Following is a chart showing the list of people for whom you can claim deductions for tax exemption. For example, if you pay the LIC Insurance premium, you can claim if the got premium paid for.
For further details … see this table … Click to enlarge it.
To know about the tax slab and an example for calculating tax .. see : http://finance-and-investing.blogspot.com/2008/04/tax-information-for-2008.html
Hi Friends, Happy New Year to all of you. As this new year is coming, Let us discuss some things, they are:
1. Financial Resolutions for 2009
2. The outlook of Asset Classes in 2009 and onwards.
Let us all make sure that we will do better than the previous year and make some changes.
#1. Adopt the attitude of Expenses = Salary – Savings instead of Savings = Salary – Expenses
#2. Learn more and more about investing to at least up to a level, where I can take my decisions without any help of others and also be able to help someone else.
#3. Learn all the basic taxation rules and investing rules.
#4. Not take decisions whose Risk/reward ratio does not suit me, even if there is no risk in some investment, its return should at least match your goals.
Person 1: Person not investing his money in any thing (just putting it in the bank) and having a desire of getting a 15% return and risk appetite of the same.
Person 2: Another person investing in Equity for a return of 50% in a year, but he actually requires and can be fine with a 15% return.
Both the people here are wrong and are not doing correctly. They must invest in a way that satisfies both there return/risk ratio.
#5. Will not get trapped in useless products just because someone else thinks so, we will do our own analysis, take suggestions from reliable sources and people with knowledge and only then invest our hard-earned money.
Let us see some asset classes and let’s have a quick view of it.
#1. Mutual Funds: The situation now is little under control, with a downward bias for the first quarter, but things should be good by the year-end and then we can see a good rally there after. Better to invest though SIP only.
#2. Direct Equity (shares): Make sure you buy shares only if you have long term view and do not want to speculate for short term .. You can buy some very good shares now and hold it for the next 5-20 yrs, and I am sure they will return fortune. The best time after 2003 is NOW !! But better buy on dips …
If you want to invest 100, make sure you break it in 3-4 parts and invest on dips … its like following SIP on our own. Metals (safe) and Real estate (little risky for short term) can be a good bet for long term investments.
#3. Real Estate: No comments … There are still chances of further correction … But people who do not want to buy it for investment can still invest if it suits there requirement and budget.
#4. Bank FD’s: People looking for short term investments like 6 months – 1.5 yrs can put their money in FD’s… The interest rates offered are good and with inflation coming down, it will be a fair investment.
#5. Derivatives (Futures and Options): There are many people who are now trying these instruments, do not understand the risk associated, Please understand very clearly that these are Atom bombs in the Finance field … You can either kill yourself with it or make a Killing out of it …
If you want to do it .. better learn about it .. prepare heavily and only then enter .. Else defeat is almost certain. Some of the biggest financial companies have gone bankrupt over night because of derivatives.
See:
The use of derivatives can result in large losses due to the use of leverage, or borrowing. Derivatives allow investors to earn large returns from small movements in the underlying asset’s price. However, investors could lose large amounts if the price of the underlying moves against them significantly.
#6. Gold: Gold has lost its shine a bit now and can not be considered the best investment you can make … Still a small part can be in a portfolio, but not more than 5%.
#7. Debt Mutual Funds: People can invest in these debt funds also if their investment horizon is less than 1 yrs (invest for short term goals).
#8. Insurance: Any one who has still not taken insurance and still finds that he/she needs to take it .. please take is ASAP. There should not be any delay in taking Life Insurance ever.
Inflation may go down below 0% in 2009, because of speedy fall in commodity and crude prices.
Source: https://www.zeenews.com/nation/2008-12-28/494368news.html
Economy and Job Losses:
India may see some effect of job losses and slow down in 2009 … Corporate results are expected to be devastating in the first and second quarters of 2009 at least … But still, India is among the top growing economies in the world. So we must not concentrate on the short term. India’s future is Great and unquestionable.
Summary: 2009 will be a good year, it is an excellent year and we will not do mistakes if we have done in 2008 and before. we will learn more and use our money in a better way from now onwards.
During the last 5-6 months GILT funds have given returns like Equity funds … Something around 20-40% in last 5-6 months … And they are almost safe on downside … Lets see more on this
Read : 5 mistakes of my first trade
What are GILT Funds ?
A mutual fund that invests in several different types of medium and long-term government securities in addition to top quality corporate debt.
