Six tips when the markets fall flat

LIFE is full of simple rules that you should follow. Basics like ‘Do Not Covet Thy Neighbours Wife’ are not only good for your physical well being but also your soul. To these and other simple rules I’d like to add one more: Never forget that what goes up, must come down.

This rule, I believe is the cornerstone of a successful and contented life. If you suddenly find yourself flush with funds or your popularity within your friends has suddenly risen because you got photographed in the party section of the morning newspaper, don’t pop the bubbly too soon because nothing lasts forever.

And certainly not a bull run in the stock market! A sudden rise may have you smiling from ear to ear but you can be sure that the decline will soon follow. So here are six tips for a sliding market.

1. Hear no evil
First, forget about rationalising and explaining (or listening to other people explain) why stocks are falling. It’s a pointless exercise at best, and misleading at worst.

2. Remember the bad times
Second, file the painful experience away as a worthwhile reminder of the riskiness of stocks, and draw on that memory during the next market boom when optimistic market seers tell you that stocks are really not risky (Remember Sensex 25,000).

3. Don’t wait it out
If you believe, based on your preferred market measure, that stocks have over corrected, don’t wait for the correction to end. Investors who wait for final and complete confirmation that the market has turned around invariably miss the bulk of the turnaround. I was investing in 1997 through 2006 – it had nothing to do with the equity markets. It was a conviction that long-term monies should be in equities. So, if I have long-term money, it goes into equity, other wise it goes into a money market mutual fund.

4. Be contraian
Recognise that even if you are right about the market overcompensating for past mistakes, there will be months of pain before the gain. Being a contrarian is easy on paper but much tougher in practice.

5. Change of perspective
Markets will go up and go down – you cannot change that. You can change the way you look at it. When you have money you will invest, when you need money you will sell. There is no call to action based on ‘what the market will do’. So that does not matter.

6. Get real!
Finally, console yourself with the recognition that the professional portfolio managers and the market experts you see on television are staring into tele-prompters not crystal balls.

These six simple tip should keep you afloat even if things go from bad to worse. And when they do, here is another rule for you to remember : No Matter How Bad things are, remember they can always get worse! And on that happy note, I shall bid you goodbye.

Author: P. V. Subramanyam
Source: Wealth, MoneyControl

Too broke to invest your money?

QUICK money. Fast buck. Easy moolah. Call it whatever you want, but now is a financially good time to be in for the young.
But then again, this is a call not to lose sight of a few basics in money management.

Here are five mantras. Take a printout, write them down, whatever. But do not lose sight of them!

1. Set your financial goals

Planning for future studies, buying a car, laptop or a pool table, whatever your goals, identify them. Put a monetary value to them. You can achieve your goals only if you save for them systematically.

2. Buy an insurance policy

For those with dependents, insurance is a must. The sooner you get insured, the better. It will also work out cheaper because you have age on your side.

3. Spend less on credit cards

Plastic money is very convenient. Most of us prefer it to actual money, its sheer convenience forcing us to overspend.

Make sure you read the fine print before using your credit card, lest you be shocked with the bills later. Do not forget the basic rule: Don’t spend what you don’t have.

4. Think future

It is never too early to start preparing for your future. Plan for your retirement now.

You will see the power of compounding when you start investing small sums of money, but see it grow gradually to the target amount you set.

5. Invest regularly

There are various options to invest your money. One of the most popular and rewarding options is to invest in mutual funds.Choose from a variety of options (equity, balanced, debt), and a variety of fund houses. Besides, most fund houses have fairly easy procedures for Systematic Investment Plans (SIPs).

Systematic Investment Planning is a simple process of investing the same amount of money every month over an extended period of time, regardless of whether the market is up or down.

Let’s say you invest Rs 1,000 every month.

Invested amount

Current value	Rs 36,000	Rs 60,000
Scheme A (mid-cap fund)	Rs 60,820	Rs 219,325
Scheme B (large-cap fund)	Rs 61,392	Rs 176,181

(All data as of July 2006)

This goes to show the virtues of starting early, investing regularly and staying invested.

