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How to earn money on your property

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September 07, 2006

Property prices have just been going up and there is no looking back. As Sanjeet Narain, Director of commercial property at Narain Corporation, says: "Property appreciation is much stronger than stock markets. Stock markets can probably crash down anytime whereas property rates do not drop down that fast." Quite a few investors are looking into it as a flourishing option. However, with prices reaching a peak, it is quite understandable to invest in real estate market but getting returns out of it is a little confusing. The first thing that would come to your mind is 'rent.' Giving your property on rent is one of the best ways to get returns out of property. Not just that, you silently also enjoy the capital appreciation. Therefore, if your budget allows, you can invest in property and get good regular returns with little risk. People with a low budget would want to stop reading ahead. But if you take a loan from a bank and buy a property from that, you can use the rent earned from the property to pay your EMI (equated monthly installment). Although you may be at no profit no loss situation, but aren't you building a property as an investment for your self? There are different ways of earning rent depending upon the kind of property that you buy.

A. Commercial Property If you own a commercial property, you have a lot of choices in store for you. For renting a commercial property, one has two options -- retailers and office occupiers. 1. Retailers Depending upon the city, area and location, the rent differs for each of the below options. A simple rent every month can work like a salary for you, that too without working. Rather than keeping your property idle, the options given below can help you to extract money from your property, which can do wonders for you. Retailers

Minimum area required

Super markets 3000-5000 sq ft Restaurants 2000-5000 sq ft Toy shops 1000-2000 sq ft Shoe shops 800-2500 sq ft Jewellery shops 500-5000 sq ft Book stores 2000-10000 sq ft Furniture store 5000-20000 sq ft Departmental stores 15000-50000 sq ft (as told by property consultant, Ramesh Nair)

Franchisee Giving your property to any well-renown brand is another lucrative option. Since the multinational companies have realized the potential of India, they have been trying to grow the number of outlets in India. Like, McDonalds, which has so many outlets in India especially in Mumbai. Similarly, may other brands like Pizza Hut, Barista, Caf� Coffee day, etc. may be waiting for you. Rent may not be the only way to earn out of here, the other way would be asking for a profit share every month. You give them a place to work and they give a part of their profit. Different brands function differently, depending upon your negotiations with them, you can either decide on the monthly rent or earn by the profit sharing basis. Rental rates of commercial property in Mumbai (as told by Sanjeet Narain) Mumbai Rental rates (per sq ft): • • • • •

Bandra Kurla Complex:----- Rs 200-250 per sq ft Andheri (West) :----- Rs 90-120 per sq ft Andheri-Sakinaka:----- Rs 40-60 per sq ft Malad:----- Rs 40-60 per sq ft CST Road-Kalina:----- Rs 125-175 per sq ft

2. Office Occupiers These office occupiers basically include all Software companies to financial institutions to telecom companies. According to Sanjeet, ideally, the area required for the following options should be anywhere between 1,000 sq ft and 5,000 sq ft (excluding the pay and park option, which could be more than 5000 sq ft). a) Multinational Companies and Financial institutions India's cheap labour and high purchasing power has attracted quite a many multinational companies to start up their business in India. These MNCs never buy a property in India; they always prefer to take it on rent. These MNCs generally give a high rent and are quite regular with their payments. Examples would be BPOs, software companies, financial services. b) Banks With the number of banks growing in India, all banks want to reach out to the remotest area of the city. You never know if they want to open a branch where you have bought a property. If your area is big enough for a bank to operate, you must look into the newspapers where they put in the advertisements and invite tenders. You can easily earn a good amount depending upon the area. You can be sure that banks are generally quite regular with their rent payments. Banks normally take the property on lease i.e. more than five years, says Narain. The rent basically depends upon the total area and the location but you can be sure that its pays off quite high. c) Business Centre Agreement "This is another option of earning money and saving tax. Generally, you have to pay tax on the rent you earn but in Business Centre Agreement, you term your rent as service charges and hence you save property tax," informs Sanjeet. When the landlord gives his furnished property along with various amenities like telephone, electricity or computers to the client, he will take rent from him but the rent will be termed as service charges. This helped the landlord to save his tax, which he would have had to pay on rent. However, now the government levies 12.24% service tax on service charges as well, says Sanjeet. Nonetheless, this is another good option to earn from your property. So, if you have an ideal furnished place, give it on rent today. The rent or rather the service charges are higher here since the client does not have to spend much on the infrastructure. d) Pay and Park If you have an open plot in the midst of the busy city, converting it to a parking area is one of the best options. With the growing number of vehicles, parking seems to be the biggest problem for all the drivers. You can resolve their problem and also make money out of it.

Generally, it costs Rs 20 for parking a car for an hour. Therefore, even if there are 200 vehicles per day, you can easily earn Rs 4000 per day, which further means Rs 1,20,000 per month. Isn't it a great deal? Think about it. In metro cities, you can get a return of about: (as told by Sanjeet Narain) • • • • •

Mumbai:----- 10-12% Delhi:----- 8-11% Bangalore:----- 8-10% Hyderabad:----- 10-12% Kolkata:----- 8-11%

B. Residential Property The location and the living standards are two important things for residential property, rightly said by Chetan Narain, president, India Institute of Real Estate. The rent generally differs depending upon the location. One needs to first set the right budget to invest in residential property. According to Chetan, "Commercial property can give you higher returns as compared to residential property. One can 10-12% return in commercial property whereas residential can give you about 56%, exclusive of taxes." However, if you have bought second homes as an option, or bought a property in any other city, grow your bank balance by giving it on rent. Here are the options: Company leases Giving your property to corporate employees is one of the safest options. Their respective companies generally give the deposit and the rent. Having a legal document stating the rent and number of months is advisable. Individual leases An individual may pay his rent and security deposit for himself and his family. This is the most common trend for residential property. The house is generally given on 11 months agreement. Paying guest (PGs) Individuals from different background and families stay in one house and the rent is paid individually. Here, the landlord would stay in one of the rooms and may give his other rooms on rent. There is no legal document, which is signed between the landlord and the PGs. The deposit and the rent is quite less in this case. Guest houses

A furnished apartment with a cook and a housekeeper given on a rent for a short period of time would fall under this category. These guest houses are quite common at hill stations and in cities; they are generally rented on occasions like wedding or some celebration. Service apartment A completely furnished home with all amenities can also be given on rent. Here you can earn a higher rent but your personal belongings may be at stake. Precautions to be taken "Most of the times, the commercial property is not given on rent but on leave and license agreement, which means that the landlord gives his property to the client for less than five years. If the property is given to the client for more than five years, then it is said to be given on lease," informs Sanjeet Narain. In case of lease, you have to pay 5% stamp duty of the lease period. Whereas, in case of leave and license agreement, the maximum stamp duty to be paid would be approximately Rs 50, 000. Here are few of the points, recommended by Ramesh Nair, that are to be taken into consideration at the time of negotiations: • • • • • • • • • • • • • • • • •

Profile of the occupier Security Deposit Lease term Maximizing rent Escalation of rent at the time of renewal Maintenance cost Parking Signage Power availability Competitor clause Repairs and alterations Property tax Termination rights Lock-in period Force majeure Various indemnity clauses Sub lease clause

Disadvantages of giving your property on rent There are a lot of advantages of giving your property on rent, but there are also a few disadvantages. •

Landlord cannot use his property for personal purposes once it is given on rent. However, it is just for a particular period of time as negotiated.

• • •

Sometimes, the tenant may delay the monthly rent. Few tenants don't vacate the house on time. They keep postponing the vacating date. The occupant may mishandle personal belongings like bathroom fittings, walls and so on.

However, these disadvantages can be prevented if things are made clear during negotiations.

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Share your commen What do you think about the story? Read what others have to say: Number of User Comments: 4 Sub: Are you guys joking? Could your experts please pin-point at least one property anywhere in Bombay or anywhere else in India where the rental income will equal EMI? I ...

Posted by Amit Sub: You will loose Once IT boom crashes...stock (blue chip) will also crash...then real estate will crash to the bottom. IT crash has already started in Bangalore...we are seeing ...

Posted by Prasanna Sub: Best Investments Which place is highly beneficial in arround Delhi for investment. Whether Faridabad, Ghaziabad, Gurgaon for investment of arround Rs.20 Lakhs.

Posted by Naresh Kumar Bhugra Sub: Very useful information for people who have good amount of unutilized cash Good piese of writing on realestate investment.I feel writer has covered most of the areas where one could invest & enjoy good & safe returns. ...

How to make money by day trading

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Sanjay Matai, Moneycontrol.com

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August 08, 2006 10:00 IST

Food is tasteless without spices. While one may manage a few meals without them, it is difficult to continue doing it day after day. Something similar applies to our investing too. If we invest for long-term whether in debt or equity; if we have to keep patience and see our investments grow with time; if we don't do something actively; we tend to get bored. In fact we may even end up doing something foolish, if the wait becomes frustrating. So we need to add a bit of spice to keep our interest going in building a long-term portfolio and wealth. Therefore, for that enjoyment and kick, one can look to doing some day trading. But remember - just a little bit. Too much of spice makes the food unpalatable. Moreover, you cannot survive only on spices. But before, we jump into day trading here are a few guidelines, which may prove useful. Allocate not more than 3-5% of your corpus: Make sure that you do not allocate more than 3-5 per cent of your equity corpus for day trading. This is a high risk strategy and so even if one were to lose all money it will not hurt the overall financial

situation. Yes the loss will pinch for some time, but you will get over the pain shortly. Moreover, it will enable you to come back and try again. It doesn't become any easy with all the technological support: People are attracted to day trading by watching the stock market tickers 24 hours on news channels. Fundamental information/technical charts are available on a number of websites and most of all there is the ease of online trading. But these are mere technological tools which only facilitate easier availability of data and execution of trades. We have to learn to interpret that data correctly and convert it into meaningful information. Easy availability of data does not make everyone a genius. And those tickers can be very tempting like chocolates. Have self-control to a them. Educate yourself: It is a must that you understand all lingo of day trading, futures, call option, put option, delta, stop loss trigger among others. You need to be familiar with all such terms as you will come across these in your day trading. This will help to understand what experts are saying. You must also be aware of the economic situation to take a proper view on the market and stocks. How will oil prices impact the market? What effect interest rates will have on the stocks you want to trade in? For example, rise in interest rates may have negative impact on capital intensive companies, which depend on a lot of debt. But may be good for cash-surplus IT companies. Choose large cap stocks which have high trading volumes. You don't want to get stuck with an illiquid stock. Moreover, such stocks will have good amount of technical information. Try to predict the general direction instead of trying to hit tops and bottoms. Keep a track of all your trades and analyse them. Over a period time you will be able to pick up useful trends. Learn to book your losses and gains: The main reason why people lose money in day trading is because they are averse to making losses. If you have taken a wrong call or the market is not going as per your expectation, be very sure to book losses. Do not live on the hope that the market will turn around. In fact, even before you make an investment, first decide at what loss you will exit. Stop loss pricing is the key to becoming a successful day trader. Always focus on limiting your losses, not maximizing your profits. Never add to a losing position. It is a prescription for disaster. Similarly, don't be greedy. Book profits at regular intervals. A number of small gains is a more realistic strategy than going in for one to two big kills. Markets, in the short-term, are never logical, so don't try to assume anything. Flow with the market. Stick to the objective rules of profit/loss booking.

