Rakesh Jhunjhunwala is a well known Investor billionaire from India. His stock holdings are keenly watched in India. Below is his portfolio as on 31st March 07. It has not changed much even now. The list will give exclusive stock hints to millions of Indian investors who wish to build a long term portfolio.
This is an update of RJ's stock portfolio as on 31st March 2007:
No. Company name % stake
1 Agro Tech Foods 4.3
2 Bharat Earth Mov 1.5
3 Bhushan Steel 2.4
4 Bilcare 11.6
5 CRISIL 7.6
6 Geojit Fin. Ser. 8.6
7 Geometric Soft. 3.5
8 Lupin 3.5
9 Mid-Day Multi 4.5
10 Prime Focus 6.9
11 Provogue (India) 2.5
12 Punj Lloyd 1.9
13 Ramco Systems 1.0
14 Titan Inds. 6.7
15 Vadilal Inds. 2.9
16 Viceroy Hotels 13.1
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Wednesday, July 23, 2008
Tuesday, July 22, 2008
Stock Tips - Indraprastha Gas
Stock Tips of Indian stocks
( By continuing to read this column, the reader confirms that he/she has read the disclaimer at the bottom )Stock/ Company: Indraprastha Gas Recommendation: Buy
Date: 22nd July 08
Face value per share: Re 10
Current Market Price : Rs 109 as on 21st July 08
Target Market Price : Rs 160 in 12 – 18 months
Business description: Indraprastha gas ( IGL ) is promoted by GAIL, BPCL and the Government of Delhi. IGL is in the business of Compresses Natural gas ( CNG ) retailing for automobiles and Piped Natural Gas ( PNG ) retailing for the citizens of the National Capital region ( NCR ). The company is performing well and is growing at a CAGR of 15 - 20% for the last several years. The consolidated business turn over in 2007 – 08 ( March end ) is Rs 706 Cr. This stock tip is a good tip for medium to long term
Positives/ Strengths/ Opportunities for this share:-
- The company operates in a huge untapped market segment of retailing CNG and PNG with huge growth prospects .
- IGL has currently 163 CNG stations and 150 KMs of pipelines in the NCR. And it continues to invest in infrastructure to increase these numbers.
- The commonwealth games is scheduled in NCR by 2010 and the government is planning to introduce 2000 buses and 20000 taxis to run on eco firendly fuel.
Negatives/ weakness/ threats for this share:
- Entry of several other new players due to the attractiveness of the business.
Summary:
Company year ends on: Turn over 08=Rs706 Cr,09E = 805 Cr,10E =Rs 926 Cr
Turn over – expected Compounded Annual Growth Rate CAGR ( 08 – 10 ) = 15 %
Net profit 08 = Rs 174 Cr – expected Compounded Annual Growth Rate CAGR ( 08 - 10 ) = 20%Earning Per Share expected on FV of Rs 10/- ( 08,09,10 ) = Rs 12.5, Rs 13.5, Rs 16
Discounts 2009 estimated eps by a measly 8 times and 2010 eps by 7.4 times
Return on Equity ( 09 E ) = 28%, Return on Capital Employed (09E ) = 39%
This stock tip is a Buy for a minimum of 50 % gain over a 12 to 18 month period
-------------------------------------------------------------------------------------------------Disclaimer: Investment in shares are subject to market risks. This is a free advice given to the readers and the readers shall consult their financial advisors before making an investment. The author may or may not have this stock in his portfolio. The readers indemnify the author against any or all damages including loss of their invested money
Wednesday, July 16, 2008
Stock tips - MIC Electronics
Stock Tips of Indian stocks
( By continuing to read this column, the reader confirms that he/she has read the disclaimer at the bottom )
Stock/ Company: MIC Electronics Recommendation: Buy
Date: 16th July 08
Face value per share: Re 2
Current Market Price : Rs 106 as on 15th July 08
Target Market Price : Rs 200 in 12 – 18 months
Business description:
. MIC mainly has 2 business divisions, the communication software division and LED display division. The company is focusing on the LED signage ( outdoor and indoor advertising ) business and it is giving a major thrust to it. The consolidated business turn over in 2006 – 07 ( June end ) is Rs 477 Cr. This stock tip is a good tip for medium to long term
Positives/ Strengths/ Opportunities for this share:
- The LED signage industry is a fast growing industry globally. In addition, MIC is also in an advanced stage to release LED based conventional lighting systems for commercial use.
- The current order book for lighting division alone is Rs 250 crores. MIC is the only Indian company in this business and is a monopoly in India.
- The global LED based lighting market is expected to record a 20% CAGR between now and 2011 to reach USD 11 Bn..
Negatives/ weakness/ threats for this share:
- Entry of several other new players due to the attractiveness of the business.
Summary:
Company year ends on: June 08, Turn over 08E=Rs330Cr,09E =Rs 484Cr,10E=725 Cr
Turn over – expected Compounded Annual Growth Rate CAGR ( 08 – 10 ) = 48 %
Net profit 08E = Rs 61.30Cr – expected Compounded Annual Growth Rate CAGR ( 08 - 10 ) = 56%
Earning Per Share expected on FV of Re 2/- ( 08,09,10 ) = Rs 5, Rs 8, Rs 12
Discounts 2009 estimated eps by a measly 13 times and 10 eps by 9 times
Return on Equity ( 09 E ) = 25%, Return on Capital Employed (09E ) = 28%
This stock tip is a Buy for a minimum of 50 % gain over a 12 to 18 month period
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Disclaimer: Investment in shares are subject to market risks. This is a free advice given to the readers and the readers shall consult their financial advisors before making an investment. The author may or may not have this stock in his portfolio. The readers indemnify the author against any or all damages including loss of their invested money
( By continuing to read this column, the reader confirms that he/she has read the disclaimer at the bottom )
Stock/ Company: MIC Electronics Recommendation: Buy
Date: 16th July 08
Face value per share: Re 2
Current Market Price : Rs 106 as on 15th July 08
Target Market Price : Rs 200 in 12 – 18 months
Business description:
. MIC mainly has 2 business divisions, the communication software division and LED display division. The company is focusing on the LED signage ( outdoor and indoor advertising ) business and it is giving a major thrust to it. The consolidated business turn over in 2006 – 07 ( June end ) is Rs 477 Cr. This stock tip is a good tip for medium to long term
Positives/ Strengths/ Opportunities for this share:
- The LED signage industry is a fast growing industry globally. In addition, MIC is also in an advanced stage to release LED based conventional lighting systems for commercial use.
- The current order book for lighting division alone is Rs 250 crores. MIC is the only Indian company in this business and is a monopoly in India.
