Meet the wealth creators of FY18! Top 20 stocks which rose up to 1000%

Meet the wealth creators of FY18! Top 20 stocks which rose up to 1000%



The calendar year 2017 might have closed on a blockbuster note with Sensex and Nifty gaining close to 29 percent but bulls lost steam in FY18. The S&P BSE Sensex is up a little over 10 percent so far in the financial year 2018.

 Indian markets lost momentum soon after the Budget. The surprise announcement of Long Term Capital Gains (LTCG) tax caught many investors both domestic as well as foreign off guard. Rising inflation as well as muted macro data point towards a mild slowdown.


The news from the globe was not encouraging as well. US Federal Reserve comments on aggressive rate hikes in the year 2018 got many investors across the globe puzzled and the latest incident to kick off risk-off sentiment was the possibility of Trade War which could weigh on global growth.


Benchmark indices were hitting fresh record highs almost on a daily basis till January 2018, but back-to-back selling by FIIs as well as domestic investors weighed on Indian markets. The Nifty50 index is trading below 10,000 while the S&P BSE Sensex slipped below 33000.


Well, there aren’t many multibaggers in FY18 as there were in the calendar year 2017 but as many as 22 stocks in the S&P BSE 500 index rose as much as 1000 percent in FY18.


Stocks which outperformed Sensex include names like HEG which rallied 1414 percent, followed by Graphite India which surged 610 percent, and Indiabulls Ventures rose 332 percent, as per data collated.

 Other stocks which more than doubled investors’ wealth in the same period include names like Avanti Feeds, Sterlite Technologies, Radico Khaitan, Indiabulls Real Estate, Avenue Supermarts, Nocil, NIIT Technologies, V-Mart, Adani Transmission, and Rain Industries among others.


Well, the year 2018 started on a high note with benchmark indices hitting fresh highs almost on a daily basis but the recent correction has given the opportunity to long-term investors’ to build a solid portfolio as most stocks are now available at attractive valuations.

 The assessment is that investments made during this fiscal will yield very good returns and purchases will be at reasonable valuations and not elevated levels what was the case in the second half of 2017-18.


Another important element which will contribute to the outperformance would be a revival of earnings which most analysts’ are counting on.

The December quarter earnings season was no blockbuster but it did give a ray of hope to analysts that there are green shoots emerging. We could see double-digit growth from Indian Inc. in FY19 which should take markets higher in next 12 months.

 The only green-shoot for our markets is that the earnings seem to be back after a long hiatus. This was the missing link in the entire euphoria for the last 3-4 years. One can expect the earnings momentum to accelerate going ahead unless there are further unforeseen events.

 Also, the elections being near, the government will try its best to get capex and growth back into the economy. The ongoing correction thus provides a good opportunity to buy in the midst of pessimism and noise.


Happy Investing

Leveraging Active Investing with Small-Cap Stocks

Leveraging Active Investing with Small-Cap Stocks

By Julie Hammond, CFA

Posted In: Drivers of Value, Equity Investments, Portfolio Management

Elizabeth M. Lilly, CFA, finds her investment opportunities in unusual places. After breaking her iPhone screen in 2016, she did some research and discovered ZAGG, an under-the-radar stock that produced replacements. It turned out to be a serendipitous find.

That general curiosity about the world and how it works has served Lilly well during her 25 years as a small-cap stock portfolio manager. She believes that small-cap stocks offer a tremendous opportunity to those willing to do the research: Small-cap investors can generate returns if they dig deep into a company’s financials, conduct multiple valuation analyses, meet face-to-face with management, and have a patient, long-term focus.

Lilly, who recently founded the small-cap value manager Crocus Hill Partners, outlined her investment approach at the 2017 CFA Institute Equity Research and Valuation Conference.

The Case for Small Caps

Even after a quarter-century in the space, Lilly said she is amazed that inefficiency still exists in the small-cap market. If anything, the sector may have gotten even more inefficient over the years. Lilly explained that the stocks she invests in are sparsely covered by Wall Street analysts, are more volatile, and have lower valuations.

