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

Bank FD v/s Banking Fund

Bank FD v/s Banking Fund

We Indian love very much keep deposit in bank FD. Since my childhood I have seen immense faith of people in bank FD because they all think that bank FD is the safest instrument on this earth to keep their hard earned money. Very few people know that the bank only give guarantee maximum Rs 1 lakh through insurance in case of any system collapse or bankruptcy. It means more than Rs 1 lakh in bank always in risk. However, there are very low chances to fail the bank because our central bank RBI is one of the top regulator in world. Every financial instrument have their own risk and reward. So we are going to do a small comparison between bank FD and banking fund.

For example a person invest Rs 1,00,000 in SBI bank FD and in a banking Fund on 20th May 2003. After 11 year the value of invested Rs 1 lakh in SBI bank FD grows up to Rs 2,66,190. On this amount we have to pay tax according to our income slab and bank deducts TDS direct at the time of withdrawing the money. Bank FD is a secure investment compare with other available instruments. It hardly beats the inflation. Therefore it is not a wealth creator.

In other hands, banking funds invest in banking stocks. After 11 year, the value of invested Rs 1 lakh grows up to Rs. 14,67,000. And the amazing thing that there is no TDS deduction and it is tax free. It means you have not to pay tax on your gain. The only risk is volatility because equity is always volatile and checks your patience. It is a wealth creator instrument for long term investor.

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.

Have you done your tax planning?

I am sure most of you have done your investment to save the taxes but still some people will wait for the last moment and will make fatal decision in hurry as the result of last rush. Many insurance advisors are very active in these days to trap the investors in the name of insurance with the false promise of sky rocketing return. Poor investors also do not care of investment as they want only trust not return. I wonder sometime when I meet such investors who are very happy to invest in endowment, money back or ULIP and still don’t know about their insurance cover and expected return.

They easily ignore the biggest threat of their investment. Do you know what is the biggest threat return your investment? It is Inflation. Due to this inflation most of time your real return become negative also. Please before any investment be very clear about the inflation concept. You should ask some question to yourself. How inflation and taxes eats your return? What will be real rate of return after adjust inflation and taxes?

Section 80C is very popular section among investors and for the financial year 2014-15 the investment limit has also increased till 1.5 lakh under section 80C. First calculate your other investment under section 80C like PF, PPF, home loan repayment, insurance premium etc. After consider all other available provision under this section determine your shortfall to complete 1.5 lakh limit.

During January to March there are many companies come with attractive and catchy advertisement. They show the high possible numerical figure in the name of save tax. In most of cases, these companies assume that investor is in 30% tax bracket and will investment full available amount 1.5 lakh available under section 80C. Due to this confusing advertisement people who are in 10% or 20% or nil tax bracket get misguided and make the wrong decision.

According to me if your investment horizon more than 8 year then ELSS is the best option to create wealth and beat the inflation. If you do not have time to plan your finances then you should contact certified financial planner.

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

What should FD investors do in falling interest rate time?

What should  FD investors do in falling interest rate time?

Decreasing inflation rate and demand of growth are putting some pressure on RBI to decrease the interest rate. Calls for lower interest rate getting louder day by day as the industry and government both are seemed determined towards high growth. The big question what should the fix deposit investor in current environment who do not want risk of the share market’s ups and downs.

Many banks are offering 8.5% to 9.5% interest on fix deposit till tenure 5 years. If you want to take a little bit risk, you can earn more from companies fix deposit. There is much possibility of rate cut in 2015 by RBI. It is the right time to lock your money in these instruments.

The largest public sector bank SBI is offering 8.5% on its fix deposit. Of course you should go with high rated NBFC or companies fix deposit with a little bit of risk. For 3 year fix deposit, HDFC is offering 9.0%, Mahindra Finance is offering 9.75%, Shriram Transport FD offering 10.5%, Bajaj Finance is 9.65% offering and GATI is offering 12 % according to their credit rating.