Discipline and emotional balance is critical to success. Profits should not make you over-confident nor should the losses intimidate you. No two people with same set of stocks and information will make same amount of money. It is their mental framework, which determines success or failure. Do not overtrade: One of the common mistakes people make in futures and options is overtrading because these markets work on margins, rather than paying the full trade value. Therefore, don't be lulled into complacency by the low margins. Make sure that your total trade value is within your financial means. Also, day trading doesn't mean you have to trade every day. Even two to three trades in a month may be more than sufficient. Trading opportunities don't happen everyday, so bide your time. Even if you miss some of them, don't rue. Markets are not going anywhere. You will get your chance sooner or later. Further, concentrate on just two or three scrips at the most to make trading more manageable. Moreover, over time you will get a feel of these scrips, which will help you to trade better. A word of caution: Day trading can be injurious to your financial health. Therefore, it is strongly recommended that you keep away from it. But if you find it irresistible, follow the above rules to minimize any damage. The author is an investment advisor. He can be reached at [email protected] For more on financial planning, log on to click here.

How to create assets and get rich Kartik Jhaveri, Moneycontrol.com | August 18, 2006 15:02 IST

We tend to see lakhs and crores worth of assets owned by our employers and companies whose shares we hold. But when it comes to our own assets, leave aside crores, most of us don't even see a few lakhs worth of assets and we have already reached middle age. Wondered why? Life is such that most of us are driven by our financial circumstances. Normally we tend to think -this is all that I can obtain from what I have. One never really thinks in terms of -- this is what I want to have, so how can I afford it?

It is not that we don't know about this doctrine or that this is some new age-thought. We practice this philosophy in our lives practically each day. Say, we take a particular road each day to work, we think -- how can I reach faster? Say, we feel we are overweight, we think -- how can I reduce my weight? So on and so forth. We go for many training programmes: from anger management to art of living to possibility thinking. We all use this 'How can I' principle practically every now and then in our life. Strangely enough, when it comes to money and when we wish to buy something, which we know we cannot afford, we tend to get cold feet and label the event as destiny. Never do we think of using the 'How can I' principle. This is why most people end up with barely 10% of what is possible during a lifetime. What I am talking about here is how you can drive your financial circumstances rather then letting your circumstances drive you. Let's understand this with a real life example: Say, you want to take a personal loan. You would normally take a loan based on your income papers and start repaying via EMIs (equated monthly installment). The question to ask is how can I have the loan without the stress of repayment? Well, how about taking a loan against some appreciating asset that you have? You get your loan and in terms of your cash outflow it is all the same. The difference is not in your cashflow, but in your net worth. With a direct loan, there is no change in net worth. With a loan against an asset, your net worth also keeps improving. Further, if you make good gains you could also use the gains to prepay your loan. The underlying statement here is -- first build assets. The golden rule if that the more assets you have, the more liabilities you can afford to have. But first build assets. There are many reasons why we have been pre-conditioned not to think in terms of 'How can I' in money matters. The problem is not with you; it's with our financial services industry, which is totally product-centric, instead of being advice-centric. What makes things worse is that products are sold based on history. As a result, the advice available is rather shallow and what you may hear is 'This product has been the best performer,' 'This is the best product right now -- but the scenario may change in 2 months,' 'Take it or leave it,' 'Take it before its off the shelf, before it is too late,' etc. As a result, people tend to buy tactics of the past hoping the future to repeat the past. Being stuck in time is another grave error. Yes, history will repeat itself, but the characters will be different. You don't really need a financial guru or a financial astrologer, you simply need a friendly pathfinder to guide you. All you need to do is to change your approach.

Always ask yourself -- how can I. . .? Think hard and you will always find a way in finance that is the beauty of finance -- there is always a way. Never think in terms of breaking or selling assets, increasing liability without an increase in inflow. Always try to keep what you have and get into the mode of preserving what you have and building more over it. Yes, in financial management, you can have your cake and eat it too. All you have to do is ask yourself 'How can I have everything?' The author, an expert at Financial Planning is a Certified Financial Planner and a Chartered Wealth Manager. He may be reached at [email protected]. Disclaimer: The contents of the above articles are the intellectual property and copyright of the author, Kartik Jhaveri. No part may be used or reproduced in any form or manner. If you choose to act upon the information contained in the above article it is at your own risk. This article is purely educative and you are strongly advised to consult an expert prior to taking any significant decision.

Need cash? Try reverse mortgage

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Pankaj Anup Toppo, Outlook Money

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August 22, 2006 12:31 IST

If you've been reading these articles regularly, you'll know how often we have stressed on the need to save for retirement. About how it's never too

early to start, and about the damage caused by inflation and rising costs. Which is all very well if you're a 20- or 30-something, who can start a retirement savings plan now and aim to make a comfortable nest egg by the time you retire. But what about those who realise on the eve of their retirement that their retirement funds are actually just a pittance. Their options are tragically limited: sell house and live off that money in a smaller house, or give house to the child and live with him/her. Most people are unwilling to consider the first option, as a house is an asset that is acquired for generations to enjoy. It also becomes difficult to shift to a new location after retirement. And living with children is not something most modern-day retirees want to do, as it means compromising on their independence. Also with nuclear families and jet-set lifestyles becoming the norm, many people find it hard to devote time to their parents. Mushrooming of old age homes across the country attests this trend. "These days the urban male in India typically lives up to the age of 82," says S Sridhar, chairman and managing director, National Housing Bank. Considering that the retirement age in India is 58, one typically lives 24 years after retirement. With rising inflation, it becomes difficult to fund these years by investing in traditional instruments. The elderly cannot afford to invest their hard-earned money in riskier instruments, which offer higher returns than traditional instruments, at this stage of their life. So what can the elderly in India do to fund their retirement years? The answer can be found in the West, specifically in the US, where the concept of reverse mortgage is hugely popular among the newly retired. Essentially, a reverse mortgage is a loan against your home that you do not have to pay back for as long as you live in that house. Recently, NHB has come up with a reverse mortgage plan, which promises to be a boon for the elderly if it becomes a reality. Outlook Money takes a look at the concept of reverse mortgage and how it will help the elderly to fund their retirement years. "According to surveys that we have conducted, we feel that there is a need for a product like this for the elderly. Providing such a product is also in line with NHB's broad objective of providing longterm housing finance to the un-served and the under-served sections of society," says Sridhar. The concept "If you take a look at an individual's balance sheet, you will find that house is the single-largest asset," says Gaurav Mashruwala, Mumbai-based financial planner. In your working life, when you buy a house on loan, with every equated monthly installment that you pay, your equity in the house increases. When you pay up your entire loan, your equity in your house is 100 per cent. In reverse mortgage, you do the opposite.

The concept of reverse mortgage seeks to enable house-owning senior citizens to meet their expenses without selling their house. Reverse mortgage is so named because the payment stream is reversed, that is instead of the borrower making monthly payments to the lender (as in a conventional mortgage), a lender makes payments to the borrower. As per NHB's proposed scheme, the loan amount shall be extended as regular monthly or periodic cash advances or as a line of credit to be drawn at the time of need. "In case you want a line of credit, then you will be required to pay a commitment fee," says Sridhar. Lump sum withdrawal of loan shall be permitted for restricted uses such as for upgradation, renovation and extension of residential property. How does it work? Suppose the value of your house is assessed at Rs 40 lakh (Rs 4 million) and you are 65 years of age. Under the present recommendations, you will be eligible to get a loan for 15 years that is till you turn 80 years of age. Supposing you are eligible to unlock 60 per cent of the value of the house, then you can receive Rs 24 lakh (Rs 2.4 million) through reverse mortgage. And supposing you are eligible to receive Rs 8,000 every month, you will receive Rs 96,000 every year for the next 15 years, assuming that changes in the value of the property do not affect the payments to you. At the end of 15 years you would have received a total of Rs 14.40 lakh (Rs 1.44 million). The interest component (compounded annually) on this amount, will be Rs 21.38 lakh (Rs 2.1 million). So the total amount that you owe to the bank will be Rs 35.78 lakh (Rs 3.6 million). However, if you die at end of the loan tenure, then the bank will sell the property to realise what you owe them, that is Rs 35.78 lakh, the balance will be passed on to your heirs. Supposing the value of your property has appreciated to Rs 65 lakh (Rs 6.5 million) during the tenure of the loan, your heirs will receive Rs 29.21 lakh (Rs 2.9 million). However, if your heirs want to keep the property, they can settle the amount that you owe to the bank and keep the property. The procedure You have to approach a housing finance company or a bank and express your interest in pledging your home for the reverse mortgage scheme. The HFC will asses the value of your house and, depending on your age and the prevailing interest rate, the amount of loan payable to you will be decided upon. The value of the house will be determined by independent valuation through the generally accepted property valuation methodology in the industry. The loan amount will be fixed on the basis of current value and not on possible future appreciation. "There would be a provision for periodic valuation and consequent adjustment of payments," says Sridhar.

However, the most critical factor in deciding the amount is age. The older you are, the chances of getting a higher value are more. "This is because the lender will have to typically provide the loan for a lesser number of years," says Sridhar. The interest rate at which the loan will be given will typically be marginally higher than the prevailing interest rates as the lending company will receive its money when the borrower dies. However, currently on the basis of present actuarial analysis, the loan to value ratio is fixed at 45-60 per cent of the value of the property based on the age. What if you outlive the loan tenure? Under the present recommendations of the NHB, you need to be 62 years of age and the tenure of the loan is fixed at 15 years. "There have been recommendations to lower the age to 60 as people usually retire at that age. The primary lenders shall however have the discretion to consider a shorter/longer tenure," says Sridhar. However, if you outlive the tenure of the loan, you will not be asked to move out of the house. Although payments made to you will stop after 15 years, the interest will keep accumulating till the accounts are finally settled. There is talk of adding insurance to reverse mortgage. So the premium for that will be deducted from the payment made to you. The corpus accumulated at the end of 15 years will be used to fund the years that you outlive the loan tenure. There are also suggestions that a certain portion from the payments be parked in bank fixed deposits to fund the years that you outlive the loan. The accounts will be settled by the HFC only after your death or if you vacate the property. The settlement of the outstanding loan amount, along with the accumulated interest, will be met by the proceeds of the sale. In the event of your death, your spouse can continue to occupy the property until his/her demise, and he/she usually made a co-borrower. Re-reverse mortgage Supposing you pledge your property for reverse mortgage and midway through the tenure, you receive money either by sale of some investments or your children provide you money to pay the amount and the interest you owe to the bank, you can free your property. You can also pledge the same property for reverse mortgage in future, if you are in need of cash. The costs: Apart from interest on the loan, you will have to bear other costs as well. These include closing costs of the primary lenders such as loan processing charges, documentation costs and commitment fees on undrawn loan amount. Adds Veer Sardesai, Pune-based financial planner: "Usually costs that the consumer bears are charges similar to that of a normal mortgage in addition to an origination fee and an inspection an and appraisal fee."

The benefits: In the absence of provisions for social security in the country, a product like reverse mortgage has numerous benefits. You will be not be financially dependent on anyone. The loan that you receive is not serviced during your lifetime. While you unlock the value of your house, you continue to live in that property. Reverse mortgage enables fund inflows when income sources are generally restricted and tend to fall markedly as compared to your working life. An investment option With reverse mortgage expected to become a reality soon, it makes sense to buy a house early in your working life so that you can unlock its value in your retirement years. Reverse mortgage however, does not strictly compare with other investment options like mutual funds, post office schemes and bank FDs. The overriding objective of reverse mortgage is to address the financial needs of the house-owning, asset-rich but cash needy senior citizens as a significant option. Reverse mortgage is not in substitution of other avenues of funding one's post-retirement years. NHB is working towards speedy introduction of this concept. As the apex financial institution for housing in the country, NHB has designed the product on ready-to-deliver mode based on specific needs of the asset-rich but cash-poor senior citizens. It will endeavour to popularise reverse mortgage as one of an array of post-retirement financing options. NHB will not provide retail loans but it can refinance reverse mortgage to banks and HFCs. And in the event of a borrower seeking additional assurance that the bank/HFC will continue to provide payments under reverse mortgage for the contracted period, NHB can guarantee such obligations. Since the concept of reverse mortgage is new in India, there are a number of issues that may arise and need to be addressed by the authorities for ensuring its successful implementation. These issues mainly pertain to tax-treatment, accounting, legal and regulatory aspects. "With the support of the government and the regulatory bodies, we hope to be able to launch the product as soon as possible," says Sridhar. Reverse mortgage in the US Reverse mortgage was introduced in the US in the late 1980s. Since then, the number of people pledging their property for reverse mortgage has been on the rise. Take a look at the numbers. In 1990, there were just 157 people who had opted for this product. In 2006, 59,781 people opted for reverse mortgage. The concept in India is similar to the one in the US. To be eligible for reverse mortgage, you should be at least 62 years old and own a property.