Lilly believes a number of market trends will continue to propel the sector:

1.      Small caps typically outperform in rising interest rate environments. There’s a misperception that all small-cap companies are burdened with a lot of debt, Lilly said. In fact, many continue to actively deploy cash through dividends and stock buybacks.

2.     M&A activity is often a catalyst for growth. M&A activity targeting small- and micro-cap companies has continued at a robust pace. This has been driven by activists encouraging companies to unlock value and large firms seeking growth through acquisitions.

3.     Small caps outperform over long periods. The idea of a “small-cap premium” has been challenged in the past but has not been disproved. Aswath Damodaran has noted that small companies are more likely to be overlooked and the undervalued ones likely to have bigger payoffs.

4.     Volatility equals opportunity. Small-cap investors can often use market turmoil and liquidity events to their advantage.

Valuing the Business

Lilly enjoys rolling up her sleeves and doing the hard analysis necessary to value small businesses. She looks for off-the-radar companies, conducting intensive qualitative and quantitative analysis to uncover hidden value. “We look closely at the balance sheet, income statement, cash flows, and margins and the interrelationships among them — five years back and five years forward,” she said.

Valuation is an imprecise art, but Lilly explained, “Our aim is to buy $100 worth of value for $65. We look for enough downside protection through a margin of safety with significant upside potential.”

She also looks for a catalyst that will ultimately unlock the stock’s value. This catalyst could be a new leadership team, a new market in which to sell products, the selloff of underperforming businesses, renewed focus on high-achieving ones, or exogenous factors like industry consolidation. “You need a catalyst to surface value,” Lilly said, echoing a bit of wisdom she learned from working with Mario Gabelli.

Lilly is most interested in management’s long-term strategic vision for a company. That means at least a three- to five-year time horizon. Her questions for management focus on its process for allocating capital and whether all its business segments are earning their cost of capital. She also likes to see incentives that keep the board and management focused on the long term.

The most crucial piece is her assessment of the C-suite: “You’ve got to visit the headquarters and look in the whites of the eyes of the management team,” she said. “This is something you cannot get from quarterly conference calls.”

Sound Advice

Earlier in her career, Lilly learned value investing techniques under the tutelage of Robert Bruce, founder of the Bruce Fund, and Warren Buffett. “The best advice I ever received from Warren was to know what you own and really understand the business you’re investing in,” she said. Her mentors also conveyed the importance of working with good people and emphasized that management can make the difference between a good investment and an outstanding one.

In the end, Lilly said, “You have to ask yourself: Do you believe in management and do you want to be their partners?” Understanding the goals and incentives of company leadership is essential to evaluate whether it can execute on its vision and whether it’s focused on creating value or becoming big.

“If you ask me why I love what I do,” Lilly said, “it’s because you can generate very high returns over long periods.” She thinks that small-cap stock investing is an excellent way to leverage active management, if you do the research and are guided by your curiosity.

Like Buffett, Lilly clearly enjoys her work. And who wouldn’t? It’s a rare opportunity to transform iPhone mishaps into alpha.

Happy investing

Adam Smith: The father of modern economics

Adam Smith: The father of modern economics

Words of wisdom that make even the dismal field of economics scintillating and colourful

'It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest,' said Adam Smith, who is also called the father of modern economics, in the eighteenth century. Smith is famous for his classic work The Wealth of Nations. Smith understood back then what we all know now quite instinctively: self-interest drives the world. It's from the fulfillment of self-interest that charity and philanthropy arise. This one quote from him isn't the only one that made a deep point while being so simple and interesting. Smith, in spite of being an economist, had the reputation of being witty and direct.

