Pension Plan helps the average investor to accumulate wealth over the period in order to meet his/her expenses after retirement. Usually it is the insurance companies that draw customers with the array of pension plans that they provide, but the lesser known fact is that Mutual Fund also manages pension products. Currently only one private sector mutual fund has a pension plan catering to the investor and there is more than one reason for you to look at this plan seriously. The Plan is none other than Templeton India Pension Plan (TPP), the country’s first and only central government approved private sector pension scheme under Section 88. In other words, investing in this pension plan will also provide you with tax saving benefits similar to tax saving Mutual Funds (ELSS) and other investing instruments such as National Saving Certificate (NSC) and Public Provident Fund (PPF). Though both tax saving mutual funds and pension plans are in the same investment genre as they offer tax-deduction benefits, both have varying rates. The investment amount on which tax benefits can be claimed by investing in tax-saving funds is restricted to a maximum permissible limit of Rs 10,000 (approximately). However, the maximum permissible investment limit under TPP is Rs 70,000(approximately).

Coming to the points as to why the average investor should consider this investment as a part of their investment portfolio. The main feature of a good pension plan is to be deterrent for early withdrawals. Templeton Indian Pension Plan (TIPP), generally allows you to withdraw your money after 58 years of age or after 3 years of investment. If you do want to withdraw your money after 3 years of investment, even if you aren’t 58 years old you can do so after paying a 3% exit load (administrative charges you pay when you sell your units or assets). The power of equities will provide you long term capital gains if your investment portfolio has a time period of a minimum of 10 years. Templeton Pension Plan offers better tax-saving options when compared to other investing instruments of the same genre. Returns from NSC or PPF will be hard to match the returns generated by TPP if one is willing to consider a comparison given that PPF and TPP are retirement-oriented investments.

Whenever you opt to invest in a Mutual Fund, two prime factors that needs to given due importance are Asset Allocation and Fund Manager. TIPP has increased its exposure to IT stocks in the latest quarter and reduced exposure to stocks in the metals space such as Hindalco. A well-diversified equity portfolio with limited exposure to mid-caps makes it a less risky portfolio. As far as performance goes the plan has delivered an impressive cumulative annual return of 18 per cent for the last five years. The fund has been able to beat its benchmark returns and has also recorded lower losses than its benchmark in the last quarter, when the market turned weak. So for investors who are looking for a good investment module to invest in other than the regular insurance product TIPP is an excellent option.

There are a couple of ways that you can invest in a Mutual fund; one is a one time payment and the other through periodic investments. The later is termed to be Mutual Fund SIP. When you go for one time investments, you just hand over the cheque and you get your fund units depending on the value which is called Mutual NAV (Net Asset Value) of the units on that particular day. When you go in for this kind of investments a couple of factors creep in that determines the number of units you get. A small percentage of your investment is charged as an administrative fee and is termed as entry load. The other charge that is levied is the Mutual Fund NAV, which is the price of the unit of a fund. Say if you are investing Rs 9000/ and if one particular unit costs Rs 30/, then the total number of units that you get to purchase is 300. The other type of investment is done periodically instead of a one time down payment. This kind of investment planning is called Mutual Fund SIP (Systematic Investment Planning). This type of investment is done when you tend to go for high capital gains and you need to invest a bigger amount, but find it difficult to invest it at a single time.

It is then that the concept of Systematic Investment Planning creeps in. If you intend to invest a sum of Rs 10,000/ into a particular Mutual Fund, but your current financial obligations prevents you from doing so, then with the concept of SIP, you breakdown your investment principle into equal installments month wise. If a monthly investment of Rs 1000 is done at the end of the year you end up investing a sum of 12000/. Unlike general investment where you pay an entry load, SIP usually doesn’t charge any fee, though as of late some companies have started to in the form of exit loads, which is a fee charged when you sell your units. The minimum amount that has to be invested during a one time investment is Rs 5000/, where as incase of a SIP it could be Rs 500/ or more (depending on the company). In most cases payments through SIP is done month wise, but companies also gives their customers the option of making the payments half-yearly or quarterly. Payments are basically made Electronic Clearance Service from your bank; this means the mutual fund will, as per your instructions, debit a certain amount from your account every month. If you don’t have the required money in your account, then for that month, no units will be allocated to you. But, if this continues periodically, the mutual fund will discontinue the SIP.

