What's your take on stock market & its volatility?

Stock market is known for its volatility. Many loose money because they try to time the market and many stay away from market because for them stock markets are synonymous to casinos!.

Equity market is for those who have patience in them and have a long term investment horizon ( of five years and above). If one invests only such money which he doesn't need for a reasonable time , he can definitely beat the returns from other modes of investment.

Rules that can work for a retail investor.

1. Unless you feel that you are a pro in identifying stars of tomorrow, minimise your direct exposure to equity. Outsource the function of equity investment to a specialist i.e take the mutual fund route.

2. Always prefer the SIP route. Systematic investments not only takes away the burden of timing the market but also it increases your returns by leaps and bounds( in a volatile market ). SIP also brings in a discipline of "paying yourself first".

3. Try to spread your SIP over a longer time period to spread and minimise your risk.

4. "Rome was not built in a day".So,be patient and never get out of funds in a hurry and always look for a decent time horizon. Trading only makes your brokers rich and not you.

5. Don't expect super hypothetical returns like 100% p.a. Set your expectations right .( 10-20% p.a). " Greater the expectations greater the disappointments are."

6. Always plan and change your investments along to align with the changing tax laws and to maximise your post inflation and tax returns.

Happy investing.

Inflation and you

The increasing rates of daily needs are likely to eat up what you consider as savings today in about 20 years. Your investments that attract fixed return would definitely be affected even by a reasonable inflation rate. In the long term, the returns that are considered to be ideal presently will turn out to be too less due to inflation. So, it is essential to invest in assets that will beat inflation. Preference can be given to stocks which have prospects of higher rise in value as compared to securities offering fixed returns.

The changes in living standard will also influence investments. Although gold is a good option, investment in stocks are ideal in the long run. An ideal blend of regular investment in debt securities and equities will definitely generate wealth irrespective of the inflation rate.

FMP better than FDs?

(5% indexation p.a assumed)

Fixed Maturity Plan or FMP is the right choice for fixed and tax-free returns if you are among those in the higher tax band. While investing for 14-16 months will be ideal to realize tax free returns, the maturity period differs from 15 days to 5 years.

The maturity period for most of the new offers are a little more than 12 months or 24 months so as to take advantage of indexation before the financial year ends. If the inflation rate has grown significantly, then the investor probably will end up paying ZERO tax.

The benefits of investing in FMP are

Higher returns as dividend distribution tax is less as compared to Fixed Deposits
Less or no tax on the returns
Even if the double indexation advantages are not considered, one can easily save around 22-23% tax.
Income taxable under “Capital Gains” as compared to “Income from other sources” in case of Fixed Deposits if period exceeds 13 months.
Multiple years Indexation can be claimed depending on the period.

But have a look at the risks of investing in FMP as well

To discourage withdrawals ahead of time, the exit load is high between 50-100 basis points.
Also, the quality of securities in which the money collected under FMP is invested has to be considered.
Though actual returns may be higher, there is no assurance with respect to returns.

Investment during the close of financial years is ideal in case of FMP as they offer almost 9.25% return for 90 days period and about 9.5% for a year and 3 months period.

All about gaining from Indexation

Indexation refers to the rate calculated to correct the cost of acquisition considering the inflation rate. The difference in maturity and corrected cost of acquisition amounts to capital gain.

Time for "FDs" once again!!

With RBI taking measures to suck out liquidity out of the system, the banks have increased the lending rates . ( Definitely a bad news for the floating rate borrowers!).

The good news is that most of the banks are offering attractive interest rate on deposits. 9.5% p.a. interest is being offered by many banks .( Time period stipulated for such deposits varies from one bank to another).

Although the post inflation return seems to be meagre 3%, You can safely park some money in such deposits.

If you are in a higher income bracket FMP ( Fixed maturity plan ) offered by MFs may be a better option. If you have someone who is not working at home, you can make the deposits on their name to make your post tax return really attractive.

It will be interesting to see how the interest rates move after this month.

Little drops make a big ocean

Small savings over a long period of time can fetch you great returns. TIME is a very powerful tool which can multiply your money.

Assume A invests Rs. 500 per month for 30 years.

His returns would be as follows depending on the investment instrument.

Liquid Fund ( 5 % p.a.) Rs. 3,98,633.00
PPF (8% p.a) Rs. 6,79,969.72
Stock /MF (18 % p.a) Rs. 47,45,687.90
“ (20% p.a) Rs. 70,91,289.40

Assume A pays a cable bill of Rs 250 per month. If he invests the same amount for 30 years , he should have a whopping Rs. 35 Lakh !@20% return p.a.

Returns % p.a are assumed figures . They may vary based on circumstances.

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Budget and MF Investors

PAN to be sole identification for all market participants, with appropriate affix or suffix to identify the nature of investment product. (MIN is so shortlived !!!)

Individuals to be allowed to invest in overseas securities through Indian mutual funds

Mutual Funds to be allowed to launch and operate dedicated infrastructure funds

The dividend distribution tax (DDT) on money market mutual funds and liquid funds has been increased in the latest Union Budget to 25%. Earlier, the DDT was lower for a retail investor (12.5%) and higher for a corporate (20%). Now it is a uniform 25%.

* impact of budget for 07-08