General rules of Investing
Set Aside Fund:Try to set aside five months salary in savings account for emergencies such as Health sickness, Accident or Job loss. One way of making savings a habit is to arrange for an automatic deduction in payroll by the employer. The money you invest can come from discretionary funds, meaning money you do not need to rely on for emergency spending. It's money you may be able to risk, after you've paid your immediate debts and created an emergency fund.
Insure Yourself Adequately:The amount and type of insurance you need depends on your age, health, income and number of dependents, and any coverage you have at work. Most people insure their life, health and property, but don't provide enough protection for one of their most valuable assets: their earning power.
Use Tax Advantaged Savings Plans: There are some plans in which the interest earned on these accounts are Tax-deferred. i.e., no need to pay federal taxes on the interest earned on these accounts until withdrawal.
Determine Your Investment Goals: The goals you set and the time-frame to achieve them are important in determining the amount of risk you can take. Longer-term investors can usually afford to take greater risks, whereas those with shorter-term goals must usually be more conservative.
Investigate Before You Invest:First understand the investement. Then conform whether it is insured? Is the return guaranteed? Is your principal protected? Can you get back your money when needed? So make sure you know what you are investing and what you will be getting back before handing over the money.
Diversify Your Investments:Try to distribute investments among different companies or securities in order to limit losses in the event of a fall in a particular market or industry.
Stagger Maturity Dates: To cushion against interest swings, vary the maturity dates of your time deposits. This will allow you to take advantage of favorable changes in the market, while at the same time providing some protection against rate drops. And you'll have access to your money at regular intervals.
Patience:At last but not least, when you have established your investment goals and strategy, stick with them. Keep an eye on short-term results, but don't lose sight of your long-term objectives. To become a wealthy person we have to wait sometime. No one can become rich by overnight. So patience is very important.
Thursday, October 26, 2006
Tuesday, October 17, 2006
10 Myths about SIP
Source: moneycontrol.
Investment in equity mutual funds or unit linked insurance should always be done in SIP mode: I remember in 1999 when Templeton Mutual fund would talk about SIP – the market looked at it skeptically. And it took a lot of convincing for customers to accept it. Now, life has come a full circle. Everybody wants to (always) invest using an SIP. If you have the maturity and calmness to realize that equities are for the long term and are willing to give your funds about 10 years, and you have a lump sum, you can afford to give the SIP route a pass. However, if your horizon is less than five years, you must do an SIP.
I do rupee cost averaging in a single equity – that is a kind of SIP is it not? This is a question I face every day. No, a rupee cost averaging in a single scrip cannot be equated to an SIP. When the market brings down the price of a single scrip, it is giving you information. You need to react to that.
Let us take 2 examples – Lupin Laboratories – has moved from a high of Rs 700 to Rs 100 and back to Rs 700. The question to ask here is not whether an SIP would have worked. The question to ask is whether you would have had the stomach to continue the SIP through this period. Silverline Technologies moved from Rs 30 to Rs 1300 to Rs 7! In this case, if you had started an SIP at a price of Rs 1300, today you would be licking your wounds. SIP works in a portfolio, not in a single scrip.
You cannot invest a lump sum in the same account in which you are doing an SIP: Many people assume that if they are doing an SIP in a particular fund, and suddenly they have a surplus, they cannot put that lump sum in that account. Fact is, in case you are doing an SIP of Rs 10,000 per month in an equity fund, and suddenly you have a surplus of Rs 100,000 and clearly you have a 10-year view on the same, then you can just push it into your SIP account. SIP is just a payment mode, not a scheme!
If I miss investing for a particular month, will they prosecute me?: Now, this is the fear of EMI that people have. In an SIP you are buying an investment every month (or quarter), there is no question of prosecuting you for missing one investment. As a matter of discipline, you should not miss any month; however, missing one month's investment is not a crime!
When you have a surplus (accumulation stage of your life) you should do an SIP and during retirement you should do a SWP: No. You should ideally keep your withdrawals only from an income fund or a bank fixed deposit. You should sell an equity fund on some other basis, say deciding to sell 20% of your portfolio in a year so that the return is 4 times the 30 year historic return. SWP, by definition cannot work in an equity fund!
SIP works for everybody, but does not work for me: Another myth. SIP works in a well-diversified equity fund in the long run. When people put forth arguments that it does not work for them, they have either not chosen a good fund or are looking at a 12 month horizon.
SIP is only for small investors: Nothing can be farther from the truth. I have a client who has invested Rs 32.66 lakhs using SIP, starting from January 1998 till date. Obviously, he has invested much more in later years as his income went up and the funds together are worth Rs 97 lakhs, substantially higher than his provident fund.
Market is at very high level to start an SIP: I have heard this when the index was 3000 also. I have no clue where the market is headed, but I know SIP works!
All fund houses are now charging a full load on the SIP, so now SIP will not work Why not time the market?: Introducing an entry load was expected to happen and it has happened. What actually hurts the retail investor is the asset management charges – 2.5% in most cases is a bigger threat to compounding!
If I do an SIP in a tax plan, can I withdraw all the money on completion of 3 years?: Another regular question almost! Every installment has to be with the fund house for 3 years. The lock-in comes from the Income tax rules, which say that a tax saving scheme should have a 3-year lock-in. You cannot escape that by doing an SIP.
Investment in equity mutual funds or unit linked insurance should always be done in SIP mode: I remember in 1999 when Templeton Mutual fund would talk about SIP – the market looked at it skeptically. And it took a lot of convincing for customers to accept it. Now, life has come a full circle. Everybody wants to (always) invest using an SIP. If you have the maturity and calmness to realize that equities are for the long term and are willing to give your funds about 10 years, and you have a lump sum, you can afford to give the SIP route a pass. However, if your horizon is less than five years, you must do an SIP.
I do rupee cost averaging in a single equity – that is a kind of SIP is it not? This is a question I face every day. No, a rupee cost averaging in a single scrip cannot be equated to an SIP. When the market brings down the price of a single scrip, it is giving you information. You need to react to that.
Let us take 2 examples – Lupin Laboratories – has moved from a high of Rs 700 to Rs 100 and back to Rs 700. The question to ask here is not whether an SIP would have worked. The question to ask is whether you would have had the stomach to continue the SIP through this period. Silverline Technologies moved from Rs 30 to Rs 1300 to Rs 7! In this case, if you had started an SIP at a price of Rs 1300, today you would be licking your wounds. SIP works in a portfolio, not in a single scrip.
You cannot invest a lump sum in the same account in which you are doing an SIP: Many people assume that if they are doing an SIP in a particular fund, and suddenly they have a surplus, they cannot put that lump sum in that account. Fact is, in case you are doing an SIP of Rs 10,000 per month in an equity fund, and suddenly you have a surplus of Rs 100,000 and clearly you have a 10-year view on the same, then you can just push it into your SIP account. SIP is just a payment mode, not a scheme!
If I miss investing for a particular month, will they prosecute me?: Now, this is the fear of EMI that people have. In an SIP you are buying an investment every month (or quarter), there is no question of prosecuting you for missing one investment. As a matter of discipline, you should not miss any month; however, missing one month's investment is not a crime!
When you have a surplus (accumulation stage of your life) you should do an SIP and during retirement you should do a SWP: No. You should ideally keep your withdrawals only from an income fund or a bank fixed deposit. You should sell an equity fund on some other basis, say deciding to sell 20% of your portfolio in a year so that the return is 4 times the 30 year historic return. SWP, by definition cannot work in an equity fund!
SIP works for everybody, but does not work for me: Another myth. SIP works in a well-diversified equity fund in the long run. When people put forth arguments that it does not work for them, they have either not chosen a good fund or are looking at a 12 month horizon.
SIP is only for small investors: Nothing can be farther from the truth. I have a client who has invested Rs 32.66 lakhs using SIP, starting from January 1998 till date. Obviously, he has invested much more in later years as his income went up and the funds together are worth Rs 97 lakhs, substantially higher than his provident fund.
Market is at very high level to start an SIP: I have heard this when the index was 3000 also. I have no clue where the market is headed, but I know SIP works!
All fund houses are now charging a full load on the SIP, so now SIP will not work Why not time the market?: Introducing an entry load was expected to happen and it has happened. What actually hurts the retail investor is the asset management charges – 2.5% in most cases is a bigger threat to compounding!
If I do an SIP in a tax plan, can I withdraw all the money on completion of 3 years?: Another regular question almost! Every installment has to be with the fund house for 3 years. The lock-in comes from the Income tax rules, which say that a tax saving scheme should have a 3-year lock-in. You cannot escape that by doing an SIP.
Monday, October 16, 2006
Why pension plans are better than mutual funds
Why pension plans are better than mutual funds
As financial planners, we regularly receive queries on how to go about planning for various life stages. Financial planning to take care of the post-retirement years is always an important activity for individuals.
With respect to retirement planning, we recently received a query from a client who wanted to know whether he would be better off investing in a pension plan offered by a life insurance company or investing in mutual funds. Given below is our analysis on the options available to the investor.
Let us look at the given set of variables first.
The client's age is 38 years and he would like to retire 22 years hence i.e. at the age of 60 years.
The client would like to invest an amount of Rs 1,000,000 (Rs 1 m) each year for three years. In total, he will invest an amount of Rs 3 m over 3 years.
The client has been suggested a single premium plan of Rs 1 m with additional 'top-ups' worth Rs 1 m p.a. (per annum) for the following two years. In all, the client would be paying Rs 3 m over the 3-yr period.
The client has a high-risk appetite and would like to remain invested in equities throughout the tenure of the pension plan.
The client has a well-diversified portfolio including mutual funds and stocks.
Based on the information, we have worked out a likely retirement solution for the investor.
Let us first take a look at how investments in the unit linked pension plan (ULPP) pan out.
Pension plan: Preparing for the future
Investmentamt (Rs)
One-timecharge (%)
Admn.Charges (Rs)*
Fund MngtCharges (%)
InvestmentTenure (Yrs)
Net maturityValue (Rs)
1,000,000
2.50
180
0.80
22
18,400,000
1,000,000
2.50
180
0.80
21
1,000,000
1.00
180
0.80
20
Administration charges are subject to 5.00% inflation per annum.
Investments in unit linked pension plan (ULPP)
If the client decides to buy the pension plan, then he would be paying Rs 1,000,000 in the first year. Since this is a single premium plan, one-time charges on the same are 2.50% (i.e. in the first year). In other words, Rs 25,000 would be deducted from the client's single premium amount and the remaining amount (i.e. Rs 975,000) would be invested in the 100% equity ULPP option. This amount will remain invested for the entire 22-yr tenure.
The charges for any additional top-ups in the second year too would be to the tune of 2.50%. Similar to the first year, Rs 25,000 would be deducted from the second year's top-up amount. So Rs 975,000 would be invested over 21 years.
One-time charges for any top-ups from the third year onwards fall to 1% for the year. Therefore, only Rs 10,000 (i.e. 1% of Rs 1,000,000) would be deducted and the remaining amount would be invested. The third year amount (Rs 990,000) will remain invested for a 20-yr period (i.e. time to maturity).
Fund management charges (FMC) for managing equities in the given ULPP are 0.80% p.a. Administration charges are assumed to be Rs 180 p.a. (increasing at an assumed inflation rate of 5.00%).
As can be seen from the table above, assuming a compounded growth rate (CAGR) of 10% p.a. over a 22-Yr tenure, the client's investments will grow to approximately Rs 18,400,000.
As against the ULPP given above, let us now analyse how investments in a mutual fund would have worked out over a similar tenure.
How do mutual funds fare?
Investmentamt (Rs)
Entry load(%)
Fund MngtCharges (%)*
InvestmentTenure (Yrs)
Net maturityValue (Rs)
1,000,000
2.25
2.00
22
15,240,000
1,000,000
2.25
2.00
21
1,000,000
2.25
2.00
20
FMC is assumed to be 2.00% for the first 5 years, 1.75% for the next 5 years and 1.50% the remaining tenure.
Investments in a mutual fund
Similar to a ULPP, the client would invest Rs 1,000,000 p.a. for 3 years in a mutual fund scheme. However, unlike a one-time initial charge associated with the ULPP above, mutual funds usually have an entry/exit load on their schemes. Assuming an entry load of 2.25% for each of his three annual investments (of Rs 1,000,000), the net amount invested would be drawn down by Rs 22,500 (i.e. 2.25% of Rs 1,000,000) each year for the initial three years.
We have also assumed a decreasing FMC on the mutual fund schemes- the assumption here is it would be 2.00% for the first 5 years, 1.75% for the next 5 years and 1.50% for the remaining period thereafter. The 'decreasing FMC' assumption is based on the fact that as the corpus for a mutual fund scheme grows over a period of time, economies of scale come into play. This helps the mutual fund spread its costs over a larger corpus, thereby reducing its overall cost of managing the fund.
As with the ULPP, assuming a 10% rate of growth over a 22-yr period, the mutual fund investments would have grown to approximately Rs 15,240,000. The corpus generated by ULPP is higher than the mutual fund corpus by Rs 3,160,000 (i.e. 20.73%).
The reason why ULPP scores over mutual funds is because of a low FMC. The FMC on the ULPP under review is 0.80% throughout the tenure as compared to the mutual fund FMC, which is in the 1.50%-2.00% range. Over the long term, FMC makes a significant impact by reducing the corpus available for investments. In other words, lower the FMC, higher the investible surplus and vice-versa.
In our view therefore, the client would be better off investing his money in the ULPP.
However, analysis on pension plans versus mutual funds would be considered myopic if deliberated only from the expenses point of view. There are some inherent advantages as well as disadvantages that both ULPP and mutual fund investments offer.
1. Maturity proceeds
The maturity payout differs for ULPP as compared to mutual funds. Only upto one-third of the maturity proceeds are allowed to be withdrawn under the pension plan; the remaining two-third amount has to be 'compulsorily' invested in an annuity from a life insurance company. The annuity helps generate an income stream for a time period as specified by the individual. Conversely, in an open-ended structure, equity funds allow the individual to withdraw the entire corpus whenever he wants.
2. Diversification
Mutual funds offer the benefit of diversification across various parameters like fund management style (aggressive vs. conservative) and investment strategy (e.g. large-cap orientation, mid-cap orientation, value style of fund management, growth style). This level of diversification is not possible with the ULPP under consideration. Also, in case an individual feels that a particular mutual fund has not lived upto expectations, then he can redeem his investments in that particular scheme and invest in another scheme that fits into his criteria (i.e. modify his portfolio). The same is not entirely possible with a ULPP- since the individual has already invested his entire 'available' savings into only one 'plan'.
3. Track record
Several equity funds have a track record to boast of. A good track record helps individuals identify mutual funds that have performed well across time horizons as well as market phases.
However, the same is not the case with unit linked insurance plans, which are a recent phenomenon. While some of them may have done well over the short time period that they have existed, we would like to evaluate their performance over a longer time frame of at least 5 years before giving a conclusive view.
So what is the bottom line? As can be seen from our calculations and analysis, the client is better off investing in the ULPP as opposed to equity funds; but of course one needs to keep in mind the inherent disadvantages of ULIPs as mentioned above.
With respect to retirement planning, we recently received a query from a client who wanted to know whether he would be better off investing in a pension plan offered by a life insurance company or investing in mutual funds. Given below is our analysis on the options available to the investor.
Let us look at the given set of variables first.
The client's age is 38 years and he would like to retire 22 years hence i.e. at the age of 60 years.
The client would like to invest an amount of Rs 1,000,000 (Rs 1 m) each year for three years. In total, he will invest an amount of Rs 3 m over 3 years.
The client has been suggested a single premium plan of Rs 1 m with additional 'top-ups' worth Rs 1 m p.a. (per annum) for the following two years. In all, the client would be paying Rs 3 m over the 3-yr period.
The client has a high-risk appetite and would like to remain invested in equities throughout the tenure of the pension plan.
The client has a well-diversified portfolio including mutual funds and stocks.
Based on the information, we have worked out a likely retirement solution for the investor.
Let us first take a look at how investments in the unit linked pension plan (ULPP) pan out.
Pension plan: Preparing for the future
Investmentamt (Rs)
One-timecharge (%)
Admn.Charges (Rs)*
Fund MngtCharges (%)
InvestmentTenure (Yrs)
Net maturityValue (Rs)
1,000,000
2.50
180
0.80
22
18,400,000
1,000,000
2.50
180
0.80
21
1,000,000
1.00
180
0.80
20
Administration charges are subject to 5.00% inflation per annum.
Investments in unit linked pension plan (ULPP)
If the client decides to buy the pension plan, then he would be paying Rs 1,000,000 in the first year. Since this is a single premium plan, one-time charges on the same are 2.50% (i.e. in the first year). In other words, Rs 25,000 would be deducted from the client's single premium amount and the remaining amount (i.e. Rs 975,000) would be invested in the 100% equity ULPP option. This amount will remain invested for the entire 22-yr tenure.