It is a compulsion that you state to the company as to how long you long you would want the SIP. After that during the course of the period if you realize that you can’t continue with the SIP, all you have to do is inform the fund 15 days prior to the payout. The SIP will be discontinued. You can continue to keep your money with the fund and withdraw it when you want. The amount invested till then will be considered as the total investment made. Investing in Mutual Fund through SIP makes your budget more disciplined. Every month you are forced to keep aside a fixed amount. It helps you make money over the long term. Since you get more units when the NAV (charge/unit) drops and fewer when it rises, the cost averages out over time. So you tide over all the ups and downs of the market without any drastic losses. In case of SIP basically no fees are charged, but if you sell your units in a year time you pay and exit load. Hence it pays to invest in a longer run. The best way to enter a mutual fund is via an SIP. But to get the benefit of an SIP, think of at least a three-year time frame when you won’t touch your money.

As the name suggests ELSS (equity linked savings scheme), invests primarily in equity shares of companies. As per financial regulations, the scheme Fund manager has to invest 80% of the total amount in the equity shares and the remaining 20% per cent can be invested in other instruments like bonds, debentures, government securities and others. When you invest in ELSS your money is locked for a period of three years (minimum). Once you invest in tax saver funds you cannot withdraw the amount for three years, this acts as a blessing in disguise as tax saving funds generally yield high returns during a 3year period. The common man is basically afraid of investing his money in equity shares as he is afraid of loosing money. But a look at the recent past shows that investors who have invested in tax saver funds have never lost out on their money, rather tax saver funds have been the front runners in terms of returns to investors. A small illustration will clarify comprehensions.

If you make an investment of Rs 1,00,000/ ( 1 lac), then under section 80c this complete amount is deducted from your gross income for that particular year. If your annual income puts you in the highest tax paying zone, i.e -34%, then the investment of Rs 1,00,000/ will ensure that you get an annual tax deduction of Rs, 34,000/. So logically speaking you invest Rs 66,000/ considering the deduction. Assuming that the Mutual Fund declares an annual dividend of 10% then your total return on Rs 66,000 is [(10,000/66000)* 100] = 15.15%. This particular dividend earned is also tax-free, hence more profit. Another profitable venture out of this investment is that after a period of 3 years the capital gain that you obtain out of the investment is also tax-free. This is what makes ELSS the most attractive investment for those who have the appetite for moderate risk. However, prior to making an investment selecting a good fund house based on its reputation and track record is important. Elss are considered to be the best tax saving mutual funds in India.

ELSS is a good option to save tax and generate long term capital gains. These gains are obtained from the equity market only if you are investing in a long time horizon. Adding money in a disciplined manner creates a good corpus. The basic confusion that the average investor could have is that they consider Equity Mutual Funds and ELSS to be the same, which in true sense isn’t correct. Normal equity funds could be purchased today and disposed off tomorrow. Incase of ELSS there is a compulsory 3 year lock in period. As per the rules related to long-term capital gains, profit from equity MFs after one year becomes tax-free. As per latest sources the top 5 ELSS schemes are 1) Principal Personal Tax-saver, 2) DSP ML Tax Saver Fund, 3) Taurus Libra Taxshield, 4) Lotus India Tax Plan, 5) Franklin India Tax Shield ( FIT). Going by the current volatile market trends and with the current fiscal year approaching an end, investing in a good ELSS fund is a clever option to save taxes.