To have a look at different GILT Funds see :
http://www.moneycontrol.com/india/mutualfunds/gainerloser/17/15/snapshot/dlong/ab
Risks factors
Gilt funds have different kind of risks associated with it .. Once of them is interest rate risk … There returns are inversely proportional to the interest
rates and the reason for the exploding returns given by most of these
GILT funds or other Debt funds are the result of “interest risk drop in
last 6 months because of the measures taken by RBI” .
However, there are some negatives too to these funds. Bond yields carry
a higher credit risk than G-Secs and in bad times ratings can go for a
toss. Some retail investors don’t understand ratings and are also not
aware of which corporate debt these investments are made in to.
Read about “Why you need Contingency Funds”
In the link http://www.moneycontrol.com/india/mutualfunds/gainerloser/18/03/snapshot/op1/ab/option/dlong/sort/yr1
, If you see the 6 months returns and 1 year returns , they are 41.2%
and 41.8% , Think about what was the return during the 6 months period
before 6 months (Dec 07 – May 08) .. The last 6 months have been
exceptional for our Economy because of drastic decrease in interest
rates in short period of time . This happens rarely .
To get a good idea of actual performance of these funds , you should see
long term returns like 5 yrs returns or Since Inception returns .
Now if you see http://www.moneycontrol.com/india/mutualfunds/gainerloser/18/09/snapshot/op1/an/option/dlong/sort/yr1for annualized returns , No fund has crossed 12% returns CAGR , and most
of the top funds are in range of 7-8% Except the out performers with 10.3
and 12.4% .
http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=1921 Shows the snap shot of a fund from the list .. you can clearly see that
the risk Grade is HIGH for this fund , because of the risk associated
with interest rates . (try to click on Portfolio part and see risk
return chart) .
The accepted return from these funds are in range of 7-10% , and they
are better for Liquidity and Tax benefit parameters (just 10% for GROWTH
and 14% for DIVIDEND option) .
8 important ratios to look at before buying shares for long term
What you should do now ? Should you invest in Them ?
Don’t get fooled by the past returns for these Funds , because now there
is no charm left in these funds now . They were excellent funds before 6
months and those who anticipated the interest rates drop made most of it
. So next time where you anticipate there is going to be fall in
interest rates , then you can consider these funds for your DEBT part of
portfolio … These are still good funds if you don’t believe in Equity
investment in these troubled times, but from my side “Equity Investments
are best as of now ” considering your time frame is 4+ years .
Summary
GILT funds are mainly DEBT products , the normal long term returns expected should not be more than 8-10% on average … But still short term opportunities exists when drop in interest rates are expected …
To read more articles : Go to the blog directory (Click Here)
In this market people are facing dilemma whether to invest in tax saving funds or not ? There are lot of tax mutual funds which will appear on the list if you search for best funds . So the best thing is to hear the experts in the field .
Valueresearchonline.com are the most trusted and pioneer in Mutual funds information collection and advice . As per there website , they have rated funds in different categories with 5 star ratings .
ELSS (Tax mutual funds)
1. Magnum Taxgain
2. Sundaram BNP Paribas Taxsaver
EQUITY DIVERSIFIED
1. DWS Investment Opportunity
2. Kotak Opportunities
DEBT Oriented
1. UTI Mahila Unit Scheme
2. Birla Sun Life Asset Allocation Conservative
Source : Valueresearchonline
Some article related to this
https://finance-and-investing.blogspot.com/2008/08/all-eggs-in-single-basket-people-say.html
https://finance-and-investing.blogspot.com/2008/02/all-tax-saving-mutual-funds-are-not_9196.html
People who have invested in FMP’s should read this … other should also . What is FMP : Read here FMP’s are considered as equivalent of FD’s , with better return , butits not exactly true … They are also risky and “lehman borthers”equivalent in India .. They are investing in sub-prime home loans inindia in the same way like Lehman did in US . Read a good report here : https://www.shyamscolumn.com/2008/11/know-your-fixed-maturity-plan.html Another article from Outlook money can be read here : https://money.outlookindia.com/article.aspx?sid=10&cid=57&articleid=7873 Note : This is just to show that people should not underestimate therisk involved with something … FMP rarely are considered as riskythings .. that does not mean , they can never collapse .. Read about Equity , Debt and Liquid Funds What is CRR and Repo Rate
Today Let me ask some questions on personal finance to you which you can answer to see how much you understand things in investing. This small quiz will help you and me know where you belong to.