The charges for any additional top-ups in the second year too would be to the tune of 2.50%. Similar to the first year, Rs 25,000 would be deducted from the second year's top-up amount. So Rs 975,000 would be invested over 21 years.
One-time charges for any top-ups from the third year onwards fall to 1% for the year. Therefore, only Rs 10,000 (i.e. 1% of Rs 1,000,000) would be deducted and the remaining amount would be invested. The third year amount (Rs 990,000) will remain invested for a 20-yr period (i.e. time to maturity).
Fund management charges (FMC) for managing equities in the given ULPP are 0.80% p.a. Administration charges are assumed to be Rs 180 p.a. (increasing at an assumed inflation rate of 5.00%).
As can be seen from the table above, assuming a compounded growth rate (CAGR) of 10% p.a. over a 22-Yr tenure, the client's investments will grow to approximately Rs 18,400,000.
As against the ULPP given above, let us now analyse how investments in a mutual fund would have worked out over a similar tenure.
How do mutual funds fare?
Investmentamt (Rs)
Entry load(%)
Fund MngtCharges (%)*
InvestmentTenure (Yrs)
Net maturityValue (Rs)
1,000,000
2.25
2.00
22
15,240,000
1,000,000
2.25
2.00
21
1,000,000
2.25
2.00
20
FMC is assumed to be 2.00% for the first 5 years, 1.75% for the next 5 years and 1.50% the remaining tenure.
Investments in a mutual fund
Similar to a ULPP, the client would invest Rs 1,000,000 p.a. for 3 years in a mutual fund scheme. However, unlike a one-time initial charge associated with the ULPP above, mutual funds usually have an entry/exit load on their schemes. Assuming an entry load of 2.25% for each of his three annual investments (of Rs 1,000,000), the net amount invested would be drawn down by Rs 22,500 (i.e. 2.25% of Rs 1,000,000) each year for the initial three years.
We have also assumed a decreasing FMC on the mutual fund schemes- the assumption here is it would be 2.00% for the first 5 years, 1.75% for the next 5 years and 1.50% for the remaining period thereafter. The 'decreasing FMC' assumption is based on the fact that as the corpus for a mutual fund scheme grows over a period of time, economies of scale come into play. This helps the mutual fund spread its costs over a larger corpus, thereby reducing its overall cost of managing the fund.
As with the ULPP, assuming a 10% rate of growth over a 22-yr period, the mutual fund investments would have grown to approximately Rs 15,240,000. The corpus generated by ULPP is higher than the mutual fund corpus by Rs 3,160,000 (i.e. 20.73%).
The reason why ULPP scores over mutual funds is because of a low FMC. The FMC on the ULPP under review is 0.80% throughout the tenure as compared to the mutual fund FMC, which is in the 1.50%-2.00% range. Over the long term, FMC makes a significant impact by reducing the corpus available for investments. In other words, lower the FMC, higher the investible surplus and vice-versa.
In our view therefore, the client would be better off investing his money in the ULPP.
However, analysis on pension plans versus mutual funds would be considered myopic if deliberated only from the expenses point of view. There are some inherent advantages as well as disadvantages that both ULPP and mutual fund investments offer.
1. Maturity proceeds
The maturity payout differs for ULPP as compared to mutual funds. Only upto one-third of the maturity proceeds are allowed to be withdrawn under the pension plan; the remaining two-third amount has to be 'compulsorily' invested in an annuity from a life insurance company. The annuity helps generate an income stream for a time period as specified by the individual. Conversely, in an open-ended structure, equity funds allow the individual to withdraw the entire corpus whenever he wants.
2. Diversification
Mutual funds offer the benefit of diversification across various parameters like fund management style (aggressive vs. conservative) and investment strategy (e.g. large-cap orientation, mid-cap orientation, value style of fund management, growth style). This level of diversification is not possible with the ULPP under consideration. Also, in case an individual feels that a particular mutual fund has not lived upto expectations, then he can redeem his investments in that particular scheme and invest in another scheme that fits into his criteria (i.e. modify his portfolio). The same is not entirely possible with a ULPP- since the individual has already invested his entire 'available' savings into only one 'plan'.
3. Track record
Several equity funds have a track record to boast of. A good track record helps individuals identify mutual funds that have performed well across time horizons as well as market phases.
However, the same is not the case with unit linked insurance plans, which are a recent phenomenon. While some of them may have done well over the short time period that they have existed, we would like to evaluate their performance over a longer time frame of at least 5 years before giving a conclusive view.
So what is the bottom line? As can be seen from our calculations and analysis, the client is better off investing in the ULPP as opposed to equity funds; but of course one needs to keep in mind the inherent disadvantages of ULIPs as mentioned above.
Plan your retirement in 3 simple steps
Source: moneycontrol
The second phase of retirement planning is tougher than first phase. Also very less is written about this phase. This is the phase when we survive on our financial capital.
Individuals have two forms of capital, human capital and financial capital. Many of us who work to generate income are human capital. Second form of capital is financial capital. Financial capital is our savings and investment.
We start our career as human capital. Over a period of time we save/invest and create financial capital. When we retire we only have financial capital.
We remain human capital as long as we keep working. The moment we cease to work we become dependent on our financial capital.
In most cases our human capital is stronger than our financial capital. If you are currently earning Rs 3 lakh (Rs 300,000) per annum, you will require at least Rs 37.5 lakh (Rs 3.75 million) worth of capital to generate income equivalent to your salary at 8.00% return.
Also your salary will keep pace with inflation, while your returns from financial capital may or may not beat inflation.
The reason second phase of retirement is more difficult to plan is because, during this phase:
We are dependent on our financial capital;
There will not be any kind of addition to already created capital; and
Financial needs are unique and dispersed.
During retirement we require liquidity to meet contingencies. We also require regular income to meet routine expenses and we also want our capital to grow at a rate, which is equal to or preferably higher than inflation.
All the three needs of, liquidity, regular income and growth are like three legs of a tripod. All three are needed for the tripod to stand. Unfortunately all are in opposite direction to each other.
If we place our entire retirement corpus into savings bank account, we will have liquidity. However, there will not be any growth. If entire retirement corpus is in stock than there is growth but income may not be regular.
On the other hand if we invest all funds into post-office monthly income scheme/senior citizen saving scheme than there is regular income but liquidity will be at a cost of interest/penalty.
For our retirement tripod to stand, we need all three legs to stand in balanced manner. If any one leg is absent or off balance than our entire retirement will become imbalanced.
Mutual funds as an investment vehicle may well be used for planning retirement finances in second phase.
Contingency/emergency funds can be parked in either liquid funds or floating rate funds. There are few mutual fund companies, which even give access to the investment through ATM facility.
For regular income, either invest in monthly income plans or choose a debt fund and opt for SWP (systematic withdrawal plan).
Lastly, for growing your retirement corpus, opt for equity funds.
Retirement is wonderful. It is doing nothing without worrying about getting caught at it. However, unplanned retirement is exactly the opposite - it is neither wonderful nor worry-free and you will get caught at it!
The second phase of retirement planning is tougher than first phase. Also very less is written about this phase. This is the phase when we survive on our financial capital.
Individuals have two forms of capital, human capital and financial capital. Many of us who work to generate income are human capital. Second form of capital is financial capital. Financial capital is our savings and investment.
We start our career as human capital. Over a period of time we save/invest and create financial capital. When we retire we only have financial capital.
We remain human capital as long as we keep working. The moment we cease to work we become dependent on our financial capital.
In most cases our human capital is stronger than our financial capital. If you are currently earning Rs 3 lakh (Rs 300,000) per annum, you will require at least Rs 37.5 lakh (Rs 3.75 million) worth of capital to generate income equivalent to your salary at 8.00% return.
Also your salary will keep pace with inflation, while your returns from financial capital may or may not beat inflation.
The reason second phase of retirement is more difficult to plan is because, during this phase:
We are dependent on our financial capital;
There will not be any kind of addition to already created capital; and
Financial needs are unique and dispersed.
During retirement we require liquidity to meet contingencies. We also require regular income to meet routine expenses and we also want our capital to grow at a rate, which is equal to or preferably higher than inflation.
All the three needs of, liquidity, regular income and growth are like three legs of a tripod. All three are needed for the tripod to stand. Unfortunately all are in opposite direction to each other.
If we place our entire retirement corpus into savings bank account, we will have liquidity. However, there will not be any growth. If entire retirement corpus is in stock than there is growth but income may not be regular.
On the other hand if we invest all funds into post-office monthly income scheme/senior citizen saving scheme than there is regular income but liquidity will be at a cost of interest/penalty.
For our retirement tripod to stand, we need all three legs to stand in balanced manner. If any one leg is absent or off balance than our entire retirement will become imbalanced.
Mutual funds as an investment vehicle may well be used for planning retirement finances in second phase.
Contingency/emergency funds can be parked in either liquid funds or floating rate funds. There are few mutual fund companies, which even give access to the investment through ATM facility.
For regular income, either invest in monthly income plans or choose a debt fund and opt for SWP (systematic withdrawal plan).
Lastly, for growing your retirement corpus, opt for equity funds.
Retirement is wonderful. It is doing nothing without worrying about getting caught at it. However, unplanned retirement is exactly the opposite - it is neither wonderful nor worry-free and you will get caught at it!
How to become a millionaire
SourceZ: rediff-getahead
Warren Buffet bought his first stock in the year 1941 when he was 11 years old. In 1943, at an age of 13 he told a family friend that by the time he is 30 he would become a millionaire.?
If you are aspiring to become a millionaire then start as early as possible.? Even if you do not want to become millionaire but wish to create substantial wealth for you to lead financially free life then start as early as possible.
Most of us start earning in our 20s. That first pay in hand gives us tremendous feeling of power - we feel like buying the whole world with it.? All our life - till we start earning - we are dependent on our parents for our expenses. Suddenly we have money, which is our own. We can do whatever we feel like.
At this time in life we face biggest dilemma. Do we use that power to create wealth for us to use at a later date or do we splurge now. Our decision will decide when and how much wealth we will create. Better option is to save and invest entire earnings. Opposite of that is splurging away the entire pay. There can also be a compromise between the two options.
If we want Rs 100,00,000 (One Crore) at age 60 and if we are 20 years old now, than we will have to save Rs 2864.50 every month. If we delay our savings by 10 years and start at age 30 than to reach Rs 100,00,000 (one crore) by the time we are 60 we will need to save Rs 6709.79 every month. By delaying the investment by 10 years, we will need more than double the amount reach corpus. Therefore start as early as possible.
Another reason to start investing in 20s & 30s is that our financial responsibilities in these years are least. In all probability in 20s we are single and staying with our parents. There is hardly any household expense burden on us.
Even after we get married in late 20s, we are just two of us. If both spouses are earning than income of one of them can be easily saved. By the time we reach mid thirties, expenses related to children will start coming up.
In late 40s it is higher education of children and our parental responsibilities. Soon you will be in 50s and decade away from retirement.
Once you cross mid to late thirties you will have lots of regular and one time expenses. While earnings go up as we climb the career ladder, expenses also keep catching up.
Lastly, while we are in 20s and 30s we have age on our side and hence we can take higher risk to generate higher returns. Also because there is long working life left, we will get benefit of compounding.
Many of us may be investing for the first time in our 20s. For first timers and investors who do not have time and skills to manage their own investment, mutual fund is the best investment vehicle. Mutual fund gives benefit of professional management, small investment amount, diversification and ease of operation.
Based on our financial goals we can choose debt or equity based investment. Also remember individuals who create wealth are not ad hoc investors. These are people who invest in a disciplined manner over a prolonged period of time. Mutual Fund, through its Systematic Investment Plan, makes discipline investing easy.
20s and 30s are our golden savings years. If we sow seeds of wealth in 20s & 30s we will create huge tree of wealth.
By the way Warren Buffet made his first million in 1961 when he was 30/31 years old
Warren Buffet bought his first stock in the year 1941 when he was 11 years old. In 1943, at an age of 13 he told a family friend that by the time he is 30 he would become a millionaire.?
If you are aspiring to become a millionaire then start as early as possible.? Even if you do not want to become millionaire but wish to create substantial wealth for you to lead financially free life then start as early as possible.
Most of us start earning in our 20s. That first pay in hand gives us tremendous feeling of power - we feel like buying the whole world with it.? All our life - till we start earning - we are dependent on our parents for our expenses. Suddenly we have money, which is our own. We can do whatever we feel like.
At this time in life we face biggest dilemma. Do we use that power to create wealth for us to use at a later date or do we splurge now. Our decision will decide when and how much wealth we will create. Better option is to save and invest entire earnings. Opposite of that is splurging away the entire pay. There can also be a compromise between the two options.
If we want Rs 100,00,000 (One Crore) at age 60 and if we are 20 years old now, than we will have to save Rs 2864.50 every month. If we delay our savings by 10 years and start at age 30 than to reach Rs 100,00,000 (one crore) by the time we are 60 we will need to save Rs 6709.79 every month. By delaying the investment by 10 years, we will need more than double the amount reach corpus. Therefore start as early as possible.
Another reason to start investing in 20s & 30s is that our financial responsibilities in these years are least. In all probability in 20s we are single and staying with our parents. There is hardly any household expense burden on us.
Even after we get married in late 20s, we are just two of us. If both spouses are earning than income of one of them can be easily saved. By the time we reach mid thirties, expenses related to children will start coming up.
In late 40s it is higher education of children and our parental responsibilities. Soon you will be in 50s and decade away from retirement.
Once you cross mid to late thirties you will have lots of regular and one time expenses. While earnings go up as we climb the career ladder, expenses also keep catching up.
Lastly, while we are in 20s and 30s we have age on our side and hence we can take higher risk to generate higher returns. Also because there is long working life left, we will get benefit of compounding.
Many of us may be investing for the first time in our 20s. For first timers and investors who do not have time and skills to manage their own investment, mutual fund is the best investment vehicle. Mutual fund gives benefit of professional management, small investment amount, diversification and ease of operation.
Based on our financial goals we can choose debt or equity based investment. Also remember individuals who create wealth are not ad hoc investors. These are people who invest in a disciplined manner over a prolonged period of time. Mutual Fund, through its Systematic Investment Plan, makes discipline investing easy.
20s and 30s are our golden savings years. If we sow seeds of wealth in 20s & 30s we will create huge tree of wealth.
By the way Warren Buffet made his first million in 1961 when he was 30/31 years old
Tax Planning – Better Start Early
Its that time of the year again when one should start his/her tax planning if one has not started already, with 6 months left for the close of the financial year. This is the right time for the ones who have not started yet for their tax planning exercise. Rushing around in the month of March to get invested in any investment avenue available on hand is not a very good idea.
Options AvailableThe efforts which one puts for conventional investments, the same degree of effort and planning needs to be “invested” while tax planning. Likewise, it is vital that tax-saving investments be made in line with the investor’s risk profile; also the tax-saving portfolio should be a well-diversified one. At present the various avenues present to the investor range from ELSS schemes, ULIPs, LIC, national savings certificate, public provident funds and 5-year bank fixed deposits. A judicious mix of the above in the right proportion is what the investor must target.
Asset Allocation The tax-planning exercise can commence with a review of the existing tax-saving investments. Investors should enlist the services of an investment advisor and review the utility of such investment avenues. If any avenue has ceased to add value to the portfolio or is a mismatch, then the same should be done away with. Investment avenues, which are for very long duration like the PPF or ULIPs, should be carefully decided before investing. For example an investor with a low risk appetite shouldn’t go for a ULIP, which invests all assets in equity. In such a scenario, the investor stands the risk of being underinsured and also being invested in an avenue, which doesn’t match his risk profile.
Compute what the fixed commitments are. For example, for salaried individuals, a statutory deduction like contribution towards Employees Provident Fund (EPF), which is also eligible for Section 80C benefits would qualify as a fixed commitment. Similarly, premium payments for on-going insurance policies or contributions towards existing PPF accounts would fall under the same category.
The investor’s risk appetite will play a vital role in determining the allocation to each investment avenue. Broadly speaking, assured return avenues like NSC and FDs will dominate a moderate risk-taking investor’s tax-planning portfolio. Conversely for risk-taking investors, tax-saving funds and ULIPs should be staple diet. If ELSS feature in the plan, starting a systematic investment plan (SIP) which runs over the ensuing 6-Mth period could be a good idea. By investing over a longer time frame, investors can minimise the risk of mistiming the market.
This form of investment also ensures a discipline and over a long period the investors benefits from this. Suppose an investor invests Rs. 100000 lakh per year for 15 years then on maturity assuming a 10% return on his portfolio of tax saving investments he would get Rs. 3494973 back after 15 years. So there is a lot of merit in this tax planning exercise and one should give appropriate time and effort on this.
