Goal setting for a secure future Sanjay, 30, is working in a pharmaceutical firm as a product manager.

His is a well-paid job that hands him a net salary of Rs. 60,000 each month. Sanjay is married with a two-year-old child and has no big liabilities at present. The monthly expense of the trio is approximately Rs. 25,000, apart from Rs. 9,000 that goes in paying rent for the flat they are currently living in. Sanjay's goals are: 1. 2. 3. 4. 5. To invest in a property (preferably, a flat worth Rs. 50 lakh) in 2015 To build education corpus of Rs. 20 lakh for his son in 2027 To build marriage corpus of Rs. 20 lakh for his son in 2034 To cover himself sufficiently, i.e., buy a life insurance policy To build a retirement corpus

6. To maintain the same standard of living, with no major increase in expenses, at the time of retirement Risk Appetite: Medium to high Does Sanjay have the right asset allocation? Sanjay is truly a family man, for he started keeping money aside for future quite early. Over the years, he has made quite a number of investments that can be summed up as follows: Sanjay's investments: 1. A medical cover of Rs. 3 lakh for the family, provided by his employer Rs. 2 lakh in three ULIPs that provide a total insurance cover of Rs. 10 lakh Rs. 2 lakh in four tax-saving mutual funds (ELSS) A term insurance plan of Rs. 20 lakh Other mutual fund investments Rs. 3 lakh o SBI Blue Chip Rs. 20,000 (NFO Jan 20, 2006)

2.
3. 4. 5.

6.

o o o o o o o

HDFC Top 200 Rs. 50,000 (June 2006) DSPBR Small and Mid Cap Reg Rs. 40,000 (NFO- Oct. 18, 2006) Fidelity International Opportunities Rs. 30,000 (NFO- April 30, 2007) Principal Large Cap Rs. 20,000 (June 2008) Religare Growth Rs. 40,000 (NFO- July 19, 2007) Reliance Growth Rs. 60,000 (Oct 2008) Tata Infrastructure Rs. 40,000 (March 2009)

Fixed Deposits Rs. 2.4 lakh

What do we say? Life insurance, health insurance, fixed deposits, ULIPs and mutual funds, Sanjay made every sort of investment that was possible and desired. But the question remains as is the investment wholesome and capable to meet his goals. Let's find out. Investment in ULIPs ULIPs involve high initial costs, with a large chunk of the premium going towards paying insurance commissions. Moreover, they do not offer adequate insurance cover. Thus Sanjay can avoid ULIP investments altogether. Though he has already paid three annual premiums, he can surrender the plans and save a good amount in premiums. Even though the IRDA's recent cap on ULIP charges will increase overall returns on ULIPs, they cannot match up with returns generated on mutual funds. So, Sanjay should consider ULIPs only if he plans to stay invested for a minimum period of 20 years. Insurance cover Sanjay's life insurance cover of Rs. 30 lakh (Rs. 20 lakh (term plan) + Rs. 10 lakh (ULIPs)) seems inadequate for the risks involved. He should consider buying a minimum cover of Rs. 80 lakh (as per a rule of thumb, insurance cover should be 10 times one's annual salary). Sanjay can buy two term plans one of Rs. 40 lakh for 20 years at an annual cost of Rs. 10,800 and another of Rs. 40 lakh for 30 years at an annual cost of Rs. 14,280. The two term plans have been recommended because his proposed liability of Rs. 40-lakh home loan (Rs. 50 lakh Rs. 10 lakh (20% down payment)) will be paid off in 20 years. Sanjay should immediately surrender the ULIPs and buy some mutual funds with the available amount instead. Medical cover In the current environment of escalating medical costs, Sanjay requires sufficient medical cover to deal with any unforeseen events in his life. Here the point is Sanjay is the only breadwinner of the family but he has not taken a medical cover for himself, and the medical cover of Rs. 3 lakh provided by his employer is for the entire family. So apart from this cover, Sanjay should consider buying a family floaterhealth insurance scheme of Rs. 4 lakh at an annual cost of Rs 8,899. How effective are Sanjay's MF investments? Now let us turn to Sanjay's mutual fund and other investments. Mutual fund Sanjay has put a good portion of his total investment in mutual funds during their NFO period. It is always recommended to invest in a MF scheme which has shown good performance over past few years steady growth during the bull period and resistance in bear period. Also, instead of investing in too many schemes, Sanjay should concentrate on 3-4 good diversified equity schemes. Moreover, he has made lump sum investments in mutual funds till now, so he can start five SIPs in the following schemes:

Birla Sun Life Front Line Equity Plan A an SIP of Rs. 3,000 per month HDFC Top 200 an SIP of Rs. 3,000 per month

Sundaram Tax Saver an SIP of Rs. 4,000 per month Read: Invest early, realise power of compounding
Real estate Sanjay would be buying a Rs. 50-lakh flat in 2015, for which he would take a home loan of Rs. 40 lakh (Rs. 10 lakh will be the down payment). His down payment would well be sourced from his investments in FDs and earlier lump sum investments in mutual funds.