How much have you learned? I request you to give answers of the questions as a comment back to this article. I will announce the winners after some days. Also please mention your reasoning about the answer.
Information : I have started a chat box on this blog, please see the right hand side to see it, you can post your questions or queries to it and I would try to answer them as soon as I see them.
Q1. Ajay and Priya are married and both of them earn 40,000 each. They earn total of 80,000 and there monthly expenses are around 20000-30000 per month. In case they have to opt for a Insurance plan. which one they should go for?
a) Term Insurance
b) Endowment or Money back plans
c) ULIPS
d) No Need to take Insurance
Choose one option among these and give the reason.
What is the best way for Manish to utilize this money and make some profits for him too if possible.
No options here, you should give a detailed description of step he should take.
Q3. Your friend wants to enter magic world of Stock markets. He/She is determined and very confident that he/she can make huge profits. What will be 3 things you would say to him/her.
For an example : The first thing I would say to him/her is “Don’t concentrate much on making profits, rather concentrate on avoiding losses”.
What are the 3 things you would say to him/ her.
Q4. There are two strategies of investing in Stocks of blue chip companies in Stock markets. Time Frame : 2-3 months.
Strategy 1 : Can give profits upto 50%, or loss upto 50% with equal profits. (Assume the stock is very volatile)
Strategy 2 : Can give profits upto 10%, or loss upto 10% with equal profits. (Assume the stock is very less volatile)
Which Strategy will you choose? You are free to make your assumption
Note : Please answer these question to help yourself and see if you actually deal with these situation. What kind of thinking you have? What kind of advice can you give to someone? And more than that, to learn.
I will review all the answers and reply them. Also I would choose the best answer in some days.
This post is most probably the one on which i didnt worked hard . This is just an email reply from my side to one of my friend who queried me regarding his Endowment Policy package which an agent has created for him .
The policy looks like this … 15 small polices of 1,00,000 each which will mature one by one every year after 27 years and will act as yearly pension in his old age
His mail :
>>>
On Wed, Oct 15, 2008 at 9:37 AM, ajay patel wrote:
15 policies of Rs. 1 Lakh each, starting from sept 2007, first policy matures in 2034 and others follow every year from there on.
Cover of 15 Lakh is for life time. There is an extra Rs 500,000 accidental insurance along with it till the age of 70(2053) (if the world exists till that time).
Annual premium of Rs. 42,000 till 2034, a total amount of 3,400,000 will be received from maturity of these policies.
Say after ten years, I see myself earning around 2.5-3 lacs per month. with one child (if i get married :))
My Reply :
OK
now lets see some of the facts for you to ponder .
Starting from 2007 you are paying 42,000 each year till 2034 (for 27 years) . You will receive money starting from 2034 – till 2049 (15 years , each policy matures) .
Points to note :
– You are paying 42,000 and then its locked for 27 years
– You are getting maturity value of each policy per year , just like a annual income(around 2.25 Lacs/year ie : 34/15 , which is not taxable (you keep all the money).
– You are getting Tax exemptions under sec 80C for this.
I think these are the points you have to agree , because they are not opinion , they are facts .
Some of the flaw or issues with this plan are following , which you never considered at the time of taking this .
– The premium you are paying each year equals to your current monthly salary , also you said that you see your self earning 2.5-3.0 lacs (6 times , your current) per year just after 10 years from now . i am not sure what kind of figures will it be after 27 years . At that time , the money which you get from the policy should not last even 2 months . Considering your expenses currently at 25,000 per month (considering you are married and have children) . the same expenses will rise to 1.2 lacs assuming 6% inflation (also remember that the expenses will keep rising each year ie : 1.66 , 1.77 , 1.9 … 4.2 lacs , whereas the money you get each year will be around constant 2.25 lacs only , this may look unimaginable , but ask your father to grandfather about the monthly expenditure of family before 25 years , i am sure it should be 5% of current, people always forget inflation).
– The insurance provided by this policy is so less that you are highly under insured . What can your loved one do with 15 lacs today ? Will it be sufficient to replace you ? If you consider time after 10 years (when you think you will earn 2.5-3 lacs / month , will the insurance money be sufficient to cover the dependents ? When you will be of age 60+ , the insurance amount is able to meet not more than 9-10 months expenses .
Having this policy is as good as not having it . The issue is not that Can there be policy better than this? ,The main problem is what kind of value is this giving to you . Is the benefit provided by this policy after 27-42 years is much less than than the pain you are getting by paying hefty premium now .
