Best Investments For The Next 10 Years

Best Investments For The Next 10 Years

The definition for what the ‘best’ investment is, could be a cause for debate as the parameters for deciding this might differ from one person to another. However, one can safely say that any investment that gives you stable returns which beat inflation over the long term, could be considered to be the best. Given that interest rates in the country are dwindling, where could you possibly find investments which meet this criteria? Don’t fret! We will tell you which investments you can bet on and how to make the most of them.

Mutual Funds – Equity Mutual Funds are perhaps the best of investments that are least affected by inflation. The top 10 equity funds have returned an average of 22% per annum over the last 5 years. And, don’t think that you get only returns, you get tax savings too from some of these funds! Consider this: Birla SunLife Tax Relief Fund, an Equity Linked Savings Scheme (ELSS) fund, has given a return of 25.8% per annum since its launch in 1996. When you consider 3 year returns too, the fund seems to have exceeded expectations. The 3 year return stands at 21.95% per annum. Essentially, long term investment in the fund seems to give better returns when compared to investing for the short term. This is precisely why Mutual Funds might be the perfect investment for the next 10 years, especially if you are in your 20s and 30s.

Real Estate – Often considered a risky investment, this might be the most coveted asset cum investment, for anyone and everyone. The Indian real estate industry has seen major growth in the last decade and affordable housing has mushroomed all over the country, making it easy to buy this asset. You also get tax benefits when you buy / invest in this one, if you take a loan, that is. What else do you need? Maybe returns? You get that too, if you remain invested for the long term (read 5 years or more). If you look at the National Housing Bank’s Residex Index, the average return for the top 5 cities in the country has been 16% CAGR (Compunded Annual Growth Rate). The Indian average stands at 15% CAGR, which definitely beats inflation. And this might be the right time for investing in residential real estate. “Trends are beginning to change basis expectations of a good monsoon, revival in the economy, reducing inflation and the fact that residential prices have bottomed out. Also, the improving regulatory environment in the real estate sector, coupled with progressive Government schemes like Smart Cities, AMRUT and ‘Housing for All by 2022’, are beginning to have a positive influence. Additionally, factoring in banks’ passing on of interest rate cut benefits to the ultimate consumers, the residential sector is all set for rebooted growth” says Ashwinder Raj Singh, CEO – Residential Services, JLL India. Go for that Home Loan but compare across lenders for the best interest rates. Also, do that due diligence before choosing a property and stay invested for the long term to grab those capital gains.

Gold – We Indians have always been mad about gold. We don’t need an occasion to buy gold and we don’t hesitate to splurge on it when an occasion arises. And, gold has always provided that much needed hedge against inflation. However, in the recent past gold has been going haywire. The Gold bull-run stopped in 2013 and the gold rate has been highly volatile since then. But demand for gold hasn’t waned. Globally, demand for gold has touched the 1,290 tonnes mark. This data is for the first quarter of 2016. This figure denotes a 21% rise in gold demand year-on-year. While demand is rising, supply seems to be more or less the same. This is the reason why gold prices have been going up in the recent past. Gold is an exhaustible precious metal and mining is not an easy process. If gold supplies fall in the coming years, gold would only become more precious. This is why investing in gold for the long term might be a wise thing to do. But, remember that gold purchased as jewellery is not a great investment as it comes with making and other wastage charges and has a lower resale value. Gold coins and bars are the smart way. An even smarter way is to invest in gold Exchange Traded Funds (ETF).

PPF – Pubic Provident Fund, the popular PPF, is considered a safe long term investment as it is backed by the Indian Government. The best part? It is fully exempt from tax. The minimum amount needed to invest in PPF is Rs.500. The current interest rate is 8.1% per annum. After the 3rd year you can take a loan against your PPF and partial withdrawal is allowed from the 7th year. Consider this: If you invest Rs.50,000 in the PPF for the next 15 years, you will receive Rs.15,58,634 at maturity if the interest rate remains at 8.1%. If you use your bank account to invest in PPF, you can transfer funds online from the savings account to the PPF account. You can also view the account statement online, just like your savings bank account. When investing in PPF make it goal based so that you are not tempted to stop investing many years down the line. Typically people use PPF for goals such as their kid’s education or retirement.