Now a days many manufacturing companies are popular among investors. JK paper, Kores India, JK Tyres are offering between 9.5 to 12% return which is much higher than bank fix deposit. Many companies are offering monthly income option. Companies pay the interest every month or quarterly or half yearly as per your choice. Retired individuals and senior citizen often look for these options which give them fix monthly income.

Since fixed deposits are unsecured instruments, investor should go with high rated and well managed companies. AAA or AA ratings are consider very safe among investors in fix deposit.

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

Bank Fix Deposit: How much safe?

Bank Fix Deposit: How much safe…?

Whenever I met my investors and friends, I have seen a lust for fix deposit in all of them almost all time. Many times I have experienced that people do the fix deposit in banks with very confidence. In our country, people have high degree faith in banks. They consider it very much safe. In the view of safety, they may be right but there are also other important aspects associated with your investment which you ignore many times. I am not saying that you should agree with my views but at least try to understand what I want to say here. In this article we will discuss all aspects associated with bank fix deposit.

Safety: Till now you know or understand that all money deposited in banks are safe. Please update and correct yourself only amount Rs 1 lakh insured by the banks regardless whatever money you have deposited in banks. It means if you deposit Rs 10 lakh fix deposit in your banks and in case of any bad events occur with bank will be liable to pay only Rs 1 lakh.

Now you will argue that the bank will never bankrupt in India. Please remember 2008 events in US, even more than 100 years old banks had got bankrupt in that year so nothing is impossible in financial world.

Return: We Indian always much concern about safety not return. When we say return then your focus should be on net return after deducting tax and inflation effect. We many times ignore inflation and taxes and blindly do the fix deposit at the published rate by banks or corporate.

Here I take example of one of my friend for much understanding about net return. My friend Ashutosh has done fix deposit of 10 lakh with bank for 1 year at 9% return offered by the banks. My friend comes in 30% tax bracket. After 1 year when his fix deposit became mature he had got Rs 10.90 lakh. Now he has to pay 30% tax (ignore other taxes for calculation) on return so after deducting tax Rs 27,000 now the amount in his hand remain 10.63 lakh. After deducting tax his return was 6.3%. If inflation in that year average remains 8% then his net return become negative -1.7%. It is the real picture of your fix deposit whether you believe or not. Inflation is real culprit which eats your significant part of your return.

Goal: Always associate your each investment with a specific goal and make plan according to your near and long term plan. If your investment does not generate net positive return then it cannot fulfill your goal. Investment without planning ultimately will not give you a satisfaction and you will always confused about investment and will do some mistake during investment.

There are many other options available to fulfill your goal in the market. Keep in mind that at least your investment should generate positive return after considering tax and inflation.

If you want more information regarding investment or you need investment services, feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

SHRIRAM CITI UNION FINANCE LIMITED: NCD Offer

SHRIRAM CITI UNION FINANCE LIMITED: NCD Offer

If you willing earn more than bank fix deposit then this NCD for you. Obviously you would have to take more risk for that. Shriram Citi Union Finance Ltd is an NBFC and part of the reputed Shriram group of companies. It offers loan to the small enterprise, provides  loan against gold, financing for two wheeler and other commercial goods segment. It is the market leader of small loan segment in financial year 2013 with the estimated market share of 41.6%.

The company has come with public offer secured NCD of face value of Rs 1,000 each. The total size of issue is Rs 20,000 lakh. The 40% of issue is reserve for retail investor category. The retail category investment limit is up to Rs 5 lakh. The minimum application size is Rs 10,000 (10 NCD). The NCD would be listed on BSE. It would be available in both mode physical and demat form.

If you have invested Rs 10,000 in this NCD, you will get the below mentioned amount at the end of the term.

24 Month	36 Month	60 Month
Rs 12,321	Rs 13,862	Rs 17,427.60

It means the effective yield per annum would be 11% for 24 months, 11.50% for 36 months and 11.75% for 60 months.