Options AvailableThe efforts which one puts for conventional investments, the same degree of effort and planning needs to be “invested” while tax planning. Likewise, it is vital that tax-saving investments be made in line with the investor’s risk profile; also the tax-saving portfolio should be a well-diversified one. At present the various avenues present to the investor range from ELSS schemes, ULIPs, LIC, national savings certificate, public provident funds and 5-year bank fixed deposits. A judicious mix of the above in the right proportion is what the investor must target.
Asset Allocation The tax-planning exercise can commence with a review of the existing tax-saving investments. Investors should enlist the services of an investment advisor and review the utility of such investment avenues. If any avenue has ceased to add value to the portfolio or is a mismatch, then the same should be done away with. Investment avenues, which are for very long duration like the PPF or ULIPs, should be carefully decided before investing. For example an investor with a low risk appetite shouldn’t go for a ULIP, which invests all assets in equity. In such a scenario, the investor stands the risk of being underinsured and also being invested in an avenue, which doesn’t match his risk profile.
Compute what the fixed commitments are. For example, for salaried individuals, a statutory deduction like contribution towards Employees Provident Fund (EPF), which is also eligible for Section 80C benefits would qualify as a fixed commitment. Similarly, premium payments for on-going insurance policies or contributions towards existing PPF accounts would fall under the same category.
The investor’s risk appetite will play a vital role in determining the allocation to each investment avenue. Broadly speaking, assured return avenues like NSC and FDs will dominate a moderate risk-taking investor’s tax-planning portfolio. Conversely for risk-taking investors, tax-saving funds and ULIPs should be staple diet. If ELSS feature in the plan, starting a systematic investment plan (SIP) which runs over the ensuing 6-Mth period could be a good idea. By investing over a longer time frame, investors can minimise the risk of mistiming the market.
This form of investment also ensures a discipline and over a long period the investors benefits from this. Suppose an investor invests Rs. 100000 lakh per year for 15 years then on maturity assuming a 10% return on his portfolio of tax saving investments he would get Rs. 3494973 back after 15 years. So there is a lot of merit in this tax planning exercise and one should give appropriate time and effort on this.
Myths And Facts About Life Insurance
Myths And Facts About Life Insurance
Life Insurance is considered as an important vehicle for financial planning, however decisions to invest the right amount in life insurance policies depends a lot on the perception and myths surrounding it. So, we've taken a look at the most common myths about life insurance, helping you to make the right financial plan for you and your family.
Myth 1:I am already Insured. I don't need any more insurance.You may have taken life insurance policies earlier but the question of having a sufficient cover is important. Although there are several methods to arrive at the right cover, the thumb rule is 10 or 20 times of your annual income or calculating “Human Life Value”. “Human Life Value” scientifically calculates the insurance cover. You can also consult your financial advisor to arrive at the right insurance cover for yourself.
Myth 2:I don't need life insurance because of coverage given by my employerOne should review if there is sufficient coverage offered by the employer. Also whenever you leave the company for any reason including retirement, the coverage normally stops.
Myth 3:Life insurance policies are not liquid and an individual gets the benefit only on happening of a contingency.Unit Linked Insurance plans offer liquidity as well as life insurance coverage. In ULIPs you have the facility to withdraw or encash amounts after three years from the commencement of the policy. The benefits in the policy continue even after the withdrawals. Also insurance is a good tool for long-term savings.
Myth 4:Life Insurance policies require commitment for premium payment for a longer period.Unit Linked Insurance plans offer a lot of flexibility and different premium paying period options to suit your requirements. You have the option to pay premiums for three years, five years, or entire tenure.
Myth 5:Mutual funds are a better alternative to Unit Linked Insurance Plans.Mutual Funds is pure investments. Through Unit Linked Insurance plans you can earn returns as well as get risk cover. Thus you can not only fulfill your medium and long-term financial goals but also take care of any risk in case of a unforeseen event.
Myth 6:Investing in Life Insurance policies require a lot of discipline as it requires large sum of amounts to be paid every year.For convenience, premiums can be paid by different modes like yearly, half-yearly, quarterly or monthly. In this way your yearly outgo is split into installments spread over the year creating regular savings in the plan.
Myth 7:Payment of Premium for Life Insurance policies is very inconvenient.There are various options available for premium payments. You can pay premiums through Internet or Electronic Clearing Services offered by the bank.
Myth 8:In Unit Linked Insurance plans the, investment pattern is decided by the Fund Manager and the individual has no control over it.Unit Linked Insurance Plans give a choice of Funds with investments in debt and/or equity. You can choose the asset allocation through these fund options depending on your risk appetite.
It's seen that the way life insurance was bought and perceived has undergone a paradigm shift. The essence to invest in life insurance lies in the right amount of risk cover and savings needed to achieve your financial needs.
Life Insurance is considered as an important vehicle for financial planning, however decisions to invest the right amount in life insurance policies depends a lot on the perception and myths surrounding it. So, we've taken a look at the most common myths about life insurance, helping you to make the right financial plan for you and your family.
Myth 1:I am already Insured. I don't need any more insurance.You may have taken life insurance policies earlier but the question of having a sufficient cover is important. Although there are several methods to arrive at the right cover, the thumb rule is 10 or 20 times of your annual income or calculating “Human Life Value”. “Human Life Value” scientifically calculates the insurance cover. You can also consult your financial advisor to arrive at the right insurance cover for yourself.
Myth 2:I don't need life insurance because of coverage given by my employerOne should review if there is sufficient coverage offered by the employer. Also whenever you leave the company for any reason including retirement, the coverage normally stops.
Myth 3:Life insurance policies are not liquid and an individual gets the benefit only on happening of a contingency.Unit Linked Insurance plans offer liquidity as well as life insurance coverage. In ULIPs you have the facility to withdraw or encash amounts after three years from the commencement of the policy. The benefits in the policy continue even after the withdrawals. Also insurance is a good tool for long-term savings.
Myth 4:Life Insurance policies require commitment for premium payment for a longer period.Unit Linked Insurance plans offer a lot of flexibility and different premium paying period options to suit your requirements. You have the option to pay premiums for three years, five years, or entire tenure.
Myth 5:Mutual funds are a better alternative to Unit Linked Insurance Plans.Mutual Funds is pure investments. Through Unit Linked Insurance plans you can earn returns as well as get risk cover. Thus you can not only fulfill your medium and long-term financial goals but also take care of any risk in case of a unforeseen event.
Myth 6:Investing in Life Insurance policies require a lot of discipline as it requires large sum of amounts to be paid every year.For convenience, premiums can be paid by different modes like yearly, half-yearly, quarterly or monthly. In this way your yearly outgo is split into installments spread over the year creating regular savings in the plan.
Myth 7:Payment of Premium for Life Insurance policies is very inconvenient.There are various options available for premium payments. You can pay premiums through Internet or Electronic Clearing Services offered by the bank.
Myth 8:In Unit Linked Insurance plans the, investment pattern is decided by the Fund Manager and the individual has no control over it.Unit Linked Insurance Plans give a choice of Funds with investments in debt and/or equity. You can choose the asset allocation through these fund options depending on your risk appetite.
It's seen that the way life insurance was bought and perceived has undergone a paradigm shift. The essence to invest in life insurance lies in the right amount of risk cover and savings needed to achieve your financial needs.
Thursday, October 12, 2006
How to select a student insurance policy
Student insurance policy is a must as students are very likely to stay abroad for a long period of time. So to protect them against any kind of accident we have devised a student policy, says Tata AIG, Travel Insurance Chief, Khalid Suhel. "It even protects the sponsors against an accident," he adds.
"As more and more people are going abroad to study, the number of students taking the student insurance cover is going up. As per the estimates available with us, 1.5-1.75 lakh (150,000-175,000) students go abroad and about 40% students buy the policy in India. While those who go to neighboring countries don't buy the policy, some prefer to take the policy from the same university they are studying in and in many cases, the universities insist that students buy their policy, says Suhel.
Suhel lets you know how to choose cheap and a good insurance policy in an interview with CNBC-TV18.
How to select a student (insurance) policy? What are the things that should be covered under the student policy?
Prerna Shahne, employee
Depending on the medical price index, first decide your optimal requirement of medical sickness. Also, see if the policy covers benefits like study interruption (in case you fall ill and discontinue your study), sponsor protection (when you are abroad and your parents meet with an accident), two way compassionate visit and personal liability (if you are abroad for a long time and you cause damage to a public property).
It all depends on the size of the personal liability cover. So you have to keep these things in mind and the country you are in. The country you are living in has a medical price index.
While you can get a heart operation done for Rs 1.5 lakh (Rs 150,000) in India, abroad that kind of money may not mean anything. In Singapore, $50,000 (US) is quite a bit, but in US it is quite less. In a nutshell, if you take the policy cover in India, you pay in Indian rupees while the cover is given to you as per the currency of the country.
Which are the insurance covers that are available in the market for students and how beneficial are these insurance policies? As I am going to Singapore for studies I want to know what these policies offer to students?
Hetal, Surat, Student
The product that we have designed has three components. First component is related to accident and sickness. Second component is related to travel and covers loss of baggage and any such travel convenience that you face when you are abroad. Last part is sponsor-related -- like sponsor protection and study interruption. For example, if you have met with some sort of accident that your studies are in danger or there is some sort of break in the studies. And I think a student policy should have all these components.
As far as Singapore is concerned, luckily its medical price index is not as high as that of the United States. So I will recommend that you don't take a cover worth Rs 2 lakh (Rs 200,000), while Rs 50,000 policy will be enough. Medical pricing in India is very different from other countries.
I will be doing a two-year MS program in Australia. Is the country covered under your insurance scheme?
Kabir Sayyad, student, Chennai
Yes, Australia is covered. Sickness and accident covers are available for US$50,000, US$200,000 and US$100,000. This plan is divided into two parts -- for students going to America and those who are going to other countries (excluding America and including America). So Kabir falls under the latter category and policy cover worth US$100,000 is available.
Besides this, emergency evacuation and repartition of remains are included in the standard terms. Kabir also gets a cover for baggage loss and personal liability cover. Study interruption is for US$7,500, sponsor protection is for US$10,000, etc.
What are the study interruptions that are covered under the insurance policy? Will the insurance company accept my claim when I fall sick abroad in case I take a student insurance policy before going to America?
XYZ, Student
Every insurance policy has a system to settle claims. Normally, insurance companies work through assistant companies and these companies have their presence all through. If an insured person meets with some kind of accident, he has to call a toll free.
The companies have the idea of the medical map of that country. These companies guide you to the best specialty hospital of that area and also seek an appointment for you. In case of hospitalization, you can have cashless insurance where the student doesn't need to pay the hospital.
I plan to go to US for studies. So should I take student insurance in India or in the US?
Abbas Kolkatawala, Student, Mumbai
You can do either way. The only difference is here you pay US$300 as compared to US$12,000 in the US. Many universities include insurance in their tuition fee. The cover may include many things that an Indian student may not need like drug addiction protection and pregnancy protection.
Our socio-cultural background is such that we don't need these benefits. But if I take the insurance product from the university, these things are included in the products abroad by default. You will have to negotiate with the universities abroad and get the benefits you require.
Can I take the student insurance policy before admission to a university abroad? Will it have validity there?
Chinmayi, professional, Bangalore
There are some typical benefits your policy should include like compassionate visit. Normally insurance companies abroad don't provide it, while Indian insurance companies do it. Many universities don't give sponsor protection in their policy whereas it is quite important for an Indian student. However, many universities abroad demand a certain type of policy and no variation in the benefits.
Therefore, a lot of people don't take the policy from the country and prefer to take it from the foreign university. Some are able to negotiate with their university and save up to US$900.
Claim wouldn't get passed in the following conditions -- a suicide instead of accidental death or if the student is suffering a disease before taking the policy. So it is very important to go through the policy wordings before you take a policy cover and understand its finer points and conditions under which you get the claim. Generally the bills are reimbursed in two-three months, while hospitalization is totally cashless as per our company policy.
Important points
First you find out about the important covers from the university where you are seeking admission. Normally foreign companies ask for drug and pregnancy cover which Indian insurance companies don't provide it.
Find out about how the claim is settled. It is better that you take a cashless policy. Don't take a policy where you have to pay the bills and then courier the bills for reimbursement. Also find out about the facilities that you get under the insurance policy.
For example, some companies also bear travel expenses for the relative in case of the policyholder gets hospitalized. Before taking the insurance, find out from the university whether the cover is valid there or not.
"As more and more people are going abroad to study, the number of students taking the student insurance cover is going up. As per the estimates available with us, 1.5-1.75 lakh (150,000-175,000) students go abroad and about 40% students buy the policy in India. While those who go to neighboring countries don't buy the policy, some prefer to take the policy from the same university they are studying in and in many cases, the universities insist that students buy their policy, says Suhel.
Suhel lets you know how to choose cheap and a good insurance policy in an interview with CNBC-TV18.
How to select a student (insurance) policy? What are the things that should be covered under the student policy?
Prerna Shahne, employee
Depending on the medical price index, first decide your optimal requirement of medical sickness. Also, see if the policy covers benefits like study interruption (in case you fall ill and discontinue your study), sponsor protection (when you are abroad and your parents meet with an accident), two way compassionate visit and personal liability (if you are abroad for a long time and you cause damage to a public property).
It all depends on the size of the personal liability cover. So you have to keep these things in mind and the country you are in. The country you are living in has a medical price index.
While you can get a heart operation done for Rs 1.5 lakh (Rs 150,000) in India, abroad that kind of money may not mean anything. In Singapore, $50,000 (US) is quite a bit, but in US it is quite less. In a nutshell, if you take the policy cover in India, you pay in Indian rupees while the cover is given to you as per the currency of the country.
Which are the insurance covers that are available in the market for students and how beneficial are these insurance policies? As I am going to Singapore for studies I want to know what these policies offer to students?
Hetal, Surat, Student
The product that we have designed has three components. First component is related to accident and sickness. Second component is related to travel and covers loss of baggage and any such travel convenience that you face when you are abroad. Last part is sponsor-related -- like sponsor protection and study interruption. For example, if you have met with some sort of accident that your studies are in danger or there is some sort of break in the studies. And I think a student policy should have all these components.
As far as Singapore is concerned, luckily its medical price index is not as high as that of the United States. So I will recommend that you don't take a cover worth Rs 2 lakh (Rs 200,000), while Rs 50,000 policy will be enough. Medical pricing in India is very different from other countries.
I will be doing a two-year MS program in Australia. Is the country covered under your insurance scheme?
Kabir Sayyad, student, Chennai
Yes, Australia is covered. Sickness and accident covers are available for US$50,000, US$200,000 and US$100,000. This plan is divided into two parts -- for students going to America and those who are going to other countries (excluding America and including America). So Kabir falls under the latter category and policy cover worth US$100,000 is available.
Besides this, emergency evacuation and repartition of remains are included in the standard terms. Kabir also gets a cover for baggage loss and personal liability cover. Study interruption is for US$7,500, sponsor protection is for US$10,000, etc.
What are the study interruptions that are covered under the insurance policy? Will the insurance company accept my claim when I fall sick abroad in case I take a student insurance policy before going to America?
XYZ, Student
Every insurance policy has a system to settle claims. Normally, insurance companies work through assistant companies and these companies have their presence all through. If an insured person meets with some kind of accident, he has to call a toll free.
The companies have the idea of the medical map of that country. These companies guide you to the best specialty hospital of that area and also seek an appointment for you. In case of hospitalization, you can have cashless insurance where the student doesn't need to pay the hospital.
I plan to go to US for studies. So should I take student insurance in India or in the US?
Abbas Kolkatawala, Student, Mumbai
You can do either way. The only difference is here you pay US$300 as compared to US$12,000 in the US. Many universities include insurance in their tuition fee. The cover may include many things that an Indian student may not need like drug addiction protection and pregnancy protection.
Our socio-cultural background is such that we don't need these benefits. But if I take the insurance product from the university, these things are included in the products abroad by default. You will have to negotiate with the universities abroad and get the benefits you require.
Can I take the student insurance policy before admission to a university abroad? Will it have validity there?
Chinmayi, professional, Bangalore
There are some typical benefits your policy should include like compassionate visit. Normally insurance companies abroad don't provide it, while Indian insurance companies do it. Many universities don't give sponsor protection in their policy whereas it is quite important for an Indian student. However, many universities abroad demand a certain type of policy and no variation in the benefits.
Therefore, a lot of people don't take the policy from the country and prefer to take it from the foreign university. Some are able to negotiate with their university and save up to US$900.
Claim wouldn't get passed in the following conditions -- a suicide instead of accidental death or if the student is suffering a disease before taking the policy. So it is very important to go through the policy wordings before you take a policy cover and understand its finer points and conditions under which you get the claim. Generally the bills are reimbursed in two-three months, while hospitalization is totally cashless as per our company policy.
Important points
First you find out about the important covers from the university where you are seeking admission. Normally foreign companies ask for drug and pregnancy cover which Indian insurance companies don't provide it.
