in the name of girl child from the time she is born till she becomes 10 year old. It can be opened in a post office or any public sector bank.

It can be opened with a minimum amount of Rs 1000 and maximum of Rs 1.5 lakh. The money can be deposited till 14 year from the date of account opening by parents or guardians. The interest rate will be decided by government every year. For FY 2014-15, the interest rate is 9.1% and it is compounded annually. The interest will be tax free. You can avail section 80C tax benefit, the amount deposit in this account till Rs 1.5 lakh in each financial year.

The account will mature after 21 years from the date of account opening. 50% fund can be withdrawn after the girl turns 18 year old. The premature closure of account is allowed in the case of death of girl child. If you do not deposit any amount in a whole year, a penalty of Rs 50 charged. One family can open only 2 accounts even if there are more than 2 girl child in family. Only 1 account per girl child is allowed. You cannot operate account online.

This scheme is better than post office schemes and fix deposit schemes or RD schemes. It will give the same tax benefit as PPF. It is good plan for your child because at least the government will try to meet the inflation rate at least. Interest rate will be announced every year. It is illiquid investment so invest in planned manner. Birth certificate of girl child, address proof and photo identity proof of girl child and parents/ guardian are required documents for opening the account.

It is less risky investment option and it will not give return like mutual funds or share market. As an asset allocation plan for debt investment, one can consider it. In my personal opinion, if you invest for 21 year then it is not much good option. A good mutual fund will give much better return if you compare between mutual fund and this scheme. I have still not opened this account for my daughter as I already invest in mutual fund.

If you have doubt about investment product and want more information regarding investment or you need investment services, feel free to ask us. We also conduct the seminar on investment and financial planning. If you are interested for conducting seminar in your city, just drop the mail.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

PPF or ELSS ...Which one is good ?

PPF or ELSS…. Which one is good?

The best tax saving investment (80C): Should you invest in PPF or ELSS…………….

PPF does not give fixed returns

Though the Government changed the PPF interest rate from time to time, for a long period of time it had been fixed at 8%. Traditionally investors expected a yield of around 8% from their PPF deposits. However, from 2011 onwards, PPF interest rate has been made market linked and pegged with the 10 year Government bond yield. The chart below shows the historical PPF interest rates.

The benchmark 10 year government bond yield is at 8.8%, which is nearly at its 5 years historical high. Debt market experts consider 9% as the inflection point, since rates usually soften from this point. Interest rate in India has been high for a long period of time now and many experts believe that interest rates will start softening from next year. While a benign interest rate regime is good news for equity investors, since PPF interest rate is linked with the 10 year bond yield, we may see lower PPF interest rates in the future.

Mutual Fund ELSS as a tax saving Investment:

For investors with risk appetite, Equity Linked Saving Schemes (ELSS) is one of the most popular investments allowed under Section 80C. Investors can avail triple benefits of tax savings, capital appreciation and tax free returns in ELSS. An ELSS is essentially a diversified equity fund with a lock in period of three years from the date of the investment. From a taxability of returns perspective, both capital gains and dividends from ELSS are tax free. Over a long time horizon equities give much higher returns compared to other asset classes. However, since ELSS funds are market linked investments, they are subject to market risk and volatilities. Historically, good ELSS funds have given excellent returns. In the last ten years ELSS funds on average have given more than 19% trailing annualized returns. Find the below ELSS Scheme Performances:-

Scheme Name	NAV	1 Year Return	2 Year Return	3 Year Return	5 Year Return	Since Inception	AUM (Crore)
Axis LT Equity Fund	29.29	69.10%	40.37%	36.42%	23.95%	23.74%	3594.86
Reliance Tax Saver (ELSS) Fund	47.59	93.70%	38.94	37.85%	20.84%	18.22%	3796.37
Franklin India Tax Shield Fund	407.85	60.32%	29.20%	28.13%	17.54%	26.50%	1788.99
ICICI Pru Tax Plan	263.83	52.47%	27.83%	28.84%	16.31%	23.66%	2411.75
Canara Robeco Equity Tax Saver Fund	45.68	46.55%	23.65%	24.85%	15.52%	28.21%	871
DSP BR Tax Saver Fund	31.27	54.58%	27.83%	30.40%	15.20%	15.33%	1059.70
HDFC Long Term Advantage Fund	235.02	43.75%	23.59%	25.77%	14.85%	25.22%	1186.49

(All returns in above table in CAGR)
Comparison of PPF and ELSS returns

In the strict sense, it is not fair to compare PPF and ELSS. PPF is a risk free investment, whereas as ELSS is subject to market risks. For the sake of illustration we have shown the comparison of returns of Rs 50,000 annual investment in PPF and a good ELSS fund, over a long investment.