With the same money (42,000) , let me see what can i plan for you with same money .
Lets first take a most conservative way (which is undebatabely safe).
You take an insurance of 50,00,000 (50 lacs) for 30 years and pay a premium of just 10.5k per year . You are left with 32k per year which you put in
1. PPF account
In PPF the money 32k @8% will become 2,55,000 in 27 years and you will get this money every year (total 38 lacs till end) , till age 66 ( In Endowment policy it was 2.25 lacs)
2. In MF considering 12% return
32k invested will become 6.83 lacs in 27 years , so you invest every year 32k and get 6.83 lacs just after 27 years of payment . so it can provide a regular income of 6.23 lacs after 27 years for continuous 15 years till you are 66 .
3. In Mutual funds considering 15% return
The amount would be 13.93 Lacs , every payment of 32,000 will become 13.93 lacs.
Question: How realistic are these mutual funds returns ?
Answer : Over the history no asset has returned more than equity over long term . India Equity markets have returned 17.5% CAGR annually (since inception) . 15% is a very realistic return considering the money is invested for long term like 15+ years . Equity investments risk are inversely proportional to tenure of investments .
After 30 years you will not even need Insurance , because this money will be available every year . and i am assuming that you will earn enough till than that you don’t need insurance .
Some other things to ponder are :
Investing in your Endowment policy does not give you any flexibility of stopping or missing your premiums . In case of PPF or mutual Funds , you can be very flexible and stop for 2 years if you want money to be utilized some where else .
The plan which i told you has everything which you had in that endowment policy , even more than that . its like Buying Nokia 2600 @20,000 when you have iPhone available at same price , you just didn’t knew where you can get it 🙂 . Ok , i know that was pathetic analogy , but i need some platform to show that i can think .
So better stop those policy and take the loss of premiums which you paid , anyways you are not going to be affected now , and life will be normal as it was .
I have done nothing extraordinary here , but some calculation based on some common sense , which is not common .
disagreements are welcome .
– manish
—
Manish Chauhan
Bangalore
https://finance-and-investing.
Lets understand some basic things here . No matter what people tell you or design things for you , Always calculate and apply the simple formula’s which will give you certain numbers, which can be used as benchmarks by you .
Some must know formula’s : https://finance-and-investing.blogspot.com/2008/09/3-most-important-formulas-you-should.html
Please post your comments .
What should be the ideal portfolio for someone in this market for long term ?
As far as i think , A good portfolio now will contain stocks which are beaten down because of panic selling , but still they are fundamentally sound .
My Recommended portfolio would be:
For Safe Investor (assuming time horizon of 3+ years)
– Infosys
– Tata Motors
– ICICI Bank
– DLF
– Reliance Communications
For Risky Investor (assuming time horizon of 5+ years)
– ICICI Bank
– Jaiprakash Associates
– Chambal Fertilizers
– DLF
– Praj Industries
People who want to trust someone more experienced and more knowledgeable should read Sudarshan Sukhani recommendation at https://tt-wealth.blogspot.com/2008/10/portfolio-for-safety.html
Sudarshan Sukhani is a well know and respected Technical Analyst of India and often talks on CNBC .
To get a better view on markets read my earlier article : https://finance-and-investing.blogspot.com/2008/10/current-situation-of-stock-market.html
– Manish
As I write this article on Oct 9, 2008, Sensex is below 11000 (10850) … Most of the Mutual fund investments returns (since peak of Dec 2007 – Jan 2008) must be down by 40-50% (lump sum investment) and 25-35% (if SIP). Looks like Sensex is heading towards it original value of 6000 or 7000 which will bring losses to 60+%.
Though most of the investors know in theory what to do in these situation, most of them will still not buy, Now the physiological investing problem happens, For long term investors its the best time to invest, but no one will take the plunge after burning there hands so badly.
Remember, the global markets are looking bad, not Indian. Indian markets are just following US and European markets because they are the “Big Boss”.
The US markets and European markets are the culprit for the global slowdown. The sub-prime crisis related issues will have deep impact on US and global investment banking firms. India or other Asian countries are just bearing the pain along with global stock markets.
Yes we are in Bear markets, in fact every country stock markets are, but the bearishness of markets are exaggerated because oh high oil and US sub-prime crisis and subsequent Bank Failures.