Find out about how the claim is settled. It is better that you take a cashless policy. Don't take a policy where you have to pay the bills and then courier the bills for reimbursement. Also find out about the facilities that you get under the insurance policy.
For example, some companies also bear travel expenses for the relative in case of the policyholder gets hospitalized. Before taking the insurance, find out from the university whether the cover is valid there or not.
Households prefer MFs, shares as saving options
Households prefer MFs, shares as saving options.
Source: Times of India
11th Oct, 06.
MUMBAI: The booming stock market seems to be changing the pattern of household savings. Though bank deposits continue to be the hot favourites of the savers, investment in shares and mutual funds is rising sharply. And there is a major drop in household investments in traditional saving instruments like public provident fund, life insurance funds, post office saving schemes and other government guaranteed schemes.
"With the tax benefit for individuals being capped at Rs 1 lakh and there being no restriction on investments, households prefer to invest surplus funds in short-term high-return liquid instruments like equity linked mutual funds, or short-term bank deposits," said a personal finance expert.
The numbers reflect the trend that household savers are highly skewed towards investment instruments with a tenure of one-to-two years. According to RBI data, MFs have mobilised Rs 50,673 crore in 2005-06 as against Rs 2,788 crore in 2004-05. Savings deposits with banks was at Rs 5,75,130 crore in 2005-06 against Rs 4,58,618 crore in 2004-05 and total term deposits of scheduled commercial banks stood at Rs 10,64,146 crore in 2005. An analysis of the maturity pattern of term deposits indicates that public deposits for a tenure of one year and less than two years is the highest (Rs 2,49,091 crore).
PPF has lost charm as it has a lock-in period of five years.
The main drawback being that only after five years can an individual get a loan on the amount. Additionally, the PPF interest rate has fallen to 8% from 12% in the last six to seven years, even as MFs are offering returns in excess of 15%, said an analyst. According to RBI data, bank deposits constituted 46% of the total financial assets in 2005-06 against 36% in 2004-05, shares and debentures accounted for 5% compared to 1.86% last year. The share of PPF has fallen to 9% from a double digit growth of around 12%, claims on government and life insurance fund is also down to 14% each from 16% and 24.42% in previous year.
"In a booming economy long-term savings instruments like life insurance, pension funds tend to lose their sheen. Individuals migrate to short-term, high-yielding and liquid instruments," said a analyst. This is evident from the recent RBI numbers which shows that in the first quarter of 2006-07, net mobilisation of funds by MFs increased by 264.7% to Rs 52,053 crore showing investor interest on account of attractive returns in the secondary market. Net mobilisation in the first quarter of 2006-07 was at almost the same level as during 2005-06. "In a rising interest rate scenario, bank deposits are also getting attractive.
In addition, the benefit of 80(C) on bank deposits for a tenure of five years has boosted the flow further. Overall, bank deposits are always considered as the most secure form of investments," said a banker.
Source: Times of India
11th Oct, 06.
MUMBAI: The booming stock market seems to be changing the pattern of household savings. Though bank deposits continue to be the hot favourites of the savers, investment in shares and mutual funds is rising sharply. And there is a major drop in household investments in traditional saving instruments like public provident fund, life insurance funds, post office saving schemes and other government guaranteed schemes.
"With the tax benefit for individuals being capped at Rs 1 lakh and there being no restriction on investments, households prefer to invest surplus funds in short-term high-return liquid instruments like equity linked mutual funds, or short-term bank deposits," said a personal finance expert.
The numbers reflect the trend that household savers are highly skewed towards investment instruments with a tenure of one-to-two years. According to RBI data, MFs have mobilised Rs 50,673 crore in 2005-06 as against Rs 2,788 crore in 2004-05. Savings deposits with banks was at Rs 5,75,130 crore in 2005-06 against Rs 4,58,618 crore in 2004-05 and total term deposits of scheduled commercial banks stood at Rs 10,64,146 crore in 2005. An analysis of the maturity pattern of term deposits indicates that public deposits for a tenure of one year and less than two years is the highest (Rs 2,49,091 crore).
PPF has lost charm as it has a lock-in period of five years.
The main drawback being that only after five years can an individual get a loan on the amount. Additionally, the PPF interest rate has fallen to 8% from 12% in the last six to seven years, even as MFs are offering returns in excess of 15%, said an analyst. According to RBI data, bank deposits constituted 46% of the total financial assets in 2005-06 against 36% in 2004-05, shares and debentures accounted for 5% compared to 1.86% last year. The share of PPF has fallen to 9% from a double digit growth of around 12%, claims on government and life insurance fund is also down to 14% each from 16% and 24.42% in previous year.
"In a booming economy long-term savings instruments like life insurance, pension funds tend to lose their sheen. Individuals migrate to short-term, high-yielding and liquid instruments," said a analyst. This is evident from the recent RBI numbers which shows that in the first quarter of 2006-07, net mobilisation of funds by MFs increased by 264.7% to Rs 52,053 crore showing investor interest on account of attractive returns in the secondary market. Net mobilisation in the first quarter of 2006-07 was at almost the same level as during 2005-06. "In a rising interest rate scenario, bank deposits are also getting attractive.
In addition, the benefit of 80(C) on bank deposits for a tenure of five years has boosted the flow further. Overall, bank deposits are always considered as the most secure form of investments," said a banker.
Monday, October 09, 2006
Mutual Fund Interview-CEO of Value Researchonline
Source: money Control
What indicators does one actually go by while deciding on which mutual fund to actually go for? How much market research, what guiding principles do you refer to?
A: The definition of a good fund is very straightforward- a fund which participates in a market, and does a little better than the market when the market rises and falls a little less, when the market falls.
After a few year this adds upto making it a good fund. One shouldn't consider a fund which is going ballistic. Rather, choose a fund which is able to participate in the market rise reasonably well and falls less in a falling market.
So all this translates into solid long term performance. One is unlikely to go wrong with any fund among the top 15 in the 5-year time period or 10 year time period.
Q: Also come in on two aspects relating to mutual funds, one of course the entry and exit load that the unit holders have to pay, the open ended and close ended funds and more importantly the churning of portfolios that mutual funds do and the kind of costs that accrue to the unit holders on account of that?
: The open end-closed end fund debate is on right now. There are more closed end funds, of late, compared to open end funds which have come to prevail in India for sometime. This is something which most investors should be wary of.
A closed end fund is a bad idea. To invest in mutual funds, one has to choose a good fund, and invest regularly. Closed end funds don’t allow either.
Once a closed end fund starts and one has to participate, and if one doesn't, one will miss out. If one wants to invest regularly, it is not possible to do it in a closed end fund. These are two big constraints of closed end funds.
To top that, closed end funds devised by fund companies, are half closed end, because there could be a defendable idea of a closed end fund that the fund managers gets a reasonable time frame to plan his portfolio, say a 5 year or 15 year.
The only real closed end listed fund in India was the the Morgan Stanley Growth fund. It was devised as a 15 year closed end fund and it has proven its worth despite the bad stress or the initial problem it faced.
People havn' t had a very pleasing experience with this fund despite the fact that this fund has proved its case that the fund manager is not exposed to the investors action on a day-to-day basis.
Q: An investor has invested in some of the mutual funds in their systematic investment plan, the mutual funds are Reliance Mutual fund, Reliance Growth Fund, Franklin Templeton mutual fund and also Sundaram Select Midcap fund and also in DSP Merrill Lynch. The investor is looking at more options in the mutual fund space and has spelt out all his investments currently in the mutual funds. What do you make of the funds that the investor has spoken about or is currently invested in and which are the funds you think that he can look at now?
His choices are good. The choices are excellent. In fact, these are some of the best performing funds with robust long-term performance. So good choice for his initial selection and I don’t think he should be really tempted to spread his investment universe.
By investing in about 6 equity-diversified funds, whatever be the quantum, his money is spread across at least 250 stocks, which is more than desirable.
Be a selective investor, choose a good fund. Keep investing more in the existing funds that you have. The only fund about which I am a little apprehensive is Reliance Growth, which is too large a midcap fund. This fund will have to struggle quite a bit in future to perform or sustain its performance.
Q: How does the future look for Franklin Taxshield Fund?
A: It has been a good fund. It has derived all its returns from a very high quality portfolio. But it is not the best performing tax saving fund. In tax saving funds, the fund mangers are allowed or have available flexibility because once investors put their money, the investors cannot take that money back for at least three years.
Every money invested in tax saving funds come with a three-year lock-in period. So fund managers can afford to take some risk, maybe compromise on the liquidity, assume some liquidity risk and enhance returns, which other tax saving funds have done, but not Franklin Taxshield.
It has been a good fund, it has rewarded well. But purely on the return and the flexibility available to the fund managers, it has not been able to capitalize and it has not been able to make the most out of what is available to it.
Exiting from this fund may not be possible if the investor has invested just now because every money invested has to be remain invested for 3 years. But incremental investment investor should consider other choices, for example the HDFC Tax Saver or the Magnum Tax Gain or the Prudential Tax Saving fund. There are superior choices purely from return perspective and the time horizon. In these funds, one has to be invested at least for three years.
Q: Which are the industry-specific funds that you are particularly bullish on, considering they are too sensitive to the market movements? How much of a ratio do you advise in one's portfolio to industry specific funds?
A: The sectoral fund and the industry specific fund could be a good vehicle for targeted diversification. But to invest and make something out of these funds, an investor must back it with his own conviction and his own belief. Going by the standard yardstick that every diversified fund is reasonably emphasizing technology, their mandate does not allow them to be more invested.
So I think it is about time, if investors think that technology is a robust performer, and has proven its credentials, the time has changed and the good story prevails, then technology funds could be another story, which one should really enhance one's allocation to.
What indicators does one actually go by while deciding on which mutual fund to actually go for? How much market research, what guiding principles do you refer to?
A: The definition of a good fund is very straightforward- a fund which participates in a market, and does a little better than the market when the market rises and falls a little less, when the market falls.
After a few year this adds upto making it a good fund. One shouldn't consider a fund which is going ballistic. Rather, choose a fund which is able to participate in the market rise reasonably well and falls less in a falling market.
So all this translates into solid long term performance. One is unlikely to go wrong with any fund among the top 15 in the 5-year time period or 10 year time period.
Q: Also come in on two aspects relating to mutual funds, one of course the entry and exit load that the unit holders have to pay, the open ended and close ended funds and more importantly the churning of portfolios that mutual funds do and the kind of costs that accrue to the unit holders on account of that?
: The open end-closed end fund debate is on right now. There are more closed end funds, of late, compared to open end funds which have come to prevail in India for sometime. This is something which most investors should be wary of.
A closed end fund is a bad idea. To invest in mutual funds, one has to choose a good fund, and invest regularly. Closed end funds don’t allow either.
Once a closed end fund starts and one has to participate, and if one doesn't, one will miss out. If one wants to invest regularly, it is not possible to do it in a closed end fund. These are two big constraints of closed end funds.
To top that, closed end funds devised by fund companies, are half closed end, because there could be a defendable idea of a closed end fund that the fund managers gets a reasonable time frame to plan his portfolio, say a 5 year or 15 year.
The only real closed end listed fund in India was the the Morgan Stanley Growth fund. It was devised as a 15 year closed end fund and it has proven its worth despite the bad stress or the initial problem it faced.
People havn' t had a very pleasing experience with this fund despite the fact that this fund has proved its case that the fund manager is not exposed to the investors action on a day-to-day basis.
Q: An investor has invested in some of the mutual funds in their systematic investment plan, the mutual funds are Reliance Mutual fund, Reliance Growth Fund, Franklin Templeton mutual fund and also Sundaram Select Midcap fund and also in DSP Merrill Lynch. The investor is looking at more options in the mutual fund space and has spelt out all his investments currently in the mutual funds. What do you make of the funds that the investor has spoken about or is currently invested in and which are the funds you think that he can look at now?
His choices are good. The choices are excellent. In fact, these are some of the best performing funds with robust long-term performance. So good choice for his initial selection and I don’t think he should be really tempted to spread his investment universe.
By investing in about 6 equity-diversified funds, whatever be the quantum, his money is spread across at least 250 stocks, which is more than desirable.
Be a selective investor, choose a good fund. Keep investing more in the existing funds that you have. The only fund about which I am a little apprehensive is Reliance Growth, which is too large a midcap fund. This fund will have to struggle quite a bit in future to perform or sustain its performance.
Q: How does the future look for Franklin Taxshield Fund?
A: It has been a good fund. It has derived all its returns from a very high quality portfolio. But it is not the best performing tax saving fund. In tax saving funds, the fund mangers are allowed or have available flexibility because once investors put their money, the investors cannot take that money back for at least three years.
Every money invested in tax saving funds come with a three-year lock-in period. So fund managers can afford to take some risk, maybe compromise on the liquidity, assume some liquidity risk and enhance returns, which other tax saving funds have done, but not Franklin Taxshield.
It has been a good fund, it has rewarded well. But purely on the return and the flexibility available to the fund managers, it has not been able to capitalize and it has not been able to make the most out of what is available to it.
Exiting from this fund may not be possible if the investor has invested just now because every money invested has to be remain invested for 3 years. But incremental investment investor should consider other choices, for example the HDFC Tax Saver or the Magnum Tax Gain or the Prudential Tax Saving fund. There are superior choices purely from return perspective and the time horizon. In these funds, one has to be invested at least for three years.
Q: Which are the industry-specific funds that you are particularly bullish on, considering they are too sensitive to the market movements? How much of a ratio do you advise in one's portfolio to industry specific funds?
A: The sectoral fund and the industry specific fund could be a good vehicle for targeted diversification. But to invest and make something out of these funds, an investor must back it with his own conviction and his own belief. Going by the standard yardstick that every diversified fund is reasonably emphasizing technology, their mandate does not allow them to be more invested.
So I think it is about time, if investors think that technology is a robust performer, and has proven its credentials, the time has changed and the good story prevails, then technology funds could be another story, which one should really enhance one's allocation to.
FAQ (Mutual Funds)
WHAT ARE MUTUAL FUNDS?
Mutual funds are a mechanism for pooling the resources of different investors and investing the collected funds in accordance with specific objectives, in securities so as to realise the investment objective. The investment objective is based largely upon the investors’ capacity to take risk.The profits or losses are shared by the investors in proportion to their investments. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time.
HOW DID MUTUAL FUNDS ORIGINATE?
The concept of pooling money for investment purposes started in the mid 1800s in Europe.The first pooled fund in the U.S. was created in 1893 for the faculty and staff of Harvard University.On March 21st 1924 three securities executives from Boston pooled their money to create the first mutual fund in the world known as the Massachusets Investors Trust. Unit Trust of India was the first mutual fund to be set up in India in the year 1963. In early 1990s, Government allowed public sector banks and institutions to set up mutual funds. It was at this time that LIC Mutual Fund came into existence.
WHAT ARE THE DIFFERENT TYPES OF MUTUAL FUNDS?
Mutual Fund Schemes are generally classified into 2 types viz.
A) Schemes according to Maturity Period:
Open-ended Fund/ Scheme
An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis.
Close-ended Fund/ Scheme
A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices.
B) Schemes according to Investment Objective:
A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:
Growth / Equity Oriented Scheme
The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.
Income / Debt Oriented Scheme
The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.
Balanced Fund
The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.
Money Market or Liquid Fund
These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.
Gilt Fund
These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.
Index Funds
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.
There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.
Sector specific funds/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. They may also seek advice of an expert.
Tax Saving Schemes
These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme.
HOW TO INVEST IN MUTUAL FUND SCHEMES?
Investment in mutual fund schemes can be made either directly or through any of our agents, chief agents or Marketing Associates.Applications for allotment of mutual fund units should be made in the prescribed form only. Cheques / DDs should be drawn in favour of "the respective scheme"
WHERE TO SUBMIT APPLICATION FORM
Domestic investors –
Duly filled in applications with subscriptions can be submitted at the authorized collection centres (list given at the end of this document) along with local cheques/DD payable at the authorized centres only. Payment by cash will not be accepted.
NRI’s on a fully repatriable basis-
In case of NRIs, payment may be made by means of a Draft in Indian Rupees purchased abroad or by cheque/DD drawn on Non resident (External) /FCNR Accounts, payable at the authorized centres only. Payments may also be made through Demand drafts or other instruments permitted under the Foreign Exchange Management Act.
NRI’s on a non-repatriable basis-
NRIs can invest by cheques/DD’s drawn out of Non resident (Ordinary) Accounts.
FIIs shall pay their subscription by way of direct remittance from abroad or out of their special Non resident Rupee account maintained with designated bank in India or as may be permitted by law.
Applications under (POA) Power of Attorney /Body Corporate/Registered Society/Trust/Partnership
In case of an application under POA or by a limited company, body corporate, registered society trust or Partnership etc., the relevant POA or the resolution or authority to make the application as the case may be, or duly certified copy thereof, along with the memorandum and articles of association /bye-laws must be lodged at the authorized centre along with the application form.