 

Here are some more interesting quotes from him:

• Labour was the first price, the original purchase - money that was paid for all things. It was not by gold or by silver, but by labour, that all wealth of the world was originally purchased.
• 
  
• The real tragedy of the poor is the poverty of their aspirations.
• 
  
• What can be added to the happiness of a man who is in health, out of debt, and has a clear conscience?
• 
  
• No complaint... is more common than that of a scarcity of money.
• 
  
• The real and effectual discipline which is exercised over a workman is that of his customers. It is the fear of losing their employment which restrains his frauds and corrects his negligence.
• 
  
• All money is a matter of belief.
• 
  
• Virtue is more to be feared than vice, because its excesses are not subject to the regulation of conscience.
• 
  
• It is not for its own sake that men desire money, but for the sake of what they can purchase with it.

Which life insurance to buy?

Which life insurance to buy?

Here are some important points to keep in mind while choosing an insurance policy

The premium paid towards life insurance also come under Section 80C. Life insurance policies come in many forms. But the best is term insurance. Term insurance provides you a large cover at low premiums.





Term insurance is different from endowment and unit linked policies (ULIPs).


Endowment and unit linked policies are also savings plans and the premiums paid towards them are accumulated over time. In case of ULIPs, the premiums are invested in the stock market.


On the other hand, while term insurance provides a large cover, you don't get your premiums back. This makes many investors think that endowment policies and ULIPs are better than term plans. That's not the case though.

The primary function of insurance is to provide protection. The insurance products that double up as investments fail to provide both - the insurance cover is inadequate and the investment returns are disappointing. Therefore, as a general rule, don't mix insurance and investment. For investments, buy pure investment products. For protection, buy pure insurance products.

The table below lists the best term insurance plans, along with their features.

 

 

 

 

Life insurance isn't meant for everyone. It is meant only for those who have financial dependents.

Non earning members do not need life insurance.

Many parents buy life insurance for their children. While buying life insurance for your kids is emotionally appealing, it does not have any financial logic. Since parents are not financially dependent on their children, they should not buy insurance for their children. Rather, they should buy it for themselves.

Happy Investing

Source: Valueresearchonline.com

Beware of the flaw of averages while investing

Beware of the flaw of averages while investing

While averages are good in many areas of life, they may give an inappropriate picture in certain other areas

A man went out for a picnic with his family near a riverbank. There were some beautiful sites on the other side of the river. However, there wasn't a bridge or any other means available, and one had no choice but to go through the water to reach the other side. The man simply did some calculations and announced that they could all actually walk across the river since the average height of the family members was 4 ft while the average depth of the river was only around 3 ft. Unfortunately, his young son started drowning by the time they reached the middle of the river.

You get the message. There is a problem with averages. This is especially true when one is looking at something where individual observations could be far from the average. In the language of statistics, this is known as values with high standard deviations.


Not the whole picture

While averages are good in many areas of life, they may give an inappropriate picture in certain other areas. Stock market is one such place where averages may not help beyond a point. We will take the example of mid- and small-cap segments of the market to elaborate further on this point. Of late, there have been many discussions about very high valuations in this segment of the market.


If we look at the price-to-earnings (P-E) ratio (among the most common valuation indicators) of the segment, it is too high compared to:


1) historical averages, and
2) for the large-cap segment.


This has happened due to a massive rally in the mid- and small-cap segment of the market.


However, here the P-E ratio being considered of the mid-cap segment is an average of the entire segment. When we refer to this ratio for an index, we are referring to an average, just the way an index is considered to be an average of all its constituents.
To make things simple, let us look at the Nifty 500 Index, which comprises the top 500 stocks listed on the National Stock Exchange (NSE). Since this index comprises top 500 stocks, it obviously has a combination of large-, mid- and small-cap stocks.




Thanks to the rally in mid- and small-cap segments in the past 3 calendar years, the Nifty MidSmallcap 400 Index delivered 22.28% compounded annualised returns (CAGR) over a 3-year period ending 31 December 2017. Nifty 500 Index delivered 14.88% compounded annualised returns over the same period. This is the average or the index performance.


Let us look at how the segments performed


The index was divided into two parts-the top 250 companies and the bottom 250 companies. The segmentation was in terms of market capitalization. Going by the popular belief, the bottom 250 companies should have registered very high returns, as they represent the mid- and small-cap segments. However, the actual numbers looked very different.