IDFC Premier Equity Plan A an SIP of Rs. 3,000 per month Reliance Growth an SIP of Rs. 3,000 per month

Looking for a Home Loan:

Other investments Sanjay also needs to balance his portfolio with a regular investment in other fixed income products such as PPF and debt mutual funds such as income funds. He can invest Rs. 52,000 in PPF to complete the Rs. 1-lakh investment limit for income tax benefits under Sec 80C of the Income Tax Act. How will Sanjay fulfil his goals? Sanjay's monthly equity investments of Rs. 16,000 through mutual funds will grow to Rs. 2.12 crore at an interest rate of 10 per cent compounded monthly. This will take care of the child education and marriage expenses at an inflation adjusted rate of 5 per cent. Sanjay's annual PPF investment of Rs. 52,000 will become Rs. 54.06 lakh at an interest rate of 8 per cent over a period of 29 years. So, Sanjay will also be able to maintain his present lifestyle with the corpus built at the time of retirement. Goal Years remaining Expenses at current level (Rs. lakh) Expected expenses at an inflation adjusted rate of 5% (Rs. lakh) Retirement 30 25 102.90 Child's Education 19 20 48.13 Child's Marriage 26 20 67.73

Read: How to invest in Gold?

Moreover, Sanjay's income will increase steadily and so will his consequent investments. This will have a good impact on his corpus which will grow accordingly. Also, when Sanjay has some extra money, after making the regular investments, he can invest it in Gold ETFs and diversify his portfolio further. Summing it up

So far Sanjay had stuck with NFOs of mutual funds and ULIPs for major investments. But he needs to rejig his portfolio to align it with his future needs. As far as MF investment is concerned, it is always recommended to put money in good diversified mutual fund schemes with a history of 3-5 years. Hence Sanjay will have to streamline his MF investments by focusing on some specific schemes. ULIPs do not seem a good investment option for him as they involve high transaction costs, and also do not provide enough insurance cover. So Sanjay should get rid of ULIPs as early as possible unless he plans to remain invested for a long term. Sanjay is underinsured; he needs to buy adequate health insurance and life insurance cover for himself and his family to cover all his liabilities in case of any unforeseen events. If Sanjay is left with some extra money, he can consider investing in Gold ETFs as a hedge against inflation.

Where To Invest Rs 1 Lakh Short And Long Term Options March 1st, 2011 by Arun

Mr.

Praveen, 25 works in a reputed MNC and has just received Rs 1,00,000 performance bonus. Praveen wants to invest the same in profitable avenues but is confused about eventual financial goals. Suggesting him a suitable financial strategy. At the very outset, Mr Praveen needs to define its goals clearly. Goals have to be realistic and must be clearly aligned with the time frame in which goals are to be attained. This is imperative because if Mr Praveen doesnt, then he may not only digress from the right path of planning but also end up depleting your hard earned money. For example, Say MR Praveen plans to buy a car but is not sure about the timing. He allocate the sum in PPF, NSC, Infrastructure bonds and similar safe instruments, After say 3 years a new car is introduced in the market which suits your requirements, but cant buy it as all of invested products have a lock-in period. Similarly, Say his wedding is just a year away, which he plans to finance through the funds. Carried away with the stock market boom he takes direct equity market exposure. Just a month before the event, the stock market crashes and your capital is reduced to half. So lets suggest Mr Praveen diverse investment avenues amidst various time frames he can consider: Goals which are 1 Year away: As a rule of thumb,if goals are very short-term a conservative approach is best suited, more so in todays rising interest rate scenario. He can go for Short Term Deposits, treasury bills, government bonds etc., which if anything today are fetching 9-10%. Lakshmi Vilas Bank and Karnataka Bank offer 10.10% and 9.75%, respectively, to FD depositors for one year. Interest rates are expected to remain in higher zone as inflation which stands at 8.5%, still out of comfort zone of 5-6%. Post office time deposit, Sweep in deposits etc. is another option available to Mr Praveen. Alternately, MR Praveen could build a ladder of short-term bonds for three, six or 12 months (bond laddering is a strategy for managing FI investments where the investor builds a ladder by dividing his or her investment evenly among bonds that mature at regular intervals). That way, if the rates rise, he would be able to capture higher yields when he rolls over the instruments that mature.In 2011, corporate bonds are expected to yield 9% at least.