- The global LED based lighting market is expected to record a 20% CAGR between now and 2011 to reach USD 11 Bn..
Negatives/ weakness/ threats for this share:
- Entry of several other new players due to the attractiveness of the business.
Summary:
Company year ends on: June 08, Turn over 08E=Rs330Cr,09E =Rs 484Cr,10E=725 Cr
Turn over – expected Compounded Annual Growth Rate CAGR ( 08 – 10 ) = 48 %
Net profit 08E = Rs 61.30Cr – expected Compounded Annual Growth Rate CAGR ( 08 - 10 ) = 56%
Earning Per Share expected on FV of Re 2/- ( 08,09,10 ) = Rs 5, Rs 8, Rs 12
Discounts 2009 estimated eps by a measly 13 times and 10 eps by 9 times
Return on Equity ( 09 E ) = 25%, Return on Capital Employed (09E ) = 28%
This stock tip is a Buy for a minimum of 50 % gain over a 12 to 18 month period
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Disclaimer: Investment in shares are subject to market risks. This is a free advice given to the readers and the readers shall consult their financial advisors before making an investment. The author may or may not have this stock in his portfolio. The readers indemnify the author against any or all damages including loss of their invested money
Hedge funds - India stocks buy
Indian stock investments of “George Soros” - Billionaire global investor
Stocks on the Indian stock market has been beaten down over the past few months. Billionaire global investor George Soros has turned contrarian on India. The hedge fund Quantum, co-owned by George Soros, went on a buying-spree at a time, when most funds were dumping stocks in a bear market. It is widely reported that Quantum fund has bought stocks in following Indian stocks in the last few months
- Jain irrigation systems ( 3.8% of equity )
- Jai corp (1.0 % of equity )
- Karuturi networks ( 4% of equity )
- Kalindee Rail Nirman
- India bulls financial services
- India bulls real estate
Quantum’s selective stock picking comes at a time, when institutional investors have been pulling out a huge amount of money from Indian markets. This is due to concerns over a combination of factors such as weak global markets, soaring global oil prices and spiralling inflation in India. “Hedge funds normally are active, when there is some momentum in the market. Quantum may be trying to do some value-buying, but one has to see how long the fund stays invested, given the prevailing uncertain market conditions,” said a stock broker.
Stocks on the Indian stock market has been beaten down over the past few months. Billionaire global investor George Soros has turned contrarian on India. The hedge fund Quantum, co-owned by George Soros, went on a buying-spree at a time, when most funds were dumping stocks in a bear market. It is widely reported that Quantum fund has bought stocks in following Indian stocks in the last few months
- Jain irrigation systems ( 3.8% of equity )
- Jai corp (1.0 % of equity )
- Karuturi networks ( 4% of equity )
- Kalindee Rail Nirman
- India bulls financial services
- India bulls real estate
Quantum’s selective stock picking comes at a time, when institutional investors have been pulling out a huge amount of money from Indian markets. This is due to concerns over a combination of factors such as weak global markets, soaring global oil prices and spiralling inflation in India. “Hedge funds normally are active, when there is some momentum in the market. Quantum may be trying to do some value-buying, but one has to see how long the fund stays invested, given the prevailing uncertain market conditions,” said a stock broker.
Monday, July 14, 2008
Stock Tips - Indian markets
Stock Tips of Indian stocks
( By continuing reading this column, the reader confirms that he/she has read the disclaimer at the bottom )
( By continuing reading this column, the reader confirms that he/she has read the disclaimer at the bottom )
Stock/ Company: XL Telecom Ltd Recommendation: Buy
Date: 15th July 08
Face value per share: Rs 10
Current Market Price : Rs 201 as on 11th July 08
Target Market Price : Rs 300 in 12 – 18 months
Business description of this stock:
XL Telecom is broadly into 3 business areas. Namely the a) Photovoltaic cell and module manufacturing b) Ethanol manufacturing, and c) CDMA mobile contract manufacturing. The business turn over in 2006 – 07 is Rs 515 Cr . This stock is recommended for good gains in medium to long term.
Positives/ Strengths/ Opportunities of this stock:
- Photovoltaic is a worldwide sunrise industry with demand going up from USD 17 Billion ( 2007 ) to USD 40 Billion ( 2010 ). With crude crossing USD 150/ bl demand for renewables in likely to shoot
- Ethanol also is a substitute for crude and if crude rules high, demand for ethanol will grow.
- XL is a popular contract vendor for CDMA phones which is growing rapidly.
Negatives/ weakness/ threats of this stock:
- Execution capability of the management
Summary:
Company year ends on: June 08, Turn over 06- 07 = Rs 515 Cr 07-08 E = Rs 583 Cr
Turn over – expected Compounded Annual Growth Rate CAGR ( 07 - 09 ) = 36%
Net profit – expected Compounded Annual Growth Rate CAGR ( 07 - 09 ) = 159%
Earning Per Share expected ( 0708, 0809 ) = Rs 14, Rs 54
Return on Equity ( 09 E ) = 29%, Return on Capital Employed (09E ) = 26%
Buy this stock for a minimum of 50 % gain over a 12 to 18 month period
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Disclaimer: Investment in shares are subject to market risks. This is a free advice given to the readers and the readers shall consult their financial advisors before making an investment. The author may or may not have this stock in his portfolio. The readers indemnify the author against any or all damages including loss of their invested money
Date: 15th July 08
Face value per share: Rs 10
Current Market Price : Rs 201 as on 11th July 08
Target Market Price : Rs 300 in 12 – 18 months
Business description of this stock:
XL Telecom is broadly into 3 business areas. Namely the a) Photovoltaic cell and module manufacturing b) Ethanol manufacturing, and c) CDMA mobile contract manufacturing. The business turn over in 2006 – 07 is Rs 515 Cr . This stock is recommended for good gains in medium to long term.
Positives/ Strengths/ Opportunities of this stock:
- Photovoltaic is a worldwide sunrise industry with demand going up from USD 17 Billion ( 2007 ) to USD 40 Billion ( 2010 ). With crude crossing USD 150/ bl demand for renewables in likely to shoot
- Ethanol also is a substitute for crude and if crude rules high, demand for ethanol will grow.
- XL is a popular contract vendor for CDMA phones which is growing rapidly.