Out of the bottom 250 stocks of the Nifty 500 index, 27% of the stocks (67) delivered negative returns over the same period. Another 31% (77) delivered positive returns, but less than 20% CAGR.


Talk of averages.


The P-E ratio for the Nifty MidSmallcap 400 Index was 64.65 on 31 December 2017. This would be considered too high by any standard. However, on the same day, out of the bottom 250 companies we discussed earlier, the P-E ratio was:


· below 14 for 90 companies (36% of the universe)
· between 14 and 20 for 40 companies (16%), and
· between 20 and 25 for 35 companies (14%).




Only in case of 85 companies (which would form a little over one-third of the index), the P-E ratio was in excess of 25 as on 31 December 2017 (source for the analysis on P-E ratio is a presentation by L&T Mutual Fund)


Now comes the trick. For the purpose of calculating P-E ratio, we need two numbers: price per share (P) and the profit per share or earnings per share (E).


The data may be easily available for a company but in order to calculate the P-E ratio for an index, we need to add up the numbers. The important thing to remember here is that when a company is making losses, the E is taken as zero and hence the P-E ratio is not calculated. On the other hand, while calculating the ratio for the index, the profits and losses of all the companies have to be added up.


There are at least 9-10 companies in the mid- and small-cap universe that reported losses worth more than Rs2,000 crore each. Therefore, the total loss incurred by these 9-10 companies adds up to more than Rs30,000 crore. When this number is deducted from all the profits made by the mid- and small-cap companies, we might be bringing the profits down by around a third.


These numbers indicate that there could be many profit-making companies in this segment that may not be as costly as perceived.


Investors should be careful of averages. There could be a flaw in looking at only averages.




Happy Investing
Source: Valueresearchonline.com

 

When to sell a fund

When to sell a fund

Most investors find it tougher to sell a fund than to buy one, because the reasons for both actions are mostly different




The dilemma faced by some mutual fund investors on when to sell off an investment made in a fund often seems greater than the one they face while choosing a fund to invest in. The problem is that most — if not all — of us, who are active and involved investors, have a bias for action. We equate being good investors with doing something, often anything. Unfortunately, this translates in practice to not just buying more funds than we need, but also to be ever ready to sell.






I frequently get questions from trigger-happy investors who are raring to sell a fund. There are generally three types of reasons they give for wanting to do so. One, they’ve made profits; two, they’ve made losses; and three, they’ve made neither profits nor losses. That’s not a joke. At least, it’s not intended to be. Typical statements go something like this: “Now that my investments have gone up, shouldn’t I book profits?”; “This fund has lost a bit of money recently, shouldn’t I get out of it?”; “The fund has neither gained nor lost. Shouldn’t I sell.” Basically, investors who have a bias for continuous action can create logic for taking action out of any kind of situation.
The worst cases are those where investors want to sell a fund because it has done well, but not as well as its own past or its peers. Investors are willing to bail out of a fund that has done well for years on the basis of slight underperformance for a few months. The other day, I had a question from an investor who wanted to redeem a fund which, after six years of outstanding performance had given a ‘mere’ 60 per cent gains over a period when the top performing peers had done 70-90 per cent.




The problem is that investors’ actions while choosing a fund often mirror those while selling it. If you’ve chosen a fund because it was doing well for six months, then you’ll probably feel like selling it if it underperforms for three months and move on to another one, which has done well for six months. This doesn’t work. Investors in equity funds should choose one fund for sustained good performance over several years. As for selling them, the most logical reason for doing so would have more to do with your own finances. Are the financial goals, for which you were saving, fulfilled? Then, by all means, you should sell off and redeem whatever money you need.




You should be a lot more circumspect, as far as getting rid of a fund and switching to another because it has started doing badly. The reason is that unless their management changes, funds that have a long history of good performance don’t suddenly become bad. It takes certain qualities for a fund manager to do well over years and those qualities do not vanish overnight. Everyone can have ups and downs and have bad phases, generally because one or two calls went wrong. In my years of analysing funds, I cannot recall a case in which someone was a good fund manager for years and then permanently became a bad one. And vice versa.