By nature Mutual Funds are not tax saving instruments but some mutual fund investment products also offers tax saving plans. Generally income that is earned from Mutual funds is categorized under two heads dividend and capital gains. Given that the tax implications can have a significant impact on the return earned it is necessary to understand the tax for both these heads of income. Income earned through dividends is tax free in the hands of the investor. The tax on most occasions is actually paid by the Mutual Fund Company itself. Investors who fall in the highest tax bracket should opt for the dividend option in mutual fund schemes. Capital gains from mutual funds are of two types – short term (1-3year) and long term (more than 5 years). This classification is based upon the period of holding. If the investment is sold within a year 15 days from the date of purchase, any capital gain made would be treated as a short term nature. Hence the tax deducted will be normal. If the mutual fund investment is sold after a year from the date of purchase, any capital gain made during that period will be treated as a long-term capital gain. Here the tax that would be deducted will depend on how long the investment is kept after a year prior to getting it sold. The longer the fund is kept the lesser the tax to be paid.

A Good Fund that could be used to invest upon is the equity linked saving schemes fund (ELSS). They are strong favorites for investing as they provide tax concessions on investments and are also exempt from long term capital gains tax. Apart from ELSS schemes, diversified equity schemes are a good investment considering that capital gains in equity funds below one year are taxed at a rate of 10% and over a year are tax-free. This option can be best exercised using Growth Funds. The primary objective of Growth Funds is to provide investors long-term growth of the capital invested. Dividend paid in Dividend Plans is tax free, and no distribution tax is deducted. However, every time we buy or sell equity shares a Securities Transaction Tax, STT, of 0.25% is paid and further when you redeem your investment, again STT is deducted from your redemption price. Provided below is a table that shows the Mutual Funds you could invest upon to save your taxes:

Tax Planning & saving options requires a through study of the market conditions, especially if you are trying to do it in a period of slump. Proper Asset Allocation, research and the advice of the Fund Manager will definitely help. Long term capital loss can be set off only against long term capital gains. Short term capital can be set off against any capital gains, whether short term or long term.

Prior to opting for a tax saving mutual fund, it is important that the investor consider certain important factors such as performance, investment style, expenses(entry load & exit load) and other critical parameters. This is done to ensure that the investor will start treating the fund at par with regular diversified equity fund which could lead to improper asset allocation. Despite of the current financial crisis that the market is going through, investors are advised to invest in funds where the underlying assets are mainly equity funds. If you invest in a rising market, the more risk you are willing to take will get you more returns. It means if you have more equity funds in your investment portfolio or if you invest in more aggressive Mutual Fund, you are bound to make money compared to a moderate investor.

The prime criteria that an investor will have to consider prior to opting for a tax saving mutual fund will be the performance of that particular fund in the recent past. Performance is critical parameter, through which a fund must re-deem itself before it could be considered to for investing. Practically all equity linked investments are considered with a 3-5 year period investment horizon. While evaluating the performance of a fund importance on premium on consistency across market phases is to be kept. Opting for tax-saving funds that have put in a reasonable show during the upturns and downturns of the market consistently during the last 5 years (approximately) is a good idea. Volatility and return along with proper investment planning is another important aspect of a mutual fund. Usually it is a fund manager, who determines the performance of a fund in the market. Good returns on Mutual Fund NAV’s (net asset values) can be achieved by pursuing an aggressive investment strategy. Investing in tax-saving funds that have rewarded investors more per unit of risk taken by them is suggested. Managing other costs and expenses like a fund manager’s salary, marketing/advertising costs, administering costs is to be maintained. The cost of investing in a mutual fund is measured by the expense ratio. The ratio represents the percentage of the fund’s assets that go purely towards the cost of running the fund.

According to SEBI (securities & exchange board India), taxes that are implied on your annual salary will be exempted if you invest in tax saving mutual funds. Moreover the returns that you earn aren’t taxable. Tax Saving Mutual Funds in India generally maintain the following rules while granting tax benefits on their schemes: 1) Any special tax benefits for the mutual fund company and its shareholders (only section numbers of the Income Tax Act and their substance should be mentioned, without reproducing the text of the sections). 2) Tax benefits are to be declared under the column of “objects of the offering”. Some excellent tax saving mutual funds in India are: a) SBI Mutual Funds, b) Prudential ICICI, c) Franklin Templeton Mutual Fund India, d) Standard Chartered Mutual fund India, & e) Bajaj Capital. As stock markets turn more volatile, and the choice of funds increases, it will become pertinent to make the right investment decision to start with. Going forward, & opting to invest in a fund that not only provides you tax relief but also good returns is advisable.