It is a time to enjoy life and a time to plan your future, so that you can enjoy the rest of your life, too.

My money mantras

i. Set your goals.

ii. Do not spend what you do not have.

iii. Start saving for your goals; small but systematically.

iv. The future is not too far away. Don’t ignore it.

v. Postpone your expenses, not your investments.

Author: Lovaii Navlakhi
Source: Wealth, MoneyControl

When the stock market crashes

THE last three to four years have proved to be a roller coaster ride for the stock market.

The Sensex doubled from a level of 3000 on May 3, 2003, to 6000 in January 2004. When the Bharatiya Janata Party lost the elections in May 2004, the market plummeted to 4500 (a 25 per cent drop in just four to five months).

But within six months, the market recovered and again, the Sensex touched 6000 before the end of 2004. Thereafter it was almost a one-way journey right up to May 2006, when the market hit the 12,000 mark.

Later, the market saw a sharp correction when it dipped to 9000 level in June 2006. But pretty soon, it crossed the 21,000 mark by January 2008.

Since then, we have witnessed some pretty sharp falls. And the fact that it doesn’t seem to be bottoming out, is making investors a lot more nervous. Of course, volatility is not something new. But the sharp ups and downs are scaring even the old-timers who are in this business.

Read: Don’t look in the rear view and drive

What next?

First, cut out all the noise and clutter around you and get back to basics. This is because 90 per cent of the people around you are as clueless as you are. So, when you let the facts speak for themselves, you have a better chance of eliminating ambiguities. Let’s find out what these are.

Fact 1: The equity market is NOT a lottery ticket. Every share has a fundamental value and is based on the company’s performance.

Fact 2: It is possible for share prices to be widely different from their intrinsic value.

Fact 3: In the long run, share prices always move towards their true value depending on the profitability and growth potential of the company.

Fact 4: Irrespective of whether the United States goes into recession or the sub-prime problem generates more losses, India’s economic growth rate will still be comparatively high.

Fact 5: Unless we have some serious calamity, a political crisis or poor monetary or fiscal policy, we may continue to see over 7 to 7.5 per cent growth rates over the next 5 to10 years.

Fact 6: If the economy continues to grow at such a healthy rate, it has to reflect in the corporate performance as well. This will lead to appreciation of the share price sooner or later.

Keeping these facts in mind, the long-term outlook for India still remains quite positive.Read: The stock market made this nimbu paani owner rich!

Quick lessons!

1. Do not panic.

2. If you have invested in good companies and mutual funds, stick to these choices.

3. It’s a good time to invest in the market.

4. Be patient and disciplined. You will be rewarded!

Author: Sanjay Matai
Source: Wealth, MoneyControl

Careful mistakes you make!!

MISTAKES can be expensive. Ask the guy who looked at a beautiful girl crossing the road instead of looking at the car in front of him. His glance cost him over 1 lakh (Rs 100,000) in damages. But you could argue that this was a careless mistake. But what about the mistakes we make carefully?

Careful mistakes are the ones we make after long deliberation, wrong calculation leading to the wrong choice. And naturally these cost you more. Lets look at Insurance for instance.

Firstly, we need to be a clear about one point — Insurance is a cost. Whether one would want to incur this cost or not, and to what amount, is a matter of personal choice. And since it is a cost, the obvious thing to do is minimize the cost without sacrificing the basic life cover.

The big mistake
This is where the big mistake comes in: Pure-protection policies, where one doesn’t get anything back if one survives the policy term, are the ideal choice for the above objective. But psychologically, it is difficult for people to pay-up hard cash for an intangible product, ie security. So they go in for insurance products with returns.

Hence, moneyback and endowment (and of late Unit Linked Insurance Plans or ULIPs) type of policies are taken. But this is what they forget:

• The same amount that they would otherwise pay in a term policy also gets deducted from these so-called protection and investment policies. And only the net amount gets invested.
• The administrative costs are high
• Corpus is invested in very safe instruments
• Therefore, the returns from such policies are usually very low — usually in the range of 5-7% pa.