What this means is that, as long as the fund management remains the same, and as long as the fund is a diversified one (not a thematic one whose theme has gone wrong), it is better to be patient than to be trigger-happy.




Happy investing
Source: Valueresearchonline.com

 

Women’s Day 2018: Why women require a financial planning road map

It is essential that women take an active interest in their finances and are involved in planning their finances.

All women should have a goal based financial road map in place, regardless of their marital and work status. Usually, women were more involved in managing the day to day finances, and household budgets.


However, in today’s times, women should also play an active role, in setting long-term financial goals such as Children’s education, Retirement, etc., along with the family. When a family sets goals together, all the members feel emotionally invested and responsibly save and invest towards the achievement of the same.
Here are few facts which women should know and draw a financial planning road map for themselves accordingly.


Should take interest in financial matter

Earlier, due to limited exposure to the financial world and fewer chances to learn, the level of women’s financial knowledge historically was lower than that of men. Unsurprisingly, they have traditionally been left out of financial matters. However, women tend to be the most severely affected because of incomplete financial planning. “It is essential that women take an active interest in their finances and are involved in planning their finances. One never knows when a time may come when she has to handle all her financial matters by herself. It is essential that every woman is prepared for such eventualities,” said Adhil Shetty, CEO – BankBazaar.com.

Participate in family’s finances

Amar Pandit, CFA, Founder & Chief Happiness Officer at HappynessFactory.in said that traditionally, women have been less involved in the financial aspects and investment decisions. This has resulted in them having very limited knowledge of the various investment avenues, and the overall financial situation of the family. It is very important for women to be aware of all the investments, documents, loans etc, not only in their name but of the full family. “One of the key ways to drive women in this area would be to encourage them to be a part of the finances of the family and take joint-responsibility towards the achievement of financial goals. When this happens, women themselves will take a keen interest in understanding various financial instruments that are available, and suitable to invest in,” he added.

Improve financial literacy

It is usually the lack of knowledge, which leads to many women to taking a backseat when it comes to finances. They are reluctant to even learn more about financial products, as they often rely on men to take the lead in this area. The only way to increase the knowledge of financial products among women is by Spreading Financial Literacy.

“One can read books, magazines, newspapers, online content etc., to get a basic understanding of finance and to stay updated with the latest developments. Further, a financial advisor plays a key role in this area. It is very important to choose a good, qualified advisor, who will help you improve your knowledge, explain the financial products that are suitable for you, and make your financial literacy, a priority,” said Pandit.

Should be prepared for emergency breaks

One should ideally save money in a bank account for around 3 to 6 month of one’s monthly expenses. A spouse should equally contribute to maintaining this. Shetty feels women need to maintain an emergency fund for the same reason as anyone else. Emergencies do not come with an appointment, and one should always be prepared to handle them. So, having spare cash at hand for any emergency is a must. “If you do not have such a cache already, you should start working on one,” he added.

Prepare for post-retirement

Women generally needs to be more cautious during their retirement time as they are likely to have a longer lifespan as compared to men. Therefore, during that stage, they also need to remain financially healthy. Adhil Shetty, CEO – BankBazaar.com told Moneycontrol that a Global Burden of Disease Study 2013 published in 2014 in The Lancet puts the average life expectancy at birth for Indian men at 64.2 years and women at 68.5 years (between 1990 and 2013). Globally, the average life expectancy at birth was 68 years and 4 months for males and 72 years and 8 months for females over the period 2010–2015 according to United Nations World Population Prospects 2015 Revision. “So, it is more likely that women may face financial hardship in their old age as they typically tend to live longer and earn less than men,” he said.

 

Happy Investing

Source:Valueresearchonline.com

Millennials! Here are 5 simple money moves that will put you ahead of others

These money moves can make your investments sweat more for you.