WHY ARE BANK ACCOUNT DETAILS MANDATORY?
In order to protect unit holder interest from fraudulent encashment of cheques, the current SEBI Regulations, has made it mandatory for investors to mention in their application/repurchase-redemption request, the bank name and account number of the unit holders .The AMC will not be responsible for any loss arising out of fraudulent encashment of cheques and or any delay /loss in transit. In the absence of these details, applications are liable for rejection.
WHAT ARE THE RISKS INVOLVED?
Investment in Mutual Fund is subject to standard and specific risk factors.For scheme specific risk factors please refer to the full offer documents of the respective scheme.
STANDARD RISK FACTORS:
Mutual funds and securities are subject to market risks and there is no assurance and no guarantee that the objectives of the mutual fund will be achieved.
The NAV of the units issued under the scheme may go up or down depending on the factors and forces affecting capital markets.
Past performance of the Sponsor/AMC/Mutual fund does not indicate the future performance of the schemes of the Mutual Fund.
.
WHAT WILL INVESTORS RECEIVE AS A PROOF OF THEIR INVESTMENT?
Every unit holder of the Scheme will have an account number allotted to him and a statement of account of the units to the credit of his account will be issued .
For any investments made during the initial offer period the statements of account will be issued to all investors within 10 days after the closure of the offer.After the scheme reopens for subscription investors will be issued a statement of account detailing the number of units allotted. The Fund will endeavor to issue the statement of account within 5 business days after processing of the application.A fresh statement of account will be issued after every partial encashment / declaration of dividend / issue of bonus units / further purchase of units giving the total number of units standing to the investors’ credit. On every such operation the previous statement of account shall automatically stand cancelled.
In addition, each unit holder will also receive an annual account statement as soon as practicable after 31st March each year which will detail the investors opening unit balance as of 1st April of the prior year, all transactions that occurred during the preceding twelve months and the closing balance of units held as of 31st March.
No unit certificate will be issued under the scheme. However incase of a specific request unit certificate may be issued within 6 weeks from the receipt of request from the investor at the appropriate authorized centre .
HOW WILL INVESTORS BE ALLOTTED UNITS IN THE SCHEME?
Allotment of units will be made after realisation of Cheque/DD for the amount invested depending upon the NAV of the units, subject to the prevailing load structure in fractional Units upto 3 decimals.
WHAT IS THE NAV OF UNITS ?
The NAV is the current market value of a mutual fund unit. It is calculated by taking the funds' total investments, cash and any accrued earnings deducting liabilities, and dividing the remainder by the number of units outstanding.
Total Unit Cap. + Reserves + income (net of expenses & provisions) + (-) Appreciation/ (Depreciation)in investment
NAV = --------------------------------------------------------------------------------
No. of Units outstanding
WHERE CAN INVESTORS TRACK THE NAV ?
The NAV shall be calculated everyday including holidays and declared on each business day in accordance with the SEBI guidelines from time to time and will be displayed / available at the Corporate office, Registrars office and other Authorized Centers such as the Area Offices. The NAV along with the sale and repurchase prices will also be published in atleast 2 daily newspapers along with the sale and repurchase price on all business days accordance with SEBI guidelines, and made available on our website and AMFI website on a daily basis.
HOW DO INVESTORS REDEEM THEIR UNITS ?
Investors may redeem their entire holdings either in full or in part. Investors have also the option to request the redemption:
a . of a Specified amount in Rupees
or
b. Of a Specified number of Units of the Scheme
Where the redemption request is for both a specified amount and for a specified number of units, the Specified Unit request is considered as definite. In case of a Specified request for an amount in rupees the number of units to be redeemed will be determined on the basis of the applicable repurchase price. Similarly where the request is for a specified number of Units for redemption, the redemption amount payable will be the number of units multiplied by the applicable repurchase price. Where the request for redemption exceeds the holdings of the Unit holders, the account of the Unit holder will be closed and the entire holding to the investor’s credit will be redeemed at the applicable repurchase price.
Repurchase/ redemption shall be effected on receipt of the repurchase/ redemption request along-with the duly discharged Statement of Account mentioning the number of units offered amount sought for repurchase/ redemption at the authorised centre where the Units were originally purchased. The new statement of account, mentioning the units outstanding to the credit of investor, if any, will be sent to the investor separately and upon its receipt all previous statements of account will automatically stand cancelled.
On complete redemption of the holdings the investor’s ceases to be a member of the Scheme and would not be entitled to any further benefits from the Scheme.
REPURCHASE /REDEMPTIONS BY NRI’s/PIO’s
Repurchases / Redemptions By NRI’s / PIO’s will be in accordance with the conditions mentioned above subject to any procedures laid down by the RBI if any.
Payment to NRI’s / PIO’s will be subject to relevant laws / guidelines of the RBI as are applicable from time to time.
Subject to RBI approval, in case of NRI unitholders the amounts due on redemption / repurchases (subject to tax deduction at source) will be credited to the NRE / FCNR account of the investor where the original investment in the units was made on repatriation basis by an NRI either through inward remittance or debit to NRE/FCNR account.
In all other cases the amounts due on redemption / repurchases (subject to tax deduction at source) will be paid by means of a rupee cheque payable at the NRO/NRSR account of the investor as applicable.
HOW IS THE SALE /REPURCHASE PRICE CALCULATED?
Sale /Repurchase prices will be Calculated as per the prevailing load structure as follows:
NAV
Sale Price = -----------
1 - Entry Load
Repurchase Price = NAV
------------
1 + Exit Load
WHAT IS AN ENTRY /EXIT LOAD?
There are various administrative and other costs associated with the issue /redemption of units by an investor.These costs are charged to the scheme in the form of entry / exit load respectively. The funds collected as Load would be credited to a separate account in the Scheme accounts and would be utilised to meet such expenses as permitted under the SEBI regulations.
The Trustees reserve the right to review the sale, repurchase / redemption load from time to time and fix it subject to condition that the repurchase price shall not be lower than 93 % of the NAV and the sale price shall not be higher than 107% of the NAV and the difference between the repurchase price and sale price shall not exceed 7% of the sale price as prescribed by SEBI.
ARE THERE ANY OTHER CHARGES THAT INVESTORS ARE LIKELY TO BEAR?
Based on whether the scheme under which you have invested is a no load scheme the AMC may charge a contingent deferred Sales charge or a CDSC. It is intended to enable the AMC to recover the promotional and distribution expenses of the Scheme incurred by it which otherwise the Unit Holder might have to bear. As per regulation 52(5) of the SEBI (MF) Regulations 1996 the AMC may be entitled to levy the CDSC for redemption during the first 4 years after purchase, not exceeding 4% of the redemption proceeds during the first year, 3% in the second year, 2% in the third year and 1% in the fourth year. There may also be the Sales load on conversion of Dividend to units for investments under the Dividend Reinvestment options.
WHAT ARE LOAD AND NO LOAD SCHEMES?
A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units.
WHAT IS AN SIP/SWP?
Investors will have the opportunity to plan their further investments and withdrawals from the scheme via the SIP/SWP . They can invest or withdraw regularly, at a specific frequency (subject to the other provisions of the schemes) thus benefiting from the economics of average cost of purchase and sale. They can further invest a fixed sum of money, a minimum of Rs.500/- and multiples thereof under the SIP. Under the SWP the investors can redeem/repurchase a fixed sum/ number of units- minimum 50 units and multiples thereof. An investor has to have a minimum balance of specified no. of units or specified amount at all times under both SIP & SWP.
ARE THERE ANY TAX BENEFITS FOR INVESTING IN MUTUAL FUNDS?
Investments in mutual funds do classify for tax benefits. For specific provisions please refer to the respective offer documents.
WHAT ARE YOUR RIGHTS AS AN INVESTOR? WHAT RECOURSE DO U HAVE TO YOUR GRIEVANCES?
a) Unitholders under the scheme have a proportionate right in the beneficial ownership of the assets of the mutual fund under the scheme.
b) The unitholders have a right to ask the trustee company/board of trustees about any information which may have an adverse bearing on their investments, and the trustees shall be bound to disclose such information to the unitholders.
c) The appointment of the Asset Management Company in respect of this scheme may be terminated by a majority of Trustees or 75% of the unitholders.
d) Units of the scheme are generally non-transferable. However, transfer of units, in cases outlined under the heading Transferability/ Transmission of units and subject to conditions stated therein, shall be made within 30 days from the date of lodgment.
e) Warrants in respect of dividends, if declared, will be dispatched to the unitholders within 30 days of the declaration of dividend if any.
f) Redemption or repurchase warrants will be dispatched within 10 working days from the date of their receipt of request duly complete in all respects by the appropriate Office.
g) The Trustees may, from time to time, add to or otherwise amend or alter all or any of the terms of this scheme, for duly complying with the guidelines of Government, RBI/SEBI or any other regulatory body or in the interest or convenience of the Fund or the unit holders. and any modification of the fundamental attributes of the scheme, or the trust or the fees and expenses payable or any other modification by the Trustees shall be made bearing in mind that the interest of the unit holders is not affected and no change in any of the above shall be carried out unless –
A written communication about the change is sent to each unit holder and an advertisement is given in one English daily newspaper having nation-wide circulation as well as in a newspaper published in the language of the region where the Head office of the Mutual Fund is situated;and
The unit holders are given an option to exit at prevailing NAV without any exit load.
h) An Abridged schemewise annual report shall be mailed to all unitholders not later than 6 months from the date of closure of the relevant accounting year and the full annual report shall be available for inspection at the corporate office of LIC Mutual Fund and a copy shall be made available the unitholders on request on payment of nominal fees, if any.
i) DOCUMENTS FOR INSPECTION:
The following documents will be available for inspection to the unit holders at the corporate office of the Mutual Fund:
1. The Trust Deed
2. Deed of Modification
3. Memorandum of Association of Asset Management Company
4. Articles of Association of Asset Management Company
5. Investment Management Agreement
6. Custodial Agreement
7. Registrars Agreement (as and when they are appointed)
8. Audited Balance Sheet of the Mutual Fund
9. The Securities & Exchange Board of India (Mutual Fund) Regulations, 1996
10. Offer Document of the scheme.
11. The Indian Trusts Act 1882 and the consent of the Auditors to act in that capacity
Mutual funds are a mechanism for pooling the resources of different investors and investing the collected funds in accordance with specific objectives, in securities so as to realise the investment objective. The investment objective is based largely upon the investors’ capacity to take risk.The profits or losses are shared by the investors in proportion to their investments. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time.
HOW DID MUTUAL FUNDS ORIGINATE?
The concept of pooling money for investment purposes started in the mid 1800s in Europe.The first pooled fund in the U.S. was created in 1893 for the faculty and staff of Harvard University.On March 21st 1924 three securities executives from Boston pooled their money to create the first mutual fund in the world known as the Massachusets Investors Trust. Unit Trust of India was the first mutual fund to be set up in India in the year 1963. In early 1990s, Government allowed public sector banks and institutions to set up mutual funds. It was at this time that LIC Mutual Fund came into existence.
WHAT ARE THE DIFFERENT TYPES OF MUTUAL FUNDS?
Mutual Fund Schemes are generally classified into 2 types viz.
A) Schemes according to Maturity Period:
Open-ended Fund/ Scheme
An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis.
Close-ended Fund/ Scheme
A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices.
B) Schemes according to Investment Objective:
A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:
Growth / Equity Oriented Scheme
The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.
Income / Debt Oriented Scheme
The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.
Balanced Fund
The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.
Money Market or Liquid Fund
These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.
Gilt Fund
These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.
Index Funds
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.
There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.
Sector specific funds/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. They may also seek advice of an expert.
Tax Saving Schemes
These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme.
HOW TO INVEST IN MUTUAL FUND SCHEMES?
Investment in mutual fund schemes can be made either directly or through any of our agents, chief agents or Marketing Associates.Applications for allotment of mutual fund units should be made in the prescribed form only. Cheques / DDs should be drawn in favour of "the respective scheme"
WHERE TO SUBMIT APPLICATION FORM
Domestic investors –
Duly filled in applications with subscriptions can be submitted at the authorized collection centres (list given at the end of this document) along with local cheques/DD payable at the authorized centres only. Payment by cash will not be accepted.
NRI’s on a fully repatriable basis-
In case of NRIs, payment may be made by means of a Draft in Indian Rupees purchased abroad or by cheque/DD drawn on Non resident (External) /FCNR Accounts, payable at the authorized centres only. Payments may also be made through Demand drafts or other instruments permitted under the Foreign Exchange Management Act.
NRI’s on a non-repatriable basis-
NRIs can invest by cheques/DD’s drawn out of Non resident (Ordinary) Accounts.
FIIs shall pay their subscription by way of direct remittance from abroad or out of their special Non resident Rupee account maintained with designated bank in India or as may be permitted by law.
Applications under (POA) Power of Attorney /Body Corporate/Registered Society/Trust/Partnership
In case of an application under POA or by a limited company, body corporate, registered society trust or Partnership etc., the relevant POA or the resolution or authority to make the application as the case may be, or duly certified copy thereof, along with the memorandum and articles of association /bye-laws must be lodged at the authorized centre along with the application form.
WHY ARE BANK ACCOUNT DETAILS MANDATORY?
In order to protect unit holder interest from fraudulent encashment of cheques, the current SEBI Regulations, has made it mandatory for investors to mention in their application/repurchase-redemption request, the bank name and account number of the unit holders .The AMC will not be responsible for any loss arising out of fraudulent encashment of cheques and or any delay /loss in transit. In the absence of these details, applications are liable for rejection.
WHAT ARE THE RISKS INVOLVED?
Investment in Mutual Fund is subject to standard and specific risk factors.For scheme specific risk factors please refer to the full offer documents of the respective scheme.
STANDARD RISK FACTORS:
Mutual funds and securities are subject to market risks and there is no assurance and no guarantee that the objectives of the mutual fund will be achieved.
The NAV of the units issued under the scheme may go up or down depending on the factors and forces affecting capital markets.
Past performance of the Sponsor/AMC/Mutual fund does not indicate the future performance of the schemes of the Mutual Fund.
.
WHAT WILL INVESTORS RECEIVE AS A PROOF OF THEIR INVESTMENT?
Every unit holder of the Scheme will have an account number allotted to him and a statement of account of the units to the credit of his account will be issued .
For any investments made during the initial offer period the statements of account will be issued to all investors within 10 days after the closure of the offer.After the scheme reopens for subscription investors will be issued a statement of account detailing the number of units allotted. The Fund will endeavor to issue the statement of account within 5 business days after processing of the application.A fresh statement of account will be issued after every partial encashment / declaration of dividend / issue of bonus units / further purchase of units giving the total number of units standing to the investors’ credit. On every such operation the previous statement of account shall automatically stand cancelled.
In addition, each unit holder will also receive an annual account statement as soon as practicable after 31st March each year which will detail the investors opening unit balance as of 1st April of the prior year, all transactions that occurred during the preceding twelve months and the closing balance of units held as of 31st March.
No unit certificate will be issued under the scheme. However incase of a specific request unit certificate may be issued within 6 weeks from the receipt of request from the investor at the appropriate authorized centre .
HOW WILL INVESTORS BE ALLOTTED UNITS IN THE SCHEME?
Allotment of units will be made after realisation of Cheque/DD for the amount invested depending upon the NAV of the units, subject to the prevailing load structure in fractional Units upto 3 decimals.
WHAT IS THE NAV OF UNITS ?
The NAV is the current market value of a mutual fund unit. It is calculated by taking the funds' total investments, cash and any accrued earnings deducting liabilities, and dividing the remainder by the number of units outstanding.
Total Unit Cap. + Reserves + income (net of expenses & provisions) + (-) Appreciation/ (Depreciation)in investment
NAV = --------------------------------------------------------------------------------
No. of Units outstanding
WHERE CAN INVESTORS TRACK THE NAV ?
The NAV shall be calculated everyday including holidays and declared on each business day in accordance with the SEBI guidelines from time to time and will be displayed / available at the Corporate office, Registrars office and other Authorized Centers such as the Area Offices. The NAV along with the sale and repurchase prices will also be published in atleast 2 daily newspapers along with the sale and repurchase price on all business days accordance with SEBI guidelines, and made available on our website and AMFI website on a daily basis.
HOW DO INVESTORS REDEEM THEIR UNITS ?
Investors may redeem their entire holdings either in full or in part. Investors have also the option to request the redemption:
a . of a Specified amount in Rupees
or
b. Of a Specified number of Units of the Scheme
Where the redemption request is for both a specified amount and for a specified number of units, the Specified Unit request is considered as definite. In case of a Specified request for an amount in rupees the number of units to be redeemed will be determined on the basis of the applicable repurchase price. Similarly where the request is for a specified number of Units for redemption, the redemption amount payable will be the number of units multiplied by the applicable repurchase price. Where the request for redemption exceeds the holdings of the Unit holders, the account of the Unit holder will be closed and the entire holding to the investor’s credit will be redeemed at the applicable repurchase price.