Naturally, a person would be better off taking a term policy to get the life cover and investing the balance premium amount say in PPF where he can earn 8% pa returns (assuming he wants no risk of investing in equity, where the returns can be much higher).

The mass exodus
As more people realise their mistake, they want to exit from such insurance policies. Unfortunately, early exit from insurance policies results in a huge loss. So does it make sense to surrender one’s policies despite this loss? There could be three broad scenarios possible, depending on how many premiums you have already paid, out of the total premiums payable.

• Early stage: A policy can be surrendered only if it has been in force for three years and premiums have been paid for these years. If you have paid just one or two annual premiums, then you will get back nothing when you exit from the policy. Even thereafter, you will get back say only 25-35% of the premiums paid + bonus accrued, if any. This is for a typical 20-year term policy. The % varies depending on the term and premiums paid.

Now, if you invest this amount + the future premiums in other investment options, you will need to generate around 9-11% p.a. returns to recover the lost premiums and break-even with the insurance policy if you had continued with it.

If you’re confident take a hit and move on!

• Middle stage: If you are somewhere around the middle of the policy, you can either surrender the policy by taking around 50% of the premiums paid + bonus; and invest this and the future premiums somewhere else. But remember that the absolute loss is higher here as more premiums have been paid and time for recovery is less. So, you need to generate maybe around 14-17% pa returns to break-even.

Optionally, you can make the policy fully-paid. Your sum assured will be suitably lowered. And you will back the premiums paid + bonus earned — but only at the end of the original term. Also no fresh bonus will accrue during this period. The net return for this amount works out about 4%. Invest the future premiums in the other options. Here you may have to generate somewhat lower returns of around 12-15% p.a. to break-even on overall basis.

• Late stage: If your policy is just about to mature in three to five years, then it may well be prudent to let it run its course. You can’t do much by saving 3-5 years’ of premium payments.

These are only broad numbers purely for indicative purposes. It’s important that you do a detailed working for each of your policies, before taking any further action.

But, with a GDP growth expectation of 7-10% over the next decade or so, the returns outlined are pretty reasonable especially if you choose equity. If you have the capacity for a little risk, go ahead. After all, there’s no gain without pain right?

Author: Sanjay Matai
Source: Wealth, MoneyControl

New fund offers, worth the money?

WE’RE all familiar with the phrase ‘Make hay while the sun shines’. Apparently the financial world is also familiar with it because that would explain the slew of mutual fund new fund offers (NFO) due to the buoyant mood of the markets.
And because we all love new things, investors have rushed to redeem their crores from a perfectly well performing existing fund to invest an NFO with similar objectives.

But how smart is that? Mutual Fund NFOs are nothing but commencement of a new scheme. They should not be confused with equity IPO usually get huge listing gain. There is no such upside on MF IPO’s. In fact there very well may be a downside. Lets look at it closely:

1. Ignorance is not bliss
One of the major reasons for the success of mutual fund NFOs has been the continued ignorance of an average investor with regards to the NAV. They have all along assumed that if they are getting the units at par ie Rs10, they are getting it cheap. Huge error!

NAV merely represents the market value of the portfolio. It is the book value. Thus when one invests in a mutual fund one is buying the units at the book value — which is Rs 10 for a NFO and could be Rs 15 or Rs 20 or whatever for an existing scheme.

The NAV of an existing scheme is higher merely for the fact that its portfolio has appreciated since the time it built it’s portfolio. Going forward, the returns over a given period of time will be same from an existing portfolio (with a higher NAV) and an identical new portfolio (with Rs 10 NAV). The earlier appreciation of the old fund does not make it expensive vis-à-vis an NFO.

2. Let’s talk numbers now
Say a fund (Old Fund) was launched in Sept 2004. It raised a corpus of Rs 1 crore and allotted 10 lakh units at Rs 10 each. The corpus of Rs 1 crore was invested equally ie. Rs 25 lakh each in Reliance, ONGC, Infosys and Arvind Mills. Over the next 1-year i.e. till Sept 05 all these share prices appreciated and the corpus became Rs 1.49 crores. Accordingly the NAV of Old Fund now is Rs 14.9608.