Planning for investments is a boring subject for many. However, a few millennials are taking keen interest in their money matters. Booming internet has enabled them with information but sometimes it creates a problem of plenty. Too much information makes decision making tougher. Here are five simple money moves that will help you build your investments and remain ahead of others.



Investing at the beginning and not at the end of the year



This may sound too basic. But it makes a big change. Let’s get the numbers right. Nirav invests Rs 1 lakh at the beginning of the year and earns 8% rate of interest. Over next 20 years he will accumulate Rs 49.42 lakh. Rahul does the same thing, but he invests at the end of the year. He accumulates Rs 45.76 lakh. Nirav earns Rs 3.66 lakh more just by investing at the beginning of the year.

Start investing at the beginning of the year for your section 80C investments in fixed income options, you too will benefit.



Investing regularly



Keep investing – could be the mantra if you want a complete makeover of your money matters. By now you must have read it that if you invest Rs 1000 at the beginning of the month for 20 years, at 1% per month return you accumulate Rs 9.99 lakh. Invest more and you take home more money. The trick is being a regular investor.

This can help you overcome the volatility in stock markets. Let’s look at the numbers. Over last 10 years point to point compound annual return given by CNX Nifty is 7.45%. Yes you read it right. You would have made similar returns in a PPF account without taking all the risk. However, if you do a monthly SIP in an index fund tracking Nifty, you would have been sitting on a return of 12.18% after expenses. The numbers for actively managed funds would be even better.



If you are salaried it makes a lot of sense to invest as you earn your salary every month.



Starting your investments early



Lack of savings make many millennials postpone their investment plans. Some wait for the right time, some want to start with meaningful amounts. No matter how small saving are, you still have a chance to make it big.



Let’s consider investing two friends Abhay and Ashish invest at 1% rate of return per month. Abhay starts small Rs 1000 per month and invests for 60 months. Then he raises it to Rs 5000 per month and invests for 20 more years. At the end of 25 years, Abhay will have Rs 58.94 lakh. Ashish however wants to start with minimum Rs 5000. He starts after five years. Over 20 years he is left with Rs 49.95 lakh.



A small start with Rs 1000 per month for five years, puts Abhay ahead by Rs 8.98 lakh.



Benjamin Graham has put it straight – “The early morning has gold in its mouth.”



Diversifying across asset classes



Andrew Carnegie said, “The way to become rich is to put all your eggs in one basket and then watch that basket.”



But what if you are busy in your job or business? What if you are enjoying your life with family and friends? Most of us do not understand the investments as much as the experts do. To overcome this dilemma, it is better to diversify.



Keep aside the short periods of extreme bullish or bearish sentiments, not all asset classes rise together nor do they fall together. Define an asset allocation for yourself; keep some money in stocks, bonds and gold. Keep rebalancing your asset allocation and you are home.



Buying right insurance covers



Thanks to awareness campaigns, many millennials end up buying a term life insurance cover. Also many employers offer group health insurance covers to them. But the trouble is most of the times these covers are inadequate. An inadequate cover leaves you almost unprepared for the emergency. Buy adequate amount of term life insurance cover, typically 15 times your annual income. Review it at least once in five years, especially after you take large loans such as home loan. Do consider buying a family floater health insurance along with separate covers for parents as the employer provided insurance covers are generally inadequate.

This will ensure that your investments will not be used to mitigate hospitalisation expenses and other such exigencies. Your investments keep working for the goals you have defined.

Happy investing

Source:Valueresearchonline.com

 

Have you planned your children’s future well enough? Here’s how to do it

Have you planned your children’s future well enough?




Here’s how to do it



Doing proper financial planning is the only way to fulfil your children’s dream.

As a parent, you always dream to see your child’s success in whichever career they opt for in their lives. And to help them succeed, you provide them all the facilities starting with the best education so that they can achieve their career goals timely and in a right way.

However, with today’s rising education costs, in reality, it is tough for many parents to pay for the best education. What if you fall short of money when you actually need to invest in your child’s higher education? What if something happens to you in the middle of the way and your child’s education get stuck? To take care of such situations, proper financial planning towards education goal is a must.