Negatives/ weakness/ threats of this stock:
- Execution capability of the management
Summary:
Company year ends on: June 08, Turn over 06- 07 = Rs 515 Cr 07-08 E = Rs 583 Cr
Turn over – expected Compounded Annual Growth Rate CAGR ( 07 - 09 ) = 36%
Net profit – expected Compounded Annual Growth Rate CAGR ( 07 - 09 ) = 159%
Earning Per Share expected ( 0708, 0809 ) = Rs 14, Rs 54
Return on Equity ( 09 E ) = 29%, Return on Capital Employed (09E ) = 26%
Buy this stock for a minimum of 50 % gain over a 12 to 18 month period
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Disclaimer: Investment in shares are subject to market risks. This is a free advice given to the readers and the readers shall consult their financial advisors before making an investment. The author may or may not have this stock in his portfolio. The readers indemnify the author against any or all damages including loss of their invested money
Saturday, July 12, 2008
Fixed Maturity Plans better than Bank Deposits
This article is specific to india and Indian tax laws.
Mutual Funds are allowed to launch Fixed maturity plans (FMP) which by their name shall be clear to investors. The maturity, whether 1 month or 1 year shall be made very clear to investors in the offer document of the Mutual fund along with the indicative returns expected. (FMP) are closed-end debt funds that aim at generating returns that are indicated at the time of launching the scheme. Mutual funds are not allowed to launch assured return schemes. FMPs, therefore, only indicate the likely returns. FMPs can generate predefined returns because of the way their portfolio is constructed. They invest in debt securities which mature around the tenor of the fund. Since the instruments are held to maturity, there is no risk of the value of the security being affected by interest rate movements and fund managers are able to give returns indicated at the time of investing.
FMPs come with various maturities at which time the money with the returns are credited back into the investor’s bank account. The popular tenors are of one month, three months and a little over a year. As closed-end funds, FMPs cannot accept any fresh investment once the NFO is over. To help investors deploy their available funds and reinvest money from maturing FMPs, mutual fund houses launch a continuous series of FMPs. The NFO is usually open for two to three days and the minimum investment is kept at around Rs 5,000. Since investors cannot withdraw their money till the maturity of the scheme, they need to choose a fund with a tenor that matches their investment horizon.
Why FMP?
FMPs are similar to bank fixed deposits (FD) in features such as fixed maturity period and indicative return. But they do not guarantee returns like FDs do.
So, why should an investor choose an FMP over an FD?
The answer lies in the tax efficiency that FMPs bring to their returns.
a) The example given in the table below shows that while FMP attracts the dividend distribution tax (DDT), FD attracts income tax. Since DDT is lower than the income tax rate, FMP gives a higher post-tax return than FD.
b) FMPs with maturities of greater than one year provide capital gains efficiency by structuring the tenor in such a way that investors benefit from double indexation. For example, an FMP holder holding the FMP launched on 30 March 2007 for a little more than a year (375 days) till it matures on 9 April 2008, an investor gets to use the cost of inflation index applicable for the years 2006-2007 (year of purchase) and 2008-2009 (year of redemption). The tenor of the fund and the date on which it is launched allows double indexation, thus reducing the capital gains tax applicable on the returns.
FMPs suit investors who have a fixed investment horizon and would like to know the likely returns. The tax advantages make them superior to FDs. The only caveat is that investors need to evaluate the credit risk involved in the securities that the FMP is likely to invest in.
FD vs FMP: Effect of Taxation
FD FMP
Investment (Rs) 5,000 5,000
Rate of interest (% p.a.) 9 9
Amount at the end of 1 year (Rs) 5,450 5,450
DDT1 (%) ( Div Distbn Tax ) Nil 14.1625
Tax on interest (%) ( Income Tax rate) 33.66 Nil
Net amount2 5,298.53 5,386.28
Post-tax return (%) 5.97 7.72
1Dividend distribution tax
2Assuming the FMP distributed the entire Rs 450 as dividend
From the above example it is clear that
- Even if an investor holds an FMP less than a year, he/she is better off in the post tax yield. The above example shows that the FMP yield is 7.72% vs the FD yield of 5.97% for an investor in the highest Income tax slab of 33%.
- If the Investor holds the FMP for 375 days as mentioned in b) above, that is between 30th March 2007 till 9th April 2008, then only an indexed capital gains tax apply. The steps to arrive at the tax is as below.
- First find out the indexation factor. Assuming the inflation index for 2006 -07 is 100, for 2007-08 it is 105 and 2008-09 is 110. The indexation factor for this investment is 110/100 which is equal to 1.1.
- Then multiply the actual investment with the Indexation factor. In this case, it is Rs 5,000 multiplied by 1.1 which shall be Rs 5,500/-.
- Now look at the actual return provided for 375 days at the rate of 9% for 365 days. It is approximately Rs 450.
- Calculate the total principal plus interest and subtract it from the indexed investment. This is the gain received. Which is Rs 5450( total receivable) minus Rs 5,500 (indexed cost ). Which is minus Rs 50. As there are no gains, the capital gains tax of 20% on gains need not be applied. So, the post tax yield in this example is 9% vs the post tax yield of 5.97% the FD yields.
Hence, be wise – always invest in FMPs offered by Mutual Funds as against the bank FDs. If you hold it for above 365 days ( across 2 financial years) , the returns are still better.
Disclaimer: These are just my views and the readers are advised to consult their financial advisors before making any investments. The readers indemnify this author against any and all eventualities which may or may not occur in the financial markets. Also, tax illustrations if any are applicable only when this article was posted and they may change subsequently thereby making any tax adjusted return calculation different.
Mutual Funds are allowed to launch Fixed maturity plans (FMP) which by their name shall be clear to investors. The maturity, whether 1 month or 1 year shall be made very clear to investors in the offer document of the Mutual fund along with the indicative returns expected. (FMP) are closed-end debt funds that aim at generating returns that are indicated at the time of launching the scheme. Mutual funds are not allowed to launch assured return schemes. FMPs, therefore, only indicate the likely returns. FMPs can generate predefined returns because of the way their portfolio is constructed. They invest in debt securities which mature around the tenor of the fund. Since the instruments are held to maturity, there is no risk of the value of the security being affected by interest rate movements and fund managers are able to give returns indicated at the time of investing.
FMPs come with various maturities at which time the money with the returns are credited back into the investor’s bank account. The popular tenors are of one month, three months and a little over a year. As closed-end funds, FMPs cannot accept any fresh investment once the NFO is over. To help investors deploy their available funds and reinvest money from maturing FMPs, mutual fund houses launch a continuous series of FMPs. The NFO is usually open for two to three days and the minimum investment is kept at around Rs 5,000. Since investors cannot withdraw their money till the maturity of the scheme, they need to choose a fund with a tenor that matches their investment horizon.
Why FMP?
FMPs are similar to bank fixed deposits (FD) in features such as fixed maturity period and indicative return. But they do not guarantee returns like FDs do.
So, why should an investor choose an FMP over an FD?