Now, assume that in Sept ‘05 a NFO is launched. It raises Rs 1 crore and allots 10 lakh units at Rs 10 each. It also invests in the same 4 shares viz. Reliance, ONGC, Infosys and Arvind Mills. The amount to be invested in a particular share is in the same % as in the Old Fund now (This is important, as we have to compare the impact of NAV on the returns and not the impact of the portfolio).

Now we invest Rs 10,000 each in Old Fund and NFO. In Old Fund, we get 668.414 units at Rs.14.9608/unit. And in NFO we get 1000 units at Rs 10/unit.

After one year in Sept 2006, due to appreciation in the share prices, the corpus of Old Fund increases to Rs 1.74 crores and NAV to 17.4669. And corpus of NFO increases to Rs 1.16 crores and NAV to 11.6751. But the investment value in both cases would have increased to Rs 11,675.

Author: Sanjay Matai
Source: Wealth, MoneyControl

Investing in mutual funds?

MOST of us have an inner rebel. That’s why often fall for the guy mother warned us against. Or continue smoking even when told not to.

So, it’s no wonder that when mutual fund advertisements worth millions of dollars, tell us to ‘Please read the offer document (OD) carefully before investing’, we still don’t! This is understandable; after all it’s a 100-page document filled with jargon. But in the long run, you will be the loser, if you don’t.

The Securities and Exchange Board of India (SEBI) have even come out with an abridged version called the Key Information Memorandum, which stipulates standard sections and disclosures in all ODs.

An OD is critical because it tells you whether your money is in the right hands, at the right place and at the right time. Your financial advisor will have a copy, and the company web site should have it online, too.

If you still don’t want to read the whole document, take the easy way out. wealth scopes out 10 must-reads in the OD.

1. Date of issue
Verify that you have the latest edition of the OD (an OD must be updated once a year, at least).

2. The minimum investment
Mutual funds differ both in the minimum initial investment required, and the minimum for subsequent investments.

For example, equity funds may stipulate Rs 5,000, while institutional premium liquid plans may stipulate Rs 10,000,000 (Rs 10 crore) as the minimum amount.

3. Why invest
The goal of each fund must be clearly defined, from income to long-term capital appreciation. You, the investor, must be sure that the fund’s objective matches with your’s.

4. Investment policy
An OD will outline general strategies implemented by the fund managers. You will learn what types of investments will be included, such as government bonds (with ratings) or stocks, considered appropriate. Be sure to check if it offers adequate diversification.

5. Risk factors
Every investment involves some level of risk. Look for descriptions of the risks associated with investments in the fund (like credit risk, market risk or interest-rate risk) and decide if it matches your risk appetite.

For example, a mutual fund Monthly Income Plan (MIP) invests mainly in bonds and gilts (up to 90 per cent) with a sprinkling of equity(10 per cent) to generate capital appreciation. This is passed on to customers as monthly income.

But remember: it is subject to availability of distributable surplus. In 2004, many mutual fund customers underestimated this market risk and were caught by surprise when the MIPs gave low/negative returns.

They may have been better off with a a Post Office MIP that assures an 8 per cent monthly income payment for its six-year tenure.

6. Past record
ODs contain selected per-share data, which includes the net asset value and total return for different time periods, since the fund’s inception.

Performance data listed in an OD are based on standard formulae established by the SEBI and enable investors to make comparisons with other funds. So investors should check track records over a period of time that matches their own investment horizon but always remember that ‘past performance is not an indication of future performance’.

Additionally, investors must check that the benchmark chosen by the fund to compare its relative performance is appropriate. In addition, investors should keep in mind that many of the returns presented in historical data don’t account for tax. They must look at any fine print in these sections, as they should say whether or not taxes have been taken into account.

7. Fees and expenses
Fool.com quotes: Mutual funds have two goals: to make money for themselves and for you, usually in that order.

