Unlike fixed deposits, debt funds are not risk-free assured return instruments. They are affected by interest rate fluctuations. Falling interest rates will result in rising prices of the underlying bonds while rising interest rates will result in falling bond prices. So debt funds do better in a falling interest rate scenario.
The higher the maturity profile of a debt fund, the more is its sensitivity to interest rate fluctuations. So short term debt funds are less affected by interest rate outlook than long term debt funds. Liquid funds would be a better option as they invest in short term instruments such as treasury bills, certificates of deposits and commercial papers.
Note: This article has been written in the assumption that you know about Mutual Funds. If you have any other clarifications please get back to me
Friday, July 24, 2009
Market is going up? What I have to do now?
Many of my friends usually ask me about investments, retirement planning, idea in buying a home and etc related to money… And they often called me as money KumarJ, stop stop its not mean I am always running behind money or so… but I will love to make money (of course by genuine way) in smart ways…
Ok let’s come to the topic, so in the last few days many of my friends asked me when I have to invest? Where I have to invest? How much amount I have to invest?
I have answered them some nice ways… here let me share with you as well
When I have to invest?
There is absolutely no good or bad time to invest for your future all time is good… But if you are the someone whom expects a short term returns then you have to be sure when you are making investment? Since every investment clause is having its own up and peak time… you have to be sure you are entering in to the wave while it is up and not down time. If you entered in the down time then you may have to wait patience for until the same to come up…
The amount of patience will be justified by one surplus money, If you have surplus money u might have wait for some time until your investment starts giving you good returns or else you may get out with loss
Where I have to invest?
There are different investment clauses are available in the investments based upon our objective (retirement, pension, child marriage, education, buy a home…) and the remaining available years for the objective will decide our investment clause. And of course your risk appetite also plays an important role in that
But the ground rule in investment is don’t put all your eggs in the same basket… Split your investments and enjoy its returns… by the way of splitting the investment the chances of loss is very less
Many of my friends done a mistake by investing all their money in shares (one single clause) which made them empty hands while the markets went down… And they all invested at a wrong time, when the market is high (peak in the history) they invested. They might have followed the gradual investments not aggressive investment
How much amount I have to invest?
It’s purely based upon your current liquidity. It may vary based upon your age and goals. But the thump rule is as I said earlier don’t put all your eggs in one single basket.
Keep some money for your current liquidity as well, during contingency times this fund could help you to get out the problem. That too for us (IT Guyz) we must reserve some money for our rainy days
In this area you guyz can ask about any investment doubts, I will truly try to answer my level best and willing to share the lessons what myself and my friends learned out of our investments
So keep in touch and post your queries
Ok let’s come to the topic, so in the last few days many of my friends asked me when I have to invest? Where I have to invest? How much amount I have to invest?
I have answered them some nice ways… here let me share with you as well
When I have to invest?
There is absolutely no good or bad time to invest for your future all time is good… But if you are the someone whom expects a short term returns then you have to be sure when you are making investment? Since every investment clause is having its own up and peak time… you have to be sure you are entering in to the wave while it is up and not down time. If you entered in the down time then you may have to wait patience for until the same to come up…
The amount of patience will be justified by one surplus money, If you have surplus money u might have wait for some time until your investment starts giving you good returns or else you may get out with loss
Where I have to invest?
There are different investment clauses are available in the investments based upon our objective (retirement, pension, child marriage, education, buy a home…) and the remaining available years for the objective will decide our investment clause. And of course your risk appetite also plays an important role in that
But the ground rule in investment is don’t put all your eggs in the same basket… Split your investments and enjoy its returns… by the way of splitting the investment the chances of loss is very less
Many of my friends done a mistake by investing all their money in shares (one single clause) which made them empty hands while the markets went down… And they all invested at a wrong time, when the market is high (peak in the history) they invested. They might have followed the gradual investments not aggressive investment
How much amount I have to invest?
It’s purely based upon your current liquidity. It may vary based upon your age and goals. But the thump rule is as I said earlier don’t put all your eggs in one single basket.
Keep some money for your current liquidity as well, during contingency times this fund could help you to get out the problem. That too for us (IT Guyz) we must reserve some money for our rainy days
In this area you guyz can ask about any investment doubts, I will truly try to answer my level best and willing to share the lessons what myself and my friends learned out of our investments
So keep in touch and post your queries
Don`t Mix Insurance with Investments
It is always better not to mix investment with insurance. The best insurance is always considered term insurance. If you do not have reasonable coverage then you must get a term insurance.