Taxation:

A listed debenture is treated as a long term capital asset if you hold it more than 1 year from the date of allotment. The long term capital gain would be 10% if calculate without indexation and would be 20% if use indexation method.

Rating agency CARE has given it AA rating. Investor may choose this to allocate some part of their investment portfolio. 

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

www.arvindtrivedicfp.blogspot.in

Tax saving option in Section 80C

Some Tax Saving option in Section 80C

When we talk about tax planning, most common term flash in mind is Section 80C. The Section 80C offers various options to fulfill people’s different need. In Jan-March quarter most of the person rush for tax saving instrument and often make wrong decision in hurry. They don’t even realize that they have invested their money in those products which is really not suited them. The right time to make tax plan is the beginning of fiscal year (April-May).Today I am throwing some light on those products which are available in under section 80C.

Provident Fund: It is the very common and popular in service class people. As employer deduct the some portion of money for contribution in provident fund from employee’s salary. PF gives 8.5% per annum and is very secure in terms of safety. Employee can liquidate it at the time of retirement. However, partial withdrawal is also permitted with some condition. 

Public Provident Fund or PPF: It is very good option available with low risk and offer tax free return after maturity. It offer return market linked for current year it is 8.8%.The lock-in period is 15 year but partial withdrawal is possible after fifth year.

Bank Fix Deposit: The 5 year bank fix deposit is also available. Various bank offer return 8-9% this year (See earlier blog). The return is taxable as per one’s tax slab. The lock in period is 5 year. It is low risk product but keep in mind the post tax return also before investing in fix deposit.

National Saving Certificates or NSCs: It offer 8.5% return and is very safe investment. The lock in period of these instruments are 5 and 10 years. The person can choose any maturity 5 or 10 year based on their need.

Senior Citizen’s Saving Scheme: It offer 9.3 % return and added in taxable income. It is the most suitable option for senior citizens (above age 60 year) as it gives regular interest income in each quarter. It has no risk and very safe investment option. The lock-in period is 5 year.

Insurance Policies: It is long term product and lock in period depend on plan’s maturity. It has highest degree of safety but its average return around 6-7% only.

ULIP or Unit Linked Insurance Plan: The return is market linked as no fix return offer. Partial withdrawals possible. It is in the form of bundle which offer insurance, tax exemption and return also. The cost and charges is high compare with other products. The risk is depend on which option you have chosen.

ELSS or Equity Linked Saving Scheme: It is market linked product. There is no fix return. The lock in period for this product is 3 year. It has shortest lock-in period among all Section 80C options. It is high risky investment product.

NPS or National Pension Scheme: It is retirement goal oriented product. No withdrawal allowed before retirement. The return is market linked and it has very low expense ratio means low cost product.

Besides the above mentioned investment products which are in under section 80C, there are some expenses also eligible in under this section.

Home loan repayment: Principal portion of EMI is eligible for deduction till Rs 1,00,000 limit.

School Fees: Tuition fees of up to two children in a recognized educational institute for eligible for Section 80C

Home Purchase: During the purchase of home whatever stamp fee and registration fee you pay is also deductible from taxable income.

There is also other option available for tax deduction other than Section 80C which we will discuss later. If you want more clearity on these products pleas ask through email

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com
www.artofinvest.com

Debt Investment: Part 2

Debt Investment: Part 2

We are discussing about investment asset classes in these days. In the last blog we had discussed about debt investment. In today’s article, we are going to talk about debt investment products and its suitability. In our country, the awareness about debt mark is not as wide. Some debt investment avenue we are going to discuss below:

Government Securities:

It is issued by the government of India through RBI for borrowing from the public to meet various spending. In simple term government take loan from public and return that loan on fix date with fix interest rate. It is the safest product in debt category for capital protection and return. It is also known as gilt securities. Gilt securities include all government bonds, T-bills, state and central govt run instruments.