The answer lies in the tax efficiency that FMPs bring to their returns.
a) The example given in the table below shows that while FMP attracts the dividend distribution tax (DDT), FD attracts income tax. Since DDT is lower than the income tax rate, FMP gives a higher post-tax return than FD.
b) FMPs with maturities of greater than one year provide capital gains efficiency by structuring the tenor in such a way that investors benefit from double indexation. For example, an FMP holder holding the FMP launched on 30 March 2007 for a little more than a year (375 days) till it matures on 9 April 2008, an investor gets to use the cost of inflation index applicable for the years 2006-2007 (year of purchase) and 2008-2009 (year of redemption). The tenor of the fund and the date on which it is launched allows double indexation, thus reducing the capital gains tax applicable on the returns.
FMPs suit investors who have a fixed investment horizon and would like to know the likely returns. The tax advantages make them superior to FDs. The only caveat is that investors need to evaluate the credit risk involved in the securities that the FMP is likely to invest in.
FD vs FMP: Effect of Taxation
FD FMP
Investment (Rs) 5,000 5,000
Rate of interest (% p.a.) 9 9
Amount at the end of 1 year (Rs) 5,450 5,450
DDT1 (%) ( Div Distbn Tax ) Nil 14.1625
Tax on interest (%) ( Income Tax rate) 33.66 Nil
Net amount2 5,298.53 5,386.28
Post-tax return (%) 5.97 7.72
1Dividend distribution tax
2Assuming the FMP distributed the entire Rs 450 as dividend
From the above example it is clear that
- Even if an investor holds an FMP less than a year, he/she is better off in the post tax yield. The above example shows that the FMP yield is 7.72% vs the FD yield of 5.97% for an investor in the highest Income tax slab of 33%.
- If the Investor holds the FMP for 375 days as mentioned in b) above, that is between 30th March 2007 till 9th April 2008, then only an indexed capital gains tax apply. The steps to arrive at the tax is as below.
- First find out the indexation factor. Assuming the inflation index for 2006 -07 is 100, for 2007-08 it is 105 and 2008-09 is 110. The indexation factor for this investment is 110/100 which is equal to 1.1.
- Then multiply the actual investment with the Indexation factor. In this case, it is Rs 5,000 multiplied by 1.1 which shall be Rs 5,500/-.
- Now look at the actual return provided for 375 days at the rate of 9% for 365 days. It is approximately Rs 450.
- Calculate the total principal plus interest and subtract it from the indexed investment. This is the gain received. Which is Rs 5450( total receivable) minus Rs 5,500 (indexed cost ). Which is minus Rs 50. As there are no gains, the capital gains tax of 20% on gains need not be applied. So, the post tax yield in this example is 9% vs the post tax yield of 5.97% the FD yields.
Hence, be wise – always invest in FMPs offered by Mutual Funds as against the bank FDs. If you hold it for above 365 days ( across 2 financial years) , the returns are still better.
Disclaimer: These are just my views and the readers are advised to consult their financial advisors before making any investments. The readers indemnify this author against any and all eventualities which may or may not occur in the financial markets. Also, tax illustrations if any are applicable only when this article was posted and they may change subsequently thereby making any tax adjusted return calculation different.
Credit card - FAQ 2
... this is a continuation of my previous post FAQ 1 on same topic.
What happens when my credit card payment is late?
If you don’t make the monthly repayment by the date specified on your statement, your provider may charge you a late payment fee. They might even stop your card. Late payment fees, as the term indicates are payable in he event of any delay in repayment of the out standings on your credit card after the stipulated ‘interest-free period’. These charges are very steep and card members are well advised to pay off at least the minimum amount due on out standings every month.
What does rolling over credit/ revolving credit mean?
You have two choices for making card payments. You may clear your full dues as soon as you receive your billing statement. Or you may choose to pay the minimum monthly installment mentioned on the statement (which is usually between 5-10 percent of the total amount outstanding as on the date of the statement) and avail of revolving credit on thebalance. In other words your credit amount rolls over to the next month and so on. In a majority of cases, interest will be calculated on the average daily balance method on the unpaid balance plus amounts incurred for new purchases. Average daily balance depends usually on the amount outstanding and the number of days it is outstanding for.
What is the catch with low interest balance transfer offers?
Low interest balance transfer cards can save you money on interest payments; you just need to consider all the features of the card. Some cards charge a balance transfer fee. Also, be aware that the low interest rate charged for balance transfers may not apply to purchases. So, if you start spending with your card, you could end up paying a higher interest rate.
Should I consolidate my credit card debt?
If you’ve got several credit card debts, it makes much more sense to transfer your balance onto one low interest card. Interest rates tend to be lower on balance transfers, so you’ll be saving money and making repayments easier to manage. Make sure you cut up your old cards once you transfer your balance.
What sort of tricks should I look out for when looking for a credit card offer?
0% balance transfer rates can seem very attractive but make sure you know what you’re getting into. The rate will only apply to balance transfers, not purchases and be only for a limited time like 3 months. So you could end up paying the provider’s typical rate or higher, if you make any new purchases. You can also end up paying charges if you use your card to make cash withdrawals. You’ll be charged a standard fee, however much you withdraw. Plus, you’ll start paying interest from the moment you draw your cash out.
What should I check before applying for a credit card?
- What is the interest rate for purchases?
- What is the interest rate for cash withdrawals?
- What’s the period of free credit (the maximum is 56 days)?
- Will you be charged if you miss a monthly repayment?
- Is there an annual charge?
- Are balance transfers possible?
- Are there any rewards included with the card?
- Is travel insurance included with the card and if so what cover is provided?
How many credit cards should I have?
It’s advisable to limit your credit cards to just two – one for balance transfers, and one for purchases. This is because the rate often differs according to what you’re using the card for. It’s generally not a good idea to have more than two cards – you may damage your credit rating if you have lots of credit cards. Also, it’s much easier to build up debt and much harder to keep track of repayments if you have lots of different credit cards.
What is the minimum balance you must pay on a credit card each month?
Every month you must make a minimum repayment towards your debt. Typically, this is around 5% of your balance (which will include interest).
If I pay off the full balance every month will I ever be charged interest or other fees? As long as you pay back the amount you owe before the interest rate kicks in (this varies from card to card), you won’t be charged interest. However, if your provider charges an annual fee, you’ll need to include this in your repayment.
If I don’t pay off my balance in full, how much will it cost me in interest?
If you don’t pay off your balance every month, the remaining amount will be added to your next statement. Interest charges will be backdated to when you made the purchase, so you’ll actually be paying two lots of interest on your remaining balance; for the month you made the purchase and the month you carry your balance over.