Investment Avenues for Immediate Goals: less than 1 year away

Type of Instruments Mutual Funds: Money Market/Liquid Funds Floater Rates Mutual Funds Global Mutual Funds Post Office Time Deposits Short Term FDs

Risk Level Low High Low Low Low to Medium

Return Level Low High Medium Low Low High

Futures (Currencies/Commodities) High

A better option exist in short term floating rate mutual funds, wherein he can put rising interest rate to better use, compared to FDs wherein returns are fixed. However, he should choose it carefully, as theres hardly anything special that a floating rate fund offers. Ultra short-term and short-term funds are alternatives that offer better clarity in terms of their investment objectives.For example, A Rs 1,00,000 investmentsin SBIs one year deposit would have fetched 7.75% in December, 2010, floating rate funds would have invested in higher yielding debt instruments post December. If Mr Praveen is prepared for high risks, he can also exploit global macroeconomic environments in short-run. He can invest in emerging economies through global mutual funds given cheap valuations but strong fundamental. China, for example, is a favorite destination. Its equity market has tanked 12% since Jan 2010 and is trading at 16x, much lower than Indias Sensex at 19.8x (As on 23rd Feb), making it undervalued. Similar is the case with Vietnam, Thailand, South Africa, Russia etc. An investor can expose himself to Currency/commodities futuresif he has some clear view on the economy or forecasting ability and is confident about a predictable trend in the exchange rate.In 2011, there is a real danger of the Eurozone &US printing more currency to ride the downturn, which will effectively result in loss of value for dollar & euro and benefiting Indian Rupee. Similarly, political unrest in Egypt, Libya&continued supply pressures makes Energies/Metals futures attractive. As we speak, Oil Prices are hovering around $100 per barrel and is sighting $120-130 within 3-4 months. Similarly Gold prices are expected to touch Rs 25,000 in the near term. Goals which are 2-3 Years away: For financial goals that are 2-3 years away, Mr. Praveen can continue benefiting from investing in Bonds, FDs, debt instruments earning higher interest rates.Suppose he has a non-retirement goal, such as buying a mid-size car or a house, for which you need a lump sum in 2-3 years. In such cases, you cant afford to risk the

principal of your investment. He can build a ladder of short term bonds maturity around 2-3 years which can serve downpayment of Mr Praveen car or house. Suppose Mr Praveen invests Rs 33,000 each in one-year, two-year and three-year bonds with coupons of 6, 6.25 and 6.50%, respectively. After the first year, he invests the proceeds of the 6% bond in a 6.5% bond with a maturity of 2 year. After the second year, lets assume he invest the proceeds from the 6.25% bond in a 6.5% bond, with the maturity of one year. As you are able to reinvest your returns each year, he is able to take interest rate advantage. Also his average return also goes up every year. With slightly more risk, Mr Praveen has a better option in fixed maturity plans (FMP) as these are more tax-efficient as compared to FDs, especially investing in plans giving double indexation benefits and higher returns. For FMPs with over one year (long-term capital gains) the tax liability is computed using two methods i.e. with indexation (charged at 20% plus surcharge and cess) and without indexation (charged at 10% plus surcharge and cess); the tax liability will be the lower of the two. FMP Vs Fixed Deposits: Compared

Particulars Amount Invested Assumed rate of return / interest (p.a.) Indexed Cost Value at Maturity Interest Income Capital Gain/Loss Adjusted for Indexation Applicable Tax Rate Long Term Capital Gain Liabilities Net Gain Post Tax returns

FMP (with indexation) 100000 8.25 112500 108476 8476 -4024 22.60% 0 8476 8.25%

FD 100000 8.25 NA 108476 8476 NA 33.90% 2881 5595 5.45%

Cost Inflation Index: 632 (for Previous Year) & 711 (for Current Year) The above table depicts that if you fall in the highest tax bracket (33.9% for FD); the post-tax returns you enjoy in a FMP (tenure over one year) are far superior from that of a FD (tenure over one year). After claiming the indexation benefit as you have long term capital loss, the post-tax return enjoyed by you in a FMP is entire 8.25% p.a. whereas a similar tenure FD generates just 5.45% p.a. In Mutual Funds, Mr Praveen can consider a monthly income plan (MIPs). It typically invests up to 85% in debt and has an equity exposure of 15%. The result is stable growth which outperforms the returns from debt funds but carries far lower risk than an equity fund. These funds carries moderate risk as equity component ensure returns are ahead of inflation. In Commensuration, Reliance MIP (G) fund, and HDFC MIP have given 13.4% and 10.9% returns over the past 3 years (Source: Money control) Amongst the riskier options, Mr Praveen can choose Equity-linked saving schemes (ELSS) which apart from generating good returns, they also give you tax benefits under Section 80C and come with only a 3 -year lock-in. However, if the proposed Direct Taxes Code is accepted in its current format, the tax advantage will disappear post 2012. The top 5 ELSS funds have given returns from 22% to 26% compounded annually over the past 5 years, compared to 19% returns generated by Nifty. Also, he can put money in corporate FDs, unsecured debts instruments, but comes with high returns ranging 10-15%, as compared with 8.5% for 3 year FD with Allahabad Bank. However, Mr Praveen should give due consideration to companys rating, management track record, fund use etc. before investing. Companies including HDFC, DHFL, Exim Bank, ICICI Home Finance, LIC Housing Finance etc. are few renowned firms have returned decent money. Goals which are 5 Years away: Here primary motive for Mr Praveen could be to realize funds for a particular event e.g. Home buying. Generally, a mix of debt and equity products is advisable as you dont want to loose on your investments, but at the same time intends to take advantage of slightly longer time horizon. On a conservative side of things, Mr Praveen can invest in avenues like Infrastructure Bonds, FDs, Gold ETFs, Post office Time Deposits and Assured Return/Diversified Debt Funds, High Yield Debt Funds.Most Infrastructure bonds have tenure ranging 10-15 years, but offers buyback options after 5-7 years, while the coupon rate for the 10& 15 -year bond is ranging 8.15-8.3%, comparable to 8.25%, what a 5 year FD with SBI will earn you at present. Also, only few handful firms are allowed to issue such bonds and hence tend to be reliable. He can take call bonds to redeem them (typically after 5 years) with put options to invest in bonds with higher returns. Assured return Mutual funds are also a good bet as it assures a specific return to the unit holders irrespective of performance of the scheme. However, a scheme cannot promise returns unless such returns are fully guaranteed by the sponsor or AMC.