"In a reverse mortgage, you borrow money using your home as collateral but there aren't any payments. The interest that is charged is added to the balance owed. That means you owe more each month. When you die or when the house is sold, the debt gets paid off," says Jeffrey D. Voudrie, CFP, CEPP, president, Legacy Planning Group Inc. Once you pledge your property for reverse mortgage, you will receive funds as long as you live in that property. There are three main sources that home owners can tap in the US. One of these is the federally insured Home Equity Conversion Mortgage, administered by the Department of Housing and Urban Development. The majority of people opting for reverse mortgage go for HECM as it offers the best interest rates and loan amount. However, if they opt for government-insured reverse mortgages, then they will also have to pay a fee for Federal Housing Administration insurance that will protect against the value of the home going below the loan amount. There are also single-purpose reverse mortgages, offered by state or local government agencies for a specific reason and, lastly, proprietary reverse mortgages offered by banks, mortgage companies and other private lenders. People planning a property reverse mortgage have to undergo a free mortgage counselling from an independent government-approved "housing agency". Reverse mortgages offered by other financial institutions also require individuals to undergo similar counselling. "Seniors like this product because it allows them to stay in their homes and they are not required to make monthly payments," says Voudrie. However, a concern among most elders is the rising interest rates, which increases the cost of the loan.

The 5 secrets of making wealth August 23, 2006

What does one do to become wealthy? Save a lot, spend less, invest well and in time you will become wealthy. Right? Well, yes, but. . . But what? This is not a game. There is a secret to creating wealth that is far more than saving more, spending less and investing well. All these are external actions and involve, well, actions. This is like saying that a building or an automobile or a ship will come up just by giving a few masons or blacksmiths or workers some tools and saying 'Go!' I am sure you would agree with me that these are nowhere near enough. So what is the missing piece in the puzzle? It is a concept. First it's in the mind of one person and then it leads to actions to create the object in 'reality.' The aggregation of men and material occurs thus and the concept acquires a physical dimension.

This is not 'planning.' It is creation and this occurs in the right hemisphere of the brain. It is our connection to the universal life force, God, or whatever you may term it. It is the power and infinite intelligence that runs your body. I have heard of people saying that the cosmos is just a random occurrence, that there is no infinite intelligence that operates the engine of the world. Try, however, to create a grain of rice with all the properties of a grain of rice and you will fall short even with the best tools in the best lab! Okay, remember when you were last doing something creative? Did you feel energised? Did you feel excited? I am sure you did! Because life is creation and life is in creation. The best works come out when one does something without making any 'effort' whatsoever. Thoughts flow easily and action becomes an extension of thought. Okay, buddy, you are getting vague and philosophical. What does all this have to do with becoming rich? Just get to the point! The point here is that you become rich through creation rather than planning only. Sure, but read on just a bit, till you come to my five-step formula for achieving health, wealth and happiness. My previous articles have dealt with the process, but not the creation. So what is this creation? Thought is the beginning of manifestation in the physical realm. As mentioned in the first para, creation is not construction. It is not a random event. It is preceded by a desire or a dream. From there the mind weaves its magic. It starts imagining how it can fulfil the dream. The next step is creation of a concept. There was a serial called Mungerilal Ke Haseen Sapnein which loosely translated means 'The Wishful Thinking of Mungerilal.' Mungerilal spun roseate dreams of riches and the good life that never ever came true. So what separates Mungerilal from Dhirubhai Ambani? It is the steadfastness or holding on to the dream, being open to doing what it takes to make the dream come true and finally taking the right actions. When Dhirubhai started as a small trader in Aden, did he imagine that he would be one of the greatest tycoons in the history of the world? Did he think that his empire would be as vast as it was at the time of his passing away? Did he dream that thousands of people would get jobs because of him? These questions can only be rhetorical as of now. Do you get the drift? By starting the process of creation and believing in the power of your dreams, you will become far wealthier and satisfied in life than by just squirelling away a part of your income and allowing it to be grown by other people, however good they are at their job. Does this seem to be a contradiction to what I wrote earlier? Maybe. But, imagine, one person was unable to comprehend the power of compounding of growth in income over a 25-year period.

For instance, is it possible for you to imagine that Rs 12 lakh (Rs 1.2 million) income per annum will be common place in India by about 2015! Or that if you get a growth of 10% in your income every year a person earning Rs 15,000 per month would be earning Rs 62,000 in 15 years. Do you believe that you would be getting a hike of only 10% every year? Young people expect more and get more these days or they switch jobs. Here then is a very important concept. Your increase in income will be in direct proportion to your aspirational levels, your belief in yourself, your willingness to change and your openness to accepting that money could come from any source or sources which you may not even be aware of. Only through ethical means. There are some unfavourable signals you give the Universe if you apply dishonest or harmful means. You will sabotage yourself! I have experienced umpteens of instances when money came to me at the right time from sources totally unexpected, an old debt paid back, some payment I was not even aware of, and so on. May not have been huge money but just enough for the time. I did not have to do anything except to be open to random occurrences. Rack your brains and you will recall instances when this has happened in your life. Can we make the process automatic rather than random? Sure. Oh, but there is a 'but'! But make sure that your faith in the process does not waver. What did I say about an open mind! Also understand that the clock of the Universe operates on a different scale. You can bring it to your scale by being more specific in wording your requests. So, does it mean that one makes a request to the Universe, sits back and waits for it to do its bit? Yeah sure, if you are willing to go according to its clock. Unfortunately, we have our urgent needs and also desires that do not wait. We also know how a wish can be fulfilled in a way that actually harms us. All this is starting to sound like mumbo jumbo. Let us get to specifics. The process of creation in any field starts with a concept, a thought. This thought takes energy and becomes stronger. The energy increases to seeing the created entity as real in the creator's mind. A mental picture is conceived in three dimensional 'virtual' reality. Finally it culminates in action to realise the dream in concrete or wood or metal or whatever. Please note that action is the last step and action comes after a number of mental iterations occur. In effect you create your reality. Your ability to 'see' the picture and give it the energy to manifest, results in its realisation. For sure you may have to slog to achieve. Even then, the picture in front of you will propel you to realise and manifest your dreams and the process will become pleasurable. This is just as an athlete pushes his body forward beyond its apparent capacity. At the time of running or jumping or swimming, the athlete's thoughts are focused on running the race, not the rewards, not the pain nor any other thought.

So also when you are pressed and pushed just stay focussed on the job at hand and it will seem to be effortless. If you have felt the sheer exhilaration of doing something to the exclusion of all other thought, you will know what I mean. Okay, let us take a totally passive activity such as watching an interesting cricket or football match where the two teams are almost equally placed and the end of the game is near. For one example, Sachin bowling the last over of the Hero Cup match against South Africa sometime in 1994 or so. Anyone who saw that match live will vouch for the fact that they had no thought other than the event unfolding on the TV. To take a more prosaic example, remember catching a train or a plane. You are sure that you will catch it come what may. How is this so? Well, we always are sure of catching the train or plane. Were we to approach each of our goals thus, we would unfailingly achieve them. All our failures stem from the element of doubt that creeps in like a malignant shadow. So here is my five step formula for achieving your health, wealth and happiness goals:

1. Start out with a clear idea of what you want, the clearer the idea the better your chances of achievement. Write it down clearly in a positive way and in the present tense. For example, if you want a car, clearly spell out what kind of car, what colour, what d�cor, and so on. Let us say a Honda City in blue colour with beige faux leather interiors. Write down: 'I have a blue Honda City with beige faux leather interiors. It has a stereo system of the best quality from xyz, a television monitor, a DVD player, etc'

2. Picture yourself achieving your goal. If you are thinking of the car, picture yourself driving this car. See it in your driveway or parking lot. Give the picture a lot of colour and atmosphere such as smell (those who know will tell you that new cars smell different. For me it is an intoxicating smell), sound, etc. The better your visualisation, the faster you will get there.

3. Convince yourself of the definiteness of achieving your goal however absurd it appears initially. Dream big and see it as absolutely real. Conviction carries the day. Belief is all.

4. To assist you in your visualisation, prepare a scrapbook or a sheet of card paper and stick pictures of all the things you want in life. Only do not put people in it. For instance, you want a good partner, visualise your getting a good partner, the kind of person, his or her qualities and so on. Do not expect Marilyn Monroe to drop into your life, she is long since gone! If you are lucky and you desire it, someone who looks like her just might. . . so all the best!

5. Last of all there are two very important principles: Be grateful for what you have and are getting everyday. Enjoy the sunrise and the sunset, the smell of flowers, the internet or whatever else you have, and say a silent thanks to all those who made this possible.

Do not badmouth the rich or famous or those with the traits that you seek to acquire. For instance if you want to be rich, revel in the riches of others. Let go of your programming that tells you that all rich people are greedy or evil or both. That they got there by cheating others. True or otherwise, stay away from these thoughts and from voicing them. (Anyway this is not true in the present world where honest persons like N R Narayana Murthy or Azim Premji or Kiran Mazumdar-Shaw and many others have made it by the dint of their ideas and by acting on them. Do not generalise. There are rich and dishonest people just as there are poor and dishonest people or dishonest middle class people.) Attract good experiences in your life by focussing on these rather than the bad ones. Believe in your power to attract good and desirable experiences through honest means and for your highest good. Use this caveat always, for my highest good. I wish to mention that many of my dreams have come true in my life of five decades plus. Seven years back I never dreamt that I would ever be able to afford a new car. I drove a 1970 model Fiat. Since then I have had two new cars. My income has increased so much that I say a silent prayer of thanks to Goddess Laxmi everyday. Sometimes when I feel down, I am able to see it as a passing blip. All the best in your endeavours. May your fondest wishes come true. Also be careful what you wish for as it just might come true! The author, who is based in Bangalore, is a former banker who is now a consultant for banking and finance. He can be contacted at [email protected]

How to allocate assets and get RICH P V Subramanyam | August 29, 2006 09:33 IST

Whatever asset allocation you choose, if it keeps you awake (and your planner too) at 3 a.m., it is not a good equation that you have got. Set it right soon. When three of my clients came to see me for a portfolio review, I realised what a difficult job I had on my hands. Dilip, Devrajan and Kavya, the very convenient names of my three clients had such different but risky portfolios that my work was cut out. Dilip had a portfolio of Rs 6 crore (market value had cost him Rs 3.6 crore about three years ago) in two properties in Mumbai. Both were funded by loans (amounting to Rs 3 crore). Both the properties were given on rent, and luckily for him the current rent was greater than the EMI (equated monthly installment). This was, of course, because the EMI was for a period of 20 years, and Dilip was sure as the rents went up, the situation will only look better.