Whichever investment you choose, ensure that you stick to it till you reap the right returns. Compounding works and you will know its benefits only after many years of staying invested.

 Happy Investing

Source:Bankbazaar.com

Bought the wrong house? Here’s what you can do

Bought the wrong house? Here’s what you can do

Buying a property is a once-in-a-lifetime decision for most people, as the investment is generally huge and may come with a long-term liability. One wrong decision, can create imbalances in the buyer’s personal balance R

Buying a property is a once-in-a-lifetime decision for most people, as the investment is generally huge and may come with a long-term liability. One wrong decision, can create imbalances in the buyer’s personal balance sheet and can lead to financial distress. Moreover, with the market getting mature, speculative gains have reduced. Thus, it is important to consider the long-term implications and do proper research and financial analysis, before buying any property.

Most common reasons for misjudgement in buying a home The most common mistakes that buyers make, while buying a home are:

Not doing their own due diligence. Exceeding one’s financial capability. Relying completely on brokers and/or advertisements, for information. Relying solely on rental income, to pay the EMI. Not evaluating exit options, to deal with situations of financial distress. Not budgeting delays in the project, while computing the total cost. Failure to fully understand the terms and conditions of the loan. Not planning for the long-term. Not maintaining enough liquidity. “Each person has his own specific requirements, in terms of buying a house. Proper research about the location, project, developer, neighbourhood, social amenities, etc., is a must before buying a house,” maintains Surabhi Arora, senior associate director research, at Colliers India.

“After you zero-in on a location, compare projects on the basis of quality, the developers’ record for timely delivery, amenities and price. After this, one should analyse the various payment plans that are available for the same property.”

Overcoming a misjudgement  Although it’s not easy to reverse the damage caused by a misjudged home purchase, buyers can still curtail it, in certain situations.

When a home buyer selects the wrong lender: In this case, the home buyer has the option to transfer the loan to any other lender. Although such a move may incur penalty charges, the buyer will be able to get rid of an unfit lender. When the developer fails to do the work as per expectation: The only option available to the buyer, is to create a group of consumers who are facing similar problems and take legal action or and also protest and gather support through various fronts. Protection of buyers’ interests is likely to improve, once the real estate regulatory authority comes into force fully. When there is no appreciation in property rates: Real estate investments should be long-term. Do not panic, if there is no appreciation in property rates in the short-term. Check the market trends before investing. The real estate industry is cyclical in nature and thus, it is important to enter and exit at the right time. When recurring expenses are more than expected: Check with the developer about the maintenance charges, beforehand. There is not much that a buyer can do, to reduce the maintenance cost of an apartment. If the expenses become unbearable, then, the buyer can consider disposing of the property. See also: The home buyers’ guide to choosing the right amenities

“Buyers should park their money, only in projects that have all the necessary approvals. ‘Prevention is better than cure’, when buying your dream home. The buyer should undertake due diligence and check the credentials of the developers, before investing in any project,”

 

Happy Investing

Source:Moneycontrol.com

Solving the Dilemma of Ever-More Returns

Solving the Dilemma of Ever-More Returns

"So, what’s the latest buzz in the markets? By the way, which is the stocks do you think I should invest in? Yaar, I am looking for good returns in a short period of time?" These are basically the questions that I am asked by people when ever they meet a market expert.

Be it a party, a public lecture, society meeting, parent-teacher association (PTA), or even a press conference, these questions follow me quite like the pug in the Vodafone ads. Being a market person, you are expected to be an expert.

But, when I most humbly and honestly give them a first-hand advice, "invest in mutual funds", they seem to be a tad disappointed and recoil away. It is like, I am stating the most obvious, what they wanted was a bit more exotic. The funny thing is, people who already invest through mutual funds (MFs) are hungry for more returns, and the people who are not investing in MFs, want to make up quickly by getting more returns without having to go through the time cycle.

This is where, according to me, the problem lies, what I call the 'Dilemma of the Ever-More Returns.' Two things can be summed up:

1) Everyone wants high returns (15-20% and more)
2) Everyone wants them quick

To further fuel these desires, there will be all those anecdotes floating around of how a ‘friend of a friend’ invested a trifling sum in a 10-Rupee share, and overnight became a millionaire.