Repurchase/ redemption shall be effected on receipt of the repurchase/ redemption request along-with the duly discharged Statement of Account mentioning the number of units offered amount sought for repurchase/ redemption at the authorised centre where the Units were originally purchased. The new statement of account, mentioning the units outstanding to the credit of investor, if any, will be sent to the investor separately and upon its receipt all previous statements of account will automatically stand cancelled.
On complete redemption of the holdings the investor’s ceases to be a member of the Scheme and would not be entitled to any further benefits from the Scheme.
REPURCHASE /REDEMPTIONS BY NRI’s/PIO’s
Repurchases / Redemptions By NRI’s / PIO’s will be in accordance with the conditions mentioned above subject to any procedures laid down by the RBI if any.
Payment to NRI’s / PIO’s will be subject to relevant laws / guidelines of the RBI as are applicable from time to time.
Subject to RBI approval, in case of NRI unitholders the amounts due on redemption / repurchases (subject to tax deduction at source) will be credited to the NRE / FCNR account of the investor where the original investment in the units was made on repatriation basis by an NRI either through inward remittance or debit to NRE/FCNR account.
In all other cases the amounts due on redemption / repurchases (subject to tax deduction at source) will be paid by means of a rupee cheque payable at the NRO/NRSR account of the investor as applicable.
HOW IS THE SALE /REPURCHASE PRICE CALCULATED?
Sale /Repurchase prices will be Calculated as per the prevailing load structure as follows:
NAV
Sale Price = -----------
1 - Entry Load
Repurchase Price = NAV
------------
1 + Exit Load
WHAT IS AN ENTRY /EXIT LOAD?
There are various administrative and other costs associated with the issue /redemption of units by an investor.These costs are charged to the scheme in the form of entry / exit load respectively. The funds collected as Load would be credited to a separate account in the Scheme accounts and would be utilised to meet such expenses as permitted under the SEBI regulations.
The Trustees reserve the right to review the sale, repurchase / redemption load from time to time and fix it subject to condition that the repurchase price shall not be lower than 93 % of the NAV and the sale price shall not be higher than 107% of the NAV and the difference between the repurchase price and sale price shall not exceed 7% of the sale price as prescribed by SEBI.
ARE THERE ANY OTHER CHARGES THAT INVESTORS ARE LIKELY TO BEAR?
Based on whether the scheme under which you have invested is a no load scheme the AMC may charge a contingent deferred Sales charge or a CDSC. It is intended to enable the AMC to recover the promotional and distribution expenses of the Scheme incurred by it which otherwise the Unit Holder might have to bear. As per regulation 52(5) of the SEBI (MF) Regulations 1996 the AMC may be entitled to levy the CDSC for redemption during the first 4 years after purchase, not exceeding 4% of the redemption proceeds during the first year, 3% in the second year, 2% in the third year and 1% in the fourth year. There may also be the Sales load on conversion of Dividend to units for investments under the Dividend Reinvestment options.
WHAT ARE LOAD AND NO LOAD SCHEMES?
A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units.
WHAT IS AN SIP/SWP?
Investors will have the opportunity to plan their further investments and withdrawals from the scheme via the SIP/SWP . They can invest or withdraw regularly, at a specific frequency (subject to the other provisions of the schemes) thus benefiting from the economics of average cost of purchase and sale. They can further invest a fixed sum of money, a minimum of Rs.500/- and multiples thereof under the SIP. Under the SWP the investors can redeem/repurchase a fixed sum/ number of units- minimum 50 units and multiples thereof. An investor has to have a minimum balance of specified no. of units or specified amount at all times under both SIP & SWP.
ARE THERE ANY TAX BENEFITS FOR INVESTING IN MUTUAL FUNDS?
Investments in mutual funds do classify for tax benefits. For specific provisions please refer to the respective offer documents.
WHAT ARE YOUR RIGHTS AS AN INVESTOR? WHAT RECOURSE DO U HAVE TO YOUR GRIEVANCES?
a) Unitholders under the scheme have a proportionate right in the beneficial ownership of the assets of the mutual fund under the scheme.
b) The unitholders have a right to ask the trustee company/board of trustees about any information which may have an adverse bearing on their investments, and the trustees shall be bound to disclose such information to the unitholders.
c) The appointment of the Asset Management Company in respect of this scheme may be terminated by a majority of Trustees or 75% of the unitholders.
d) Units of the scheme are generally non-transferable. However, transfer of units, in cases outlined under the heading Transferability/ Transmission of units and subject to conditions stated therein, shall be made within 30 days from the date of lodgment.
e) Warrants in respect of dividends, if declared, will be dispatched to the unitholders within 30 days of the declaration of dividend if any.
f) Redemption or repurchase warrants will be dispatched within 10 working days from the date of their receipt of request duly complete in all respects by the appropriate Office.
g) The Trustees may, from time to time, add to or otherwise amend or alter all or any of the terms of this scheme, for duly complying with the guidelines of Government, RBI/SEBI or any other regulatory body or in the interest or convenience of the Fund or the unit holders. and any modification of the fundamental attributes of the scheme, or the trust or the fees and expenses payable or any other modification by the Trustees shall be made bearing in mind that the interest of the unit holders is not affected and no change in any of the above shall be carried out unless –
A written communication about the change is sent to each unit holder and an advertisement is given in one English daily newspaper having nation-wide circulation as well as in a newspaper published in the language of the region where the Head office of the Mutual Fund is situated;and
The unit holders are given an option to exit at prevailing NAV without any exit load.
h) An Abridged schemewise annual report shall be mailed to all unitholders not later than 6 months from the date of closure of the relevant accounting year and the full annual report shall be available for inspection at the corporate office of LIC Mutual Fund and a copy shall be made available the unitholders on request on payment of nominal fees, if any.
i) DOCUMENTS FOR INSPECTION:
The following documents will be available for inspection to the unit holders at the corporate office of the Mutual Fund:
1. The Trust Deed
2. Deed of Modification
3. Memorandum of Association of Asset Management Company
4. Articles of Association of Asset Management Company
5. Investment Management Agreement
6. Custodial Agreement
7. Registrars Agreement (as and when they are appointed)
8. Audited Balance Sheet of the Mutual Fund
9. The Securities & Exchange Board of India (Mutual Fund) Regulations, 1996
10. Offer Document of the scheme.
11. The Indian Trusts Act 1882 and the consent of the Auditors to act in that capacity
WHAT ARE MUTUAL FUNDS?
Mutual funds are a mechanism for pooling the resources of different investors and investing the collected funds in accordance with specific objectives, in securities so as to realise the investment objective. The investment objective is based largely upon the investors’ capacity to take risk.The profits or losses are shared by the investors in proportion to their investments. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time.
HOW DID MUTUAL FUNDS ORIGINATE?
The concept of pooling money for investment purposes started in the mid 1800s in Europe.The first pooled fund in the U.S. was created in 1893 for the faculty and staff of Harvard University.On March 21st 1924 three securities executives from Boston pooled their money to create the first mutual fund in the world known as the Massachusets Investors Trust. Unit Trust of India was the first mutual fund to be set up in India in the year 1963. In early 1990s, Government allowed public sector banks and institutions to set up mutual funds. It was at this time that LIC Mutual Fund came into existence.
WHAT ARE THE DIFFERENT TYPES OF MUTUAL FUNDS?
Mutual Fund Schemes are generally classified into 2 types viz.
A) Schemes according to Maturity Period:
Open-ended Fund/ Scheme
An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis.
Close-ended Fund/ Scheme
A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices.
B) Schemes according to Investment Objective:
A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:
Growth / Equity Oriented Scheme
The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.
Income / Debt Oriented Scheme
The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.
Balanced Fund
The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.
Money Market or Liquid Fund
These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.
Gilt Fund
These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.
Index Funds
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.
There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.
Sector specific funds/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. They may also seek advice of an expert.
Tax Saving Schemes
These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme.
HOW TO INVEST IN MUTUAL FUND SCHEMES?
Investment in mutual fund schemes can be made either directly or through any of our agents, chief agents or Marketing Associates.Applications for allotment of mutual fund units should be made in the prescribed form only. Cheques / DDs should be drawn in favour of "the respective scheme"
WHERE TO SUBMIT APPLICATION FORM
Domestic investors –
Duly filled in applications with subscriptions can be submitted at the authorized collection centres (list given at the end of this document) along with local cheques/DD payable at the authorized centres only. Payment by cash will not be accepted.
NRI’s on a fully repatriable basis-
In case of NRIs, payment may be made by means of a Draft in Indian Rupees purchased abroad or by cheque/DD drawn on Non resident (External) /FCNR Accounts, payable at the authorized centres only. Payments may also be made through Demand drafts or other instruments permitted under the Foreign Exchange Management Act.
NRI’s on a non-repatriable basis-
NRIs can invest by cheques/DD’s drawn out of Non resident (Ordinary) Accounts.
FIIs shall pay their subscription by way of direct remittance from abroad or out of their special Non resident Rupee account maintained with designated bank in India or as may be permitted by law.
Applications under (POA) Power of Attorney /Body Corporate/Registered Society/Trust/Partnership
In case of an application under POA or by a limited company, body corporate, registered society trust or Partnership etc., the relevant POA or the resolution or authority to make the application as the case may be, or duly certified copy thereof, along with the memorandum and articles of association /bye-laws must be lodged at the authorized centre along with the application form.
WHY ARE BANK ACCOUNT DETAILS MANDATORY?
In order to protect unit holder interest from fraudulent encashment of cheques, the current SEBI Regulations, has made it mandatory for investors to mention in their application/repurchase-redemption request, the bank name and account number of the unit holders .The AMC will not be responsible for any loss arising out of fraudulent encashment of cheques and or any delay /loss in transit. In the absence of these details, applications are liable for rejection.
WHAT ARE THE RISKS INVOLVED?
Investment in Mutual Fund is subject to standard and specific risk factors.For scheme specific risk factors please refer to the full offer documents of the respective scheme.
STANDARD RISK FACTORS:
Mutual funds and securities are subject to market risks and there is no assurance and no guarantee that the objectives of the mutual fund will be achieved.
The NAV of the units issued under the scheme may go up or down depending on the factors and forces affecting capital markets.
Past performance of the Sponsor/AMC/Mutual fund does not indicate the future performance of the schemes of the Mutual Fund.
.
WHAT WILL INVESTORS RECEIVE AS A PROOF OF THEIR INVESTMENT?
Every unit holder of the Scheme will have an account number allotted to him and a statement of account of the units to the credit of his account will be issued .
For any investments made during the initial offer period the statements of account will be issued to all investors within 10 days after the closure of the offer.After the scheme reopens for subscription investors will be issued a statement of account detailing the number of units allotted. The Fund will endeavor to issue the statement of account within 5 business days after processing of the application.A fresh statement of account will be issued after every partial encashment / declaration of dividend / issue of bonus units / further purchase of units giving the total number of units standing to the investors’ credit. On every such operation the previous statement of account shall automatically stand cancelled.
In addition, each unit holder will also receive an annual account statement as soon as practicable after 31st March each year which will detail the investors opening unit balance as of 1st April of the prior year, all transactions that occurred during the preceding twelve months and the closing balance of units held as of 31st March.
No unit certificate will be issued under the scheme. However incase of a specific request unit certificate may be issued within 6 weeks from the receipt of request from the investor at the appropriate authorized centre .
HOW WILL INVESTORS BE ALLOTTED UNITS IN THE SCHEME?
Allotment of units will be made after realisation of Cheque/DD for the amount invested depending upon the NAV of the units, subject to the prevailing load structure in fractional Units upto 3 decimals.
WHAT IS THE NAV OF UNITS ?
The NAV is the current market value of a mutual fund unit. It is calculated by taking the funds' total investments, cash and any accrued earnings deducting liabilities, and dividing the remainder by the number of units outstanding.
Total Unit Cap. + Reserves + income (net of expenses & provisions) + (-) Appreciation/ (Depreciation)in investment
NAV = --------------------------------------------------------------------------------
No. of Units outstanding
WHERE CAN INVESTORS TRACK THE NAV ?
The NAV shall be calculated everyday including holidays and declared on each business day in accordance with the SEBI guidelines from time to time and will be displayed / available at the Corporate office, Registrars office and other Authorized Centers such as the Area Offices. The NAV along with the sale and repurchase prices will also be published in atleast 2 daily newspapers along with the sale and repurchase price on all business days accordance with SEBI guidelines, and made available on our website and AMFI website on a daily basis.
HOW DO INVESTORS REDEEM THEIR UNITS ?
Investors may redeem their entire holdings either in full or in part. Investors have also the option to request the redemption:
a . of a Specified amount in Rupees
or
b. Of a Specified number of Units of the Scheme
Where the redemption request is for both a specified amount and for a specified number of units, the Specified Unit request is considered as definite. In case of a Specified request for an amount in rupees the number of units to be redeemed will be determined on the basis of the applicable repurchase price. Similarly where the request is for a specified number of Units for redemption, the redemption amount payable will be the number of units multiplied by the applicable repurchase price. Where the request for redemption exceeds the holdings of the Unit holders, the account of the Unit holder will be closed and the entire holding to the investor’s credit will be redeemed at the applicable repurchase price.
Repurchase/ redemption shall be effected on receipt of the repurchase/ redemption request along-with the duly discharged Statement of Account mentioning the number of units offered amount sought for repurchase/ redemption at the authorised centre where the Units were originally purchased. The new statement of account, mentioning the units outstanding to the credit of investor, if any, will be sent to the investor separately and upon its receipt all previous statements of account will automatically stand cancelled.
On complete redemption of the holdings the investor’s ceases to be a member of the Scheme and would not be entitled to any further benefits from the Scheme.
REPURCHASE /REDEMPTIONS BY NRI’s/PIO’s
Repurchases / Redemptions By NRI’s / PIO’s will be in accordance with the conditions mentioned above subject to any procedures laid down by the RBI if any.
Payment to NRI’s / PIO’s will be subject to relevant laws / guidelines of the RBI as are applicable from time to time.
Subject to RBI approval, in case of NRI unitholders the amounts due on redemption / repurchases (subject to tax deduction at source) will be credited to the NRE / FCNR account of the investor where the original investment in the units was made on repatriation basis by an NRI either through inward remittance or debit to NRE/FCNR account.
In all other cases the amounts due on redemption / repurchases (subject to tax deduction at source) will be paid by means of a rupee cheque payable at the NRO/NRSR account of the investor as applicable.
HOW IS THE SALE /REPURCHASE PRICE CALCULATED?
Sale /Repurchase prices will be Calculated as per the prevailing load structure as follows:
NAV
Sale Price = -----------
1 - Entry Load
Repurchase Price = NAV
------------
1 + Exit Load
WHAT IS AN ENTRY /EXIT LOAD?
There are various administrative and other costs associated with the issue /redemption of units by an investor.These costs are charged to the scheme in the form of entry / exit load respectively. The funds collected as Load would be credited to a separate account in the Scheme accounts and would be utilised to meet such expenses as permitted under the SEBI regulations.
The Trustees reserve the right to review the sale, repurchase / redemption load from time to time and fix it subject to condition that the repurchase price shall not be lower than 93 % of the NAV and the sale price shall not be higher than 107% of the NAV and the difference between the repurchase price and sale price shall not exceed 7% of the sale price as prescribed by SEBI.
ARE THERE ANY OTHER CHARGES THAT INVESTORS ARE LIKELY TO BEAR?
Based on whether the scheme under which you have invested is a no load scheme the AMC may charge a contingent deferred Sales charge or a CDSC. It is intended to enable the AMC to recover the promotional and distribution expenses of the Scheme incurred by it which otherwise the Unit Holder might have to bear. As per regulation 52(5) of the SEBI (MF) Regulations 1996 the AMC may be entitled to levy the CDSC for redemption during the first 4 years after purchase, not exceeding 4% of the redemption proceeds during the first year, 3% in the second year, 2% in the third year and 1% in the fourth year. There may also be the Sales load on conversion of Dividend to units for investments under the Dividend Reinvestment options.
WHAT ARE LOAD AND NO LOAD SCHEMES?
A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units.
WHAT IS AN SIP/SWP?
Investors will have the opportunity to plan their further investments and withdrawals from the scheme via the SIP/SWP . They can invest or withdraw regularly, at a specific frequency (subject to the other provisions of the schemes) thus benefiting from the economics of average cost of purchase and sale. They can further invest a fixed sum of money, a minimum of Rs.500/- and multiples thereof under the SIP. Under the SWP the investors can redeem/repurchase a fixed sum/ number of units- minimum 50 units and multiples thereof. An investor has to have a minimum balance of specified no. of units or specified amount at all times under both SIP & SWP.
ARE THERE ANY TAX BENEFITS FOR INVESTING IN MUTUAL FUNDS?