How do cash advances from a credit card work?
You can use your credit card to withdraw money from a cash machine – this is called a ‘cash advance’. Before withdrawing money, check the amount your provider charges for this service – there’s usually a fixed charge and you’ll start paying interest on this from the day you withdrew the cash.
What is a supplementary/add-on card?
An add-on card is usually for your dependents - spouse, parents or children. Any additional cards under this head come at a fee, which varies between Rs 100 to Rs 1,000. All expenses on the card are billed to you.
What does the purchase protection feature of credit cards mean?
The purchase protection feature automatically insures all items bought on the credit card from damage or loss due to fire or theft up to a certain sum of money.
What are the advantages of owning a platinum credit card?
Platinum cards often offer extra features, such as a low interest rates and rewards. However, to qualify you need to have good credit and a good salary.
What is the difference between a credit card, charge card and debit card?
A credit card allows you to pay for service or product over a period of time. Up to the first 55 days of credit come interest free. You can chose to pay your entire debt at one go or you can pay a minimum amount every month. A charge card works on similar lines as the credit card with one difference. With a charge card you have to pay the entire dues within the credit period. You cannot carry over any balances like a credit card. The most important differences between the two types of card are that charge cards charge a much higher interest rates and can usually only be used in just one merchant or brand. A debit card enables you to access your bank deposits for payment. When you make any purchases using a debit card, then your bank account is automatically and instantly decreased to the extent of the purchase amount
What happens when my credit card payment is late?
If you don’t make the monthly repayment by the date specified on your statement, your provider may charge you a late payment fee. They might even stop your card. Late payment fees, as the term indicates are payable in he event of any delay in repayment of the out standings on your credit card after the stipulated ‘interest-free period’. These charges are very steep and card members are well advised to pay off at least the minimum amount due on out standings every month.
What does rolling over credit/ revolving credit mean?
You have two choices for making card payments. You may clear your full dues as soon as you receive your billing statement. Or you may choose to pay the minimum monthly installment mentioned on the statement (which is usually between 5-10 percent of the total amount outstanding as on the date of the statement) and avail of revolving credit on thebalance. In other words your credit amount rolls over to the next month and so on. In a majority of cases, interest will be calculated on the average daily balance method on the unpaid balance plus amounts incurred for new purchases. Average daily balance depends usually on the amount outstanding and the number of days it is outstanding for.
What is the catch with low interest balance transfer offers?
Low interest balance transfer cards can save you money on interest payments; you just need to consider all the features of the card. Some cards charge a balance transfer fee. Also, be aware that the low interest rate charged for balance transfers may not apply to purchases. So, if you start spending with your card, you could end up paying a higher interest rate.
Should I consolidate my credit card debt?
If you’ve got several credit card debts, it makes much more sense to transfer your balance onto one low interest card. Interest rates tend to be lower on balance transfers, so you’ll be saving money and making repayments easier to manage. Make sure you cut up your old cards once you transfer your balance.
What sort of tricks should I look out for when looking for a credit card offer?
0% balance transfer rates can seem very attractive but make sure you know what you’re getting into. The rate will only apply to balance transfers, not purchases and be only for a limited time like 3 months. So you could end up paying the provider’s typical rate or higher, if you make any new purchases. You can also end up paying charges if you use your card to make cash withdrawals. You’ll be charged a standard fee, however much you withdraw. Plus, you’ll start paying interest from the moment you draw your cash out.
What should I check before applying for a credit card?
- What is the interest rate for purchases?
- What is the interest rate for cash withdrawals?
- What’s the period of free credit (the maximum is 56 days)?
- Will you be charged if you miss a monthly repayment?
- Is there an annual charge?
- Are balance transfers possible?
- Are there any rewards included with the card?
- Is travel insurance included with the card and if so what cover is provided?
How many credit cards should I have?
It’s advisable to limit your credit cards to just two – one for balance transfers, and one for purchases. This is because the rate often differs according to what you’re using the card for. It’s generally not a good idea to have more than two cards – you may damage your credit rating if you have lots of credit cards. Also, it’s much easier to build up debt and much harder to keep track of repayments if you have lots of different credit cards.
What is the minimum balance you must pay on a credit card each month?
Every month you must make a minimum repayment towards your debt. Typically, this is around 5% of your balance (which will include interest).
If I pay off the full balance every month will I ever be charged interest or other fees? As long as you pay back the amount you owe before the interest rate kicks in (this varies from card to card), you won’t be charged interest. However, if your provider charges an annual fee, you’ll need to include this in your repayment.
If I don’t pay off my balance in full, how much will it cost me in interest?
If you don’t pay off your balance every month, the remaining amount will be added to your next statement. Interest charges will be backdated to when you made the purchase, so you’ll actually be paying two lots of interest on your remaining balance; for the month you made the purchase and the month you carry your balance over.
How do cash advances from a credit card work?
You can use your credit card to withdraw money from a cash machine – this is called a ‘cash advance’. Before withdrawing money, check the amount your provider charges for this service – there’s usually a fixed charge and you’ll start paying interest on this from the day you withdrew the cash.
What is a supplementary/add-on card?
An add-on card is usually for your dependents - spouse, parents or children. Any additional cards under this head come at a fee, which varies between Rs 100 to Rs 1,000. All expenses on the card are billed to you.
What does the purchase protection feature of credit cards mean?
The purchase protection feature automatically insures all items bought on the credit card from damage or loss due to fire or theft up to a certain sum of money.
What are the advantages of owning a platinum credit card?
Platinum cards often offer extra features, such as a low interest rates and rewards. However, to qualify you need to have good credit and a good salary.
What is the difference between a credit card, charge card and debit card?
A credit card allows you to pay for service or product over a period of time. Up to the first 55 days of credit come interest free. You can chose to pay your entire debt at one go or you can pay a minimum amount every month. A charge card works on similar lines as the credit card with one difference. With a charge card you have to pay the entire dues within the credit period. You cannot carry over any balances like a credit card. The most important differences between the two types of card are that charge cards charge a much higher interest rates and can usually only be used in just one merchant or brand. A debit card enables you to access your bank deposits for payment. When you make any purchases using a debit card, then your bank account is automatically and instantly decreased to the extent of the purchase amount
Credit card - FAQ 1
This article answer some frequently asked questions here from “credit card – what ?” to “What to check before applying for a credit card?”. If you have got other questions you want answered why not ask our expert.
What is a credit card?
A credit card is a card used to pay for products and services at over 20 million locations around the world. All you need to do is produce the card and sign a charge slip to pay for your purchases. The institution, which issued the card to you, makes the payment to the outlet on your behalf and would be reimbursed at a later date by you.