When you choose to go in for a Mutual Fund Investment, it is extremely important that you opt for a fund that has a consistent track record and provides you high dividends on your investment. Investing money on the right company and that to at the right time is very much considerable. Important factors such as Asset Allocation and the role of the fund manager do emerge. In this article we will be discussing some basics and the current situation of Mutual Fund Investments in India.

Deciding or searching for the top mutual funds generally requires lot of things to be taken into consideration. It is here that the role of the fund manager creeps in. The fund manager determines the performance of the fund for that particular period, so it is a compulsion that he is consulted prior to making the investment. Another important segment that should be taken care of is the proper selection of Assets. Asset Allocation is the art of bifurcating your finances into a mixture of Assets (stocks, bonds, etc). It is imperative that some amount of research is done prior to choosing a fund for investment. The performance of a mutual fund over the last few years does give an insight to it’s value. The Mutual fund performance can be known by Mutual Fund NAV i.e. Net Asset Value. It is disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes. It is necessary for all top mutual funds in India to put their NAV’s on the web site of Association of Mutual Funds in India (AMFI) thus the investors can access NAVs of all mutual funds at one place.

SOURCE : Association of Mutual Fund in India (AMFI).

According to latest researches and data available with Association of Mutual Funds in India (body that governs the Mutual Fund houses in India) , it can be described that, since the last 6 months, the entire asset under management or AUM, along with thirty one mutual funds covered at Rs 5,18,123 Crore or Rs 5,181.23 billion. All of the top five mutual funds of India made record in the development of total AUM. They have increased the AUM rate of the Indian mutual fund industry. Being the top mutual fund organization of India, the Reliance Mutual Fund rose the AUM to Rs.80,780 crore from Rs.77,765 crore. On the other hand, the ICICI Prudential Mutual Fund and UTI Mutual Fund rose to Rs.56,854 crore from Rs.52,180 crore. So going through the snapshot you do have an idea as to which Mutual Fund should be invested upon and the factors you would need to take into consideration.

Mutual fund is basically a hub or intermediary for financial investments. It gathers money from different investors and invests it on behalf of the group keeping in mind the primary objective, which is to aim for long term capital gains. There are numerous parameters that creep up in the mind of an investor when he opts to invest upon a mutual fund. Selecting the best mutual fund in the market requires a lot of research and guidance prior to making the investment. Mutual fund Investments may get you the best dividends in the market in the longer run but at the same time it is the most risky of all investment, so keeping this in mind an investment strategy is to be made and a dependable fund to be chosen.

What are the criteria’s that comes in mind when an investor decides or chooses the best mutual fund to invest upon? A couple of important factors come into play here. The first is the total number of assets that are under the management of the fund manager for that particular fund: i.e the asset allocation and growth or yield of that fund with due course of time. Mutual fund investments are generally low risk investments when compared to individual stock investments. Hence when you create your investment strategy it is necessary that you define your goals and objectives and if you opt for mutual fund investments, it’s necessary that you include it in your investment portfolio. Once that is done the next step would be determining the choice of the find. Other than the criteria’s mentioned other important factors include performance of fund, fund manager, fund family and buying and redeeming shares. Also prior to making a mutual fund purchase, review your account statements and those of your family to find amounts of investments in a particular mutual fund or family of funds to see if these transactions can be combined to obtain a breakpoint discount. Don’t limit your review to accounts at a single securities firm. You may have related mutual fund holdings in accounts at other securities firms or with the mutual fund company itself that can help you reach a breakpoint discount.

Checking the performance of the fund means getting an overview of the fund’s performance for the last 10 years approximately. Investing in a fund based on it’s current performance could be dangerous as the performance of a fund is dependent on the fund manager. It could be that the fund manager was good only at estimating the fluctuations of one particular market and hence he had the results. There is always a co-relation of results of a fund from the past to the future. A fund that has performed consistently well in the past is always bankable for the present as well as the future. See if the investment style of the fund matches your goal and if you are comfortable with the level of risk involved in the investment. The level of risk depends on short selling, leverages, derivatives and market timing of the fund. Name of fund isn’t that important. Say a fund that started out with small time capital stocks and had a name that related to its nature could have ballooned its assets later and would go onto become a bigger fund.