Investments in mutual funds do classify for tax benefits. For specific provisions please refer to the respective offer documents.
WHAT ARE YOUR RIGHTS AS AN INVESTOR? WHAT RECOURSE DO U HAVE TO YOUR GRIEVANCES?
a) Unitholders under the scheme have a proportionate right in the beneficial ownership of the assets of the mutual fund under the scheme.
b) The unitholders have a right to ask the trustee company/board of trustees about any information which may have an adverse bearing on their investments, and the trustees shall be bound to disclose such information to the unitholders.
c) The appointment of the Asset Management Company in respect of this scheme may be terminated by a majority of Trustees or 75% of the unitholders.
d) Units of the scheme are generally non-transferable. However, transfer of units, in cases outlined under the heading Transferability/ Transmission of units and subject to conditions stated therein, shall be made within 30 days from the date of lodgment.
e) Warrants in respect of dividends, if declared, will be dispatched to the unitholders within 30 days of the declaration of dividend if any.
f) Redemption or repurchase warrants will be dispatched within 10 working days from the date of their receipt of request duly complete in all respects by the appropriate Office.
g) The Trustees may, from time to time, add to or otherwise amend or alter all or any of the terms of this scheme, for duly complying with the guidelines of Government, RBI/SEBI or any other regulatory body or in the interest or convenience of the Fund or the unit holders. and any modification of the fundamental attributes of the scheme, or the trust or the fees and expenses payable or any other modification by the Trustees shall be made bearing in mind that the interest of the unit holders is not affected and no change in any of the above shall be carried out unless –
A written communication about the change is sent to each unit holder and an advertisement is given in one English daily newspaper having nation-wide circulation as well as in a newspaper published in the language of the region where the Head office of the Mutual Fund is situated;and
The unit holders are given an option to exit at prevailing NAV without any exit load.
h) An Abridged schemewise annual report shall be mailed to all unitholders not later than 6 months from the date of closure of the relevant accounting year and the full annual report shall be available for inspection at the corporate office of LIC Mutual Fund and a copy shall be made available the unitholders on request on payment of nominal fees, if any.
i) DOCUMENTS FOR INSPECTION:
The following documents will be available for inspection to the unit holders at the corporate office of the Mutual Fund:
1. The Trust Deed
2. Deed of Modification
3. Memorandum of Association of Asset Management Company
4. Articles of Association of Asset Management Company
5. Investment Management Agreement
6. Custodial Agreement
7. Registrars Agreement (as and when they are appointed)
8. Audited Balance Sheet of the Mutual Fund
9. The Securities & Exchange Board of India (Mutual Fund) Regulations, 1996
10. Offer Document of the scheme.
11. The Indian Trusts Act 1882 and the consent of the Auditors to act in that capacity
Mutual funds are a mechanism for pooling the resources of different investors and investing the collected funds in accordance with specific objectives, in securities so as to realise the investment objective. The investment objective is based largely upon the investors’ capacity to take risk.The profits or losses are shared by the investors in proportion to their investments. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time.
HOW DID MUTUAL FUNDS ORIGINATE?
The concept of pooling money for investment purposes started in the mid 1800s in Europe.The first pooled fund in the U.S. was created in 1893 for the faculty and staff of Harvard University.On March 21st 1924 three securities executives from Boston pooled their money to create the first mutual fund in the world known as the Massachusets Investors Trust. Unit Trust of India was the first mutual fund to be set up in India in the year 1963. In early 1990s, Government allowed public sector banks and institutions to set up mutual funds. It was at this time that LIC Mutual Fund came into existence.
WHAT ARE THE DIFFERENT TYPES OF MUTUAL FUNDS?
Mutual Fund Schemes are generally classified into 2 types viz.
A) Schemes according to Maturity Period:
Open-ended Fund/ Scheme
An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis.
Close-ended Fund/ Scheme
A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices.
B) Schemes according to Investment Objective:
A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:
Growth / Equity Oriented Scheme
The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.
Income / Debt Oriented Scheme
The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.
Balanced Fund
The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.
Money Market or Liquid Fund
These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.
Gilt Fund
These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.
Index Funds
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.
There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.
Sector specific funds/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. They may also seek advice of an expert.
Tax Saving Schemes
These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme.
HOW TO INVEST IN MUTUAL FUND SCHEMES?
Investment in mutual fund schemes can be made either directly or through any of our agents, chief agents or Marketing Associates.Applications for allotment of mutual fund units should be made in the prescribed form only. Cheques / DDs should be drawn in favour of "the respective scheme"
WHERE TO SUBMIT APPLICATION FORM
Domestic investors –
Duly filled in applications with subscriptions can be submitted at the authorized collection centres (list given at the end of this document) along with local cheques/DD payable at the authorized centres only. Payment by cash will not be accepted.
NRI’s on a fully repatriable basis-
In case of NRIs, payment may be made by means of a Draft in Indian Rupees purchased abroad or by cheque/DD drawn on Non resident (External) /FCNR Accounts, payable at the authorized centres only. Payments may also be made through Demand drafts or other instruments permitted under the Foreign Exchange Management Act.
NRI’s on a non-repatriable basis-
NRIs can invest by cheques/DD’s drawn out of Non resident (Ordinary) Accounts.
FIIs shall pay their subscription by way of direct remittance from abroad or out of their special Non resident Rupee account maintained with designated bank in India or as may be permitted by law.
Applications under (POA) Power of Attorney /Body Corporate/Registered Society/Trust/Partnership
In case of an application under POA or by a limited company, body corporate, registered society trust or Partnership etc., the relevant POA or the resolution or authority to make the application as the case may be, or duly certified copy thereof, along with the memorandum and articles of association /bye-laws must be lodged at the authorized centre along with the application form.
WHY ARE BANK ACCOUNT DETAILS MANDATORY?
In order to protect unit holder interest from fraudulent encashment of cheques, the current SEBI Regulations, has made it mandatory for investors to mention in their application/repurchase-redemption request, the bank name and account number of the unit holders .The AMC will not be responsible for any loss arising out of fraudulent encashment of cheques and or any delay /loss in transit. In the absence of these details, applications are liable for rejection.
WHAT ARE THE RISKS INVOLVED?
Investment in Mutual Fund is subject to standard and specific risk factors.For scheme specific risk factors please refer to the full offer documents of the respective scheme.
STANDARD RISK FACTORS:
Mutual funds and securities are subject to market risks and there is no assurance and no guarantee that the objectives of the mutual fund will be achieved.
The NAV of the units issued under the scheme may go up or down depending on the factors and forces affecting capital markets.
Past performance of the Sponsor/AMC/Mutual fund does not indicate the future performance of the schemes of the Mutual Fund.
.
WHAT WILL INVESTORS RECEIVE AS A PROOF OF THEIR INVESTMENT?
Every unit holder of the Scheme will have an account number allotted to him and a statement of account of the units to the credit of his account will be issued .
For any investments made during the initial offer period the statements of account will be issued to all investors within 10 days after the closure of the offer.After the scheme reopens for subscription investors will be issued a statement of account detailing the number of units allotted. The Fund will endeavor to issue the statement of account within 5 business days after processing of the application.A fresh statement of account will be issued after every partial encashment / declaration of dividend / issue of bonus units / further purchase of units giving the total number of units standing to the investors’ credit. On every such operation the previous statement of account shall automatically stand cancelled.
In addition, each unit holder will also receive an annual account statement as soon as practicable after 31st March each year which will detail the investors opening unit balance as of 1st April of the prior year, all transactions that occurred during the preceding twelve months and the closing balance of units held as of 31st March.
No unit certificate will be issued under the scheme. However incase of a specific request unit certificate may be issued within 6 weeks from the receipt of request from the investor at the appropriate authorized centre .
HOW WILL INVESTORS BE ALLOTTED UNITS IN THE SCHEME?
Allotment of units will be made after realisation of Cheque/DD for the amount invested depending upon the NAV of the units, subject to the prevailing load structure in fractional Units upto 3 decimals.
WHAT IS THE NAV OF UNITS ?
The NAV is the current market value of a mutual fund unit. It is calculated by taking the funds' total investments, cash and any accrued earnings deducting liabilities, and dividing the remainder by the number of units outstanding.
Total Unit Cap. + Reserves + income (net of expenses & provisions) + (-) Appreciation/ (Depreciation)in investment
NAV = --------------------------------------------------------------------------------
No. of Units outstanding
WHERE CAN INVESTORS TRACK THE NAV ?
The NAV shall be calculated everyday including holidays and declared on each business day in accordance with the SEBI guidelines from time to time and will be displayed / available at the Corporate office, Registrars office and other Authorized Centers such as the Area Offices. The NAV along with the sale and repurchase prices will also be published in atleast 2 daily newspapers along with the sale and repurchase price on all business days accordance with SEBI guidelines, and made available on our website and AMFI website on a daily basis.
HOW DO INVESTORS REDEEM THEIR UNITS ?
Investors may redeem their entire holdings either in full or in part. Investors have also the option to request the redemption:
a . of a Specified amount in Rupees
or
b. Of a Specified number of Units of the Scheme
Where the redemption request is for both a specified amount and for a specified number of units, the Specified Unit request is considered as definite. In case of a Specified request for an amount in rupees the number of units to be redeemed will be determined on the basis of the applicable repurchase price. Similarly where the request is for a specified number of Units for redemption, the redemption amount payable will be the number of units multiplied by the applicable repurchase price. Where the request for redemption exceeds the holdings of the Unit holders, the account of the Unit holder will be closed and the entire holding to the investor’s credit will be redeemed at the applicable repurchase price.
Repurchase/ redemption shall be effected on receipt of the repurchase/ redemption request along-with the duly discharged Statement of Account mentioning the number of units offered amount sought for repurchase/ redemption at the authorised centre where the Units were originally purchased. The new statement of account, mentioning the units outstanding to the credit of investor, if any, will be sent to the investor separately and upon its receipt all previous statements of account will automatically stand cancelled.
On complete redemption of the holdings the investor’s ceases to be a member of the Scheme and would not be entitled to any further benefits from the Scheme.
REPURCHASE /REDEMPTIONS BY NRI’s/PIO’s
Repurchases / Redemptions By NRI’s / PIO’s will be in accordance with the conditions mentioned above subject to any procedures laid down by the RBI if any.
Payment to NRI’s / PIO’s will be subject to relevant laws / guidelines of the RBI as are applicable from time to time.
Subject to RBI approval, in case of NRI unitholders the amounts due on redemption / repurchases (subject to tax deduction at source) will be credited to the NRE / FCNR account of the investor where the original investment in the units was made on repatriation basis by an NRI either through inward remittance or debit to NRE/FCNR account.
In all other cases the amounts due on redemption / repurchases (subject to tax deduction at source) will be paid by means of a rupee cheque payable at the NRO/NRSR account of the investor as applicable.
HOW IS THE SALE /REPURCHASE PRICE CALCULATED?
Sale /Repurchase prices will be Calculated as per the prevailing load structure as follows:
NAV
Sale Price = -----------
1 - Entry Load
Repurchase Price = NAV
------------
1 + Exit Load
WHAT IS AN ENTRY /EXIT LOAD?
There are various administrative and other costs associated with the issue /redemption of units by an investor.These costs are charged to the scheme in the form of entry / exit load respectively. The funds collected as Load would be credited to a separate account in the Scheme accounts and would be utilised to meet such expenses as permitted under the SEBI regulations.
The Trustees reserve the right to review the sale, repurchase / redemption load from time to time and fix it subject to condition that the repurchase price shall not be lower than 93 % of the NAV and the sale price shall not be higher than 107% of the NAV and the difference between the repurchase price and sale price shall not exceed 7% of the sale price as prescribed by SEBI.
ARE THERE ANY OTHER CHARGES THAT INVESTORS ARE LIKELY TO BEAR?
Based on whether the scheme under which you have invested is a no load scheme the AMC may charge a contingent deferred Sales charge or a CDSC. It is intended to enable the AMC to recover the promotional and distribution expenses of the Scheme incurred by it which otherwise the Unit Holder might have to bear. As per regulation 52(5) of the SEBI (MF) Regulations 1996 the AMC may be entitled to levy the CDSC for redemption during the first 4 years after purchase, not exceeding 4% of the redemption proceeds during the first year, 3% in the second year, 2% in the third year and 1% in the fourth year. There may also be the Sales load on conversion of Dividend to units for investments under the Dividend Reinvestment options.
WHAT ARE LOAD AND NO LOAD SCHEMES?
A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units.
WHAT IS AN SIP/SWP?
Investors will have the opportunity to plan their further investments and withdrawals from the scheme via the SIP/SWP . They can invest or withdraw regularly, at a specific frequency (subject to the other provisions of the schemes) thus benefiting from the economics of average cost of purchase and sale. They can further invest a fixed sum of money, a minimum of Rs.500/- and multiples thereof under the SIP. Under the SWP the investors can redeem/repurchase a fixed sum/ number of units- minimum 50 units and multiples thereof. An investor has to have a minimum balance of specified no. of units or specified amount at all times under both SIP & SWP.
ARE THERE ANY TAX BENEFITS FOR INVESTING IN MUTUAL FUNDS?
Investments in mutual funds do classify for tax benefits. For specific provisions please refer to the respective offer documents.
WHAT ARE YOUR RIGHTS AS AN INVESTOR? WHAT RECOURSE DO U HAVE TO YOUR GRIEVANCES?
a) Unitholders under the scheme have a proportionate right in the beneficial ownership of the assets of the mutual fund under the scheme.
b) The unitholders have a right to ask the trustee company/board of trustees about any information which may have an adverse bearing on their investments, and the trustees shall be bound to disclose such information to the unitholders.
c) The appointment of the Asset Management Company in respect of this scheme may be terminated by a majority of Trustees or 75% of the unitholders.
d) Units of the scheme are generally non-transferable. However, transfer of units, in cases outlined under the heading Transferability/ Transmission of units and subject to conditions stated therein, shall be made within 30 days from the date of lodgment.
e) Warrants in respect of dividends, if declared, will be dispatched to the unitholders within 30 days of the declaration of dividend if any.
f) Redemption or repurchase warrants will be dispatched within 10 working days from the date of their receipt of request duly complete in all respects by the appropriate Office.
g) The Trustees may, from time to time, add to or otherwise amend or alter all or any of the terms of this scheme, for duly complying with the guidelines of Government, RBI/SEBI or any other regulatory body or in the interest or convenience of the Fund or the unit holders. and any modification of the fundamental attributes of the scheme, or the trust or the fees and expenses payable or any other modification by the Trustees shall be made bearing in mind that the interest of the unit holders is not affected and no change in any of the above shall be carried out unless –
A written communication about the change is sent to each unit holder and an advertisement is given in one English daily newspaper having nation-wide circulation as well as in a newspaper published in the language of the region where the Head office of the Mutual Fund is situated;and
The unit holders are given an option to exit at prevailing NAV without any exit load.
h) An Abridged schemewise annual report shall be mailed to all unitholders not later than 6 months from the date of closure of the relevant accounting year and the full annual report shall be available for inspection at the corporate office of LIC Mutual Fund and a copy shall be made available the unitholders on request on payment of nominal fees, if any.
i) DOCUMENTS FOR INSPECTION:
The following documents will be available for inspection to the unit holders at the corporate office of the Mutual Fund:
1. The Trust Deed
2. Deed of Modification
3. Memorandum of Association of Asset Management Company
4. Articles of Association of Asset Management Company
5. Investment Management Agreement
6. Custodial Agreement
7. Registrars Agreement (as and when they are appointed)
8. Audited Balance Sheet of the Mutual Fund
9. The Securities & Exchange Board of India (Mutual Fund) Regulations, 1996
10. Offer Document of the scheme.
11. The Indian Trusts Act 1882 and the consent of the Auditors to act in that capacity
Sunday, October 08, 2006
How to pick a good mutual fund
Source: Value Research
We always advise our readers never to go by tips but to do their own analysis. Here, we tell you what to keep in mind in order to pick a good mutual fund.
The way to do it is by comparing it rightly with other benchmarks and parameters
Absolute return
Absolute returns measure how much a fund has gained over a certain period. So, you look at the Net Asset Value on one day and look at it, say, six months or one year or two years later. The percentage difference will tell you the return over this time frame.
Compare the returns of various funds. But, when using this parameter to compare one fund with another, make sure that you compare the right fund. To use the age-old analogy, don't compare apples with oranges.
So if you are looking at the returns of a diversified equity fund, compare it with other diversified equity funds. Don't compare it with a sector fund.
Don't even compare it with a balanced fund (one that invests in equity and debt.
For instance, compare HDFC Equity with Franklin India Prima. Both are diversified equity funds. Similarly, compare UTI Auto with J M Auto, both being auto sector funds. Or Birla Midcap with Magnum Midcap, both being funds that invest in mid-cap companies. Don't compare the performance of Alliance Equity with UTI Auto or even Alliance Equity with Birla Midcap.