Why should I own a credit card?
Credit cards are relatively safer than carrying cash. You can spend almost anywhere, any time. Credit cards enable you to other benefits like rewards and insurance cover. You also get interest free money for up to 50 days.
What are the eligibility requirements to get your own credit card?
To apply for a credit card, you need to generally: - To be at least 21 years of age and not more than 65 years. - A regular and steady source of income. - Credit card companies (or issuing banks, as they are known) have a requirement of a minimum income level, which serves as the starting point while applying for a card. This requirement varies from bank to bank and could vary between Rs 75,000 per annum to Rs 150,000 per annum depending upon your risk profile and the type of card you choose. Typically, banks issuing credit cards need to be sure whether or not you will be able to repay the expenses incurred through your credit card.
What types of credit cards are there?
There are three cards, which are available, Visa, Master Card and Amex. Various participating banks like ICICI bank or HDFC then issue these cards to end-users. Visa and Master Card are the most popular cards in India and have an almost equal market share. Amex is much smaller in India and is issued through few banks at this stage.
What is the minimum salary required for taking a credit card?
You will need a salary of at least Rs. 75,000 per annum for an ordinary card and Rs. 1,50,000 per annum for a gold card.
What are MasterCard and Visa ?
MasterCard and Visa are global organisations dedicated to promote the growth of the card business across the world. They have built a vast network of merchant establishments so that customers world-wide may use their respective credit cards to make various purchases.
What is a Global Card?
A Global Card enables you to use your credit card when you are overseas. You can spend in dollars or any other foreign currency and settle the dues in your local currency.
What should I do if my credit card is lost or stolen?
In the event of losing your credit card, you must inform the bank immediately. The bank then deactivates your card to prevent any fraud. You are protected from settling any expenses on your card the moment you inform the bank.
What is my liability when I lose my credit card?
Before you report the loss of your card, you will have to pay for all the purchases fraudulently made on your card. The lost card liability fee is payable on the expenses incurred during the period between the loss of your card and your having reported it to the bank. After reporting the loss, your liability is mostly restricted to Rs. 1,000. You may also have to pay for the reporting of the loss in the lost card list. You will be expected to pay for the issue of a replacement card.
Can I use credit cards to make payments on the internet?
Yes, payments over the internet using a credit card is permitted. When you do purchase a product over the internet, you need to be careful about recording details of the order, and reporting any inconsistencies in billing to the card-issuing institution immediately.
Will the merchant charge a service charge for using a credit card?
No. However, with specific transactions like railway bookings they might demand a service charge of 2-3%. Before using a credit card check whether any service charge is applicable. Also, in some countries/states there could be an extra service tax applicable for transactions paid through a credit card.
Do I have to pay interest whenever I borrow?
No. Credit card issuing banks offer you an interest-free period of up to 55 days, after which the payment has to be made on purchases made against your credit card. You have the choice of carry forwarding your out standings by the payment of a ‘minimum due amount’ (generally 5% of the outstanding). If you pay off the entire amount within the interest-free period, then no charges are due. However if you choose to avail of the credit facility, then a credit charge is levied which generally varies between 2.5% to 3%. It should be noted that though the notional interest free period is for 40-55 days, billing is done monthly, so the actual interest free period could vary depending on whether the purchase was made at the start or the end of the billing period.
What is a credit card?
A credit card is a card used to pay for products and services at over 20 million locations around the world. All you need to do is produce the card and sign a charge slip to pay for your purchases. The institution, which issued the card to you, makes the payment to the outlet on your behalf and would be reimbursed at a later date by you.
Why should I own a credit card?
Credit cards are relatively safer than carrying cash. You can spend almost anywhere, any time. Credit cards enable you to other benefits like rewards and insurance cover. You also get interest free money for up to 50 days.
What are the eligibility requirements to get your own credit card?
To apply for a credit card, you need to generally: - To be at least 21 years of age and not more than 65 years. - A regular and steady source of income. - Credit card companies (or issuing banks, as they are known) have a requirement of a minimum income level, which serves as the starting point while applying for a card. This requirement varies from bank to bank and could vary between Rs 75,000 per annum to Rs 150,000 per annum depending upon your risk profile and the type of card you choose. Typically, banks issuing credit cards need to be sure whether or not you will be able to repay the expenses incurred through your credit card.
What types of credit cards are there?
There are three cards, which are available, Visa, Master Card and Amex. Various participating banks like ICICI bank or HDFC then issue these cards to end-users. Visa and Master Card are the most popular cards in India and have an almost equal market share. Amex is much smaller in India and is issued through few banks at this stage.
What is the minimum salary required for taking a credit card?
You will need a salary of at least Rs. 75,000 per annum for an ordinary card and Rs. 1,50,000 per annum for a gold card.
What are MasterCard and Visa ?
MasterCard and Visa are global organisations dedicated to promote the growth of the card business across the world. They have built a vast network of merchant establishments so that customers world-wide may use their respective credit cards to make various purchases.
What is a Global Card?
A Global Card enables you to use your credit card when you are overseas. You can spend in dollars or any other foreign currency and settle the dues in your local currency.
What should I do if my credit card is lost or stolen?
In the event of losing your credit card, you must inform the bank immediately. The bank then deactivates your card to prevent any fraud. You are protected from settling any expenses on your card the moment you inform the bank.
What is my liability when I lose my credit card?
Before you report the loss of your card, you will have to pay for all the purchases fraudulently made on your card. The lost card liability fee is payable on the expenses incurred during the period between the loss of your card and your having reported it to the bank. After reporting the loss, your liability is mostly restricted to Rs. 1,000. You may also have to pay for the reporting of the loss in the lost card list. You will be expected to pay for the issue of a replacement card.
Can I use credit cards to make payments on the internet?
Yes, payments over the internet using a credit card is permitted. When you do purchase a product over the internet, you need to be careful about recording details of the order, and reporting any inconsistencies in billing to the card-issuing institution immediately.
Will the merchant charge a service charge for using a credit card?
No. However, with specific transactions like railway bookings they might demand a service charge of 2-3%. Before using a credit card check whether any service charge is applicable. Also, in some countries/states there could be an extra service tax applicable for transactions paid through a credit card.
Do I have to pay interest whenever I borrow?
No. Credit card issuing banks offer you an interest-free period of up to 55 days, after which the payment has to be made on purchases made against your credit card. You have the choice of carry forwarding your out standings by the payment of a ‘minimum due amount’ (generally 5% of the outstanding). If you pay off the entire amount within the interest-free period, then no charges are due. However if you choose to avail of the credit facility, then a credit charge is levied which generally varies between 2.5% to 3%. It should be noted that though the notional interest free period is for 40-55 days, billing is done monthly, so the actual interest free period could vary depending on whether the purchase was made at the start or the end of the billing period.