Yet, over the many years, I have realised that to build a corpus or to make money, there is just one way, the incremental investment approach. No other way truly. Let me explain it with a metaphor. To climb the Mount Everest, you have to labour through snow-filled landscape for days on, and it is only then, that you reach the top. Of course, there will be a few that will get dropped on the base-camp by air, or be better equipped. But, there is just no alternative to labour.

Similarly, achieving financial security requires commitment and application. And this is where mutual funds come into play. MFs imbue that discipline and commitment in an investor. The thumb-rule in investments is to diversify your investments, and MFs let you do that with an array of innovative products like fund of funds, exchange-traded funds, sectoral funds and so on. The returns are usually higher than those offered by traditional investments etc. The concept of compounding truly gives MF an edge over others. Also, they are easy to invest or exit and come with much transparency.

But the best deal for someone like me is that it is managed by highly-efficient professionals like fund managers, who are all the time glued to investment opportunities and taking decisions accordingly. Unlike me, they don't just follow the market or the trends, but actually, deep-dive into niches that only a few would ever do. Thus, they are more like those professional wealth managers, except that they are doing it for a much larger audience. Investing in an MF is like hiring one to look after your portfolio.

Coming back to our original dilemma. What is the need to seek advice, fish for trends, why not simply use the power of compounding to your advantage? Why go about seeking tips, when you can have experts working for you?

So next time, you bump into me at a party, PTA or anywhere, instead of asking for 'quick-rich' equities option, ask me, which are the best performing MFs and how. Possibly, I will have a lot more to answer on that, and you will not be taken aback. Remember, the Ever-More returns will come, but in due course of time.

 

Happy Investing

Source:Moneycontrol.com

Centre’s plan for Budget overhaul doable?

Centre’s plan for Budget overhaul doable?

India’s Union Budget is set to see sweeping changes. The finance ministry set the ball rolling a couple of weeks ago with the announcement that it would merge the General and Rail Budgets. And most recently, it has declared its intention to present the budget a month earlier from the customary last working day of February. Plans to do away with the distinction between Plan and non-Plan expenditure and replacing it with capital and revenue expenditure are also on the anvil. The overall idea is to streamline processes and make the budget more relevant.

The declaration to join Rail and General Budget, for example, is a landmark move. Warranted, ironically, by the same conditions that resulted in their separation 92 years back – fund shortage. Despite being the largest contributor to revenue, the railways was acutely cash starved circa 1925. Money required for expansion, development and maintenance was never adequately allocated. To solve the problem, the then British rulers decided to separate the Rail Budget to give the railways autonomy to spend its own money. 

The move helped resolve the crisis temporarily, years down the line, the plan failed to produce desirable results. Subsidised fares and politicisation of issues meant development and expansions did not materialise on the scale envisaged. So, on the recommendation of the current railway minister Suresh Prabhu, the government has decided to go for a merger. It would relieve the Indian Railways the annual dividend to the tune of Rs 10, 000 crore that it pays to the government to avail Gross Budget Support. A five-member committee has been formed to work on the modalities and submit its report on 31 August. How it pans out in the long run, remains to be seen.

Besides the merger, the government is also envisaging presenting the Budget a month earlier. Up until now, the Union Budget has been presented at February-end and the entire process dragged on till mid-May. The Finance Bill, incorporating Budget proposals - full year expenditure as well as tax changes – is not passed until April-end or middle of May. But, as India’s financial year begins on April 1, in March, the government needs the Parliament’s approval through vote-on-account, to allocate a fraction – sixth to be precise – of the funds for the first three months of the forthcoming financial year.

The advancement of the Budget presentation to January-end, would obviate the need for a vote-on-account as the passing of the Finance Bill would be accomplished by the start of the financial year. Departments and state-owned firms would not need to wait for the Budget to be passed by the Parliament to learn of the amount allocated to them and could start spending right from the beginning of the fiscal year. Tax payers, especially businesses, would benefit too as they would get to know of their tax liabilities at the onset of the fiscal year.