Entry loads, exit loads, switching charges, annual recurring expenses, management fees, investor servicing costs — these all add up over time. The OD lists the limits on these fees and also shows the impact these have had on the fund investment historically.

8. Pedigree or vintage?
Who will you be trusting with your money? This section details the education and work experience of the key management of the fund company, including the Chief Executive Officer (CEO) and fund managers. For example, you need to watch out for the fund that has been in operation significantly longer than the fund manager has been managing it.

The performance can be credited to the previous manager. Check the performance of the current manager by looking into his or her past performance with other funds with similar investment goals and strategies.

9. Tax benefits information
Mutual funds enjoy significant tax benefits under Section 23 D and Sec 115. For example, equity funds enjoy the status of being free from long terms capital gains and dividend distribution tax.

A close reading of the tax benefits available to the fund investors will enable them to plan their taxes better and to enhance their post tax returns.

10. Investor services
You may have access to certain services, such as automatic reinvestment of dividends and systematic investment/withdrawal plans. This section of the OD, usually towards the back of the publication, will describe these services and how you can take advantage of them.

Now, you can decide if this mutual fund is for you. So, if you’re an information junkie, you can get more of it from the fund’s annual report, which is available directly from the fund company or with a financial planner.

Go right ahead and rebel against your parents, politicians, the Government, fundamentalists etc. But if you rebel against sound advice then you’re just a rebel without a cause!

Author: Ajay Bagga
Source:Money Control

What Stock Brokers Don’t Tell You!

DO you find yourself quoting proverbs or famous last words when teaching a child something important? You would rather fall back on their instinctive sense and the shared universal meaning.

It is much the same for stock markets. To learn the fundamentals of the market, the easiest approach would be to use often used maxims from our everyday life.

So here are 11 of them. The knowledge behind each is gained from several excellent books on the vast, fascinating subject of stock market investment such as Peter Lynch’s One Up On Wall Street and Beating The Street; Zulu Principle by Jim Slater; and Robert Hagstrom Jr’s The Warren Buffet Way.

The application, however, is entirely mine.

1. No pain without gain
This is the base level fundamental of equity investing. There is a close direct relationship between risk and reward. The higher the reward, the greater the risk. Fairly simple to understand, but it is most difficult to live by.

Where there is profit, there is always risk. The greater the opportunity of profit, greater the possibility of loss.

2. Slow and steady doesn’t always win the race
Gentlemen who prefer bonds don’t know what they are missing! On bonds, there is no return on money; there is only return of money.

Bonds being debt instruments, unlike equity, yield only fixed return. And, with inflation and income tax factored in, there is often no return at all.

(INFLATION METER: Did you know that your expense of Rs 10,000 today will be equal to Rs 46,609 in 2028? That’s because inflation is at 8% today! Use our ‘cost of living ‘ tool to find out how inflation will affect your budgets!)

3. United we stand
Investing in equity shares of companies is risk related because returns are linked to the company’s profits unlike investing in bank deposits or bonds or debentures where the returns are fixed and accrue to investors regardless of the company’s profits.

In the stock market, you are tying yourself to the company’s fortune.

4. It takes all kinds to make the world
Stock market behaviour is not unpredictable as it is commonly believed. It simply depends on human behaviour which, as we know, can never be predicted with any reasonable accuracy.

Hence, we have fluctuations in prices of commodities, things and stocks based on greed, emotions, hopes, fantasies, fear and dreams of millions of people, resulting in opportunities of making money out of such fluctuations!

Find out how one investor lost Rs 35 lakh in the stock markets !

5. Common sense isn’t all that common
Not all common stocks are common. Though equity shares as an investment class is one, each company has a distinct identity and performs differently and, therefore, rewards its investors differently.

6. Ignorance is bliss
Investing is nothing but an arbitrage of ignorance. Investing is basically profiting from pricing and difference in market perception of a given product at a given point of time.

Stock market is one place where the buyer and the seller both think that they are smart in their decision.

7. Elephants don’t gallop, zebras do
Stock prices of big companies with large capitalisations move up or down rather slowly compared to smaller companies because there is not much market ignorance on big companies to capitalise on.