Why is financial planning needed?

If you have not projected the amount you will be needing at the time of paying higher education’s fee of your child then in that scenario the rising cost of education day by day can actually create tension and become a cause of worry not only to you but also for your child in fulfilling the goal.

For example: An MBA course from a premier college today would cost you nearly around Rs 10 lakh on an average. At an inflation rate of 9% for education, this amount would increase to Rs 60 lakh after 20 years when actually your child will enter for the regular MBA studies.

Anjali Malhotra, Chief Customer, Marketing & Digital Officer at Aviva India says parents always wish the best for their children right from the minute they step into the world. Be it the best clothes, best food and best education, parents go out of their way to make it happen. However, invariably, the rising cost of education has become a major cause of worry for parents, and financial planning for children has become an absolute necessity.

“According to a survey conducted by Aviva, 87 % parents want to support their children in education and 77% parents would consider having their children study abroad at either undergraduate or postgraduate level. However, 81% are unaware of the cost of higher education in the future and hence are not saving enough and will look at a mortgage or other methods to support their child’s education,” she said

Here are some of the findings in Aviva survey:

=> 87% parents want to support their children in education and feel that higher degree is important

=> 77% parents would consider having their children study abroad at either undergraduate or postgraduate level

=> 81% parents are unaware of the cost of higher education in the future and hence are not saving enough

=> No of people who have taken actions is less than 24%

How to go about planning?

Once you have planned your child’s education then start implementing it. Purchase the right insurance plan having the right amount of sum assured and investing opportunity so as to provide your child a proper umbrella of protection to safeguard your child’s future. Also, since the tenure is for long-term, you can start investing in mutual fund. This way you can create a good corpus ensuring to get high monetary benefit in fulfilling your child’s dream.

For example Saving Rs 5000 every month in an equity scheme which can give an average return of 12 percent will help you generate a corpus of approximately Rs 50 lakh after 20 years.

Malhotra said that with the help of some careful forward planning, parents can ensure that they are saving enough for themselves while also making sure that they can give to their child, the full array of options for education.

“At Aviva, we believe that starting early, having clear goals and dedicated savings are the three key factors that can help parents plan for their children's education needs. We believe in partnering parents by offering not just an insurance solution but a holistic package that will not only help them to plan their child’s future but also help in identifying & nurture the unique traits that their child exhibits,” she said.

Conclusion

Therefore, it is must to have few but good financial products in your invsestment basket while constructing the portfolio towards your child education goal. Hence, investing in child’s ULIP plan and equity mutual fund can help you achieve this goal, however, reviewing of the plan should also be done on a periodic basis to achieve this specific goal successfully in long–run.




Happy Investing
Source:Moneycontrol.com

How to open a PPF account? Know its rules and benefits

How to open a PPF account? Know its rules and benefits




Even after several decades, Public Provident Fund (PPF) continues to be a favourite savings avenue for many investors. After all, the principal and the interest earned have a sovereign guarantee and the returns are tax-free. The principal invested in the PPF qualifies for deduction under Section 80C of the Income Tax Act, 1961 and the interest earned is tax exempt as well under Section 10.




 With interest rates on taxable fixed income products coming down, PPF remains a suitable alternative for allocating the debt portion of one's investment portfolio. Allocation to equities through diversified equity mutual funds is equally important, especially when the goals are at least seven years away.
 

PPF is a 15-year scheme, which can be extended indefinitely in block of 5 years. It can be opened in a designated post office or a bank branch. It can also be opened online with few banks. One is allowed to transfer a PPF account from a post office to a bank or vice versa. A person of any age can open a PPF account; even those with an EPF account can open one.


One can deposit a maximum of 12 times in a year, but remember to deposit before the 5th of the month to get interest for the full month, as the interest is allowed on the lowest balance at the credit of an account from the close of the 5th day and the end of the month. Many investors deposit a lump sum amount right at the beginning of the financial year. There are provisions to take loans and make partial withdrawals from the scheme as well.