The move could also help government prepare for the implementation of the Goods and Services Tax (GST) – an indirect tax that would subsume the multitude of existing taxes – scheduled to be rolled out from April 1, 2017. With the GST materialising, the second part of the budget, containing tax proposals, would get slimmer with only direct tax proposals being mentioned alongside a few others like Customs, which would still exist.

As part of the budget overhaul, the government, further, is planning to scrap the distinction between Plan and non-Plan expenditure with the 12th Five-Year Plan (2012-17) ending this fiscal. Planned expenditure is that which helps to increase the productive capacity of the economy, like allocated spend on sectors like rural development and education. Non-Plan expenditure, on the other hand, is simply expense on account of interest on Government debt, pension, subsidies, salaries and defence. The centre intends to replace it with capital expenditure and revenue expenditure to better differentiate between money spent on creating assets and money spent on running the government. States are being consulted for capital and revenue expenditure classification. An internal group is working on the same.

With all the ambitious plans of an overhaul, the question is: can the centre seamlessly push the changes before the April 1 deadline? Experts point out that data – comprehensive revenue and expenditure data – gathered till December, when preparations start in full swing, may not be sufficient enough to draw the budget. Currently, data on revenue and expenditure trends for nine months (April to December) of the financial year is available by the time the Budget is finalised in mid-February. With the Budget presentation advanced to January, just about half-a-year’s data would be available to frame it. This would pose a challenge.

Besides, monsoons play a crucial role in preparing the Budget – effective Budget planning depends on the monsoon forecasts for the coming fiscal. With dates being rescheduled earlier, proper forecasts would not be available, making the process even more challenging.

So far, the budget cycle typically started around September-end. But with a new target date, preparations need to begin right away so that the Centre does not overshoot the deadline. How doable the overhaul exercise will be and what results it will produce, only time can tell.

 

Happy Investing

Source:Moneycontrol.com

All You Need To Know About Arbitrage Funds

All You Need To Know About Arbitrage Funds

Arbitrage, in finance, equates to risk-free returns. The concept sounds confusing, as any return requires investors to assume a degree of risk, especially when they want returns above the level of bank deposits. Returns in financial markets are equivalent to profit in other markets.

Just as a trader buys at a lower cost in one market and sells at a higher price in another market to earn profit, investors in financial markets take advantage of different prices existing in different markets to make a profit. This difference is the return on the investment.

 Arbitrage Funds – Cashing in on price differentials

Arbitrage Funds are Mutual Funds that take advantage of temporary price differentials of the same asset in the cash market and the derivative market.

The cash market is where shares are bought and sold at market or limit price for delivery. You pay the actual price of the shares prevalent at the time of purchase and the shares are delivered to your account.

The derivative market is different. Here, you can transact at a future date by fixing the price today. For example, you can agree to buy or sell one kilogram of Gold or a specific number of shares after a year at a price decided today. If the actual price after a year is more than what you decided today, you make a profit if you are buying or a loss if you are selling. If the actual price after a year is lesser, the situation reverses.

When you combine these two transactions (cash market and derivative market), you create a situation where your risk is mitigated. Let’s look at an example.

Consider the share price of an imaginary company, ImagineCo. Its share price today is Rs. 1,000. The three months future price is Rs. 1,050. This means you can buy or sell ImagineCo shares at the end of three months at Rs. 1,050 if you wish so. So, by buying the ImagineCo three months future, you have locked in the price. At the end of three months, the actual share price in the market is, say, Rs. 1,060. This means you have made a profit of Rs 10 per share.

From a fund’s perspective, it can buy shares of ImagineCo at Rs. 1,000 and sell the three months future at Rs. 1,050. Now after three months, two things can happen. The prices can go down or can go up. Let’s take each scenario.

Scenario 1: The price goes up to Rs. 1,060 on the settlement day after three months. On the settlement day, the future price and price in the cash market converge. The fund can sell the stocks at Rs. 1,060 and make Rs. 60 as profit. In order to settle the futures contract purchased, the fund will need to buy futures. It will close the future position by buying the future at the same price of Rs. 1,060, incurring a loss of Rs. 10. The overall profit is Rs. 50.