Hence, smaller companies tend to reward its investors more handsomely.

8. Be a braveheart
You need ‘cash’ and ‘courage’ to be an equity investor. If you are prone to panic at losses, remain invested in fixed deposits with banks and government bonds.

If you don’t know who you are, the stock market is too expensive a place to find it out!

9. If you throw peanuts, you get monkeys
Investors make the mistake of not buying good stocks at high prices as also buying bad stocks at low prices. A lay investor tends to buy unsound companies at cheap prices instead of solid companies at high prices.

10. Lose the battle, win the war
Equity investment cannot maximise your income, but it can maximise your wealth. The actual yield by way of dividends on equity shares with reference to their market value is often as low as one per cent on investment.

But capital appreciation in equity values can be insanely high. Ask the initial investors of Infosys or Pantaloons.

Saving for investment is not a punishment. Investing is making conscious choices about how you will use your money. It is not about choosing to live rich or die rich.

It is about how you want you and your dear ones to live during your lifetime and thereafter.

Here are a few more pointers.
i. There is no ‘high’ price or ‘low’ price of a stock. There is only the ‘market’ price.

ii. Absolute price of a stock is not relevant. What is important is whether it is underpriced or overpriced.

iii. You can’t control the market but you can control your reaction to the market.

iv. Intelligent investing is knowing ‘what’ to buy; smart investing is knowing ‘when’ to buy.

v. Your profit is determined by your purchase price and not your sale price.

vi. Don’t ask the price of the stock, ask the worth of the company.

You are ready to go and need to search for a broker. Keep these in mind.
a. Don’t expect your broker to help you to earn ‘for’ you. He is there to earn ‘from’ you.

b. The sub-broker makes money. The main broker makes money. Two out of three making money in a single transaction is not a bad bargain.

c. Never ask a broker whether you should buy a particular stock. It is like asking a barber if you need a haircut!

Source:Money Control

I owed Rs 9 lakh @ age 19

HE grew up in Bahrain and moved to India with almost no knowledge of Hindi. But 33-year old musician and rapper Earl Edgar learns fast.

He was noticed after the release of his first remix — a lively rendition of the song Baar baar dekho – from the album Jalwa 3.

He went on to create rap sequences and arrange music for Bollywood films such as Partner, Cash and Pyaar Mein Twist. He also cut the promo music for the Indian Premier League’s Mumbai Indians. These days, his career is on an upward spiral.

• VIDEO: Earl Edgar raps about the money!
  

But at the young age of 19, Earl bit into a little more than he could chew. He organised a grand musical show and, pretty soon, he ended up with a Rs 900,000 (Rs 9 lakh) debt.

In a candid interview wealth got Earl to reveal how he got out of debt, and jumpstarted his musical career in the real world where competition in tough and godfathers are scarce.

In debt@19
I started my career early. When I was 19, I enrolled myself for a course in Electronic Engineering. To make ends meet I started working and couldn’t complete the course.

So I joined a music institute in Nashik which organised shows and cultural activities for children. The work was tough and to add to the misery one of the shows we planned sold badly. Consequently, I ran into a debt of Rs 9 lakh.

4 years of hard work!
I shifted base to Mumbai. I took up singing in a hotel, which is something I still do. They supported me during those times and still do. I earned Rs 3,000 for each show.

Around the same time, I began teaching music at Jamnabai Narsee School, in the northwestern suburbs of Vile Parle, Mumbai. I earned Rs 10,000 per month. I also conducted recordings, which fetched me about Rs 10,000 monthly.

Working hard and cutting down on expenses helped me pay back the whole amount in four years.

The phone call
I was in Nashik, performing at a function when I got a call from Times Music; they wanted me to do a song for Jalwa 3. My friend who was with Times Music at that time referred my name to them. That one phone call placed me on the map, of the music industry.

The song they wanted me to do was the old time hit Baar baar dekho from the 1962 hit China Town. When I sat down for the song, it struck to me that the song had to be constructed from scratch.