Alternately, Praveen can invest in more promising commodity, Gold though ETFs. Gold prices are expected to rise in future as global liquidity is improving, which would support gold investments. As per the World Gold Council, the total assets under management of all listed gold ETFs in India have grown to about 15 tonne, from just 8-9 tonne in November 2010. Analysts are predicting gold prices to shoot up to $1500-2000 per 10 grams over the 3-4 years. However, investing in aforesaid instruments, Mr Praveen may be under utilizing its moneys earning potential. Risking a bit more, he can opt for sectoral mutual funds. Sectoral funds are usually cyclical in nature and their performances are affected by different macro-economic parameters and greater risk. However, certain sectors, such as banking, have the potential to outperform the overall Sensex. For example, BSE Bankex, which gave a return of 28.4% in 2010. Also category average during 2006-2010 has been 24.9% outperforming Nifty or Sensex Rs 1,00,000 could also be used to initiate SIP investments in small tranches that will help Mr Praveen build corpus for the future, given he continues to invests once these one lakh expires. It could be an important tool. (Example of compounding is given in next category) Goals which are more than 10 Years away: Long term goals are generally includes child marriage, education and retirement planning.For this, Mr Praveen can consider traditional avenues like PPF, NSE, pension plans etc., which would help build future corpus but with low returns. NSE comes with 6 year maturity period, so he can either a ladder or invests in some other post office savings schemes. PPF would yield him tax free amount after 15 years and termed best for long term investments. All mentioned plans earn around 8% per annum. However, in the long run, 8% return might not be sufficient to leave you desired corpus, given long term inflation of ~67%. Therefore, to mentioned goals, equity is an optimal asset class. Mr Praveen can invest in equity, either directly on the stock exchange or through an aggressive equity-oriented mutual fund. If Praveen has both the skill and time to invest in stock market directly, Equity investing are risky but they also have the potential to give high returns. In the long term, equities tend to outperform all other asset classes. In the 10 years between 1999 and 2009, the Sensex gave returns of 17.15% compared with the 12.96% given by gold and 8.3% by government bonds. Alternately, investment can be made in fundamentally strong sectoral funds, e.g. Infrastructure, Power etc. Alternatively, SIP in an index fund to build future corpus through compounding. The fact that Mr Praveen is still 25 has time in his favor. SIP will utilize this to great effect though compounding of money. For example, today, Mr Praveen makes an investment of Rs 5,000 per month in SIPs given he continues to invest once these one lakh expires. Assuming a 15% return per annum over 10 years, this investment could grow to as much as Rs 13.93 lakh, something that could come handy in making an upfront payment for specific purposes such as Child Education.

How To Invest In Gold May 11th, 2010 by shwetabh

In today's troubled economic scenario, we prefer the kind of investments that will protect our wealth rather than create wealth for us. Gold is one such investment. It is a bedrock of investments that can weather any storm. Gold as an asset has long-term intrinsic value, which helps shield our investment from inflation, currency debasement and equity market declines. At the same time, it saves the country's purchasing power from nosediving. In fact, it offers the best protection against volatile markets. The reason: gold prices are maintained or increased irrespective of the country's economy moves in an upward or a downward direction. From the last 20-30 years, gold prices have been on a steady and continuous rise. The precious metal has given returns of around 9.45 per cent as the prices went up from Rs 1,000 per 10 gram in 1979 to its present value of Rs 15,000 per 10 gram.