Benchmark returns
This will give you a standard by which to make the comparison. It basically indicates what the fund has earned as against what it should have earned.
A fund's benchmark is an index that is chosen by a fund company to serve as a standard for its returns. The market watchdog, the Securities and Exchange Board of India, has made it mandatory for funds to declare a benchmark index.
In effect, the fund is saying that the benchmark's returns are its target and a fund should be deemed to have done well if it manages to beat the benchmark.
Let's say the fund is a diversified equity fund that has benchmarked itself against the Sensex.
So the returns of this fund will be compared vis-a-viz the Sensex.
Now, if the markets are doing fabulously well and the Sensex keeps climbing upwards steadily, then anything less than fabulous returns from the fund would actually be a disappointment.
If the Sensex rises by 10% over two months and the fund's NAV rises by 12%, it is said to have outperformed its benchmark. If the NAV rose by just 8%, it is said to have underperformed the benchmark.
But if the Sensex drops by 10% over a period of two months and during that time, the fund's NAV drops by only 6%, then the fund is said to have outperformed the benchmark. This is because it dropped less than the benchmark.
A fund's returns compared to its benchmark are called its benchmark returns.
Compare a fund with its own stated benchmark, and not another one. For instance, Fidelity Equity and BoB Growth are both diversified equity funds with different benchmarks.
Fidelity Equity is benchmarked against BSE 200 while BoB Growth is benchmarked against the Sensex.
Time period
The most important thing while measuring or comparing returns is to choose an appropriate time period.
The time period over which returns should be compared and evaluated has to be the same as the one that fund type is meant to be invested in.
If you are comparing equity funds then you must use three to five year returns. But this is not the case of every other fund.
For instance, cash funds are known as ultra short-term debt funds or liquid funds that invest in money market instruments. These are fixed return instruments of very short maturities. Their main aim is to preserve the principal and earn a modest return. The money you invest will eventually be returned to you with a little something added.
Investors invest in these funds for a very short time frame of around a few months. It is alright to compare these funds on the basis of their six month returns.
When returns are compared between funds, make sure the time period is identical. Else, you may be looking at the one-year returns for one fund and the three-year returns for another.
For instance, let's assume you are told the return of Fund A was 60% and that of Fund B was 70%. But, if Fund A's return is a one-year return while Fund B's return is a three-year return, the answer you would get would be very misleading.
While there are other factors that have to be considered when investing in a mutual fund, returns is the most important. So make sure you do your homework right on this count.
We always advise our readers never to go by tips but to do their own analysis. Here, we tell you what to keep in mind in order to pick a good mutual fund.
The way to do it is by comparing it rightly with other benchmarks and parameters
Absolute return
Absolute returns measure how much a fund has gained over a certain period. So, you look at the Net Asset Value on one day and look at it, say, six months or one year or two years later. The percentage difference will tell you the return over this time frame.
Compare the returns of various funds. But, when using this parameter to compare one fund with another, make sure that you compare the right fund. To use the age-old analogy, don't compare apples with oranges.
So if you are looking at the returns of a diversified equity fund, compare it with other diversified equity funds. Don't compare it with a sector fund.
Don't even compare it with a balanced fund (one that invests in equity and debt.
For instance, compare HDFC Equity with Franklin India Prima. Both are diversified equity funds. Similarly, compare UTI Auto with J M Auto, both being auto sector funds. Or Birla Midcap with Magnum Midcap, both being funds that invest in mid-cap companies. Don't compare the performance of Alliance Equity with UTI Auto or even Alliance Equity with Birla Midcap.
Benchmark returns
This will give you a standard by which to make the comparison. It basically indicates what the fund has earned as against what it should have earned.
A fund's benchmark is an index that is chosen by a fund company to serve as a standard for its returns. The market watchdog, the Securities and Exchange Board of India, has made it mandatory for funds to declare a benchmark index.
In effect, the fund is saying that the benchmark's returns are its target and a fund should be deemed to have done well if it manages to beat the benchmark.
Let's say the fund is a diversified equity fund that has benchmarked itself against the Sensex.
So the returns of this fund will be compared vis-a-viz the Sensex.
Now, if the markets are doing fabulously well and the Sensex keeps climbing upwards steadily, then anything less than fabulous returns from the fund would actually be a disappointment.
If the Sensex rises by 10% over two months and the fund's NAV rises by 12%, it is said to have outperformed its benchmark. If the NAV rose by just 8%, it is said to have underperformed the benchmark.
But if the Sensex drops by 10% over a period of two months and during that time, the fund's NAV drops by only 6%, then the fund is said to have outperformed the benchmark. This is because it dropped less than the benchmark.
A fund's returns compared to its benchmark are called its benchmark returns.
Compare a fund with its own stated benchmark, and not another one. For instance, Fidelity Equity and BoB Growth are both diversified equity funds with different benchmarks.
Fidelity Equity is benchmarked against BSE 200 while BoB Growth is benchmarked against the Sensex.
Time period
The most important thing while measuring or comparing returns is to choose an appropriate time period.
The time period over which returns should be compared and evaluated has to be the same as the one that fund type is meant to be invested in.
If you are comparing equity funds then you must use three to five year returns. But this is not the case of every other fund.
For instance, cash funds are known as ultra short-term debt funds or liquid funds that invest in money market instruments. These are fixed return instruments of very short maturities. Their main aim is to preserve the principal and earn a modest return. The money you invest will eventually be returned to you with a little something added.
Investors invest in these funds for a very short time frame of around a few months. It is alright to compare these funds on the basis of their six month returns.
When returns are compared between funds, make sure the time period is identical. Else, you may be looking at the one-year returns for one fund and the three-year returns for another.
For instance, let's assume you are told the return of Fund A was 60% and that of Fund B was 70%. But, if Fund A's return is a one-year return while Fund B's return is a three-year return, the answer you would get would be very misleading.
While there are other factors that have to be considered when investing in a mutual fund, returns is the most important. So make sure you do your homework right on this count.
Special IDs planned for mutual funds
Special IDs planned for mutual funds
Source: DNA
Monday, October 09, 2006 00:46 IST
MUMBAI: Mutual fund customers investing more than Rs50,000 in a scheme will have to get themselves a unique identification number. And, if the Association of Mutual Funds in India (AMFI) has its way, the concept will gradually be extended to cover everyone who invests through mutual funds.
The idea is to make fund houses conform to stringent know-your-customer (KYC) norms the way banks do.The Securities and Exchange Board of India has given an NOC to Central Depository Services (India) Ltd to get the database on mutual fund clients running and to subsequently manage it.
CDSL, which has floated a subsidiary, CDSL Ventures Ltd, to handle the new function, is likely to sign a memorandum of understanding with the AMFI this week. In the preliminary stages, CDSL will give identification numbers only to those making fresh purchases of units worth more than Rs50,000.
A source said, however, that the process could later be extended to cover everyone who has invested, or will invest in, mutual funds. This unique number could also be used by insurance companies, brokerages, and telephone service providers to track customers.
While the AMFI wants MFs to abide by the KYC norms by November 1, industry sources say the deadline will have to be extended as CDSL will have to tie up with banks and other institutions to act as points of service to collect the KYC documents and the process is likely to take some time. According to sources, the system will be in place only by January.
Source: DNA
Monday, October 09, 2006 00:46 IST
MUMBAI: Mutual fund customers investing more than Rs50,000 in a scheme will have to get themselves a unique identification number. And, if the Association of Mutual Funds in India (AMFI) has its way, the concept will gradually be extended to cover everyone who invests through mutual funds.
The idea is to make fund houses conform to stringent know-your-customer (KYC) norms the way banks do.The Securities and Exchange Board of India has given an NOC to Central Depository Services (India) Ltd to get the database on mutual fund clients running and to subsequently manage it.
CDSL, which has floated a subsidiary, CDSL Ventures Ltd, to handle the new function, is likely to sign a memorandum of understanding with the AMFI this week. In the preliminary stages, CDSL will give identification numbers only to those making fresh purchases of units worth more than Rs50,000.
A source said, however, that the process could later be extended to cover everyone who has invested, or will invest in, mutual funds. This unique number could also be used by insurance companies, brokerages, and telephone service providers to track customers.
While the AMFI wants MFs to abide by the KYC norms by November 1, industry sources say the deadline will have to be extended as CDSL will have to tie up with banks and other institutions to act as points of service to collect the KYC documents and the process is likely to take some time. According to sources, the system will be in place only by January.
Friday, October 06, 2006
7 money lessons to teach your kids
7 money lessons to teach your Kids
Source: Moneycontrol.com
Tell your kids, 'Money is the root cause of all good!' Of course, the line is from Ayn Rand.
We are in the grip of an exam fever with all parents busy with an 'open day' in school before the examination. Then, there will be a vacation -- Diwali vacation as it is called in India. But with all this exam, vacation, exam, unit test, one thing is clear: nobody is teaching your little darlings anything about money.
While our children's teachers share responsibility of teaching them to read and write, they won't do much to help our children develop basic financial literacy skills. Beyond simple addition and subtraction, there just isn't enough time in the school day to do it all.
So what's a caring parent to do? Take your child's money-management education into your own hands, of course. Here's how.
It's important to remember how your kids think when it comes to money (or anything else). Most children are concrete thinkers who can demonstrate progressively organised and logical thought but have a limited ability to think abstractly.
Preschool and elementary-aged kids will have trouble understanding abstract concepts like inflation, interest rates, and saving for a college education that is 12 years away. However, when my five-year-old daughter tells me the following things, I realise that she understands money:
Daughter: Dad, I need money to buy a gift for Mom.
Me: Why don't you use what is in your piggy bank?
Daughter: Dad, coins do not buy anything, I need notes!
My wife and I shop separately, so when my wife was contemplating quitting her job, my daughter said, "Do not quit. Dad does not buy you anything. Keep your job."
At 5, she understands that bread costs Rs 17, a car Rs 8 lakh and a house Rs 40 lakh. This is only because of constantly talking with her about money -- unemotionally and factually.
That's why, when I told her that we couldn't buy the five-feet tall teddy bear because we don't have enough money, she was worried that we wouldn't be able to buy bread. To her, 'no money' meant, quite literally, that our pockets were empty.
I should have said, "We choose not to spend money on that so we have enough money for other things we need to buy."
Understanding the way your child thinks is the key to providing him or her with a quality education in money management. Here are seven ways to help your literal thinker learn about money:
1. Piggy bank
Buy your preschooler, a piggy bank and give him or her a stack of coins to put in it. Ask your child to sort the coins in a variety of different ways -- shiny versus dull, big versus little. Know that he or she won't understand for some years that a rupee saved today can be better than a rupee saved when she is 30 years old, they should get a touch and feel of money.
I make my daughter pay money at the shop so that she understands the difference between coins, a small note and a big note. Supervise carefully, though, since sometimes, they still like to test things in their mouths.
2. Pocket money
For older children, establish an allowance so he or she can begin to make independent money decisions. Some folks will advocate linking the allowance to certain chores; I prefer establishing the basic chores (e.g., making the bed, cleaning their own room, and setting the table) as something each person does because they are a part of a family and it is their job.
Be very careful that they do not become too money minded and keep asking, "How much will I get for looking after granny when she is unwell?" However, giving your child 'extra' tasks (like washing your car) for which he or she can earn money can teach her the satisfaction that comes from working for a goal.
Your child will also understand that the more work that's done, the more money he or she earns -- a valuable life lesson.
3. Value inculcation
One customer of mine has done brilliant 'value inculcation' in his son. He gives his son 30 coins of Rs 5 each. The kid needs one coin every day at the recess. So, 22 of them are precious. He has only eight to spare every month. Now when the kid says he wants a new tennis racket or new tennis shoes, my friend quotes a price of say '12 coins', it takes his son about three months to accumulate the same. And he treats each Rs 5 coin with far greater care than a 500 note.
4. Introduce financial jargon
Get your older children to understand words like saving, investing, donating, pension, financial goal setting -- they will thank you in the future.
5. Bank account
Opening a savings account, touring a bank vault, using the rupee-counting machine, comparing prices, and paying for items and receiving change are a few everyday ways to learn about money.
6. Summer jobs
Encourage your child when he or she tries entrepreneurial ventures like buying crackers in the wholesale and selling in retail, baby-sitting for the neighbours, or starting a dog-walking service.
There's no substitute for learning on the job.
7. Lead by example
Last, but not least, be mindful of how you talk about money. Do you complain about bills, fret about money, and always use negative terms about finances? Don't be surprised, then, if your kids feel negatively, too.
If you need some financial refreshing of your own, make full use of your moneycontrol.com. Getting yourself on the right financial track is the best lesson of all for your kids.
So, parents, remember that some lessons still start in the home. Managing money wisely is one of them.
Source: Moneycontrol.com
Tell your kids, 'Money is the root cause of all good!' Of course, the line is from Ayn Rand.
We are in the grip of an exam fever with all parents busy with an 'open day' in school before the examination. Then, there will be a vacation -- Diwali vacation as it is called in India. But with all this exam, vacation, exam, unit test, one thing is clear: nobody is teaching your little darlings anything about money.
While our children's teachers share responsibility of teaching them to read and write, they won't do much to help our children develop basic financial literacy skills. Beyond simple addition and subtraction, there just isn't enough time in the school day to do it all.
So what's a caring parent to do? Take your child's money-management education into your own hands, of course. Here's how.
It's important to remember how your kids think when it comes to money (or anything else). Most children are concrete thinkers who can demonstrate progressively organised and logical thought but have a limited ability to think abstractly.
Preschool and elementary-aged kids will have trouble understanding abstract concepts like inflation, interest rates, and saving for a college education that is 12 years away. However, when my five-year-old daughter tells me the following things, I realise that she understands money:
Daughter: Dad, I need money to buy a gift for Mom.
Me: Why don't you use what is in your piggy bank?
Daughter: Dad, coins do not buy anything, I need notes!
My wife and I shop separately, so when my wife was contemplating quitting her job, my daughter said, "Do not quit. Dad does not buy you anything. Keep your job."
At 5, she understands that bread costs Rs 17, a car Rs 8 lakh and a house Rs 40 lakh. This is only because of constantly talking with her about money -- unemotionally and factually.
That's why, when I told her that we couldn't buy the five-feet tall teddy bear because we don't have enough money, she was worried that we wouldn't be able to buy bread. To her, 'no money' meant, quite literally, that our pockets were empty.
I should have said, "We choose not to spend money on that so we have enough money for other things we need to buy."
Understanding the way your child thinks is the key to providing him or her with a quality education in money management. Here are seven ways to help your literal thinker learn about money:
1. Piggy bank
Buy your preschooler, a piggy bank and give him or her a stack of coins to put in it. Ask your child to sort the coins in a variety of different ways -- shiny versus dull, big versus little. Know that he or she won't understand for some years that a rupee saved today can be better than a rupee saved when she is 30 years old, they should get a touch and feel of money.
I make my daughter pay money at the shop so that she understands the difference between coins, a small note and a big note. Supervise carefully, though, since sometimes, they still like to test things in their mouths.
2. Pocket money
For older children, establish an allowance so he or she can begin to make independent money decisions. Some folks will advocate linking the allowance to certain chores; I prefer establishing the basic chores (e.g., making the bed, cleaning their own room, and setting the table) as something each person does because they are a part of a family and it is their job.
Be very careful that they do not become too money minded and keep asking, "How much will I get for looking after granny when she is unwell?" However, giving your child 'extra' tasks (like washing your car) for which he or she can earn money can teach her the satisfaction that comes from working for a goal.
Your child will also understand that the more work that's done, the more money he or she earns -- a valuable life lesson.
3. Value inculcation
One customer of mine has done brilliant 'value inculcation' in his son. He gives his son 30 coins of Rs 5 each. The kid needs one coin every day at the recess. So, 22 of them are precious. He has only eight to spare every month. Now when the kid says he wants a new tennis racket or new tennis shoes, my friend quotes a price of say '12 coins', it takes his son about three months to accumulate the same. And he treats each Rs 5 coin with far greater care than a 500 note.
4. Introduce financial jargon
Get your older children to understand words like saving, investing, donating, pension, financial goal setting -- they will thank you in the future.
5. Bank account
Opening a savings account, touring a bank vault, using the rupee-counting machine, comparing prices, and paying for items and receiving change are a few everyday ways to learn about money.
6. Summer jobs
Encourage your child when he or she tries entrepreneurial ventures like buying crackers in the wholesale and selling in retail, baby-sitting for the neighbours, or starting a dog-walking service.
There's no substitute for learning on the job.
7. Lead by example
Last, but not least, be mindful of how you talk about money. Do you complain about bills, fret about money, and always use negative terms about finances? Don't be surprised, then, if your kids feel negatively, too.
If you need some financial refreshing of your own, make full use of your moneycontrol.com. Getting yourself on the right financial track is the best lesson of all for your kids.
So, parents, remember that some lessons still start in the home. Managing money wisely is one of them.
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