Devrajan had come to me in 1999 and even though he was in a brokerage firm and had some ESOPs (Employee Stock Ownership Plan) in that company, his portfolio was completely in the debt market -- Reserve Bank of India bonds, income funds, and bank fixed deposits. Out of a portfolio of Rs 4.5 crore, he had Rs 20 lakh in equities -- held without much conviction. He felt equities was too risky. Kavya was the flamboyant type, who had worked in a pharmaceutical company, had no savings, no investments, and a kingly bank balance of Rs 340,000 all in the savings bank account. The savings were all in National Savings Certificate, Life Insurance Corporation policies, Public Provident Fund, own Provident Fund -- all done to save tax. However, when she met me in 1999, I introduced her to equities. I now had the enormous task of making a concept called 'asset allocation' and risk protection for these three. Dilip, for example had no liquid cash and the only asset other than the two flats, was a small LIC policy, and some cash balance in his savings account. He is a senior manager at a business process outsourcing (BPO) unit, has a Rs 45 lakh job, is 40 years old and has two grown up children. His wife runs a boutique that makes no money. I convinced him that he needs Rs 6 crore insurance cover, and he should do a systematic investment planning (SIP) in an equity fund from the rent that he receives. Dev, luckily, had started an SIP in 1999 in equity funds, and now was happy that he asked me to review his portfolio in 1999. A very strong believer in financial planning, he was convinced he could do it himself. I just highlighted the risk of inflation and putting all money in one asset class. He now had about 20 per cent of his portfolio in excellent equity funds, which had also given him some sensational returns. He had also converted some of his income funds into equity funds, and was beaming and happy. Kavya was my biggest problem -- she thought I was a magician and I had created the returns for her. She started calling me her lucky charm -- and would introduce me as a 'luck charm' to her colleagues. Now, she is such a convert that she thinks all moneys should only be in equities. There is a human tendency to think that the immediate future will be same as the immediate past. Though empirically, this is never true in our lives, we do not accept that. Not carrying an umbrella today, because it did not rain yesterday is perhaps the best way to get drenched. Is it not? For a client to sell a portion of the 'success' that he is riding sounds sacrilegious, so how does a financial planner convince him the need to do so? Only be appealing to his senses that traditionally equities have given 17 per cent return (over long periods of time) at a time when inflation used to be 10 per cent. Hence, a return of 59 per cent or 75 per cent is an aberration and not sustainable.

Let's say, you listened to your financial planner and had the following asset allocation in the year 2001: Asset class Equities Bonds Cash

Allocation 40 per cent 50 per cent 10 per cent

Now assume over the last three years, the equity markets had done well (it actually did) and now your portfolio allocation looks as follows: Asset class Equities Bonds Cash

Allocation 70 per cent 24 per cent 6 per cent

What has happened in your life? You have got older (i.e. to say your goals have got five years closer) and your asset allocation has gone more in favor of a more volatile asset class. This is, theoretically risky. Now, I have the great (and highly unpleasant too!) task of asking you to remove money from your best performing asset class and put it into your worst performing asset class. That is tough, but an important part of my job. I need to ask you 'Do you accept the attendant risk of such an asset allocation?'. . . In simple terms, asset allocation is spreading your money across various assets -- be it cash, real estate, commodities, equities, bonds, etc. If your investment philosophy is clear -- i.e. you know what your investment portfolio has to achieve, doing an asset allocation is easy. All portfolios should normally aim at three things -- growth, income and cash. Arguably, if you are young, you can look at growth and liquidity and when you are retired you will look at income, liquidity and growth -- in that order. How much of your assets should be in a volatile asset class depends on your needs. For example, a 65-year-old person with a Rs 4 crore portfolio (and annual expenses of Rs 200,000) and a life expectancy of 15 more years, can choose a full debt portfolio (and reduce volatility and return) or decide to put 80 per cent in equities hoping to leave a sizeable chunk of his portfolio to his grandchildren. It is a matter of choice. However, whatever asset allocation you choose, if it keeps you awake (and your planner too) at 3 a.m., it is not a good equation that you have got. The author is a financial domain trainer. He may be reached at [email protected]

The prices of serigraphs have risen by a stunning 650% in just six months and it shows no signs of stopping. CNBC-TV18 reports on why one could consider buying them the next time one visits a gallery. Serigraphs have been in style for long. They have been the answer to the woes of art lovers who just can't afford to scale the skyrocketing prices of original masterpieces. But now they have also caught the fancy of art investors. Not to be confused with digital prints, serigraphs are silk screen prints of original masterpieces made in collaboration with artists. In India, serigraphs are primarily printed by 'The Serigraph Studio,' based in Mumbai. According to them, costs of serigraphs could be as high as 5% of the cost of the original. Serigraphs of acclaimed artist SH Raza are available at approximately Rs 90,000. An original Raza serigraph costs Rs 50 lakh upwards. Jogen Chowdhury serigraphs can be acquired at Rs 60,000 to 90,000, the paintings cost between Rs 30 lakh and Rs 75 lakh. Ram Kumar serigraphs are available at Rs 1.5 lakh, his paintings are valued at over Rs 60 lakh. A Paritosh Sen serigraph sells for Rs 36,000, compared to his canvas price of Rs 12-15 lakh. Most of these serigraphs were launched earlier this year at just Rs 12,000 each. Art Publisher, The Serigraph Studio, Lavesh Jagasia says, "It's definitely advisable to invest in serigraphs, especially the limited editions. Prices appreciate on the basis of the caliber of publisher, size of edition, artists and how fast the work gets sold out." Serigraph works by Indian artists are primarily printed in European countries like the United Kingdom, France and Germany by art publishers. Each print is numbered and authenticated by the artists with most serigraph prints coming out in limited editions. Some artists make their own serigraphs. Prints usually sell on the basis of the popularity of artists.

7 tips to make BIG money Amar Pandit, Moneycontrol.com | August 07, 2006 16:20 IST

India wins World Cup 2007. Sounds like Wishful thinking but yes it can be true if you have the right players, attitude and commitment to win. I don't know whether India will win the World Cup but I

am confident that each one of us can win in the investing world if we focus on some basics and implement them diligently. Know thyself Socrates said "Knowing Thyself is the key to human advancement" and hence it is important that you know what is important about money to you. Money is a means to an end and not an end in itself. At the risk of sounding philosophical, know what your values are about money. When you know what your values are, decision-making becomes far easier and focusing on your values can motivate you to achieve. Just look at how powerful the values of Bhagat Singh and all freedom fighters were. They were clear that they valued freedom more than anything else. (Also read - How to build your MF portfolio?) When you ask people what their values are, a common answer is 'Security of their family', but yet when it comes to ensuring that you have done something in that area, people end up buying a Rs 500,000 -10 lakh insurance policies as if this amount were to last a lifetime. It's good to see LIC ads showing a mother after her daughter's wedding looking at the husband's photo and thanking him, but this seems difficult for most of the people with the kind of cover they have. A rough estimate, around 95 per cent of the people in India might be underinsured. Create your own Sensex This means knowing the returns that you need to achieve your financial goals. Concentrate on what returns you need to achieve your goals as this can help you to stay away from risk that is unnecessary. Look at risk as well as returns People often look at returns ignoring the risk component. Most of us want an investment with high returns and no risk or less risk. Just like cigarette smokers who choose to ignore the warning that 'Cigarette Smoking is injurious to Health', investors too will look the other way when it comes to the caveat that mutual funds are subject to market risk. Investors tend to focus only on returns when investing in stocks and mutual funds. Look at the following • • • •

What kind of stocks is this fund invested in? Is this concentrated in a few stocks or few sectors? What is the Standard Deviation and Beta (something that your advisor should be able to explain) of the fund? What is the portfolio turnover of this fund? (When the fund buys, sells and churns its stocks very often)?

Practice asset allocation

At the risk of sounding clich�d, as this statement might have been repeated so many times by financial planners and investment advisors, I wish to reaffirm that Asset Allocation is the most important decision that an investor must make to achieve his financial goals and effectively manage risk. This means you need to focus on what percentage of your money should go into Equity, Debt, Real Estate, Gold and Cash. (Also read: How to handle volatile markets?) A number of studies have shown that a portfolio's asset strategy is the driving force behind portfolio performance and that over a period of time, it accounts for more than 90 per cent of the variation in overall returns. In India there is an under ownership of equity and hence most of the portfolios are skewed towards Cash & Debt (RBI Bonds, Post Office Schemes, & Endowment Plans from LIC) or Real Estate (due to the ticket size) and Gold. Have a Dravid and a Dhoni in your portfolio Every portfolio must have an exposure to equity to maintain purchasing power. Every equity portfolio should comprise essentially of rock steady large cap stocks like Rahul Dravid. At the same time it could be helpful to have a Dhoni (Though Dhoni is a superstar now, in terms of characteristics, I have linked him to a Midcap stock, someone with tremendous potential to become a large cap). Midcaps can act like toppings on your pizza and can be there to provide that extra punch when the aggressive streak is needed. (Also read - Investment lessons from Sachin Tendulkar) Costly mistakes One of the biggest mistakes that people commit is in their selection of insurance products. Like it is said, insurance is always sold and never bought because if you know you need insurance, you will go and buy a basic insurance cover like you do for your car. People spend Rs 20,000 or more for their car insurance for a cover of 600,000-700,000 but when it comes to insuring their lives for around Rs 40 - 50 lakhs (Rs 4-5 million) for the same premium, they prefer an investment policy to a pure term plan on the pretext that "I will not get anything back if nothing happens to me". Most of the endowment products cost you around 30-40 per cent, which is reflected in the returns that you receive. Even when it comes to ULIPS with front-end costs of around 15-65 per cent (even assuming a 25 per cent cost), you will need a 32 per cent return in the first year just to break even. This can only happen in bull markets but in volatile markets, just breaking even on ULIPs will take at least 3-4 years or more. Some other critical mistakes include, not recognizing the impact inflation has on one's wealth, thinking that you can time the markets, delay in making a Will, and not having a written Investment Strategy and Plan. Just do it

We all know Nike's famous tagline but when it comes to implementation, many of us tend to simply procrastinate waiting for the ideal or the best time. Eat Less and Exercise is the key to great health but how many of us manage to do that. Just knowing the right thing is not enough. You must do the right thing to get results and achieve goals while staying away from stupid and costly mistakes. (Also read - 7 investment tips to improve your returns) We end this article with a powerful statement from Benjamin Franklin, "The person who does things makes many mistakes, but he never makes the biggest mistake of all: Doing Nothing." We strongly believe that even if your financial decision is not perfect, it may still leave you in a better position than if you had not made a decision at all. The author is a practising Certified Financial Planner and runs My Financial Advisor (www.myfinad.com). He can be reached at [email protected] For more on mutual funds, click here Missed last date for filing tax returns? It's not too late Deepa Venkatraghvan, Moneycontrol.com | August 03, 2006 14:56 IST

Surjeet Oberoi from Ludhiana missed the last date for filing his income tax returns due to some untoward incident, "I was unable to file my returns before the due date. Can I still file my returns? If yes, what is the penalty?" Surprisingly, when it comes to missing the last date of returns, income tax rules aren't so complicated after all. A person filing returns may fall under any one of the categories given below. Moneycontrol spoke to experts to find out how to deal with your delayed tax returns under each of categories. Primer on filing returns Income tax returns for individuals must always be filed before the next year's July 31. That means, your income tax return for the income earned during April 2005 to March 2006 will have to be filed before the 31st of July 2006. The period from April 2005 to March 2006 is referred to as the 'previous year' and the year during which you file your returns, which in this case is 2006-2007 is referred to as 'assessment year.' The tax authorities can extend the last date for filing return if they feel it is necessary to do so. However, this year the due date was not extended.