India is not short of its local good news like
- Nuclear deal
- Stable growth of more than 8% p.a
- Inflation now coming down from its high (and as Oil comes down, the inflation will come down further)
- Strong Corporate Earning and Many companies on the verge of setting global standards (Reliance starting its oil production soon, etc etc)
Once things are in control (should be soon, but no one can be sure), another bull market should be more exciting than the last one. Prices will move like rockets and people who will benefit most will be one who will do investments in these down markets.
This questions was answered by many pundits when Sensex was around 15,000-16,000. Some said YES, some said NO. People who did investments must be thinking why they did it and people who did not must be happy for not investing that time. The scenario could have been exactly opposite if markets would have gone up.
The best idea is to invest a part of the money now, If the markets go down from here, You still have another part of your money in hand which you can invest later and again invest more if it goes down further. It will ensure that your average cost is not very high, and a decent run in markets will result in profits.
If markets go up after you buy some mutual funds or shares, you at least are in profit and not LOSS. which is a privilege now a days in Market. Once there is a good confidence that markets are stable and wont fall further, you can then do rest of your investments.
Remember, Don’t try to make profits in stock markets, just try to avoid losses and make sure that you preserve your capital. If you can do that much, profits will be at your feet.
As Warren Buffet said “We need to take very less correct decisions in Life, as far as we make sure that we don’t take many wrong ones”
This formula is often used to calculate the returns some investment has given. The main concept in compound interest is that interest gets accumulated with the total principal amount and that interest again earns interest over the years. Which makes it very powerful.
Where,
P = principal amount (initial investment)
r = annual interest rate (as a decimal)
n = number of times the interest is compounded per year
t = number of years
A = amount after time t
Example 1 :
Investment = Rs.10,000
return = 9%
investment period = 8 years
Total amount = 10000(1+.09)^8 = 19925.63
Example 2 :
Sensex returned 17.3% return over 29 years since its inception in 1979. What would be worth of Rs 10,000 invested that time.
A = 10,000 * (1+.173)^29 = 1022450.64 (10 lacs)
You can see that a small amount has actually grown to 100 times.
https://math.about.com/library/blcompoundinterest.htm
This tool is very important because it helps in comparing two differnt returns from two investments, you can calculate how much an investment has returned per year on compounded basis, Its just the opposite of Compound interest
where:
A = Final amount
P = amount invested
n = Number of years
CAGR can be a great tool to compare two different investments and there returns.
Example :
A. 10,000 invested in a XYZ mutual fund for 2 yrs became 20,000
B. 50,000 invested in GOLD for 7 years became 4,00,000
Here the main doubt is that how to calculate which one is better .. the amount, tenure is different. So in this case we calculate and see CAGR, one with more CAGR will be good.
A) CAGR = 41.42 %
B) CAGR = 34.59 %
So, investment in A is better than B. Which is –
https://www.moneychimp.com/calculator/discount_rate_calculator.htm
This formula is very very important one, in our daily life we come across many situation where we do a fixed payment at the fixed interval, and we want to calculate the returns, but we don’t know how to do it .. Example can be
Or any investment at a fixed inteval over some years. In that case we calculate the Final value using formula called Annuity.
Where :
A = final amount
P = installment each time
n = total number of installments
i = interest rate for that tenure (example if yearly return is 24%, but payments are made monthly then i = 24/12 = 2%)
Example 1 :
Robert invests 10,000 each month in a mutual fund for 10 years and the annual return was 18%, what will be his final corpus?
Here as payments are monthly, total payment will be 10 * 12 = 120
so n = 120 and i = 1.5 % (18/12)
A = 10,000 * [{(1+ .015)^120 – 1}/.015 ] * (1+ .015) => 40,39.241 (40 lacs)
Example 2 :
Vikas is planning his retirement, and planning to invest 5,000 per month in a Mutual fund for 20 yrs where he expects a return of 15%, then take out all the amount after 20 yrs and then put it in a FD for 15 yrs which gives him 9.5% return.
Here, we there are two parts
A. He makes monthly payment for 20 yrs (here we have to apply annuity)
B. then he takes the money out after 20 yrs and then put it in FD for 15 yrs (as this is one time payment, here we will apply compound interest)
A ) n = 240 and i = 1.25% (as the payment are monthly)
His money after 20 years = [5,000 * (1 + .0125)^240 – 1) / .0125] * ( 1.0125) = 75,80,000 (75 lacs)
Now he invests this money into a FD for 15 yrs at 9.5%.
B) Final amount = 75,80,000 * (1.095)^15 = 2,95,00,000 (2.95 crores OR 29.5 millions)
So his final corpus will be 2.95 crores.