Friday, July 11, 2008
Credit cards - Do's and Dont's
Used smartly, a credit card can be the answer to comfortable cash flows. If one pays back the amount you borrow before the monthly typical interest charge kicks in, you can neatly dodge interest charges. The amount of time it takes for the interest to be charged varies from card to card. Typically it ranges from 28 days to 56 days from the time one makes the spend.
Never pay a joining fee and the annual fee: There was a time when credit card companies were charging a joining fee and also were charging an annual service fee. Never ever accept to pay these and if you resist, the card companies will invariably waive them.
Pay off your credit card debt punctually: Always make payments on time, and pay all the outstanding and not just the minimum monthly amount. Paying the minimum balance only will mean years of paying off your credit card debt, and paying a total that far exceeds your original spend.
Keep track of all your repayments to be made:If you’ve accumulated debt across several cards, you may be finding it hard to keep track of all the repayments you need to make. Plus, if you’re only making minimum monthly repayments, you’re fighting a losing battle. The interest you accumulate could eventually treble the amount you originally borrowed, making it even harder to clear your debt.
Is a balance transfer from one card to other card right for you?: That’s where balance transfers can help. By transferring your debt onto a low interest credit card, you’ll cut the amount of interest you pay back. Plus, keeping track of your payments will be much easier.
Look out for a card that offers a low interest rate for the longest possible period:Get the best interest rate on credit cards Always opt for the card which levies the lowest interest for unpoad dues.
Never pay a joining fee and the annual fee: There was a time when credit card companies were charging a joining fee and also were charging an annual service fee. Never ever accept to pay these and if you resist, the card companies will invariably waive them.
Pay off your credit card debt punctually: Always make payments on time, and pay all the outstanding and not just the minimum monthly amount. Paying the minimum balance only will mean years of paying off your credit card debt, and paying a total that far exceeds your original spend.
Keep track of all your repayments to be made:If you’ve accumulated debt across several cards, you may be finding it hard to keep track of all the repayments you need to make. Plus, if you’re only making minimum monthly repayments, you’re fighting a losing battle. The interest you accumulate could eventually treble the amount you originally borrowed, making it even harder to clear your debt.
Is a balance transfer from one card to other card right for you?: That’s where balance transfers can help. By transferring your debt onto a low interest credit card, you’ll cut the amount of interest you pay back. Plus, keeping track of your payments will be much easier.
Look out for a card that offers a low interest rate for the longest possible period:Get the best interest rate on credit cards Always opt for the card which levies the lowest interest for unpoad dues.
Real estate - common terms
APPROVED PLANS: Plans of the building which are approved by the City corporation or municipal corporation .This is a drawing of the layout of the project and the layout of the flats duly approved for construction
SUPER BUILT UP AREA (SBUA): SBUA is the area over and above the Built Up Area and would include the space provided for common amenities within the flat complex like lobby, pathways, stair case, lift area etc. The SBUA thus would generally be around 20 - 25 percent more than the carpet area of the flat which is the actual usable area.
BUILT UP AREA (BUA): BUA is over and above the carpet area and would include the space covered by the thickness of the inner and outer walls of the flat. The BUA thus would generally be around 15 percent more than the carpet area of the flat which is the actual usable area.
CARPET AREA: The area of the flat where a carpet can be laid and thus is the net useable area. Until two decades back flats were sold on this basis. Carpet area is the area from the inner sides of wall to wall. This concept is rarely used today and as a result, flats today are generally sold on the basis of built up area and super built up area.
MONTHLY REDUCING BALANCE OF THE PRINCIPAL: It is same as annual reducing balance except that the balance is calculated on a monthly basis and the EMI is broken up every month to arrive at the opening balance of principal for the next month.
MORTGAGE: It is an agreement by which the borrower gives the lending institution the right to take possession of the property given as security if the loan is not repaid
POSSESSION LETTER: This is a letter handed over by the developer to the customer stating that the property is complete and ready for occupation. This letter also indicates the final dues payable by the customer before the key is handed over to the customer.
PREPAYMENT: Prepayment means repaying the loan before the tenure is over. Most HFCs charge a prepayment fee that is normally in the range of 1-2 percent of the prepaid amount.
SUPER BUILT UP AREA (SBUA): SBUA is the area over and above the Built Up Area and would include the space provided for common amenities within the flat complex like lobby, pathways, stair case, lift area etc. The SBUA thus would generally be around 20 - 25 percent more than the carpet area of the flat which is the actual usable area.
BUILT UP AREA (BUA): BUA is over and above the carpet area and would include the space covered by the thickness of the inner and outer walls of the flat. The BUA thus would generally be around 15 percent more than the carpet area of the flat which is the actual usable area.
CARPET AREA: The area of the flat where a carpet can be laid and thus is the net useable area. Until two decades back flats were sold on this basis. Carpet area is the area from the inner sides of wall to wall. This concept is rarely used today and as a result, flats today are generally sold on the basis of built up area and super built up area.
MONTHLY REDUCING BALANCE OF THE PRINCIPAL: It is same as annual reducing balance except that the balance is calculated on a monthly basis and the EMI is broken up every month to arrive at the opening balance of principal for the next month.
MORTGAGE: It is an agreement by which the borrower gives the lending institution the right to take possession of the property given as security if the loan is not repaid
POSSESSION LETTER: This is a letter handed over by the developer to the customer stating that the property is complete and ready for occupation. This letter also indicates the final dues payable by the customer before the key is handed over to the customer.
PREPAYMENT: Prepayment means repaying the loan before the tenure is over. Most HFCs charge a prepayment fee that is normally in the range of 1-2 percent of the prepaid amount.
Mutual Fund basics - Part 3
Mutual Funds can also be categorized by their Investment objectives which are as below.
By investment objective:
Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation.
Income Schemes: Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited.
Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50).
Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money.
Other schemes
Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate.
Index Schemes: Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index.
Sector Specific Schemes: These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time.
Types of returns
There are three ways, where the total returns provided by mutual funds can be enjoyed by investors:
Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution.
If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution.
If fund holdings increase in price but are not sold by the fund manager, the fund’s shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.
Pros & cons of investing in mutual funds:
For investments in mutual fund, one must keep in mind about the Pros and cons of investments in mutual fund.
Advantages of Investing Mutual Funds:
1. Professional Management - The basic advantage of funds is that, they are professional managed, by well qualified professional. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive way to make and monitor their investments.