Scenario 2: Suppose the share price goes down to Rs. 940. In this case, the fund will incur a loss of Rs. 60 in the cash market as it sells the share which it bought at Rs. 1,000. On the future side, however, it will make a profit of Rs. 110 as the fund had sold it for Rs. 1,050. Overall the profit will be Rs. 50, as before.

Hence, irrespective of the direction of price movement, the investor has made money. In all our calculations, we have ignored transaction costs which form a small proportion of your profit.

The advantage of Arbitrage Funds

Arbitrage Funds are for conservative investors who cannot take the risk associated with pure equity investing through Mutual Funds. Arbitrage Funds are a low-risk investment with average returns. They are very similar to Debt Funds where the risk is low.

However, what works in favour of Arbitrage Funds over Debt Funds is the tax advantage associated with it. Since Arbitrage Funds are categorised as equity funds, the capital gains tax is nil for long- term investments, i.e. for more than a year. In case of Debt Funds, the taxes are both for short-term and long-term capital gains.

Happy Investing

Source:Bankbazaar.com

Is Now The Right Time To Be Buying Physical Gold And Silver?

Is Now The Right Time To Be Buying Physical Gold And Silver?

India loves these metals. People in our country don’t need an occasion to buy Gold and Silver and they don’t miss occasions for which they need to buy these metals. No wonder we have become one of the largest consumers of Gold and Silver in the world. This is especially true for Gold. But the question is should you buy Gold and Silver now?

It’s A Turbulent Atmosphere

Financial markets the world over have been highly volatile. A lot has been happening across the globe in the past year. This includes the lower global growth forecast, low oil prices, and the Brexit issue. The interest rate scenario in the United States has a direct influence on Gold. The influence on Gold and Silver by other central banks, such as the European Central Bank, has risen in the recent past. The gloomy interest rate scenario has augured well for Gold and the equity markets have also helped.

The stock markets across the globe are witnessing volatile times. Most of the markets, including Europe, China and Japan have fallen by over 20% from their highs of the past year. Even the US markets have fallen by more than 10% in the last year. Asian markets have gone into a bear phase (where markets are falling) after the Brexit vote. So, people seem to prefer Gold over shares.

Why?

Metals such as Gold, tend to do well during these turbulent periods. This is because people consider Gold as a safe haven when stocks seem to be tumbling all over the world. It is like an alternative investment they can trust. No wonder, demand for Gold and Silver have gone up in the last few months. This has, in turn, pushed the prices of these metals northwards. Consider Gold prices in India since the start of 2016. The average price of Gold in January 2016 was about Rs. 25,880 per 10 grams. Today, it is Rs. 31, 181 per 10 grams. So, Gold has risen by over 20% this year while stocks have hardly risen in the country. The year-to-date (YTD) return of the Sensex is just 6.8%.

The same is true for Silver. Silver was selling at Rs. 34,735 per kilogram in January 2016. Today, prices are at Rs. 44,594 per kilogram. Silver has risen by a phenomenal 28.3% this year, beating its rival, Gold, by a wide margin.

Now you know, Gold and Silver have run up quite a bit. Is this the right time to buy them? Will prices go up further or will they correct? Is it right to invest in them when markets are volatile? Here are the answers.

Gold – A Hedge Against Inflation

Usually, Gold is considered as a hedge against inflation. This means that when inflation goes up Gold prices rise and when inflation falls, Gold prices fall.  When an asset is able to significantly beat inflation over the long term, it can be considered a hedge against inflation. Gold has been able to do that. Look at the below chart for 2016 and you will be able to see how Gold has been able to beat inflation most of the time.

Given this viewpoint, it does make sense to invest in Gold at any point in time. However, it is important to take into account the historical price of Gold too. Gold is currently at a 3 year high. Prices have run up quite a bit. Investing a lump sum in Gold at this point may not be a wise thing to do. The same is true for Silver. However, Silver prices are yet to touch their 3-year highs. On the same day in 2013, Silver prices were at Rs. 53,303 per kilogram, much lower than the prices today. Does this mean that you can invest in Silver? Not exactly! Silver prices are currently at a 2-year high. So, making lump sum investments in Silver too might be risky. But Gold and Silver have given better returns than stocks!