Term insurance is like a car insurance where the premium is given to the company, in case of any untoward happening you get the sum assured and if nothing happens then the money is not returned.
Insurance should be looked at from the perspective that it is required for your dependants to cover expenses in the case of an untoward happening.
For investment purposes, a person should consider mutual funds.
Term insurance is like a car insurance where the premium is given to the company, in case of any untoward happening you get the sum assured and if nothing happens then the money is not returned.
Insurance should be looked at from the perspective that it is required for your dependants to cover expenses in the case of an untoward happening.
For investment purposes, a person should consider mutual funds.
A letter to a friend whom in mid career financial blues
Dear friends as I described earlier, I am about to start sharing my conversations and discussions what I had with my other friends... So here with I am suggested one of my friend whom in mid of his career and much worried about the retirement and savings
Hope this may help you guyz too
Mahindran, just over 40, had an interesting discussion with me last week, he said "Never in my life have I earned so much and never was financial dependence on me this high". So while he did see a steady growth in earnings over the years, he also witnessed a rise in expenses. Apart from household expenses and education expenses of two children in school, the future was playing on his mind. Retirement was slowly creeping upon him.
The expenses on higher education of his children was cause for concern. And saving for children's marriage would also be a priority for a number of parents.
Action Plan
Insurance is a priority over saving and investment. You need to start by taking a good and hard look at your insurance cover. You probably have a spouse and children who are dependent on you. So the financial impact of the loss of your life can be most severe during these years.
Since your children are in school, you will be in a position to make a realistic assessment of the money that will be needed for their higher education as well as their marriage. Both of these could be major expenses.
If something happen to you, you need to figure out whether your present insurance cover, along with your savings, will be sufficient to meet these expenses and also leave enough money to tide your spouse through the rest of her life. If not, then it makes sense to go for an additional term cover.
Decrease and Increase
Decrease your exposure to equity. While equity can still form a part of your portfolio, cut down on aggression and increase the weight of debt. If you are already invested in equity, shift your investments from aggressive equity funds towards stable large-cap funds and balanced funds. You can even sell your pure mid-cap funds as the large-cap and balanced funds will bring in some mid-cap exposure which should be sufficient for you.
By investing in balanced funds, you can have 60-70 per cent allocation to equities and about 30 per cent to debt. This will help you partake in an upside in the market as well as bring in the much needed stability to protect returns on the downside.
To protect the accumulated wealth, there are a number of fixed return instruments you can consider. You have a choice between Public Provident Fund, National Savings Certificate and five-year bank deposits. These also offer a tax benefit under Section 80C.
These investments can add a lot of value at this stage simply because they rank high on safety, your principal is guaranteed along with your returns. The assured return of 8 per cent per annum looks quite handsome considering the circumstances prevailing in the debt markets. And, should you need money, you can even take a loan against them.
As the timeframe draws closer to your saving goals, shift money from equity to safer and guaranteed avenues. Or else, when you do need the money, the market may have taken a nasty turn leaving you in the lurch.
Lesson to be learnt
You have three aims:
i. Wealth maximisation with less aggression than someone younger than you (60-70 per cent in equity).
ii. Protection of all that you have accumulated this far (30-40 per cent in debt).
iii. Protection for your family (evaluate insurance needs).
Hope this may help you guyz too
Mahindran, just over 40, had an interesting discussion with me last week, he said "Never in my life have I earned so much and never was financial dependence on me this high". So while he did see a steady growth in earnings over the years, he also witnessed a rise in expenses. Apart from household expenses and education expenses of two children in school, the future was playing on his mind. Retirement was slowly creeping upon him.
The expenses on higher education of his children was cause for concern. And saving for children's marriage would also be a priority for a number of parents.
Action Plan
Insurance is a priority over saving and investment. You need to start by taking a good and hard look at your insurance cover. You probably have a spouse and children who are dependent on you. So the financial impact of the loss of your life can be most severe during these years.
Since your children are in school, you will be in a position to make a realistic assessment of the money that will be needed for their higher education as well as their marriage. Both of these could be major expenses.
If something happen to you, you need to figure out whether your present insurance cover, along with your savings, will be sufficient to meet these expenses and also leave enough money to tide your spouse through the rest of her life. If not, then it makes sense to go for an additional term cover.
Decrease and Increase
Decrease your exposure to equity. While equity can still form a part of your portfolio, cut down on aggression and increase the weight of debt. If you are already invested in equity, shift your investments from aggressive equity funds towards stable large-cap funds and balanced funds. You can even sell your pure mid-cap funds as the large-cap and balanced funds will bring in some mid-cap exposure which should be sufficient for you.