Highlights Gold helps shield investment from inflation, currency debasement and equity market declines Gold prices are generally not affected by the economic conditions One should allocate at least 10-20 per cent of one's investment portfolio towards gold, irrespective of the risk appetite

Why should we invest in gold? Gold is a proven way to preserve wealth, especially when the local currency is losing value. It is also valuable for things beyond investments as demonstrated by its ever-increasing demand. The demand for the yellow metal is so high that its current consumption has exceeded its production. The production of gold is controlled by a few companies; whenever the prices of gold fall below its production costs, these companies stop their operations. This mechanism creates a stable floor price for gold. Thus when market plunges, like stock prices gold prices do not get affected, and cushion our investment portfolio against downturns. Check Fixed Deposit rate: Ways to invest in gold We Indians have been the largest buyers of natural gold, but it's not long ago that we recognised its value as an asset and start adding it to our investment portfolio. Investments in gold are made through gold coins, gold jewellery, gold bullion (biscuits or bars trading through demat account), gold futures, gold ETFs and the recently-acknowledged gold mining companies. Gold jewellery, no doubt, carries high emotions and intrinsic value in real sense, however it is not the smartest

way to invest in gold, mainly on account of the uncertainty of quality of gold used and high additional making costs. In terms of return too, you find variations in the forms of gold investment. You can make 100 per cent in gold stocks, 50 per cent in gold coins or bars, or even 500 per cent in gold futures. Table 1 briefly describes the different aspects of gold investment while Table 2 delves into the tax structure of the different forms of gold investment. Let us understand both in detail: Table 1: Comparison between Different Forms of Gold Investments Cost of Buying Gold ornaments High Purity Uncertain; comes in different carats Liquidity Return Low; high initial cost Moderate involves in making ornaments Low Low as banks charges storage cost, insurance, etc. Comparable to market returns Depends upon company performance Used as a hedge Comparable to market returns Safety/Storage Risk

Storage risk

Gold coins

High

Highest

Storage risk

Gold ETFs Gold mining companies Gold futures Bullion Gold

Lowest Lowest Lowest Lowest

Highest

High

No storage risk Market and company risk Storage risk; needs to take delivery on expiry Storage risk

Company performance High defines its existence Highest Highest High High

Table 2: Tax Treatments of Different Gold Investments Short-term Gains1 Gold ornaments Gold coins Gold ETFs Gold mining companies Gold futures Bullion Gold
1

Long-term Gains2 After 3 years After 3 years After 1 year After 1 year After 1 year After 3 years

within 3 years within 3 years Within 1 year Within 1 year Within 1 year within 3 years
2

Taxed as per applicable income slab,

Taxed at 20 per cent with indexation benefit

Gold jewellery We all love the yellow metal, don't we? Be it in whatever form, jewellery or others. Nothing can match the emotions that are attached to the buying of gold jewellery. In India, we buy gold jewellery either out of desire (to wear gold ornaments) or needs (mandatory purchase in marriages and other functions). This is an expensive way of buying the precious metal since a buyer has to pay for the craftsmanship associated with the making of jewellery, which increases the total cost. Moreover, selling of the jewellery may not fetch the same price in case the current market price does not exceed the buying price. Gold coins It is one of the purest forms of gold. All the commercial banks and financial distributors are authorised to sell gold coins of 24 karat (the purest), with a certification from an independent agency. The prices of gold coins depend on the daily market rates of gold. But banks don't buy the coins back, so our only option to get our money back in this case will be by selling the coins to jewellers at the prevailing market price. Get lowest home loan rates: Gold mining companies It is not a direct investment in gold but in the stocks or shares of a gold mining and exploration company. It brings additional rewards as well as its share of risks. The price of these stocks moves with the price of the gold and also depends on the company's future outlook. In India, there are not many gold mining companies but on the international front one will find companies such as Newcrest Mining, Barrick Gold, Impala, Gold Corp, Lihir Gold, etc. However, we can invest in world (gold) mining stocks through mutual funds such as DSL BlackRock (DSPBR World Gold Fund) and AIG India MF (AIG World Gold). Gold futures Gold futures are a sophisticated tool to invest in gold markets. But be cautious: Risks attached to gold futures are of the highest level. One can make 500 per cent in a single day by trading in gold futures or even lose all the money put up. However, gold futures are not about minuses only. Its plus point is it eliminates the hassle and costs of settlement and

storage. Investors need much less money (margin money) to participate in quite large scale. Even traders can short sell as the market is deep and liquid. But these options are not recommended for retail investors. Gold ETFs It is a very recent development that the market regulator SEBI allowed gold Exchange Traded Funds (ETFs) in India. Gold ETFs enable investors to purchase and sell shares of a mutual fund whose primary asset is gold. These funds are listed on the stock exchanges, i.e., can be bought or sold like other stocks or shares. But one needs to have a demat account and a share trading account to invest in gold ETFs. The unit size in a gold ETF is as small as one gram of gold equivalents. Investments in gold ETFs are eligible for tax treatments similar to that in a debt mutual fund and subject to long-term capital gains after one year against three years for physical gold. The cost involved is also less and investors do not face the risk involved in holding gold like theft. Some of the gold ETFs are UTI Gold ETF, Gold BeES, Kotak Gold ETF and Reliance Gold ETF.