If you started an Rs 50,000 annual PPF deposit in 2002, your PPF corpus as on September 1 2014 will be Rs 11.4 lacs, with a cumulative investment of Rs 6.5 lacs.

If you had started an Rs 50,000 annual investment in a top ELSS fund like the ICICI Prudential Tax Plan in 2002, your corpus will be Rs 37.5 lacs.

Should you invest in PPF or ELSS:

Both PPF and ELSS have their merits and demerits. Your investment choice should be informed by your investment objectives and your risk tolerance level. Age and financial situation are certainly two important factors that determine risk tolerance of an investor.
Investors with high risk tolerance should invest in ELSS, while investors with low risk tolerance should invest in PPF. Over a long time frame wealth creation potential is much higher with ELSS, as we saw in the charts above.
Young investors should opt for ELSS, since they usually have high risk tolerance and a sufficiently long time horizon to ride out the volatilities associated with equity investments.

Conclusion:

Both PPF and ELSS are wonderful tax saving investment options. However, their suitability depends on the financial objectives and the risk profiles of the individual investors.

If you have doubt about investment product and want more information regarding investment or you need investment services, feel free to ask us. We also conduct the seminar on investment and financial planning. If you are interested for seminar in your city just drop the mail.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Nifty Crossed 8000...What next..?

Today Nifty crossed 8000 marks…..What next..?

Today, CNX Nifty has closed the above 8000 marks at record high for the first time on the back of April-June quarter,14 GDP data. In 1QFY15 India has posted a robust growth of 5.7% compared to 4.7% growth in 1QFY14. The reason behind this fantastic improvement is significant improvement of industrial sector. Manufacturing and electricity generation have been major contributor to the industrial sector.

The CNX Nifty has rallied almost 13% since election results. We have witnessed the significant move in Capital goods, Banks, Power and Metals sector indexes. The rally in the Indian markets which began on hope post Mr. Narendra Modi’s anointment as the Prime Ministerial Candidate of India in September of last year, would continue to sustain, now that he is in charge of the world’s largest democracy. Initial signals – on foreign policy, economics (including reforms of FDI and otherwise in various sectors), continuity of constructive policies of the UPA and also a reach-out to every citizen to be self accountable in his Independence Day speech has helped continue the wave of optimism.

Now the big question is what should do the existing or new investor. New investor means who want to take advantage from market but still has not entered in the market. After posting a near 60% rally on the Nifty since the August 2013 lows of 5100, investors should invest very carefully in growth and value stocks rather than taking a sector overweight/underweight call at this point in time.

I also help to choose these types of stocks to my clients besides financial planning and other providing advice for other asset class investment.. In past many of our investors has created a significant wealth compared with other asset classes. After doing research and analysis I have found re 10 stocks portfolio for the 3 year time frame and we would also review these 10 stocks quarterly and annual basis during this investment period. For some reason I am not mentioning here the all 10 stocks here. For your guess companies like Colgate and Bata India are the part of these 10 stocks portfolio.

There is no reason for cheering up for the nifty no. like 8,000, 10,000 or 15,000 if you do not make profit or create wealth. If anyone interested for investment in companies through direct mode I am always available to you. For getting the personal advice you can mail me on arvind.trivedi79@gmail.com or call me on 09892724426.

If you want more information regarding investment or you have any other query about investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

Equity : A broad view as asset class

Equity : A broad view as asset class

There are many investment avenues available in the market like equity investment, fix deposit, debt/ bonds, metal, arts etc. We can divide financial assets in 3 types. These asset types are equity, debt and gold. In this article we will discuss about equity investment.

We are often told that equity investments are subject to risk and in nature it is very volatile. In simple terms, equity means the ownership, investor who own equity in company participate in company’s growth like a promoter. If you hold equity in a particular company, it means you become beneficial owner of that company. As an equity shareholder, you also get the opportunity for the vote on important business decision.