The Correlation

Gold and Silver have a negative correlation with stocks and fixed-income securities such as bonds. This means that when stocks and bonds go down, Gold prices will go up and vice versa. When the stock markets are depressed, Gold and Silver prices run up. So, shouldn’t you be investing in them? We are sorry to disappoint you but this is the wrong way to go about investing in these metals. Do you know if the stock markets will continue to fall? Can you predict the way forward for the equity markets in India? What will happen if the stock markets pick up? Won’t Gold prices start falling? These are some of the questions that you should ask yourself if you want to invest in Gold and Silver now. Note that Gold has been known to behave weirdly sometimes. There are periods where Gold has fallen along with stocks and bonds. So, nothing is guaranteed. Don’t invest in Gold and Silver just because the markets are down. But you could still consider investing in Gold and Silver now for two reasons.

Demand And Supply

The reason behind the change in the price of every commodity is their demand and supply. When demand goes up and supply is limited, prices move up. When demand falls, prices fall. Commodity investing should be done based on this data. According to data from the World Gold Council, in the first quarter of 2016, Gold demand was 16% higher than the demand seen in the first quarter of 2009. Investors in the US and Europe went all out for Gold coins, bars, and Exchange Traded Funds (ETF). Also, year-on-year (yoy), Gold demand was up by 15%. Even though the global demand for jewellery fell, there was high demand for Gold as an investment. In India too, Gold demand had fallen in the first quarter of 2016. However, supply in the country fell more than the demand. This ensured that prices remained high. After the first few months, demand for Gold seems to have increased, pushing prices even higher. The same is true for Silver. Even though Silver is not purchased for investment, Silver has many other uses, especially in automobiles, and that makes it a valuable asset. Both Silver and Gold are natural resources that are exhaustible. Unless recycled, Gold and Silver supply will continue to decline. Recycled Gold accounts for a third of the total Gold supply in the world. If recycled Gold supply goes down, Gold prices will go for a toss. This means that it will become more precious, that is, prices will go up in the long run. Sourcing of Gold might also contribute to this phenomena. Gold supply is currently geographically diverse. Mining is no easier today than it was years ago. This means that cost of production will always be high. So, prices will also remain high. These are some of the reasons why investing in Gold and Silver makes sense.

How Should You Invest?

The best way to go about investing in Gold and Silver is through a Systematic Investment Plan (SIP) like you would do for Mutual Funds. This has several advantages.

No one can predict how prices of these metals will move. Even so-called experts have been wrong. So, when you invest in Gold or Silver every month, you can be sure that the prices get averaged out in the long run. Given that Gold prices increase in line with the standard of living, this method will help you acquire higher amounts of the metal at lower costs.  Another strategy is to invest some more of these metals, whenever prices fall. When prices correct significantly, you can consider stepping up your monthly investment amount in Gold and Silver. Note that Silver is not as easy to store as Gold. It is a high maintenance investment. It is easy to invest in Gold through coins and bars. Gold jewellery is not exactly an investment as you need to pay for wastage and making charges, which reduce the value of your Gold considerably. The resale value of such Gold will also be low. So, think twice before buying Gold in the form of jewellery. Sold on Gold and Silver? Ensure that they do not exceed 10% of your portfolio. Historical data suggests that in the long run, shares have given better returns than Gold. You can start with Mutual Funds. What say?

Happy Investing

Source:Bankbazaar.com

How to prepare your spouse to run your finances in your absence

How to prepare your spouse to run your finances in your absence

Discussing one’s death is not easy. But if one prepares for it well, then his family will not be affected financially.

When you get married, you no doubt envision a rosy future with your wife and the thought of preparing for unforeseen events probably never even enters your mind. While you plan for a life together eternally, you do need to consider reality as well. Failing to plan for what to do when you die can be emotionally and financially draining for your loved ones. They will already be distraught after you are gone – why not make things a bit easier for them by at least planning ahead so that they won’t be overburdened with complex decisions?

Preparing your spouse to handle your finances

1.    Get your documents in order: Whether it is personal, vehicle or properties, insurance papers, get these in order and file them with your legal advisor, with a copy of these documents with other family documents. Don’t forget to get your will legally done so that your family won’t have any hassles later on. File your will along with your insurance papers, children birth certificates, your marriage certificate, list of assets, bank information and any authorization or nomination papers and let your spouse know where you have kept them.