By investing in balanced funds, you can have 60-70 per cent allocation to equities and about 30 per cent to debt. This will help you partake in an upside in the market as well as bring in the much needed stability to protect returns on the downside.
To protect the accumulated wealth, there are a number of fixed return instruments you can consider. You have a choice between Public Provident Fund, National Savings Certificate and five-year bank deposits. These also offer a tax benefit under Section 80C.
These investments can add a lot of value at this stage simply because they rank high on safety, your principal is guaranteed along with your returns. The assured return of 8 per cent per annum looks quite handsome considering the circumstances prevailing in the debt markets. And, should you need money, you can even take a loan against them.
As the timeframe draws closer to your saving goals, shift money from equity to safer and guaranteed avenues. Or else, when you do need the money, the market may have taken a nasty turn leaving you in the lurch.
Lesson to be learnt
You have three aims:
i. Wealth maximisation with less aggression than someone younger than you (60-70 per cent in equity).
ii. Protection of all that you have accumulated this far (30-40 per cent in debt).
iii. Protection for your family (evaluate insurance needs).
Sunday, July 5, 2009
Bank Deposits Vs Post Office Products
The PO products are carry a sovereign gurantee, Bank Fixed deposits (FDs) too, offer fixed and assured returns but they are not backed by an government gurantee beyond Rs 1 lakh (principal and interest together) per bank per person irrespective of no of accounts. So it is better to spread your FD over banks rather than invest a big sum in a single bank
Small Savings - Worth to have a look at them
It might seem ridiculous to talk about safe investments and sound returns at a time when the equity markets are down 34 percent since last year and a tumbline real estate market is giving most of us sleepless nights, but here are 3 tricks to increase your small savings returns without much worry
We need to balance our portfolio with equity and debt since the reality of volatile markets indicates that we need to go back to old options and invest in products that our parents relied on, the ones we turned our noses up at as too cumbersome or even too boring. But beside secure returns the sfest investment options can be cleverly tailored to suit various requirements. Here are some strategies that have been used for ages and can work wonders in these harsh times
REINVEST MONTHLY INCOME SCHEME (MIS) INTEREST
Take a 6-year, 8 percent per annum MIS, Reinvest the monthly interest in a savings account (3.5 per cent interest per annum), which will give you an annualised return of 7.53 percent after six years. Reinvesting in a recurring deposit (7.5 per cent per annum) will give you an annualised return of 7.76 per cent
LADDER NATIONAL SAVINGS CERTIFICATES (NSCs)
NSC is a 6-year instrument, Assume that you buy NSCs worth Rs 24,000 in one financial year, Instead buy NSCs worth Rs 2000 every month till your retirement, Renew every investment after six years and continue doing so until your retirement, Finally the matured NSCs will give regular income, which can be used as pension
USE YOUR PUBLIC PROVIDENT FUND
PPF is a 15-year account in which you can put up to Rs 70000 every year, After the fifth year, make partial withdrawals for tax free funds and contribute Rs 70000 as before from current income to get tax benefits
We need to balance our portfolio with equity and debt since the reality of volatile markets indicates that we need to go back to old options and invest in products that our parents relied on, the ones we turned our noses up at as too cumbersome or even too boring. But beside secure returns the sfest investment options can be cleverly tailored to suit various requirements. Here are some strategies that have been used for ages and can work wonders in these harsh times
REINVEST MONTHLY INCOME SCHEME (MIS) INTEREST
Take a 6-year, 8 percent per annum MIS, Reinvest the monthly interest in a savings account (3.5 per cent interest per annum), which will give you an annualised return of 7.53 percent after six years. Reinvesting in a recurring deposit (7.5 per cent per annum) will give you an annualised return of 7.76 per cent
LADDER NATIONAL SAVINGS CERTIFICATES (NSCs)
NSC is a 6-year instrument, Assume that you buy NSCs worth Rs 24,000 in one financial year, Instead buy NSCs worth Rs 2000 every month till your retirement, Renew every investment after six years and continue doing so until your retirement, Finally the matured NSCs will give regular income, which can be used as pension
USE YOUR PUBLIC PROVIDENT FUND
PPF is a 15-year account in which you can put up to Rs 70000 every year, After the fifth year, make partial withdrawals for tax free funds and contribute Rs 70000 as before from current income to get tax benefits
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