The performance of a fund as mentioned will depend on the ability of a fund manager; hence it is wise that he/she is consulted prior to making the investment. Fund family includes policies, services and area of expertise. Services include account information and availability, news letters and annual reports. Buying and redeeming of shares enables you to buy and sale shares directly from the fund. This allows you to overlook brokerage commissions. All in all Mutual Fund Investments is the best investment strategy for long term capital gain along with security, provided you opt for the best mutual fund.

]]> http://bestinvestments.wordpress.com/2008/10/23/best-mutual-funds/feed/ 0 bestinvestments http://bestinvestments.wordpress.com/2008/09/30/investment-and-financial-planning/ http://bestinvestments.wordpress.com/2008/09/30/investment-and-financial-planning/#comments Tue, 30 Sep 2008 13:58:35 +0000 bestinvestments http://bestinvestments.wordpress.com/?p=20 ]]> Investment & Financial planning are interchangeable terms that are associated with your personal business ventures. Investments are easier to make when the person concerned has a knack of saving money. One has to keep a thorough check on expenditures against the personal income. Irrespective of the amount saved, it is this saving that can be later used for an investment that could later result into a long term capital gain. Financial Planning on the other hand is on a larger scale and includes everything from investment planning, savings, expenditure to paying of debts and bills. Here what you plan affects you other areas of financial concerns.

On a general man to man basis Financial Planning is of more importance when compared to investment planning. If a man fails to save money, then where is he going to make the investment from? It is here that the need to emphasize on a strong financial plan comes to play. Financial planning is on a larger scale compared to Investment planning. Where investment planning is individual oriented, financial planning takes into account the needs of the individual and family. Financial planning is the process of assessing the financial goals of an individual at different junctures of his life. It takes into account all assets and investments that he already has and what others he may require to achieve his financial goals in the near future. The prime objective here is to ensure that the required amount of money is there with him at the time of an investment, thereby enabling him to meet his personal goals. This is how financial planning and investment planning relate to each other. Coming to the investment part, security along with profit is a big question?
Any investment depicts a clear picture of your current financial situation. Bifurcate your investments amongst various assets to reduce the risk factor. Asset Allocation is the best way to ensure that a particular investment made is a success. Monitoring your investment to maintain the allocation with your financial goals makes the investment tax efficient.

Following are certain points as to how one can better their investment and financial planning:

Investment Planning:
1) Create a Budget for Monthly Expenses: This enables you to get a clear picture as to where your expenses lie and how much unnecessary expenditure you could curtail to save a decent percentage of your income.

2) Paying of Debts: Once you clear of your debts, a certain amount of your expenditure is saved. This can be used for investment purposes.

3) Emergency Savings: Emergencies do arrive unannounced. One has to ensure that a certain amount is kept aside to meet these situations. These funds should be invested or kept aside to meet these situations. These funds should be invested or kept aside in investments that can be accessed anytime you need cash.

4) Investing in Long term Assets: Investing in long term Assets is a good decision. Purchasing a house is considered to be a good investment as payments towards interest and real estate taxes are tax deductible. Secondly the value of property increases with time. Other then this investing wisely in Mutual Funds, stocks and insurance will provide you with a good return on your investment.

Financial Planning:
1) Using a monthly spending plan or budget to keep finances on track
2) Making decisions about the job and its benefits
3) Getting the most out of other financial resources, including insurance and employer provided benefits.
4) Saving and investing money
5) Controlling expenses and staying out of debt.
6) Planning for estate transfer.

Generally people enlist the services of a financial planner prior to making any major investments. A financial planner is a professional who helps people deal with various personal financial issues through proper planning, which includes cash flow management, education planning, retirement planning, investment planning, risk management and insurance planning, tax planning, estate planning and business succession planning. While dealing with Mutual Fund Investments they are called “Fund Managers” and it is them who determine the performance of a fund. Investment and financial planning if made wisely definitely guarantees you security and long term financial gains and keeps you financially independent through out your life.

