Personal Finance Blog- India V 2.0: September 2007

Comparing PPF and ELSS as tax saving instruments

Contributions to PPF ( Public Provident Fund) and ELSS ( Equity Linked Savings Scheme of Mutual funds) are eligible for tax deductions.

PPF gives a return of 8% p.a. The most attractive part being the interest is tax free*. 15 years is the minimum term that you need to hold this account for. It definitely helps in compounding your money in such a period of time.

ELSS also generates tax free dividend (if you opt for dividend payout ) and the capital gains you make out of this scheme is also tax free*.

These two schemes definitely stand out of the rest in terms of tax saving schemes. Fixed Deposits, NSC ( National Savings Certificate ) do not enjoy tax free* returns. ULIPs also enjoy some tax benefits but we have emphasised the need to separate insurance from investment enough on this blog.

So, When we compare PPF and ELSS , Equity is capable of generating greater returns in the long run( esp ..like PPF period of 15 years). So, if one is ready to lock in his money for 15 years or so, he can prefer equity based investments . ( ELSS have yielded 40% return in last 5 years # Same performance however cannot be expected year on year, but around 12% returns can make a huge difference!!! in a 15 year period).

NSC/ FD VS Equity/ MF Comparison table
FD vs FMP/Debt Funds

NSC and PPF Comparison

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* tax free as per income tax laws applicable in Sep'07

Fastest 1000!

As I Just finished the post "FII in full FLOW", the Sensex raced paced the 17000 mark for the first time.

This is the fastest 1000 of the sensex..May be it's the effect of the fire works in 20/20 cricket.???

It can't get thrilling than this. We are on a roller coaster ride???.. Let's wait and watch.

Read some stuff that can inspire you

For 10 year analysis on some equity funds

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FII in full FLOW

After the fed. rate cut, FIIs have started pouring in money into all emerging stock markets including India.

We are seeing an unprecedented bull run. Sensex may even touch 17000 today!.

Should retail investors book profits?.. Yes and No

Yes, if their target price levels are met and they are not willing to take great risk. However, you shouldn't repent if stocks sore more than this level.

Those who have invested in Equity MFs / Stocks with a longer time horizon can definitely hold on to their portfolios as the long term growth story remains intact.

Those on a SIP way, need not bother much as their purchase price is going to average out in the long run.

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FII- Foreign Institutional investors, MF- Mutual Funds, SIP- Systematic Investment Plan

Sensex crosses 16000

Sensex crossed 16000 today. May be the Fed. rate cut fuelled the fire. It would be interesting to see where we go from here. With industry seeming to be slowing down a bit, we will get to know whether a sustained upward trend is here to stay.

Upward or downward trend, We think that volatility is here to stay. So as retail investor we can SIP it all the way without making guesses.

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SIP ...all the way

Strong and Incredible Performance ( SIP = Systematic Investment Plan)

We have written enough to prove that SIP is always a better option for retail investors esp. in a volatile market. But nothing speaks like DATA.

Look at the returns that Rs 1000*12 in would have provided you during Sep'06 to Aug '07 .

source ET intelligence/ value research

nb :- A lot people come to this site by the search term 'SIP vs one time investment' and ' MF SIP vs ULIP'.

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Stock picking strategy

If you are a beginner and willing to pick up stocks on your own, Looking at the hot stocks that the AMCs hold for their equity funds would be one of the strategies. Continuous monitoring of 'How hot these stocks remain with AMCs' is also very important.

Reliance Industries seems to be the hottest stock with all the AMCs.

Have a look at the list of HOT stocks. you may pick up a clue or two from this .

Source: NAV india/ Hindu Businessline

AMC = Asset Management Company ( Mutual fund company)

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For 10 year analysis on some equity funds---http://ideasmoney.blogspot.com/2007/05/sip-returns-analysis.html

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Power of equity in yielding returns

Was going through this article on Businessline.

The stocks that are shown in the article have yielded between 161 to 2616 % returns ( since Jan'01 to Sep' 07).

Anyone who could have afforded a small investment and stuck on would have reaped huge benefits .

This very clearly proves that equity is the best investment over the long run in spite of all the volatility.

The main attribute that is required for an equity investor is PATIENCE.

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ULIP options

Investors who have invested in ULIP (Unit Linked Insurance Policy) have an option of choosing units from income, balanced and equity units. (some give a few more customised options too!)

This choice is given at the time of applying for the plan. Options can also be changed during the lifetime of the policy with most of the insurers.

1) Which option is best?

Since ULIPS are all supposed to be long term investments, 100% allocation to Equity units( growth option) should be the obvious choice. Even if you are an extremely conservative person , you should opt for at least 50%of your money to be invested in equity.