Want to invest in Gold ETFs, apply for Demat Account:

Gold bullion This investment avenue is open for investors with a higher investment corpus or greater risk profile. Gold bullion or bars can be bought or sold with the help of brokerage firms or gold dealers. It is traded on commodity exchanges, i.e., MCX and NCDEX, at an amount above the market price of gold. Investors can keep the bars in their custody or leave them with the broking firm. Though the brokerage charged in this case is very low compared to market price, its overall cost is more as it also involves storage and assay (analyse gold to determine its composition) costs. Historical returns of different gold investment options Let us analyse the performance of different gold products as on July 31, 2009 with the help of Table 3. The data has been obtained from www.mcxindia.com and www.mutualfundsindia.com, an online arm of Financial Technologies and ICRA Online Ltd, respectively. The table shows that all investments with gold as an asset have given comparable returns of around 16 per cent while the return of gold mining dedicated mutual fund (AIG World Gold) is stipulated to a paltry 3.48 per cent. The fall in return in the mutual fund can be attributed to underperformance of gold mining stocks due to a slump in gold demand. But in case of gold ornaments and gold coins, the return would be comparatively less than gold bullion and gold ETFs as they also involve making costs and storage costs. Table 3: Historical Returns1 in One-year Category Forms of Gold Investment Gold ETFs Gold mining companies (AIG World Gold) Gold futures Gold bullion
1

One Year 15.98% 3.48% 16.58% 17.54%

As on July 31, 2009

Source: MCX, ICRA Online Gold in portfolio Since gold has emerged as an asset class, fund managers are advising investors to allocate at least 10-20 per cent of their investment portfolio towards gold, irrespective of their risk appetite. It has seen that trading in Gold ETFs is the best way to invest in gold given its low cost of buying, high liquidity, low risk associated with it, etc. Moreover, whatever be the economic scenario, gold will always remain the best hedge against inflation and also help in achieving our long-term goals.

Where Should You Invest Your Money Gold, Life Insurance, Provident Fund, Fixed Deposits, Mutual Funds or Equities May 6th, 2010 by rupeetalk.com

Preparing for your retirement Get, setgo

There comes a time in our life when we are settled into our jobs, with a decent salary and some additional cash on our hands. This presents a very good opportunity for us to save up some money for the future, especially for our retirement. But where to start from? There are myriad options, but which is for us. This and many questions start whirling in our head. Even if we manage to catch a financial planner, it is we who have to pick the right investment. So let us find our starting point: The main objective of retirement planning is to amass handsome savings over time. So before making an investment, it is important to consider the rate of return on that investment. A profitable investment would be the one that beats inflation rate, by yielding a higher rate of return. Any investment made below the inflation rate would mean loss of money for an investor and vice versa. The table below explains this point.

Since Last 5 Years Annualized return (%) Inflation- CPI 4.16 230 Value of Rs. 100 as of now (Rs.)

Since Last 10 Years Annualized return (%) 4.33 28.80 1,256 I Value of Rs. 100 as of now (Rs.) Rank based on return

Birla Sun Life 18.20 Equity Fund-Equity

Nifty LIC MIP-Hybrid

24.40 7.90

298 146 151 129 153 175 137

15.10 11.80 10.90 10.00 9.80 8.90 6.50

409 304 280 259 256 234 188

II III IV V VI VII VIII

Birla Sun Life 8.60 Income Plus-Debt Fixed Deposits Provident Fund Gold Life Insurance 5.30 8.90 11.80 6.50

We can see that over past five-ten years, the consumer price index (CPI) an indicator of inflation has shot to 4.33 per cent from 4.16 per cent. To ascertain the effect of inflation on the return by these investment options, we will consider them one by one. Gold & insurance: Trust them blindly

Life Insurance: Though it is at the bottom of the table in terms of return,

life insurance comes with a host of benefits. Maturity proceeds of an insurance policy are tax-free. Besides, premium paid towards the policy qualifies for a deduction under Sec 80C. This means that the effective post-tax return is close to 6.5 per cent, good enough to beat inflation at 4.33 per cent. A life insurance policy has dual advantages it provides fixed returns and also an insurance cover. But there is also a flip-side: generally, it is not possible to liquidate a life insurance policy. Gold: From time immemorial, gold has been trusted as the safe haven for savings. From return's point of view too the precious metal is a fairly safe bet. At the time of sale, capital gains on gold are taxable at the rate of 20 per cent but on account of the indexation effect, no tax will be levied on the 5-year or 10-year period. Gold generates a rate of return in the range of 9 per cent-11 per cent, surpassing inflation rate easily. The rate of return may not be high, but it is the safest investment option available. Gold can be easily traded at prevailing market prices. Gold price is typically less volatile than other commodity prices but more volatile than the prices of commonly-traded stocks. Gold is unique in the sense that it does not carry a credit risk a risk that a debtor will not pay. Instead, it faces a much unrelated risk that of theft.

