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

Buy shares in foreign company by Indian investors

How can an Indian investor buy shares in foreign company

Today I have got one mail on how can Indian investor buy shares in foreign market. Very often investors ask us how they can invest in foreign market in point of views of portfolio diversification. So here in this post I am sharing the same post which I have read.

Open a trading account

Like you open a trading account here in India with a broking company to invest in shares listed on NSE or BSE or any other stock exchange, you are required to follow a similar process to open a trading account with an Indian broking house to invest in shares of some foreign companies listed on the stock exchanges of their respective countries.
How do I open a trading account to invest in International Capital Markets?
To facilitate you to do the same, an Indian stock broker enters into a tie-up with a foreign broking partner who has the license to act as an intermediary and execute the trades on your behalf in the foreign markets.The Indian stock broker will act as an introducing intermediary between you and the foreign broking house. The Indian stock broker will also help you in getting your account opened and completing the formalities of Know Your Customer (KYC) applicable for that country.
You just need to fill an application form and provide your identity proof such as passport or PAN card and residential address proof such as Voters ID card or latest bank statement as the documents required to open an account.Once your necessary details are registered, you will be provided the bank account details of the foreign broker to which funds are to be transferred. You will also get the contact details of the account executive who will take care of your account in case you require any kind of assistance.

Funds Transfer – Pay-In/Pay-Out Process

As per the remittance norms of the Reserve Bank of India (RBI), an Indian citizen can remit a maximum of USD 2,00,000 in a financial year, from any of the authorised banks in India, including for investments in international capital markets.To remit funds to the foreign broker’s bank account, you will be required to visit your bank branch, duly fill FormA2 and submit it there along with your PAN card copy.
The foreign brokers accept funds originating from your bank account only and will reject any third party fund transfer. Also, they do not accept bankers drafts, cheques or cash deposits either.To get your money back, you need to fill “Bank Transfer Request” (BTR) form online and send it to the foreign broker. Once the payout request is acknowledged, the amount will be credited to your bank account.
It takes around 24 to 48 hours to remit money from your bank account to your trading account with the foreign broker and around 48 to 72 hours from your trading account to your bank account.You may remit funds in one of the many global currencies from your bank account to your trading account but you need to decide the base currency in which you want to settle your transactions. So, if you set USD as the base currency in your account, then all stock exchanges which accept payments in USD will settle your transactions in USD automatically.
For your trades on other exchanges, which do not accept payments in USD, the foreign broker will convert your base currency, USD in this case, to the currency of that exchange at the market rate to execute the transaction. Once your account is opened and funds are transferred, you will be provided a client Login ID and password to have an immediate access to the foreign broker’s trading platform to buy and sell shares of the listed foreign companies. All dealings like trading, delivery of shares/funds etc. will be done directly with the foreign broker without any involvement of the Indian stock broker.

Demat Account

Unlike here in the domestic markets, where your bought shares get transferred into your demat account in T+2 days, when you buy shares in the foreign markets the shares remain in a pool account with the broker’s custodian but start reflecting in your trading account immediately after buying.
Unlike with most Indian brokers, margin trading and short selling will not be allowed with a foreign broker. You will be able to buy shares only when there is sufficient cash in your account and sell shares only when you already hold them.
You can have the access to all your transactions, account history and ledger balance on the trading platform. You will also get the contract notes for your executed trades in your mailbox.

Which brokers are providing this facility here in India?

Only a few Indian broking companies like Kotak Securities, ICICI Direct, India Infoline, Reliance Money and Religare, are offering these trading services to Indian investors.
In 2007, ICICI Securities became the first company to have a tie-up with US-based broking firm, Penson Financial Services, for its overseas trading platform with access to NYSE Euronext and Nasdaq.
While Kotak Securities has a strategic agreement with Singapore’s Saxo Capital Markets, the capital markets arm of Denmark-based Saxo Bank, India Infoline has such relationship with US-based Interactive Brokers,LLC. Reliance Money also has such an arrangement with US-based optionsXpress. Kotak Securities provides access to 24 international stock exchanges through its trading platform “Kotak Trader”. These exchanges cover all the big markets and almost all the big stock exchanges including New York Stock Exchange (NYSE), Nasdaq, London Stock Exchange (LSE), Australian Stock Exchange (ASX), Hong Kong Stock Exchange (HKEX) and Singapore Exchange (SGX) among others. Here is the link to check the markets you can trade in with Kotak Trader.
You can transact on over 80 international stock exchanges with India Infoline whereas, ICICI Securities and Reliance Money facilitate you to transact only in the US markets.
Kotak Trader offers trading in equity markets, ETFs, ADRs, GDRs and REITs through 100% cash and carry system. But, this service is available only for individuals. Partnership firms, HUFs, trusts, NRIs, corporates etc. are not allowed to open an account with Kotak Securities for their overseas investments.
Different companies require different minimum amount to open a trading account. Kotak Securities require you to make an initial deposit of USD 10,000 or INR 5,00,000, whichever is higher, within a period of 3 months from the date of account opening. With India Infoline also, this amount is USD 10,000 but ICICI Direct and Reliance Money allow you to trade with a minimum initial deposit of USD 1,000.
Kotak Securities charges Rs. 750 to open such an account and 0.75% of the trade value as the brokerage, while ICICI has an account opening fee of Rs. 999 and the transaction charges of USD 9 or 0.75% of the trade value, whichever is higher. India Infoline does not have any account opening charges.
As your overseas investments will be made in some foreign currency, your investment gain or loss will also be linked to the movement of that currency. So, if you invest in some stocks in USD and USD appreciates in value, then it would add to your gains or lower your losses. e.g. Suppose you paid Rs. 50 per USD at the time of investment and liquidate your investment when the USD appreciates to Rs. 55, you will get back Rs. 55 per USD.