Advantage in equity investment:

Profit making companies share their profit with shareholder as a dividend and it is totally tax free as per the current law. Over a long period you can make a capital gain through increase in share prices by investing in good companies. As per current law, in our country long term capital gain in equity is nil. It has outperformed in terms of return to other asset class over the long period. It has ability to beat inflation and generate super return. It is very crucial investment to achieve long term goal.

It has greater liquidity compare with other assets. The transaction of shares happened on exchanges and it is regulated by SEBI. Equity trading mechanism is very transparent and no room for wrongdoing. Equity investment play very important role in the economic growth of the country. It mobilize funds from public towards various sector which is very crucial for country’s development.

Disadvantage in equity investment:

Return of Investment in equity is not guaranteed. It depends on company’s performance. If company is doing better, you will get higher return but if it is not doing good, then you have risk to lost your capital also. In short run, it is very volatile so it is very risky investment in short term investment point of view. If you have invested in bad companies or enter when the prices are very high then you can lost substantial amount of money.

Equity investment for whom and how we can invest in it. We will discuss about this in next article. For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in

A very good piece advice from Warren Buffett

A very good piece advice from Warren Buffett

The great equity investor Warren Buffett’s investment skill is well known all over the world. His words on investment consider like a bible in investment world. Most of investment advisors, fund managers and professionals follow his investment philosophy. I am also a follower of the great Buffett sir. Today, I am going to share some excerpt from an article which has been read by me today’s newspaper.

In 1986, Buffett bought a 400 acre farm in Nebraska and in 1993, he invested in retail property near the New York University campus. This deal had happened after farming and real estate bubbles had bursts. It means the prices of real estate and farming land was on very low level. Although, he was not expert in the real estate and farming and had very little knowledge about it at the time when deal taken place.

Many years later, the farm was worth 5 times what he paid for it, and the building now returns annual distributions that exceed 35% of the initial equity investment.

The above mentioned deals teach us very important lesson of long term investment. He says “You don’t need to be an expert in order to achieve satisfactory returns.” He further writes “But if you are not expert, you must recognize your limitations and follow a course certain to work reasonably well.”

He says, “Games are won by players who focus on the playing field-not by those whose eyes glued to the scoreboard.”

One more good advice he says, “Do not bother about daily market shout-out and keep your focus on long term.” Some investors believe and follow the market pundit’s advice on the equity market day to day basis that it the worst thing if you follow them blindly. So ignore the chatter, keep your cost minimal and focus on real return after paid taxes.

For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in

Are  you considering guaranteed plan...? Think again!!!

After ULIP out of season, equity market’s return flat the insurer and mutual fund using “Guranteed” word to attract business. I am sure that most of you very often interested with these schemes for shake of your protecting your capital. After sometime you realize that your choice was wrong. I always recommend to all investors that please read whole offer document, search on sites or take advice from any good financial planner before any investment. No matter what is the investment amount.  After all it is your hard earned money so be prudent at the time of investment.

Guarantee is a very powerful world in any sales drive. Insurance companies offer guaranteed payout and insurance cover both to push the sales and get the benefit of investor’s mindset as these products are easily marketable with less effort. Before caught in the sales pitch you should enquire about the return of investment.

It has been very clear now after review of many these types of guaranteed insurance plan often fail to deliver the return even equal to bank fix deposit in the long run. I am not mentioning here the particular name of these types of plan as I don’t want to create any misconception or controversy but you will also believe after the decoding these plans carefully.

Guaranteed income plans are non- participating traditional plan and never disclose the investment costs and return. For example one plan says in the fine print that “ 8 % of the sum assured as payback guaranteed”. Most of the time investor think that he will get return of 8 % on the investment whereas the fine print means that there is guaranteed 8% payout of the sum assured. After many such plan’s analysis the actual net rate of return is 4%.

4% return is not great return in the 10-15 years. If you still happy with these types of return choice is yours.

The cost of guarantee is so huge and opaque that it is very difficult to arrive a net return on the investment. You are not getting only lower return you are also eroding your capital against inflation. According to me, you should concentrate on generating value from investment in the long run.

If you are conservative investor, Public Provident Fund (PPF) is good option for high tax bracket. Lower tax bracket investor may go with bank fix deposit also.

If you have some risk taking capacity you can make good capital appreciation with tax saving. ELSS mutual fund is the best option for long term investment as it offer capital appreciation with tax saving.

For more detail and any other query related investment, you can contact me through my email

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com