1. You don't have to pay any tax because all the necessary tax has been deducted at source. You would fall under this category if your only source of income is your salary income. In such case, your employer is under an obligation to deduct the necessary tax at source from your income. You would not have to pay any tax over and above that. If you fall under this category and have missed the last date for filing your returns, there is little to worry. All you have to do is to file your returns before March 31, 2007. You will not have to pay

any penalty or interest for the delayed period. However, complete non-filing of return even till 31st March 2007 can attract a penalty of Rs 5,000. 2. You have to pay tax If you have to pay tax, over and above what your employer has deducted, then you will have to pay penal interest. If you have rental income or income from running your own business or professional service, then the question of tax deduction at source does not arise. For instance, if you have given your house on rent, your tenant is under no obligation to deduct tax before paying you the rent amount. In such case, you would have to pay your taxes at the time of filing your return. If you do have such a tax liability and have missed the last date for filing the tax returns then you are in for a penal interest. Says tax expert Subhash Lakhotia, "In such a case, you must calculate penal interest on the tax amount due, at the rate of 1% per month for every month of delay. For example, if your tax payable is Rs 1,000 and you are late by a month, you will have to pay a penal interest of Rs 10." He also advices, "I suggest you don't delay filing your return till the next year as in that case a penalty could be levied." If you are among those who have failed to file your return by the due date, all is not lost. You can still file your return by paying a penal interest is necessary and set your record straight. Lakhotia gives a word of wisdom, "The income tax department does not give any pardon to anyone who fails to file his return. Whether your case is genuine or not is not considered. If you have not got all your documents on time, it is advisable to file your return and submit the documents at a later date." For more on financial planning, log on to click here.

Good idea to get your 'capital guaranteed' July 24, 2006 11:34 IST

Last week investors got all the confusing signals from the stock markets, part of that blame goes to Bernanke's (chairman of the US Federal Reserve) 'read between the lines' testimony to the Congress on inflation and interest rates.

Not surprisingly, it injected needless volatility in the domestic markets leading to wild oscillations. Eventually, the BSE Sensex slumped 5.54% to close at 10,086 points, while the S&P CNX Nifty settled at 2,945 points (down 5.70%). Midcaps fared even more dismally, with the CNX Midcap shedding 6.14% to close at 3,640 points. Franklin Fixed Tenure Series VI - 60 months, is the latest capital guaranteed product on offer. Capital guaranteed funds are close-ended mutual fund schemes that invest predominantly in debt. The percentage of assets that are invested in debt is calculated based on the yield prevailing on the debt paper at the time of investing. The debt component is structured in a manner that allows the fund to (at least) recoup the capital for investors at the time of redemption/maturity. A portion of assets that do not need to be set aside for the capital guarantee are invested in equities or held in cash. With the combination of the debt component (which can guarantee capital) and equities (that can act as a capital appreciation investment avenue), investors get the best of both worlds - growth and capital preservation. The 10-Yr 7.59 per cent GOI (Government of India) paper is presently yielding 8.24% (July 21, 2006). We haven't seen the 10-Yr GOI yield consistently riding such high levels in quite some time now. Combine that with the attractive valuations of the stock markets post-correction. Investors who invest in both these markets today and are willing to wait patiently over the long-term (5 years in Franklin Fixed Tenure's case) are likely to clock superior returns at relatively lower risk. Leading Diversified Equity Funds Diversified Equity Funds NAV (Rs)

1-Wk

1-Mth

SD

SR

UTI DIVIDEND YIELD

12.00 -3.77% -0.74% -11.24% 15.27% 6.78%

0.16%

BIRLA INDIA GENNEXT

10.94 -4.12% -1.71% -13.11%

- 6.85%

0.05%

HDFC GROWTH FUND

34.58 -4.15%

-0.89% 29.22% 6.16%

0.42%

BIRLA TOP 100

11.88 -4.29% -1.80%

-0.75%

- 7.75%

0.25%

GIC GROWTH II

30.23 -4.49% -1.56%

-9.65% 14.33% 6.65%

0.34%

0.03%

6-Mth

1-Yr

(Source: Credence Analytics. NAV data as on July 21, 2006. Growth over 1-Yr is compounded annualised) (The Sharpe Ratio is a measure of the returns offered by the fund vis-�-vis those offered by a risk-free instrument) (Standard deviation highlights the element of risk associated with the fund.)

UTI Dividend Yield (-3.77%) was the fund that witnessed the lowest erosion in returns over the week. It was followed by Birla Gen Next (-4.12%) and HDFC Growth Fund (-4.15%). On a positive note, all the five funds in weekly rankings posted lower losses than the BSE Sensex (-5.54%). While capital guaranteed mutual funds have only recently made their presence felt in the country, one product that was launched with much fanfare in 1993, but hasn't quite received the recognition it deserves is the Exchange Traded Fund (ETF). Why haven't ETF's got their due recognition? Blame it on Morgan Stanley Growth Fund that gave investors the impression (which proved to be quite longlasting) that ETFs are poorly managed and therefore always trade at a discount to their NAVs. As usual, the reality is far removed from perception. ETFs do not necessarily trade at a discount to their NAVs and their lower expenses make them a compelling investment for the cost conscious mutual fund investor. Leading Debt Funds

Debt Funds

NAV (Rs)

SD

SR

LIC BOND

19.57 0.69% 1.03% 2.86% 5.91% 0.30%

-0.54%

PRINCIPAL INCOME

16.69 0.31% 0.26% 2.27% 4.44% 0.40%

-0.48%

CHOLA TRIPLE ACE

23.58 0.24% 0.18% 0.81% 2.54% 0.28%

-1.24%

GRINDLAYS DYNAMIC BOND

12.90 0.21% 0.59% 1.92% 4.35% 0.43%

-0.62%

22.3 0.21% 0.31% 1.61% 4.15% 0.42%

-0.31%

RELIANCE INC

1-Wk 1-Mth 6-Mth

1-Yr

(Source: Credence Analytics. NAV data as on July 21, 2006. Growth over 1-Yr is compounded annualised)

Bond yields fell slightly this week. The yield on the 10-Yr GOI (Government of India) paper settled at 8.24% (down 11 basis points or 0.11% over last week). Falling bond yields translate into rising bond prices and by extension, rising debt fund NAVs. LIC Bond (0.69%) pitched in with the best performance of the week. At a very distant second position was Principal Income (0.31%). Chola Triple Ace (0.24%) was in third place. Leading Balanced Funds Balanced Funds

NAV (Rs)

SD

SR

0.39% 15.37% 18.86% 1.95%

0.38%

22.1 -2.77% -1.65% 17.74% 28.44% 3.73%

0.35%

FT INDIA BALANCED

25.27 -3.20% -0.03% 21.27% 33.09% 4.25%

0.35%

BIRLA SUN LIFE 95

135.5 -3.30% -3.26% 17.32% 34.85% 4.25%

0.42%

11.8 -3.36% -1.67% 17.18% 23.79% 3.95%

0.30%

UTI VARIABLE INVEST ILP BIRLA BALANCE

UTI US 2002

1-Wk

14.99 -1.01%

1-Mth

1-Yr

3-Yr

(Source: Credence Analytics. NAV data as on July 21, 2006. Growth over 1-Yr is compounded annualised)

UTI Mutual Fund's balanced funds performed exceptionally as not one, but two of its funds made it to the weekly rankings. UTI Variable Investment (-1.01%) was in first position, while UTI US 2002, earlier US64, was in fifth position (-3.36%). At present, markets offer several opportunities for all kinds of investors. There are capital guaranteed mutual funds for investors with a low to moderate risk appetite. There are well-managed diversified equity funds and balanced funds for the investor with considerable risk appetite. Then there funds like the Tata Capital Builder Equity Fund for the investor with the NFO (new fund offer) appetite. Watch this space for our coverage on the NFO.

How to plan your finances through life Archana Rai, Outlook Money | July 19, 2006

You see them everywhere. In malls, multiplexes and restaurants in every city. Demanding the latest gizmos, the most expensive wines, the most fashionable accessories... They belong to the 300million-strong mass affluent population, and their motto seems to be 'have money, will spend.'

And that's visible in the record growth in the country's economic indices. It's visible in the fact that 47 commercial banks recorded an increase in retail lending from around 13 per cent in 2001 to almost 41 per cent in 2005. In fact, retail loans account for some 70 per cent of ICICI Bank's portfolio. Over the same period, SBI has reported a two per cent drop in corporate loans. This is not something confined to the metros; according to RBI estimates, consumer durable loans in rural areas went up from 19 per cent in 2001 to 27 per cent in 2005. All of which points to the fact that across the country, the newly minted mass affluent class is earning enough to borrow and spend on what were hitherto considered luxury goods. But simply because you are earning a lot and are in a position to spend does not mean you should ignore financial planning. Outlook Money examines the money imperatives at three points of an individual's lifecycle to develop a financial strategy in a time of affluence. This can serve as a roadmap to managing your money in these exuberant times. Starting out single This is the stage when you've started earning and are also spending recklessly. Typically, this group consists of 21-29-year-olds. Says certified financial planner Gaurav Mashruwala: "It is crucial in this stage to strike the right balance between spending on current pleasure and saving for future costs." While spending is not barred, this is the time when cash in hand must translate into a solid financial foundation. Money earned should be channelled into building a long-term corpus. Create an education fund. It's your first job and you simply must have that swanky new mobile phone. And the latest iPod. And... Before you start splurging on gadgets and gizmos, keep some of your money aside to fund further education. Because there's a very real possibility of being left behind in a knowledge-based economy if you don't constantly upgrade your skill sets. As this money is for short-term expenditure, ensure that you manage risk adroitly. For instance, if your horizon is two-three years, invest in a debt:equity ratio of 75:25. Park this crucial corpus in a fixed monthly plan that currently yields 8-9 per cent return. If you have a fiveyear horizon, increase equity to 50 per cent. Rein in spending. Remember to spend from profits from investments, not income. Typically, living a credit-fuelled life means you are leveraging your future income. Once that leveraging extends beyond the classic rule of thumb that EMI (equated monthly instalments on loans) must be below 30 per cent of your net take-home salary, it's time to cut down spending. Build real assets. You've got your study corpus going, you've allocated a certain amount for nondiscretionary spending, and you're paying all your regular expenses. If you have an investible surplus after this, take a home loan. You not only buy a tangible asset, you get an extended window of up to 30 years to clear the loan, while, ideally, you should be retiring the loan earlier. And set aside some money for your retirement

plan. Adds certified financial planner Lovaii Navlakhi: "It's not too early to start saving for retirement even at 25." Insurance. If you don't have financial dependants and if your liabilities will not devolve on others, you really don't need insurance now. Ideally, wait till you're married before you take life insurance. However, medical insurance is essential at all stages of life. Says Navlakhi: "If you want to invest any surplus funds in a long-term product, you could pick a whole life policy or pure term loans for specific liabilities." Mid-career, married Expenses are high, matched by the outflow of investments. Though your income could be healthy, this is the time that your portfolio requires careful handling. Says Srikanth Bhagavat, CEO of Hexagon, a wealth management company: "This is a time when, if the roadmap is drawn, it takes execution for the rewards to come in." Insurance. Protection, protection, protection. This should be your mantra at this point in life. Your insurance cover should be large enough to enable your family to live comfortably off the interest on the corpus amount in the event of an unforeseen occurrence. Financial planners say if you earn Rs 10 lakh (Rs 1 million) a year, buy an insurance cover of Rs 1 crore (Rs 10 million). But remember, you need to have bought insurance by the time you turn 40 if you want to build a cost-effective risk cover. Financial planning. Writing down your goals in consultation with your partner and then adopting a structured method to reach them is vital in the mid-career stage when expenses shoot up. Says Navlakhi: "If you have articulated your money plan, then it is easy to prioritise." Once you bring in some method to money management and once you identify your goals, it becomes far easier not to splurge on a fancy plasma TV and to save for your child's college education, instead. Asset allocation. Fine-tuning your portfolio is vital at this stage. This is the time when you need to constantly track the impact of external environment changes on your money. For instance, if profits of Rs 200,000 are shaved off from your corpus of Rs 10 lakh (Rs 1million) due to a market slump, you must examine your equity-debt allocation. Says Bhagavat: "As long-term goals are crucial at this stage, diversifying across asset classes is important." Alter and adapt. Financial planning requires agility. For instance, parents typically keep a goal of setting aside Rs 3-7 lakh (Rs 300,000 to 700,000) for a child's education. But if you consider the effect of inflation and erosion in rupee value over the next 10 years, the real cost of funding Junior's education can shoot up. Make room for changed scenarios in your financial plan. Adds Mashruwala: "The government controls the fees at top colleges at present, but costs may go up in the future if caps on college fees go."