So, I used the opportunity to be creative. Eventually, I added English sequences to the song, worked on all the Hindi bits, all the rap sequences, and I even sang the chorus!

CA zindabad!
My chartered accountant manages my money. She advises me about the worthwhile mutual funds and equities, to invest in. I trust her completely because I really don’t have the time to monitor where my money is going and how it is managed.

Source: Money Control

For the young and restless, equity rules!

We ask working professionals how they manage their money. As part of this series, we spoke to two young women and got wealth experts to evaluate their financial plan of action.

Is their money working hard, enough? Let’s find out!

MANASI Deshmukh, 25, an HR professional with a BPO company in Mumbai, saves Rs 15,000 from her take-home, every month.

She invests this amount in ’safe’ avenues such as National Savings Certificate (NSC), Public Provident Fund (PPF), infrastructure bonds and life insurance policies offered by the Life Insurance Corporation.
“I usually invest at the end of the (financial) year, when it’s time to save tax,” she confesses.

Maya Kumar, 27, another young turk from the IT sector, saves around Rs 17,000 per month. She predominantly invests in PPF. She also puts Rs 5,000 every month, in a bank recurring deposit. Maya’s total investment works out to approximately Rs 150,000 (Rs 1.5 lakh) per annum. The rest, lies idle in her bank account.

Is your money wasting time in a bank?
Yes! Here’s why. “Though the recurring deposit is a good saving habit, the interest you receive on it, may not be enough to cover inflation,” says investment consultant Sandeep Shanbhag. Both Manasi and Maya should invest their money, aggressively, in equity.

“The only time you can take advantage of equity without sweating at the risk level, is when you have at least 10 to 15 years before you retire and no family responsibilities ,” he adds.

Why equity rules
Both girls have parked a significantly large amount of money, in a savings account. According to investment advisor Ajay Bagga, Maya and Manasi’s year-end planning strategy is more of a tax minimisation plan. Instead, they need to invest, keeping their long-term financial goals in mind.

“Sure, we need to keep some amount in the bank for daily expenses and emergencies. But we must invest the rest in short-term mutual fund schemes. These schemes offer higher returns. And you can sell them any time,” advises Shanbhag.

Ajay recommends a portfolio of 90 per cent equity mutual funds and 10 per cent in fixed return products such as PPF, recurring deposits, bank deposits.

Save tax. But make money!
The investment favourites to save tax seem to be: NSC, PPF and LIC. But Equity Linked Saving Schemes (ELSS) are a better bet. Here’s why.

The returns for NSC are 8 per cent, and this is taxable. Equity, on the other hand, yields anywhere between 15 to 18 per cent, when held over a long period of at least five to seven years. What’s more, the returns are tax-free!

Infrastructure bonds are not such a good investment either, according to Ajay. “The returns have fallen to approximately 5 to 5.5 per cent. Earlier, the attraction was that they were tax-saving instruments,” he says.

Section 80C now allows investors the freedom to choose any investment of their choice, up to Rs 100,000 (Rs 1 lakh) per annum. So, infrastructure bonds are no longer an attractive option, because they yield low returns, and the interest is taxable.

Do I really need insurance?
Ajay suggests that Manasi reevaluate her insurance coverage and see if she really has dependents whom she needs to cover. Did she buy the policy because her agent insisted? Or merely because she wanted to buy tax? Ideally, she must try switch to a low-cost term insurance policy, which is offered by all companies, but which agents usually do not sell, because the commissions on these are pretty low.

5 wealth rules for the young and restless!
If you are in your early 20s with no dependents and earn more than you need to spend on essentials, follow these five wealth rules.

1. Invest 90 per cent of your money in equity mutual funds.

2. Opt for a Systematic Investment Plan (SIP) plan to help you save, regularly. With SIP, the benefit is that you will have to keep aside a monthly amount.

3. Invest in short-term mutual fund schemes (less than three years). The returns you earn from these schemes are higher and you have the advantage of selling whenever you please.

4. Choose a low-cost term insurance policy, which is the cheapest form of insurance.

5. Choose ELSS investments; it helps in tax-saving.

Source: Money Control