2.    Speaking about contacts, don’t forget to list down all important telephone numbers and addresses of anyone who deals with your finances.

3.    If you are under debt, make a clear list of all your debts and let your spouse know whom to contact and what provisions you have made to handle debts after you are gone.

4.    If some financial benefits are due to you, make sure that these are clearly recorded and all paperwork is filed and in order.

5.    Also, check with your employer about spousal benefits or pension if you die while in service and make sure your spouse knows what she / he is entitled to.

6.    Give your spouse financial power of attorney and make sure that this document is legally attested so that it does not become a legal battle in the event of your death. A letter of instruction may also be prepared, although it does not always need an attorney. This letter provides instructions about how you wish to have your funeral conducted, as well as any other information you’d like your loved ones to know after you are gone.

7.    Make a wish list and share the same with your spouse or someone close to you who can share with your family, should something happen to you

8.    At last, introduce your spouse to the organization that shall help the family, should something happen to you. By this he or she will know whom to contact in the event of your death.

Preparing your spouse to run your finances while you are not around is not an easy task. Discussing the eventuality of your death can bring up a lot of emotional insecurities in your spouse.

After all, no one really likes to listen to morbid thoughts and no person would ever want to even think about her spouse’s death. Therefore, broach the topic at the right time, taking into consideration the emotions that will likely be stirred up as a result of this conversation.

Instead of choosing to explain all your finances to your spouse in a single sitting, explain it to her over a period of time so that she will not be overwhelmed. Prepare your family to handle your finances ahead of time so that unforeseen eventualities won’t take an added toll on your loved ones!

Happy Investing

Source:Moneycontrol.com

Grow your money, instead of keeping it idle

Grow your money, instead of keeping it idle

As a young working professional, chances are you already have a savings account, and if you’ve switched jobs, you probably have much more. According to the RBI report in 2015, a colossal amount of money to the tune of Rs.26 trillion were lying in saving deposits. With an expanding salaried class, the number will only go up further.

One of the major advantages of a savings account is liquidity. People usually keep money in their savings account because it allows them to withdraw amounts at any time. Also, they receive interest on the deposit between 4-6% per annum depending on the bank which is slightly better than keeping it under the mattress.

Therein lies the problem. With the consumer price index at 5.77% in June 2016, your money has not grown, at best it has been on par. At worst, the value of your hard earned buck has lost its sheen.

You require a savings plan with decent interest rates to beat inflation and also liquidity so that in the event of unplanned expenses you do have the option of withdrawing your money. A scheme where you can get daily or weekly dividends which can ideally be reinvested to get higher returns. These can be explored in an open ended scheme with investments in debt funds and money market instruments which have a relatively lower risk.

For those who neither have the time nor the expertise to deal with the myriad of Mutual Fund schemes, Birla Sun Life Cash Manager (An Open-ended Income Scheme) could be a smart option with a minimum initial subscription amount of Rs.₹1000 and has zero entry or exit load. The scheme invests in low-risk Debt Market Securities and Money Market Securities. Now, debt schemes which are held long-term (more than three years) are taxed at around 20% with indexation. If you withdraw your investment within three years, you will be taxed according to the tax slab you fall under. But there is another option. Birla Sun Life Cash Manager allows you to opt for daily or weekly dividends. These dividends are exempt from tax in the hands of the investors.

In India, many people opt for fixed deposits instead, which can be attractive with solid interest rates at 7-7.5% and zero risks. Why zero risk? Because all fixed deposits up to 1 lakh rupees are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the RBI. And if the central bank is unable to secure this, then you have bigger things to worry about.

However, as the name suggests fixed deposits have a fixed tenure and aren’t liquid enough. Sure you can withdraw the amount before term, but prematurely withdrawing your money could lead to lower interest rate and in some cases a penalty. Not to mention you are taxed on the returns which can be high for those falling in the 20% and above tax bracket. However, Fixed Deposits give guaranteed rate of return.


While Birla Sun Life Cash Manager has many attractive features, the most striking is liquidity. Withdrawing your investment from a typical mutual fund scheme usually, takes 4-5 days. With Birla Sun Life Cash Manager, an ultra short-term income scheme, it takes just one working day without any exit load.