Read "How to invest in Gold":

PF means no risk, no tension Provident Fund: Government-backed Provident Fund (PF) and Public Provident Fund (PPF) are considered to be one of the best investment options in India. Maturity proceeds from both are tax-free. In addition, the contribution made towards PF and PPF qualifies for a deduction under Sec 80C. Apart from tax benefits, PF comes with a unique advantage. For every rupee that we put into PF, our employer contributes an equal amount. This means that the effective rate of return from PF is doubled a contribution of Rs 100 to PF from our side results into a corpus of Rs 206 (and not Rs 103) which easily beats inflation. PF has historically provided a relatively high, tax-free and zero-risk return. But, unlike life insurance, PF does not provide fixed return. The return is reviewed every year and changes with respect to a change in the interest rate. In an era of falling interest rates, the return on PF is also likely to reduce. So, if we are three or four years from redemption, we should continue to invest in the PF the same way. But if we are a long way from maturity, we can consider other risk-free avenues (such as the National Savings Certificates (NSCs)). NSCs have a shorter maturity period of six years, and they allow investors to lock into a rate of interest till maturity, which is not possible in PF. There is also usually a penalty on premature withdrawal from PF. Fixed and steady, that's what an FD is all about Fixed Deposits: Benefits of Fixed Deposits (FDs) safety, liquidity and high return make them the most sought-after investment option. The return on FDs has been 5.3 per cent over the past 5 years and 10 per cent over the past 10 years. The interest is taxable at the marginal income tax rate. For those in the highest income tax slab of 30 per cent, post-tax returns on FD fall to 3.7 per cent and 7 per cent, for the two respective periods. This means that we might end up losing money on an FD. But FDs have a fixed rate of return. So, whether a bank makes money or not, we still get the promised rate of return. Because of this feature, it is advisable to keep a certain amount of contingency fund in FDs.

Though bank fixed deposits are widely considered as a safe option, there have been instances when depositors have lost their savings. This is why we must check a bank's track record and credibility before investing. Also, banks usually charge a penalty on premature withdrawal, which might lead to a reduction in the overall rate of interest earned on the FD. Thus, one should choose the length of an FD carefully, ensuring that we can do without the money until maturity. Another disadvantage is even if there is an increase in the interest rates, it will have no effect on our return which will be fixed from the beginning. But if inflation rises, we might end up losing money. Let's make money without being too cautious Debt-oriented and hybrid funds: These two funds may be no match for equity-related funds, but they are good when it comes to offering consistent return, and there is also less risk involved. Long-term capital gains tax is levied on them at 20 per cent after indexation and there is also dividend distribution tax at 28.3 per cent. Assuming we had invested into growth funds and no dividends were paid, the 10 per cent-12 per cent return generated over the last ten years effectively reduces to 8 per cent-10 per cent, managing to overcome inflation. Debt mutual funds have an equity exposure of less than 65 per cent. Though debt mutual funds are far safer than their equity counterparts, they do not offer a fixed return. Returns of debt funds are dependant on the prevailing interest rate. In an era of falling interest rates, there is likely to be a significant reduction in the return generated. Stocks and equity-oriented funds: Investing in stocks and equity-oriented funds can be a risky proposition, but we also cannot ignore the fact that it is the most lucrative option of all. There is no capital gains tax on stocks and equity-oriented mutual funds held for more than a year. Also, the risk associated with them can be mitigated to a certain level by diversification of portfolio (as with mutual funds). However, the risk cannot be completely eliminated. Investment into stocks (and associated mutual funds) is thus recommended if one is ready to take exposure for a longer period of time. Let us assume that the rate of return and inflation over the past ten years would be replicated for the next 30 years. If you invest Rs 100 today, the value of your investments after 30 years would be:

Value of Rs. 100 After 30 Years Investment Options Life Insurance Gold Provident Fund Fixed Deposits Birla Sun Life Income Plus- Debt LIC MIP- Hybrid Nifty Birla Sun Life Equity Fund- Equity Value of Rs 100 (in Rs.) 661 1,285 1,672 1,745 2,198 2,817 6,852 1,98,370

What we see is that stocks and equity-based mutual funds generate a significantly higher return than debt-based instruments, consistently. Does that mean we should blindly chase returns and invest in stocks, ignoring other options?