 With the tax-saving season on, many may be looking to open a PPF account. Here are a few things to consider before opening one.




 Effective interest

 PPF is a debt-oriented asset class, i.e., one's investment is not exposed to equities and hence returns are not linked to the stock market performance. The interest rate on PPF returns are set by government every quarter based on the yield (return) of government securities. In 1968-69, PPF offered a 4 per cent per annum interest while from 1986-2000 it offered 12 per cent. 

Today in 2017-18 ( October 1 to December 31, 2017) it offers 7.8 per cent. As the interest is tax-free, the effective pre-tax yield for someone paying tax at 10.3 per cent, 20.6 per cent and 30.9 per cent rates will be 8.69 per cent, 9.8 per cent and 11.28 per cent per annum respectively.

Deposit limit

 While the minimum annual amount required to keep the account active is Rs 500, the maximum amount that can be deposited in a financial year is Rs 1.5 lakh. One can open a PPF account in one's own name or on behalf of a minor of whom he is the guardian. This is the combined limit of self and minor account.




 If contributions are in excess of Rs 1.5 lakh in a year, the excess deposits will be treated as irregular and will neither carry any interest nor will this excess amount be eligible for tax benefit under Section 80C. This excess amount will be refunded to the subscriber without any interest.


PPF in the name of minor

 A PPF account on behalf of a minor can be opened by either father or mother. Both the parents cannot open a separate account for the same minor. An individual may, therefore, open one PPF account on behalf of each minor of whom he is the guardian.

At times, grandparents are interested in opening PPF for their grandchildren. PPF rules however, do not allow them to do so, when the parents of the minor are alive. They can open the account only if they are appointed as legal guardian after the death of the parents.
 

Number of accounts

 An individual can open only one account in his name either in a post office or a bank and he has to declare this in the application form for opening the account. Persons having a PPF account in the bank cannot open another account in the post office and vice-versa.


Number of accounts

 An individual can open only one account in his name either in a post office or a bank and he has to declare this in the application form for opening the account. Persons having a PPF account in the bank cannot open another account in the post office and vice-versa.

 If two accounts are opened by the subscriber in his name by mistake, the second account will be treated as irregular account and will not carry any interest unless the two accounts are amalgamated. For this, one has to write to the Ministry of Finance (Department of Economic Affairs) and get its approval.
 

Premature closure of PPF account

 Unlike in the past, when only loans and partial withdrawals were allowed, now even premature closure of the PPF account is possible. It will, however, be allowed only after the account has completed five financial years and on specific grounds such as treatment of serious ailment or life threatening disease of the account holder, spouse or dependent children or parents, on the production of supporting documents from the competent medical authority.




 If the amount is required for higher education of the account holder or the minor account holder then, on production of documents and fee bills in confirmation of admission in a recognised institute of higher education in India or abroad, premature closure of the PPF account is allowed.


Nomination

 The application form of PPF (Form-A) does not carry the provisions for nominations as it is to be filled in a separate form. Make sure to fill the nomination form (Form-E) at the time of opening a PPF account to avoid any legal hassles for the nominee later on.

Attachment

 The PPF account and its balance cannot be attached by a court and hence the debtors cannot access one's PPF account to claim the dues, if any. However, it does not apply to the income tax authorities and so the amount standing to the credit of subscriber in the PPF account is liable to attachment under any order of income tax authorities with respect to debt or liability incurred by the subscriber.
 

Conclusion

 PPF suits those investors who do not want volatility in returns akin to equity asset class. However, for long-term goals and especially when the inflation-adjusted target amount is high, it is better to take equity exposure, preferably through equity mutual funds, including ELSS tax saving funds.

Comparing them, however, is not warranted as both are different asset classes, with one currently generating around 7.8 per cent returns as compared to the other generating ( historical returns) around 12 per cent return. The latter, will anyhow have a higher maturity corpus (with relatively more volatility) than the former (with relatively less volatility.) Diversifying one's savings in PPF and equities would serve the purpose rather than relying entirely on any one of them.


Happy Investing