Whether you are planning for a particular financial goal or looking to build wealth, the maxim is to live by is to “grow your money”.

 

 Happy Investing

Source:Moneycontrol.com

Corrective phase is over – It's now time to buy

Corrective phase is over – It's now time to buy

The NIFTY 50 is quoting at P/E multiple of 23.6 times. In January 2008 the markets topped out when P/E multiple was at 28.3 times. Historically, markets tend to top out between 23-28 P/E multiples. Let us see if it is right to conclude that markets are trading at frothy valuations just based on one criteria –P/E multiple.

These days every discussion on the trend of the market ends up in a conclusion that markets are expensive and are bound to correct. This argument is based on the premise that markets have run up too fast without any meaningful correction from February 2016 lows and is now quoting at very high PE multiples. It is also argued that markets are trading at a substantial premium to other emerging markets.

The Nifty 50 is currently quoting at PE multiple of 23.6 times. In January 2008 the markets topped out when P/E multiple was at 28.3 times. Historically, markets usually tend to top out between 23-28 PE multiples. Let us see if it is right to conclude that markets are trading at frothy valuations just based on one criteria –PE multiple.

At the top of the business cycle in 2007-08,the corporate capex was at its peak owing to record high capacity utilization levels.The earnings had grown consistently at over 20 percent for past three years. The scenario is very different now. Corporates are still not ready with the fresh round of capex as capacity utilisation continues to remain low at around 70 percent.

The infrastructure spend is primarily in the form of government spending for building public infrastructure. This situation is about to change as corporate sector focuses on deleveraging their balance sheets, preparing for next round of growth.

Most large corporates share optimism about the potential of India’s economy amid strong leadership at the Centre.This is reflected from the fact that the promoters of one-fifth of the BSE 500 companies have raised stakes indicating confidence in their company’s growth (Source: Economic Times).

The credit growth in the economy continues to remain sluggish at around 10 percent as against mid-20s in 2007-08. The banking sector in India is undergoing a major clean-up exercise. This clean-up phase will build the stage for the next round of economic growth.

The PE multiples on an absolute basis tend to look stretched during the phase when the economy is on the cusp of a major recovery but corporate earnings are yet to show meaningful growth. India is going through such a phase now. The current high P/E multiples are just an indication that investors anticipate strong and sustainable growth in earnings in the years to come.

Market valuations are not looking extremely stretched based on other valuation metrics such as PB and dividend yield. On a Price to Book (PB) basis NIFTY 50 is currently quoting at 3.3 times as against 6.6 times in January 2008. The dividend yields are currently at 1.66 percent as against 0.82 percent in January 2008.

The global economy is still not out of woods. The major developed economies are struggling to revive growth. The vote on Brexit has created a fresh round of uncertainty. Most of the emerging markets are yet to stabilise in the low demand environment amid highly depressed global commodity prices.

China, too, has its own set of macro-economic problems such as over-capacities, huge debt, amid falling demand. In such an uncertain global scenario, India is one shining star which offers an excellent investment opportunity for the investors, thereby deserving premium valuations over other emerging markets.

India’s macro factors have improved drastically over past couple of years and government is determined to push through reforms. The positive impact of GST on the economy will be unleashed over next couple of years. The revival in earnings of the Indian corporates may have got deferred by few quarters, but the recovery is surely on track. The foreign investor’s interest continues to remain high towards Indian companies

World over interest rates are at multi-year lows. In India too interest rates have fallen over past few years. The cost of capital is expected to come down further post bountiful monsoons. Global markets are flooded with liquidity.The fall in cost of capital is bound to result in higher earnings growth for India Inc., thereby supporting higher valuation multiples for Indian equities.

The retail public is currently participating in the equities primarily through mutual fund SIP route. Their participation is low in direct equities. Typically, bull markets top out with aggressive participation from retail investors in the direct equities. This trend is clearly not visible now.

The roaring bull market is ahead of us. The recovery of earnings growth and tsunami of global liquidity will drive Indian markets to the new highs. However, the consolidations and corrections will continue to remain integral part of this multi-year bull market.

Happy Investing

Source:Moneycontrol.com