2) Most of the insurers give a 'Premium Redirection' and 'Switch' option. What is the difference between the two?

' Premium Redirection' can be used by the policy holder to divert all further premiums in a different proportion into income/balanced /growth than what he has already opted for. For example If I had opted to invest 100% of my premium into balanced units and I choose to buy only 100% equity units from further premium , I can give a premium redirection instruction.

'Switch' is switching of existing units in a policy from equity to balanced, income to equity,etc.

3) How often should I keep switching to units in a policy?

If anyone can predict the highs and lows of a market , he can do a great switching job. But no one can do this perfectly. So, it is always better to stay with your option unless there is a major change in economic scenarios or change in your risk appetite. Frequent switching wouldn't help you grow your money faster( unless you are extremely lucky!!) (Time or Timing ?? Market )

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How to choose an equity fund?

For most of the novice investors , "How to choose an equity fund?" or " What fund should I invest in from among the few hundreds available'? remains the top question.

Most of them are also misguided by NAVs. i.e Fund which have a lower NAV is cheaper. (Mutual Funds - All you wanted to know ) . This is one reasons for mushrooming of NFOs .(Beware of NFOs )

What are the simple ways to choose a fund?

1. Go for the ones that have consistently performed against their benchmark indices. ( Every fund is bench marked against certain index and see the comparative returns over a period of time( atleast 3 years).)

2. Avoid frequently chasing the top performers for last 3months/ 6months (Chasing the best performing mutual funds ) one you have invested.

There are different websites which give different ratings for a same fund. Use your extensive study of sites initially to figure out the best. Over a period of time you will get adept at this skill.

In this context, I happened to see an analysis of consistent top performing equity funds on business line. The summary sheets are presented below for your reference.

The analysis showed that only 7 of the 64 diversified equity funds (including tax planning funds) have repeatedly beaten their benchmarks in each of the last five years (August 2002-2007). A further 28 funds (roughly four out of every 10) have outperformed their benchmark in four of the past five years.

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Investing in Global funds

Lot of fund houses have come up with global funds. These 'Global Funds' invest in equity and other instruments globally,as the name suggests.

Should one invest in these funds??

India is one of the fastest emerging markets and it is expected to give reasonable returns in the years to come. Global funds help your money to gain opportunities abroad, but they also come along with a set of risks associated with them.

It is very much essential to understand these factors before you invest in these funds.

These funds can form a small portion of your portfolio , if you are too keen on extensive diversification .

Investors who are new to MF/stocks better ignore these funds for a while.

An article that appeared on personalFN may be of great use to investors

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More on ' Buy tomorrow'

Thanks for your overwhelming response to the article Power of postponing consumption .

This 'buy tomorrow' instead of today will apply to all electronic gadgets like cellphone, TV,Ipods and other electronic goods. These goods are priced maximum when they enter the market and they become cheaper and cheaper as they go into mass production.

Example. A phone which was priced @ 20,000 2 years back, is available at Rs 5000 today.

A laptop which was priced@ almost a lakh a decade ago costs around 35-40,000 today.

So , if you are in a need to grow your money , it's always better to wait till the price slides and splurge into these.

On the opposite ,there are things which get dearer by the day...... for those things it would be better to buy today rather than tomorrow.

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Call from a ULIP company

Of late, the calls that I get from ULIP companies have increased by leaps and bounds.

All of them promise very high returns on the these insurance and investment plans. The Best way to tackle these guys is to ask for a letter in writing that I would get these returns.

I think IRDA ( Insurance regulators) need to take much more sterner action against these companies and agents who miss sell through false promises and propaganda.

Unless the buyer's get aware of what they are buying and what they are paying...these extortionists like Investment agents and real estate agents are going to take innocent investors for a toss..

With respect to Investments, Innocence of the investors is not definitely a bliss for himself.

KNOWLEDGE IS POWER for an investor.

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Great way to hone your stock picking skills

Some time ago, 'money bhai' was introduced in money control website. The players can invest in portfolio of their choice (stocks) with virtual money. Winners , rewarded with prices.

Economic times has also come up with a similar idea. See their site for details.

Working on a dummy portfolio is the best way to learn or hone your stock picking skills. When someone allows you to do that for a prize, it becomes extremely interesting.

I think, those who are looking for honing their skills should actively participate in these games.

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Mutual Funds and SIP

There is always a question .. Whether SIP is better than one-time investments?. Was going through one of the personal finance magazines. They had published a list of top performing MFs.

The data shows return from these funds on SIP basis and one-time basis. Please check the chart yourself to figure out the returns from SIP investment.

There is considerable difference in returns from SIP and direct investment. This may not be the case always. But , it proves a point that the concept of cost averaging works out in favour of investor during volatility.