2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or bonds, the investors risk is spread out and minimized up to certain extent. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others.
3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for their investors.
4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their holdings as and when they want.
5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available instruments in the market, and the minimum investment is small. Most AMC also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis.
Disadvantages of Investing Mutual Funds:
1. Professional Management- Some funds doesn’t perform in neither the market, as their management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the so-called professionals are any better than mutual fund or investor him self, for picking up stocks.
2. Costs – The biggest source of AMC income, is generally from the entry & exit load which they charge from an investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon.
3. Dilution - Because funds have small holdings across different companies, high returns from a few investments often don’t make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money.
4. Taxes - when making decisions about your money, fund managers don’t consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability
This ends the "Mutual Fund Basics series"
By investment objective:
Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation.
Income Schemes: Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited.
Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50).
Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money.
Other schemes
Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate.
Index Schemes: Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index.
Sector Specific Schemes: These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time.
Types of returns
There are three ways, where the total returns provided by mutual funds can be enjoyed by investors:
Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution.
If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution.
If fund holdings increase in price but are not sold by the fund manager, the fund’s shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.
Pros & cons of investing in mutual funds:
For investments in mutual fund, one must keep in mind about the Pros and cons of investments in mutual fund.
Advantages of Investing Mutual Funds:
1. Professional Management - The basic advantage of funds is that, they are professional managed, by well qualified professional. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive way to make and monitor their investments.
2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or bonds, the investors risk is spread out and minimized up to certain extent. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others.
3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for their investors.
4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their holdings as and when they want.
5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available instruments in the market, and the minimum investment is small. Most AMC also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis.
Disadvantages of Investing Mutual Funds:
1. Professional Management- Some funds doesn’t perform in neither the market, as their management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the so-called professionals are any better than mutual fund or investor him self, for picking up stocks.
2. Costs – The biggest source of AMC income, is generally from the entry & exit load which they charge from an investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon.
3. Dilution - Because funds have small holdings across different companies, high returns from a few investments often don’t make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money.
4. Taxes - when making decisions about your money, fund managers don’t consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability
This ends the "Mutual Fund Basics series"
Mutual Fund Basics - Part 2
Overview of existing schemes existed in mutual fund category: BY NATURE
1. Equity fund:
These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund manager’s outlook on different stocks. The Equity Funds are sub-classified depending upon their investment objective, as follows: Diversified Equity Funds Mid-Cap Funds Sector Specific Funds Tax Savings Funds (ELSS) Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix.
2. Debt funds:
The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as: Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government.
Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities.
MIPs: Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes.
Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures.
Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds.
3. Balanced funds:
As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns. Further the mutual funds can be broadly classified on the basis of investment parameter viz, Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly.
1. Equity fund:
These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund manager’s outlook on different stocks. The Equity Funds are sub-classified depending upon their investment objective, as follows: Diversified Equity Funds Mid-Cap Funds Sector Specific Funds Tax Savings Funds (ELSS) Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix.
2. Debt funds:
The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as: Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government.
Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities.
MIPs: Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes.
Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures.
Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds.
3. Balanced funds:
As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns. Further the mutual funds can be broadly classified on the basis of investment parameter viz, Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly.
Basics of Mutual Fund - Part 1
What is a Mutual Fund?
A mutual fund is just the connecting and a financial intermediary that allows a group of investors with similar risk profile to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is identified for investing the gathered money into specific securities (stocks or bonds). When one invest in a mutual fund, he/she is buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund. Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification across asset calsses, industries and stocks, by minimizing risk & maximizing returns. Also with a minimal investment, Mutual funds allow a unit holder to take a position in a high priced stock which he/she would not be able to buy individually.
The article mentioned below, is for the investors who have not yet started investing in mutual funds, but willing to explore the opportunity and also for those who want to clear their basics for what is mutual fund and how best it can serve as an investment tool.
Getting Started
It’s very important to know the area in which mutual funds works, the basic understanding of stocks and bonds.
Stocks
Stocks represent shares of ownership in a public company. Examples of public companies include Reliance, ONGC and Infosys. Stocks are considered to be the most common owned investment traded on the market.
Bonds
Bonds are basically the money which you lend to the government or a company, and in return you can receive interest on your invested amount, which is back over predetermined amounts of time. Bonds are considered to be the most common lending investment traded on the market. There are many other types of investments other than stocks and bonds (including annuities, real estate, and precious metals), but the majority of mutual funds invest in stocks and/or bonds.
Regulatory Authorities
To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time. MF either promoted by public or by private sector entities including one promoted by foreign entities is governed by these Regulations.
SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of the fund in its custody.
According to SEBI Regulations, two thirds of the directors of Trustee Company or board of trustees must be independent. The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual funds that the mutual funds function within the strict regulatory framework. Its objective is to increase public awareness of the mutual fund industry.
AMFI also is engaged in upgrading professional standards and in promoting best industry practices in diverse areas such as valuation, disclosure, transparency etc.
A mutual fund is just the connecting and a financial intermediary that allows a group of investors with similar risk profile to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is identified for investing the gathered money into specific securities (stocks or bonds). When one invest in a mutual fund, he/she is buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund. Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification across asset calsses, industries and stocks, by minimizing risk & maximizing returns. Also with a minimal investment, Mutual funds allow a unit holder to take a position in a high priced stock which he/she would not be able to buy individually.
The article mentioned below, is for the investors who have not yet started investing in mutual funds, but willing to explore the opportunity and also for those who want to clear their basics for what is mutual fund and how best it can serve as an investment tool.
Getting Started
It’s very important to know the area in which mutual funds works, the basic understanding of stocks and bonds.
Stocks
Stocks represent shares of ownership in a public company. Examples of public companies include Reliance, ONGC and Infosys. Stocks are considered to be the most common owned investment traded on the market.
Bonds
Bonds are basically the money which you lend to the government or a company, and in return you can receive interest on your invested amount, which is back over predetermined amounts of time. Bonds are considered to be the most common lending investment traded on the market. There are many other types of investments other than stocks and bonds (including annuities, real estate, and precious metals), but the majority of mutual funds invest in stocks and/or bonds.
Regulatory Authorities
To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time. MF either promoted by public or by private sector entities including one promoted by foreign entities is governed by these Regulations.
SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of the fund in its custody.
According to SEBI Regulations, two thirds of the directors of Trustee Company or board of trustees must be independent. The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual funds that the mutual funds function within the strict regulatory framework. Its objective is to increase public awareness of the mutual fund industry.
AMFI also is engaged in upgrading professional standards and in promoting best industry practices in diverse areas such as valuation, disclosure, transparency etc.
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