Spending control. Says Bhagavat: "Don't stint on pleasure but make your profits pay for it, not your retirement corpus." That's sage advice. This is also the time to make your children financially literate. Postponing spending decisions in a time-bound manner can teach them to handle money responsibly. Show them how profits on investments in a two-year time frame can fund a holiday abroad. Bhagavat, for instance, told his children that they would have to wait a while to get a Basset Hound pup. The pup was bought finally from the profit he booked by selling an IT stock at a high value a week after buying it during a market slump. Empty nesters These are often called the golden years, and so they will be if you've planned well and wisely. There are, of course, specific aspects of money that must engage you, including your tax plan, your health cover and income protection. Growth-oriented portfolio. Bhagavat says, "Inflation is the real threat for senior citizens today." The challenge is to stretch income enough to provide for extended life spans. As equity protects against inflation, ensure that you have at least 30 per cent equity exposure in your portfolio by the time you are 55-60. Trim equity down to 20 per cent by the second decade of retirement and 10 per cent in the third decade. Realign real assets. Mashruwala says, "Senior citizens will have to ensure that their net worth is not locked up in real estate." Investments in real estate in this stage should be geared to future needs. There is no point in building a four-bedroom house that lies empty in your later years and does not fetch you any returns. Plan your taxes. Manage your maturing investments outflow by placing it in instruments like the Senior Citizens Savings Scheme and post office deposits. Says Navlakhi: "Even an increased outflow of Rs 20,000 in taxes in the retired years can mean a huge hit on income." Healthcare. The focus on health cover should ideally begin early enough for you to be in fine form in later years. Says Mashruwala: "Pick up mediclaims for yourself and your spouse at least five years before retirement." More importantly, don't forget to pay the premium on time. A simple memory lapse can cost you your health cover in your later years, as companies can refuse to renew a policy. Estate planning. Financial planners caution against bequeathing assets while you are alive. The idea is to chart out a legally foolproof will that will allow your inheritors to enjoy the proceeds once you are gone. It sounds like a lot of hard work, but financial planning is actually easy. Just think of a future without all the luxuries you take for granted today, and you may find it easier to salt away some money regularly instead of splurging all of it. Spend, but remember to plan for the future as well.

Rekha Bagry 32 Chartered accountant Mumbai Took a 10-year home loan in 2005. Within 12 months, harnessed rental income and savings to pre-pay the loan and reduce tenure to five years "My biggest personal finance challenge is to keep a lid on spending"s Ragasyama 35 & Srikanth Bhagavat 39 Wealth manager Bangalore The couple gifted a Basset Hound pup to their sons from profit booked on an IT stock "Profits should pay for pleasure" Kavita 62 & Vinod Nagpal 67 Thespians New Delhi Have health insurance and are invested in FDs, annuities, art and property "We're comfortable but inflation beats the growth in our earnings"

Injured? How to claim insurance Jigessh Patel | July 14, 2006 14:51 IST

Shortly after the seven blasts on local trains killed 200 in Mumbai, people across the country are forced to do a financial rethink. Questions like 'am I fully insured', 'does my family have enough financial backup in case they are faced with such a tragedy', 'what kind of insurance provides full security to me and my family', throng their minds. In an attempt to address several such issues, here are some useful tips for you: Always opt for a comprehensive insurance cover A comprehensive insurance cover provides compensation for loss of life or injury (partial or permanent) caused by an accident. This includes reimbursement for treatment and hospitalisation expenses. Also, only a fully comprehensive personal accident policy provides the partial or full disability and weekly compensation benefits.

Many people expect that if they buy a credit card, they are automatically covered for rail, road or air accident. But they must remember that credit card insurance is bound by a lot of terms and conditions. It entails a lot of clauses and exclusions. A lot of insurance policies may exclude death/disability by acts of terrorism. Therefore, while buying new policies, a person should read and compare a few insurance companies' offers before zeroing-in on one. One must ensure that the policy does not entail extra clauses and exclusions. Claim disbursement Any insurance claim disbursement may take between 15 working days to a few weeks, after the necessary documents are submitted. In case of personal accident policy, for instance, an insurance company takes about 15 days to complete the necessary investigation. The buyer of an insurance policy should always mention the nominee's name clearly in his or her policy document. In case it is missing, the next of kin has to provide a succession certificate to make the claim. Claims for any public sector insurance company can only be filed at the home branch, while in case of private sector companies, they can be filed at any branch. Policyholders should keep the relevant documents at a safe place along with the agent's name and updated contact details for an easy access. Also, policyholders' family must know where the documents are so that they can access them in case of an emergency. Premiums should always be paid on time as it is extremely difficult to make claims against lapsed policies. Papers which are required for claims under Personal Accident Policy in case of death offered by General Insurance and Life Insurance Policy are: • • • • •

Claim form duly filled (available at any branch). A copy of the policy. Death certificate (in case of death). Post mortem report (in case of death). Hospital papers (This may be waived at times).

The author is an insurance and investment consultant, with many years of experience. You are in financial trouble if...

July 07, 2006 13:12 IST

Typically, advice pertaining to financial planning and wealth creation deals with things that individuals need to do. At Personalfn, we thought it would be interesting to turn the discussion on its head and consider the same from a contrary perspective. We present five pointers that should serve as warning signs for you. If you fit into any of the situations listed below, we believe its time for you to get your act in place. 1. You don't have an investment plan Not having an investment plan in place is almost a certain way to ensure that you will encounter financial trouble. Without a detailed investment plan, your finances are as unambiguous as they can get. A steady and sound income stream in the present, makes most individuals victims of "financial myopia". They fail to foresee the situation in the future when income streams could dry up. Even planning for contingencies is something that never features on the "to do" list of most individuals. Contrary to popular belief, the need to have an investment plan is pertinent even for individuals who are financially sound at present. This is on account of the need to maintain the same lifestyle during their retirement days. Having multiple investment plans for various needs like retirement, buying a house or providing for children's education is a must. 2. You spend in an unrestrained manner Spending in an unrestrained manner with scant regard for your overall finances is something you should be wary of. This is especially true if your spending comes at the cost of monies that have been set aside for investing. Monitoring expenses using a tracking tool can offer you an insight into your spending habits and the opportunity to evaluate their necessity. Resist the temptation of indulging in impulse buys. Similarly, beware of misusing credit cards and their facility to make "minimum payments due"; you could land into a debt trap even before you realise it. 3. You are saddled with an incompetent advisor If your investment advisor's role is restricted to simply delivering and picking up application forms, rest assured, you are dealing with the wrong advisor. In this day and time, quality advice along with prompt service should be the investment advisor's core offering. With more investment options routinely being made available to investors, the onus to study and assess the feasibility of these options has passed onto the advisor. Selecting an advisor because he offers rebates is certainly pass�; such a step could prove to be counter productive over the long-term. The advisor should play a proactive role and be in charge of

your financial planning process. He is a key link who will help you achieve your financial goals. Ensure that you are dealing with the right investment advisor. 4. Your investments are lop-sided If your investment portfolio is lop-sided in favour of a single asset class like equity, it could prove to be detrimental to your finances. Asset allocation i.e. holding a portfolio comprising of various assets like equity, debt, gold and property among others in varying proportions is the key to successful financial planning. The investments in various assets should be in line with your risk profile and investment objectives. A balanced portfolio offers you the benefit of diversification. A downturn in a given asset class can be off-set by the presence of an alternate asset. This is an area where your investment advisor's skill sets and competence will be thoroughly tested. 5. You lack discipline Broadly speaking, discipline is the cornerstone which will determine whether or not you achieve your financial goals. By discipline, we mean the perseverance to stay the course with your investment plans. It is vital that you maintain the sanctity of your investment plans and stay invested in line with them at all times. Similarly, not dipping into your savings for any purpose other than the earmarked one is important. Score well on this parameter and you stand more than a fair chance of steering clear of any financial mishap.

Have Rs 500? Here's how to get rich Kamiya Jani, Moneycontrol.com

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July 03, 2006 14:55 IST

How many times have you said to yourself, "I am not investing now because I don't have enough money?" Well, even if your answer is 'once', you are only fooling yourself. If you are waiting to amass your savings to invest, you are wasting your time. That, seldom happens. Before it gets too late, start investing today. And you don't need a fortune to do that. You can start with a mere investment of just Rs 500 per month. The amount is of little significance, the regularity matters more. After all, "People who create wealth are those, who invest on a regular basis and not occasionally," says Certified Financial Planner, Gaurav Mashruwala. The important question is where and how to invest? According to investment advisor Sandeep Shanbhag, one can maintain discipline with a monthly investment pattern. "First, asset allocation between debt and equity needs to be determined as per the investor's risk profile and situation. Once this is determined, monthly investment in debt and or equity can be done." As far as debt instruments are concerned, Public Provident Fund (PPF), bank fixed deposits, recurring deposits and post office schemes are good options. The minimum investment in PPF is Rs. 500 and it gives 8% tax-free return. In fact, it is a must in any investor's portfolio, big or small. The downside of PPF is that it has a long lock-in period of 6 years. Talking about recurring deposits, Mashruwala says that although there is no risk of any loss, the liquidity is at cost. You may not be able to withdraw the savings for a certain period and if you do so, either you have to pay penalty or some amount would be deducted. Moreover, he cautions that the interest on these deposits is taxable. These deposits usually give an interest of anywhere between 6 per cent and 7 per cent depending on the term. So, a post tax return on these deposits can be quite low. As against that, post office schemes like national savings certificates offer taxable returns of 8 per cent. "Investing in debt based mutual funds through SIP (Systematic Investment Planning), is also a good option," says Mashruwala. Systematic investing is especially valuable for the investor who wants to get his investments going, but doesn't have a large sum of money to invest. "Systematic investing works particularly well if you fear that you might buy a mutual fund at its peak, just before the stock market and your fund's shares head into a slump.

"It offers a disciplined way to invest a portion of your income at regular intervals without trying to second-guess the market, thereby also protecting you from extreme fluctuations in the market. And, its effect on your investment's growth over time can be nothing short of amazing. This concept is called rupee cost averaging. In addition to helping you organise the process of investing, the SIP offers several important advantages that may boost your chances of achieving your important goals.

PPF NSC

Minimum investReturns ment (Rs) 500 8% 100 8%

Lock-in

Tax on returns

6 years 6 years

Tax free Taxable

Recurring 500 Deposit

7-8%

Depending upon the Taxable terms of deposit

Post office 10 recurring deposit

8%

5 years

Debt Mutual Funds

500

No lock-in Dividends period are tax except free. Depends on under Short fund ELFS term and performance scheme, long term where the capital period is 3 gains tax years apply.

500

Dividends are tax free. Depends on No lock-in Short market period. term performance capital gains tax apply.

Equity Mutual Funds

Taxable

"As far as equity is concerned, a regular investment in an equity-diversified fund is the best course of action if you want to invest with small amounts", says Shanbhag. "The averaging that happens on account of the regular investments such as SIP gives immunity from market volatility," he advices.