The process of transacting in equity markets overseas is not that complicated, but you need to understand the dynamics of global equities. You can understand the revenue sources for Bharti Airtel in India but it is difficult to do so for SingTel in Singapore.

(This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in  )

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

 Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Prepation for after retirement

How to prepare Retirement Plan

In previous blog, we have discussed about the importance of retirement planning as the changing social and economic scenario. Today we will discuss how we should prepare retirement plan and what is the crucial factor should consider during the preparation of retirement plan. The most important thing it should start as early as possible at the beginning of the career.

First, we should make a list of current monthly expenses and annual expenses. After making list one should analyze how much these expenses are likely to increase or decrease after the retirement. After this consider inflation rate to these expenses to arrive approximate figure at the time of retirement. Estimate your and your partner’s life expectancy and calculate how much corpus needed for you after retirement till death to support your expenses.

Once we arrive to the corpus figure, now the question where we have to invest and how much amount have to invest for achieving this corpus figure. Evaluate the amount you need monthly or yearly to achieve target corpus. The most suitable invest avenue is mutual fund. Use the power of compounding by investment systematically in mutual fund through SIP plan. With the right mix of debt and equity one can successfully achieve the required retirement corpus. As your age reach near about to retirement age, reduce your equity exposure and shift it to debt systematically.

After making investment don’t divert from the plan, be disciplined and make investment regularly. In some time interval like annual you should revisit the plan and make sure your investment is on track. The most important thing is not to use your retirement corpus for your other requirement or before your retirement. Planning for retirement is not a rocket science. It is very simple step by step plan but this required only discipline and regular investing.

If you find difficulties to make your retirement plan then involve your Independent Financial Planner/advisor. Be in touch with your financial advisor during the entire investment period and clear your doubt investment and financial planning.

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

 Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Retirement Planning - Its Importance

Have you prepared your retirement plan ?

We all work hard entire life for our daily needs and responsibilities. Our daily essential expenses has become costly day by day and the common man are in trouble to match the income for their current daily life expenses. During this daily life income generation struggle, somehow we are ignoring our after retirement plan. All of us expect a stress free retirement life and for that we need a suitable corpus. This corpus is nothing but replacement of your income when you stop working after retirement. The importance of building retirement corpus you can imagine that even today we are earning and hardly fulfil our needs and when we will stop earning then how can we expect stress free life. Migration of children, weakening joint family system, increased life expectancy, increasing medical bill, increased cost of living are the main factors which forced us to think about retirement planning in very serious.

One more crucial factor is inflation we should consider at the time of making retirement plan. It makes life worse more for retired person. For example if average inflation rate for next 25 year is 8% and our monthly expenses is Rs 15,000. So we need around Rs 1,00,000 per month with the effect of inflation.

Most of young people, at the beginning of their career completely ignore thinking about retirement plan. But please note down retirement is reality for every working person and for comfortable life style after retirement should make planning at the very beginning of the career. In most cases we have roughly 30 years for building the retirement corpus. As age of around 25 the person get job and around 55 take retirement. It means we should invest for some part of our saving for comfortable retired life during our working years.

So now it has become clear that how important to plan for after retirement life. If you find it is difficult to make retirement corpus then contact any independent financial advisor ( IFA).There are many ways to build retirement corpus like SIP in equity mutual fund, regular investment in government sponsored NPS (New Pension Scheme), PPF (Public Provident Fund), Provident Fund for employee, Annuity Schemes etc. We will discuss about these options in upcoming blog.

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

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com