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While deciding our investment mix, it is important to consider how much time is left before we retire. Our investment pattern should reflect our age. Stocks and to a certain extent mutual funds do generate higher returns but they also involve a greater risk. And the return may not necessarily be generated in the short run. If age is on our side, means if we are young, we can afford to wait and thus invest in more risky assets (hoping to get a higher return). A debt to equity ratio of 35:65 is considered to be good at the age of 35. It is generally a ratio of our age to 100 minus our age. As we grow older, our risk appetite reduces. During this phase, one should consider investing largely in debt-oriented instruments. A debt to equity ratio of 45:55 is considered to be good at the age of retirement. What you need to retire comfortably?

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The golden rule says that one should not put all eggs in one basket. We must try to diversify our retirement portfolio by including those alternatives that best fit our short-term as well as longterm needs. Irrespective of our age, a certain amount of money should be invested in instruments generating a fixed return (e.g., fixed deposits). These funds form our emergency corpus and can be liquidated in times of need without significantly harming our portfolio. If we want to enhance our retirement corpus by means of investing in equity market then we must be prepared to remain invested for a longer period, say at least 5-10 years.

How To Multiply Your Money? May 6th, 2010 by rupeetalk.com

At 28, Shobhan has managed to save Rs 60,000 for investment. As a first-time investor, he is weighing all the options open to him. Since he wants to be a regular investor he is interested in knowing the type of investments he can make, important conditions for these investments and the options that are influenced by them. Investment planning requires a great deal of attention to details and an alert investor ensures that he/she has taken care of this important aspect. In helping Shobhan choose his investment options, we will discuss at length several points that are very vital from the investment perspective.

Highlights Regularly monitor your investment to ensure that it is achieving the objectives Risks are attached to every investment but their exact nature may be different Before investing you must understand your risk appetite

Period Investment planning is not a one-time activity. You cannot make an investment and forget about it. You need to monitor your investment regularly to ensure that it is achieving its stated objectives. Shobhan should consider the existing Rs 60,000 plus future investments that will go on to building a quality portfolio. This also means an increasing responsibility as the period and portfolio increases. For example, after two years there would Rs 1 lakh to monitor that can become Rs 3 lakh after 5 years, and so on. Investment planning also has to be started as early in life as possible so that there is adequate period available for your money to grow. In this respect, Shobhan is in a good position as being only 28 he gets more than 30 years for his money to grow till he retires. Consequently, this eases pressure of making large investments.

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Risk element Every investment comes with a risk attached, depending upon its exact nature. This risk element represents a possible loss when the investments are made in a particular area. So, if you put Rs 50,000 in equities there is a chance that your amount becomes Rs 80,000 or Rs 25,000. In the latter case, it will be an erosion of capital. Different people have different risk appetites, so if you do not want to lose even a rupee you would be opting for safe instruments like a fixed deposit or the one backed by the Government, but if you are willing to take greater risk for greater return then equities would be a better option. If you have invested Rs 50,000 in the former you will get Rs 50,000 back plus the return. A person like Shobhan will prefer to go in for debt investment at the first stage along with a small proportion in equity which can rise over a period of time as he develops more confidence in the investment process. Thus depending upon the risk element various investments can be classified separately and this has to be considered in the process of selection.

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Returns There are various types of returns that are possible for different investments. It is necessary that you the investor match your requirements in terms of earning return along with the possibility in a particular investment. For example, there are some investments where the return is fixed and is known at the time of making the investment. Public Provident Fund has a return of 8 per cent that is known, similarly the National Savings Certificate has a return of 8 per cent compounded half yearly. Choose these investment options if they suit your requirement. On the other hand, there are equity shares and mutual funds that invest in equities where the return is not limited. Here, the annual return can go as high as 50-70 per cent but there could be a similar kind of loss also. Shobhan should understand that knowing the return at the time of investing is not possible and hence the actual position can be known only once the time period is over. Time period The time period for which the money can be invested is essential as the life period of the various instruments has to be matched with it. Every investment made by you is for a specific time period because there are alternative uses of the money which can be required at other places. So if you have Rs 25,000 you can either invest this or spend it on buying a new LCD TV. There are investments that mature in a few days like a fixed deposit for one month or a bond or a debenture maturing after 5 years. If you need the money say Rs 30,000 after a year for a family wedding then the choice of the instrument and the time period have to ensure that the money is liquid at that point of time. There are areas like equities where the shares

can probably be present for perpetuity. But in this case you have to decide the time period for which the investment is being made and select the shares accordingly. The assumption and expectations about other factors can then be made accordingly

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Liquidity One of the most vital factors to be considered in any investment is the liquidity that it will generate for the investor. One of the routes that ensures liquidity is the ability to sell the investment. This enables you to know how quickly the investment can be turned into cash. Mutual funds and equities have a high liquidity because of the turnover and ready market. At the same time, there can be other means of raising liquidity, like a loan against the investment. In this respect, the NSC has high liquidity but not the Government of India bonds. The shorter the period for cash conversion the better it is for an investor.