If you want to get a bit more savvy, you could try and buy equity shares directly. With the invention of demat accounts, things have become far more easier. Although, one may not be able to invest in high-value shares like those of Infosys, good shares of mid-cap or small-cap companies can always be bought. However, these investments must be made after sufficient research and study. The options are many but the choice is yours. "Depending upon goals, need for liquidity and your liabilities, you must invest vigilantly," says Mashruwala. So, for a good long-term investment health, investing regularly in your chosen debt equity mix. The bottom line, says Shanbhag, "Invest regularly, how much you can, whenever you can." For more on financial planning, log on to click here

How to become RICH with just Rs 100

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June 29, 2006 08:43 IST

If compound interest is so simple that it is taught in high school, how come it took Albert Einstein, arguably the greatest scientist in the world, to call it the 8th wonder of the world?

Was it to remind us that we forgot about a magic theory? Really, understanding compound interest is very, very difficult. The human mind does not comprehend such growth so easily. We in our physical selves have a simpler type of growth. So we do not comprehend compounding of growth. A few old, really old stories might just help. Let us start with the famous story of the Persian emperor who was so enchanted with a new 'chess' game that he wanted to fulfill any wish the inventor of the game had. This inventor, a mathematician, decided to ask for one seed of grain on the first square of the chessboard doubling the amounts on each of the following squares. The emperor, at first happy about such modesty, was soon to discover that the total yield of his entire empire would not be sufficient to fulfill the 'modest' wish. The amount needed on the 64th square of the chessboard equals 440 times the yield of grain of the entire planet. Just try converting into money in any currency and you will realise the importance of compounding. A similar analogy is that one penny invested at the birth of Jesus Christ at 4% interest would have bought one ball of gold equal to the weight of the earth in the year 1750. In 1990, however, it would buy 8,190 such balls of gold. At 5 per cent, interest it would have bought one ball of gold by the year 1466. By 1990, it would buy 2,200 billion balls of gold equal to the weight of the earth! The example shows the enormous difference 1% makes. It also proves that the continual payment of interest and compound interest is arithmetically, as well as practically, impossible. Just see what a difference it would have made if your great grandfather had invested in a bank fixed deposit only Rs 100 say 150 years back. What it would have grown to? Here is a dream sheet. See for yourself. Imagine Rs 100 is invested and it grows at 10 per cent every year. Column 2 is what it will grow to if it was held for the number of years in column 1. So if your great grandfather invested Rs 100, 150 years ago, you would have inherited Rs 16 crore (Rs 160 million). No. of years it What it would grow to is invested for: in Rupees: 1 110 5 161 10 259 15 418 25 1,083 50 11,739 100 1,378,061 150 161,771,784 200 18,990,527,646

300 400 500

261,701,099,618,845 3,606,401,402,752,540,000 49,698,419,673,124,400,000,000

So what is the learning from this sheet? Even a 1 per cent difference can make a mountain of a difference, but the greatest difference is made by the number of years the money remains untouched. That is the key. For those more mathematically inclined, I state below the formula: Vn = Vo * (1+r)^n 'n' in the compounding formula is the number of times the amount is compounded. But for practical purposes if you take that as the time for which you stay invested in an instrument, you would not be too wrong either. What it means is that: The amount of money that you require (Vn) is equal to the amount invested today (Vo) multiplied by [1+ interest rate (r)] raised to the number of times the amount is compounded (n). In this formula you as a client can control how much money you want at the end of the waiting period (Vn), how long the money can be invested (n), and how much money you can invest today Vo. Instead of worrying about 'r', just start investing. That is the key. Takeaways: • • • •

• •

Start investing early. Do not touch the amount for a long time. Do not keep jumping from one investment instrument to another. Let the power of compounding work for you. It would have worked for your grand-dad, dad and you. If they knew it, great. If they did not, you can start the line. At least your grandchild will praise you for it. To see what it would have become over 500 years is fantasy. What it could have become over 150 is Ratan Tata. When you read about 'the rich get richer, and the poor get poorer,' it is not about socialism. It is about compounding.

The author is a chartered accountant and a financial domain trainer. He can be reached at [email protected]

How to read a mutual fund fact sheet June 22, 2006 09:30 IST

For some investors, a mutual fund fact sheet serves the purpose of looking back and reminding themselves about their investments and finding out where they are headed. For others it is only a publication that adds little value. This is mainly because the second group of investors is unable to anlayse information from the fact sheet and primarily depends on their investment advisor to unravel it for them. We believe investors should be self-reliant as far as evaluating their investment is concerned and that the fact sheet can help them on this front. A fact sheet presents an ocean of information about the AMC (asset management company) and its various schemes. It provides valuable information, which is not only important for an existing investor but also for a prospective one. What an investor really needs to do is to extract the most relevant information from the fact sheet, which can help him in tracking his existing investment or decide upon his future course of action. Also while analysing a fact sheet, investors usually place more importance on net asset value (NAV). They tend to ignore other equally important information points simply because they are not competent enough to interpret it. We have highlighted some of the important points in a diversified equity fund's fact sheet that should draw the investor's attention. 1. Investment objective The mutual fund's investment objective states what it aims to achieve e.g. capital appreciation, income generation among others. It could also inform the investor about the investment style of the fund and the kind of risk it is prepared to take for achieving its investment objective. For instance, a broad investment objective like 'aiming for capital appreciation' means the equity fund has a flexible investment approach and is likely to do whatever it takes to clock capital appreciation. A lot of equity funds in the past were launched with a rather minimal investment objective like 'capital appreciation'. It gave investors little idea about how the mutual fund planned to conduct its investment activity. Nowadays, of course, mutual funds have pointed investment objectives that give the investor a fairly good idea about how the mutual fund will go about its investments.

Ideally, an investment objective should be pointed enough for the investor to understand whether his own investment objective fits well with that of the mutual fund. For instance, an investment objective that states that the fund will 'attempt to generate capital appreciation by investing significantly in the mid cap segment', it tells the investor that it is likely to be a high risk -- high return investment. If the investor has the risk appetite for such an investment he can consider investing in the fund. 2. Portfolio diversification Portfolio diversification can be broadly explained under two categories: a. Top 10 stock holdings Concentration levels in the top 10 stocks reveals a lot about the investment approach of the fund. In our view, if the top 10 stocks of a diversified equity fund account for over 40% of the net assets then the fund should be regarded as concentrated as opposed to being diversified. A concentrated portfolio is usually a candidate for market volatility. While it may generate aboveaverage growth during a market upturn, it will be a sitting duck during the downturn. b. Sectoral allocation This is another area that deserves a close look. A diversified equity fund is expected to be diversified across several sectors. If a fund has invested heavily across a few sectors, it qualifies as a sectorally concentrated equity fund. This could expose the mutual fund to higher levels of volatility during market turbulence. Sectoral concentration works against the fund if a particular sector/ sectors in which it has invested significantly is not performing as per expectations. Looking at the sectoral allocation becomes particularly relevant because we have observed that equity funds are often well diversified across the top 10 stocks, but are heavily concentrated across a few sectors. During a market downturn, these funds tend to do as poorly as other concentrated funds. While on the surface, some funds might seem like they are sectorally well-diversified, a closer look might reveal otherwise. For example, it is not uncommon to find that similar-natured sectors such as 'industrial capital goods' and 'industrial products' being shown separately in the fact sheet. This makes the fund look more diversified than it actually is. That is why, while analysing sectoral allocation, similar sectors should be clubbed together. Click here for Personalfn's fact sheet section 3. Fund Performance This is the most popular criterion for most investors. All mutual funds publish NAV returns in their fact sheet across various time frames. For an equity fund it is important to analyse returns for a longer duration of 3 years or even more. That is because as an asset class, equities tend to unlock their potential over a longer time horizon.

An investor should ensure consistency of returns over various time frames. The best way to test the fund on this criterion is to check its returns over a calendar year as opposed to compounded annual growth returns (CAGR). The returns of the mutual fund scheme under review should be compared with other mutual funds from the same category across AMCs. Another important parameter for judging the fund's performance is by scrutinising how it has faired against its benchmark index. Every fund has a benchmark index. For instance, equity funds are often benchmarked against BSE Sensex S&P CNX Nifty, BSE 200, CNX Midcap among others. The index is a yardstick for evaluating the returns of the fund. A fund is expected to outperform its benchmark index across market cycles to qualify as a superior fund. 4. Loads and Expense Ratios Fund houses normally disclose the load structure and expense ratios in the fact sheets. The loads and expenses have a bearing on the fund's performance. The fund's NAV is declared after expenses have been factored in. Hence, higher expenses for a fund can impact its returns adversely over the long term. Similarly loads (entry/exit) are an initial cost that the investor has to bear at the time of investing in or exiting from the mutual fund. To get a fair idea, the investor should compare loads and expense ratios across various fund houses. One important aspect that investors must bear in mind is that although loads and expense ratios have a direct impact on the returns, this cannot be the sole criterion for evaluating a mutual fund scheme. Other criteria like fund management style and performance should be given higher priority while investing rather than loads and expense ratios. In other words, a mutual fund with an average track record but lower expenses should not be given preference over an expensive mutual fund with an impressive track record. In such a case, consider the higher expenses as the 'price' you have to pay for investing in a well-managed fund. 5. Investment objective Vs Actual performance It is important to understand whether the fund was able to adhere to and achieve its investment objective/mandate. For instance, a lot of large cap equity funds tend to make above-average allocation to mid cap stocks when this segment witnesses a rally. Or a balanced fund/MIP (monthly income plan) may up its equity allocation to benefit from a stock market rally while ignoring the ceiling on its equity investments. Always invest in a fund that treats its investment objective as sacrosanct and rigidly adheres to the same across time periods and market cycles. Investors must be wary of mutual funds that haven't adhered to their investment objective/style.

UTI SPrEAD Fund: Should you buy? Reena Prince, Moneycontrol.com | June 22, 2006 09:32 IST

UTI Mutual Fund's new fund offer -- UTI SPrEAD Fund -- is an open-ended equity fund that seeks to generate market neutral returns. The investment objective of UTI SPrEAD is to provide capital appreciation and dividend distribution through arbitrage opportunities arising out of price differences between the cash and derivative market by investing predominantly in equity, derivatives and the balance portion in debt securities. The return of the fund is expected to be as per the extent of arbitrage opportunity; no matter what direction and to what extent the market rises or falls. Hence, investors should note that this fund will not deliver the high returns that one has been used to from equity funds, but at the same time it is not expected to give negative returns either. Similar products have been launched in the past too, like JM Equity and Derivate Fund, Kotak Cashplus, and Pru ICICI Blended Plan A. However, now SEBI regulations allow higher exposure to derivatives than was possible earlier. Experts believe that for a long-term investor, such a product is an excellent choice as a defensive investment especially in a volatile investment climate. Advisor Hemant Rustagi feels that UTI SPrEAD is a good investment option for conservative investors, and for equity investors who wish to invest their surplus cash as this fund would yield better returns than floating rate debt funds. Also, due to its equity nature, post tax returns would go higher in this fund as compared to debt funds, he adds. However, on the flipside, investment expert Sandeep Shanbhag feels that lack of arbitrage opportunities in the market is a concern for the fund. He says, ?In a period where arbitrage opportunities do not exist or are few, the fund would have to depend upon its fixed income investment to deliver return.? But, Sundeep Patel, Fund Manager of UTI SPrEAD Fund clarifies that 'lack of arbitrage opportunities in the market' is a hypothetical concern. He says, "Arbitrage opportunities are ample in the market, though stocks might be few. For example in a negative market too I see stocks that are trading at a premium. What's important is that it's a risk free product that will never give negative returns." "UTI SPrEAD is also expected to have an annual average of 65% to maintain the equity nature of the schemes. While experts believe that by maintaining a 65% in equity this fund can take tax advantage applicable to equity funds, there needs to be clarification on whether the fund will be

forced to take naked positions (un-hedged positions in equity) just to maintain the asset allocation," he adds. "No un-hedged positions in equity would be taken," clarifies Patel. He is confident of achieving an annual average of 65% in equity as he says, "Maintaining equity nature is not a concern for us." Lastly, it being an interval fund, experts feel that the liquidity in UTI SPrEAD is not as high as in an open-ended fund. But Patel has an answer to that is: "UTI SPrEAD is a structured product, and is a trade-off between higher liquidity and higher returns. The fund offers exit option every month. Investors can put their redemption requests on any day of the month, and the cheques would be issued on the last Thursday of every month." For more Views by Experts click here.