Mutual Fund Investments are subjected to Market risks, please read the offer document before investing”. This message is generally splashed on the screen after a commercial advertisement or printed in small letters beneath a banner advertisement. To put it in Layman’s words, funds vary and fluctuate with market conditions. If the market is on an incline then the value of the fund soars high, where as if the market is on a decline the value of the same fund dips considerably. Hence diversification or Asset Allocation is important. Say if you invest in three assets/ commodities at a time & you loose out on your dividends from the first investment you would still have the other two Assets to gain back your dividends and in the process balance your profits. It is here that the concept of Mutual Fund Nav (Net Asset Value) comes to play.

On technical or pure professional terms Mutual Fund NAV’s are defined as the value of a Mutual Fund Investment, that is usually determined by computing the share of the Mutual Fund at the close of the Financial Market. It is also termed as Bid Price, NAV/Share, NAV/ Unit. The total price value of a NAV is determined by the summing up the total number of Assets in the fund, minus the liabilities, divided by number if shares outstanding. In terms of figures, the calculation it can be represented as:

NAV = [A+B-C] / D,

Where A is the market value of security in the fund,
B is the market value of all other existing assets,
C are the liabilities
D is the number of Shares or Units.

The final value of the NAV is presented on a daily basis at the close of the Financial Market and the complete value at the end of the tenure. It is suggested that an investor re-groups his assets when his financial goals are met. If he still intends to carry on he should think of another goal and continue with the normal procedure. Even though Mutual Fund Investments are risky they are invested on a long term basis for large capital growths and gain. Hence getting your investment right in order to get good NAV’s is important.

A Growth Mutual Fund is more risky to be invested upon compared to an ordinary Mutual Fund but the premium or dividend that is derived is much higher then what is obtained from a normal Mutual Fund. Its performance is proportional to the performance of the Stock Market. That is when the Stock Market undergoes losses the value and price of the Fund falls rapidly compared to other Funds and similarly when the Market hits a high the price of the fund shoots up. People basically invest on Growth Funds keeping in mind long term goals. The reason, the logic behind the investment is that the companies, firms or organizations invested upon will grow in value, thereby allowing the fund to reap the benefits of large capital gains.

Basically a Growth Mutual Fund is categorized into 1) Aggressive Growth Fund, 2) Capital Appreciation Fund, 3) Balanced Fund and 4) Crossover Fund. An aggressive growth fund basically aims for the highest capital gains and its investments are comparatively risky compared to the other Growth Funds. A Capital Appreciation Fund is also an aggressive growth fund that seeks maximum growth by Primarily Investing in stocks and takes excessive risks as far as the Assets to be invested upon is concerned. The Assets of a Balanced Fund comprises of common stock, preferred stock, bonds, and short-term bonds, The Prime Objective of a Balanced Fund is to provide both income and long time capital gains while avoiding excessive risk. These kinds of Funds have the maximum amount of investors, solely due to the fact that unlike the other aggressive funds this provides security along with the gains. A crossover fund has an investment both in the Public and Private Equity sector.

As far as investing in a Mutual Fund is concerned it is extremely important to bifurcate your finances amongst the Assets that you choose to invest upon. Asset Allocation is an important factor from the investor’s point of view. Choosing your assets properly will fetch you good returns. Prior to investing on a Mutual Fund it is necessary that you find out that the Fund you are targeting is worth investing upon or not. Every Mutual Fund publishes a set of documents that defines the value and reputation of the Fund. The three prime documents are 1) The Prospectus, 2) The Statement of additional information and 3) Annual Report. After the analysis is done choose your Assets (Stocks, Bond, funds, etc) carefully. The reason if you invest in four assets at a time and the return from the first two is a loss, you have the other two assets to give you the gains and hence your net asset value is stabilized. All in all your Mutual Fund NAV determines how good your investment was. Also consult a Fund Manager prior to making the investment, as it is him who decided the performance of a stock in the market.