Post office saving schemes:

It is very famous among the investors as some of post office saving schemes gives saving option and tax benefit both through various schemes. It comes with different investment tenure and return rate. It provides safe investment opportunity to the investors. It is the one of the largest saving vehicle for the investors.

Public Provident Funds (PPF):

PPF is also a saving tool for wealth accumulation in long term. It come with 15 year lock in period and provide fix rate of compounding interest. The rate of interest announce by the govt every year. The investment in PPF and return from PPF both are tax free. The tax saving investment limit in PPF at present is Rs 1 lakh. Many banks are providing PPF facility in these days.

Debt Mutual Fund:

Investor can access debt market’s benefit investing in debt mutual fund. By investing in debt mutual funds investor get the benefit of various type of investment as debt mutual fund deploy their money in various government securities, corporate debt, bank securities etc. The main aim of these mutual fund are to provide capital protection with income generation. It comes with different maturity period so according to the need investor choose schemes very carefully.

Bank fixed Deposits:

It is traditional investment avenue for the investors in our country and is very popular among the investors. It comes with different maturity period. Rate of return on these fix deposits are taxable. Its post tax return is even not able to beat inflation but it is still popular as investors have a lot of trust in bank for capital protection. Keep in mind, fixed deposits upto Rs 1 lakh are covered under DICGC (Deposit Insurance and Credit Guarantee Corporation).

Corporate deposits, bonds and debentures:

Many corporate issues bonds, debentures for raising the money and offer a fixed rate of return. These types of investments carry credit and interest rate risk. Many credit agency issue the rating of these types of schemes. Understand all aspects like rating, tenure and return before investment in these types of schemes.

Its Suitability:

It is very good for those investors who prefer capital protection than return. It is less volatile than equity. It is safe bet for conservative investors. It is ideal investment for those whose goal approaching near. Those who needs regular income flow it is good investment for them. Before investment in debt securities, first assess your time horizon and then invest accordingly. There are wide ranges of debt products offer depending on your investment time horizon.

It is very vast subject and we cannot cover it in one article. If you want more information regarding debt investment or you have any other query related investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in

Newly Launched Inflation Indexed Bonds by RBI

Inflation Index Bonds (IINS-C)

As per promised in the Union Budget 2013-14, RBI has launched Inflation Indexed National Securities – Cumulative (IINS-C) in this month.. The total return on this fund would be depends on fixed rate (1.5%) and inflation rate based on Consumer Price Index (CPI). Interest rate will be compounded half yearly and only paid at the time of maturity.

The maturity period of this fund is 10 year. The minimum investment allowed in this fund is Rs 5,000 and the maximum investment allowed up to Rs 5 Lakh. The prime mandate of these type of bond are to provide the assurance to the investor to beat the inflation.

Most of investors want to know that which is much better option between bank fixed deposit and inflation indexed bond. To understand it better, here we are going to compare tax liability and penalty if we withdraw fund premature.

Premature Withdrawal:

In case of bank fixed deposit, if you redeem before the maturity, there is penalty of 1% on whole accrued interest amount, it means you will get 1% less interest rate from the rate whatever bank offer you at the time of deposit.

In case of inflation index bond (IINS-C), there would be deduction of 50% of last coupon (interest) rate as penalty, if withdraw it premature. During the time of high inflation, IINS-C will give substantially high return than bank fixed deposit. The return on these bonds would be volatile compare with bank FD which gives fix rate of return.

Inflation index bond allow early withdrawal after one year for senior citizen (above 65 year age) and three year for others.

Comparison for Taxation:

Tax will be levied on interest as per tax slab in both cases. In case of bank fix deposit, you pay tax on each financial year on the accrued interest which is only available at the time of maturity.

In case of IINS-C, investor can pay tax in each financial year or pay once at the time of maturity. Income tax department provide both options in accrual products but it should be uniform, not financial instrument wise.

If you do not need interval income and want  to beat inflation in the long run without taking any risk then these bonds may prove for you good investment option.

It is the vast subjective subject. 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