How to profit from mutual funds Gaurav Mashruwala, Moneycontrol.com | June 22, 2006 09:28 IST

If you want to go to Goa from Mumbai, there are several vehicular options. You can travel by airplane, drive in car, take a train or a bus, or sail in a ship. Similarly when we want to make any kind of investment, there are different investment vehicles, e.g. mutual fund, portfolio management services, 'direct' (investing on your own), insurance, etc. Goa is the destination and airplane, car, bus, train, ship, etc are vehicles. Similarly, debt, equity and property are asset classes, and mutual funds, PMS and insurance are investment vehicles. It is important to clarify here that property includes real estate, bullion, collectibles, art, etc. To invest in debt, equity and property we have to choose investment vehicles, which suit our requirement. In earlier times, 'direct' was the only investment vehicle available. If we wanted to buy fixed deposit/bond we had to apply on our own. Similarly, when we wanted to buy shares, we had to call up stock brokers, who would procure shares on our behalf and same was the case with property. The cost involved in 'direct' buying is least amongst all investment vehicles. However, we need to have skills and time to use this form of investing. Another investment vehicle is a mutual fund. Mutual fund works on the concept of pooling in money. Assume there are 5 to 6 friends who want to invest money in a particular asset class say equity. Also assume they do not have skills and time.

However, one of them knows an expert who regularly invests in the stock markets. All these friends go to an expert and give him their investment amount. The expert invests on their behalf. If there is profit in investment, they all benefit and if there is any loss, they suffer. Experts get certain fee for investing on their behalf. This is the concept of a mutual fund. Investing in a mutual fund is slightly expensive than 'direct' form of investing. However, the decision-making and procedure of investing is transferred to the mutual fund company. Insurance, as an investment vehicle, works somewhat similar to mutual fund as far as ULIPs (UnitLinked Insurance Policies) are concerned. While traditional insurance plans invest only in debtbased products and are not market linked, ULIP invests in debt, equity as well as a combination of the two. The only difference in the case of insurance is that expenses charged by the insurance company are much higher that most other investment vehicles. PMS is usually tailor-made for your needs. Based on your financial goals, portfolio managers create an investment portfolio for you. For creating and maintaining your portfolio, the manager charges fees. Also if your portfolio earns profit beyond a certain amount, then the portfolio manager shares the profit. However, if there are losses then the same is charged to your account only. While choosing any investment vehicle keep in mind your skills, time available with you to create and maintain your investments and costs involved. If you have the skills and time available with you then 'direct' form of investing is ideal as it has least of costs amongst all other vehicles. On the other hand, insurance is the most expensive investment vehicle and hence it should be kept away from as far as possible. PMS works better for wealthy (high net worth) individuals. Although profits have to be shared, there is also the advantage of getting tailor-made portfolio. Only catch is to ensure that portfolio created and maintained for you is tailor-made and that the PMS is not another mutual fund scheme, where all investors get the same portfolio. For small and medium investor -- who does not have the skills or the time -- mutual funds seem the best option. Currently, in India, we have mutual funds which invest in two asset classes, debt and equity. However, in the very near future there is a likelihood of having mutual funds, which will invest in gold as well as real estate. How to choose mutual funds based on our goals

We can choose mutual funds based on our goals. If funds need to be parked for contingencies, we can choose either liquid funds (if amounts are large) or short-term debt funds. There are some fund houses which gives ATM access to debt based funds. For goals, which are 1 to 3 years away, choose debt-based funds. In a rising interest rate scenario, consider floating rate funds, while if interest rates are falling invest in pure income/bond funds. For goals, which are likely to happen between 3 to 6 years, use combination of debt and equity based funds. When goals are 8 to 10 years away, equity is the best option. Over the long-term, equity has usually beaten inflation by vast margins and probability of losing money is very low. If you are new to equity investing, start with index funds. Index funds replicate the index. For example, Sensex-based index funds will invest in only those companies, which are constituents of the Sensex. As and when you get comfortable with equity investing, move to diversified equity funds, which invest in large cap companies. Large-cap companies are well-established companies having long presence. They are usually less volatile than small-mid companies and can withstand downturns in economy better than newer companies. Small- and mid-cap companies rise and fall faster. On risk ladder they are more risky compared to large companies but can also give higher returns (and severe fall.) Having gained confidence with large cap companies, move to mutual funds, which invest in small-mid companies. Once you are a 'fish in water' with volatility of equity markets, consider sector funds. These funds invest in single sector as IT, banks, FMCG. They are very high on risk ladder. Mutual fund as an investment vehicle is the most convenient vehicle for investing in various assets classes. It gives benefit of professional management, option of investing in smaller amount, quick liquidity and diversification benefit. The author is Gaurav Mashruwala, a Certified Financial Planner. He may be reached at [email protected] For more views by experts, click here. Buying ULIPs? Read this first June 01, 2006 19:12 IST

Unit linked insurance plans have caught the fancy of individuals over the past few years. In fact, most individuals opting for life insurance now go in for ULIPs as opposed to term plans or

endowment plans. Therefore, it becomes important for individuals to understand what to look for in a ULIP before finalising one. We outline four parameters that ULIPs need to be evaluated upon before individuals zero-in on a unit-linked product. Investment mandate ULIPs differ significantly from traditional endowment plans in the way they invest their monies. ULIPs have an investment mandate, which allows them to 'shift' assets freely between equities and debt. This is unlike saving-based plans like endowment plans, which invest pre-dominantly in specified debt instruments like bonds and government securities. The amount of money invested in equity has the potential to make a significant difference to the returns that the plan can generate over the long run. Click here to understand how a ULIP's equity component makes a difference However, ULIPs with a higher equity component can prove to be very volatile customers during stockmarket turbulence. So investors have to be sure that their risk appetite coincides with that of the ULIP. For this, make a note of the maximum equity allocation the ULIP can take on. There are several options within a ULIP. You can select the option that best fits in with your risk profile and helps you achieve your investment objective. If you are an aggressive investor you can go for a ULIP with the maximum equity allocation - this varies from insurer to insurer but is usually in the range of 70 per cent-100 per cent of assets. If you are a conservative investor then you can opt for a ULIP option that has a smaller equity allocation of about 20 per cent. ULIP expenses A lot has been written about ULIP expenses in the past. At the cost of sounding repetitive, ULIP expenses do make a difference to the returns. This gets more evident over the long run. Expenses take a toll on the returns by way of reducing the amount, which gets invested. A lower amount will yield lower returns. ULIP expenses are broadly classified into annual expenses (excluding fund management charges FMC) and fund management charges. The annual expenses are deducted from the premium amount and hence, that part of the premium which is net of annual expenses is invested. While annual expenses are high in the initial years, they even out in the long run (typically 15 years and above). Click here to understand how ULIP expenses affect returns FMC on the other hand, is levied on the corpus till date. A higher FMC therefore means a reduction in the corpus that can generate returns going forward. FMC therefore makes a sizable difference to the returns in the long run. Miscellaneous features

ULIPs offerings also differ across companies in terms of the flexibility offered across various parameters. For example, the minimum premium for one insurance company is Rs 10,000 while for another, it is Rs 18,000. Also, some insurance companies let individuals alter their equity: debt allocation 5 times a year at no additional cost while other companies allow alteration only twice during the year (without additional costs). The charge on top-ups also differs- a certain insurance company invests 99 per cent of the top-up amount (1 per cent is deducted as top-up charges) while another company deducts 2.50 per cent as top-up charges, investing the remaining 97.50 per cent. Such differences need to be considered before individuals zero-in on a ULIP product. Focusing on your asset allocation Individuals also need to stick to their asset allocation plan at all times. It has been noticed that ULIPs are often bought by individuals without having an understanding of the value that they bring to their financial portfolio. If their current asset allocation is skewed towards equities (i.e. mutual funds/stocks), then what the individual may really need is a term/endowment plan. Conversely, if the portfolio is debt-heavy, then the individual can consider investing in a ULIP with a significant equity allocation. Click here to download your free copy of Money Simplified: 'ULIPs and You' Do you want to discuss stock tips? Do you know a hot one? Join the Stock Market Discussion Group.

From rags to riches, in 18 minutes May 11, 2006 10:15 IST

As a financial planner I do spend a lot of time with 16-year-olds working in call centres, media companies, banks and so on. When I am with them and discussing their problems, the one question that often comes to my mind is: 'If these guys cannot make their monthly salary stretch one month, how will they be able to stretch their 'retirement nest egg' for 30 years?' The normal problems are over-running their credit limits, paying partly for their cell phone bills, delaying the rent cheques, and all this, despite being paid well. I try telling them the virtues of saving, starting early, investing, life insurance, mutual fund and all that. At my age I guess I sound like their dad/mom giving them advice, so like dutiful children they hear me patiently and ignore me nicely.

Whenever I run into them again, in the canteen or the corridor, they sheepishly tell me: "Sir, I was just looking for you. Will you be there till 4.30 pm?" At 5.30 pm when I am leaving, there is no sign of them. But by now I know their game, so I shrug it off! But surprise, surprise: one day a smart, young woman comes up to me and says: "Can I invest in a mutual fund or an insurance policy, or preferably both?" I flipped. I had been chasing a lot of these people and only a couple of them had come voluntarily to invest. So I had to probe. Then came out the secret, and I liked it. And since she was a media person, I asked her to write the story in her own words. So here it is. . . in her own words: 'I was on my way to work and Murphy's Law had struck in the form of a traffic jam. In an attempt to dissuade my cab driver from blaring Himmesh Reshamiya's latest assault on music, I began to chat with him. In the course of my discussion, I asked him if the taxi he drove was his own or was he on a shift system like many others. 'His reply had me speechless. Not only was the taxi he was driving his own, but he also owned six other Fiat taxis, one Toyota Qualis, which he hired out and was now debating between a truck and bus for his next acquisition. Wow! 'I asked him where he got the money from. . . slightly nervous that I was riding with a possible hitman for Dawood. And his answer was even more surprising. 'He said: "Madam, whenever you need to go some place you take a cab and go. When I have to go some place and I don't have a fare going in that direction, I park my taxi some place and hop into a bus." 'I listened as he spoke. "How much does it cost you to travel from your home to your office?" Rs 100, I said. "Well, Rs 200 for a round trip?" he continued. "Well, let's say you travel through the month by taxi. How much would that cost you?" Some quick math later, I came up with the answer: Rs 6,000! 'I was spending Rs 6,000 a month to travel. Then he said: "The bus ticket costs you Rs 10 and say another Rs 20 to get from your home to the bus stop. That's Rs 60 per day for a round trip. You are saving Rs 140 everyday. That's Rs 4,200 a month. . . nearly, Rs 50,000 a year. If you invested that in something, you'd be able to buy your own car!" 'What could I say? I now travel by bus. And am doing a Systematic Investment Plan in a mutual fund and paying a monthly premium in a Unit-linked insurance plan."

'What I could not do in 18 months, a taxi driver had done in 18 minutes.' As told to PV Subramanyam. PV Subramanyam is a financial domain trainer and can be contacted at [email protected]. For more on financial planning, log on to www.moneycontrol.com.