Where should a woman invest?

IF Carrie Bradshaw (played by Sarah Jessica Parker, in the popular HBO television series, Sex And The City), is your idol, this is just what you need to read.

Like her, you are young, footloose and fancy-free, making enough money to have a great life and thoroughly enjoying your independence. Perhaps you will think about helping your family later. But, right now, if you are doing any investing, it is only because of taxes.

You are not interested in building wealth and creating assets because you will probably do that once you settle down with the man of your dreams.

A piece of advice: don’t elope when you find him because it may not be as romantic as it sounds. All family support systems may be cut off besides a possible partial or total erosion of all savings, not to mention emotional stress after the short-lived excitement.

This is, no doubt, a financially lucrative phase made all the more enticing due to lack of commitments and complete freedom to spend your money the way you wish. But you cannot possibly spend it all because, remember, your financial resources are your strength. They will help you be independent.

So don’t swipe that card like a maniac, or you will feel your financial strength ebbing away.

What does a modern day woman do to handle her financial life? How do you invest your money? Here are a few tips:

i. Put 90 per cent of your earnings into wealth generating instruments such as shares and equity mutual funds. Since women are not traders by nature and have the patience to see the fruits of investments, they can make most of this avenue. But understand a bit about risk management first.

ii. Place about 10 per cent of your proposed savings into bank deposits or similar. Unlike single men, a woman should never be broke.

iii. Invest in life insurance prudently, and only if you have dependents on your income.

iv. Stay away from fixed investments such as Fixed Deposits, Public Provident Fund, National Savings Certificates, etc. Your goal is to build wealth, say, by the time you are married, which may be about three to 10 years away. These instruments will not serve your medium term purpose.

v. If you are looking to get married, do ask questions to gauge how your prospective partner manages money and, more important, how he saves.

vi. Women are born with a softer streak so excessive gifting/helping is second nature. But avoid going overboard here.

vii. Beware of women-oriented offers/products such as credit cards, insurance and the like. They may be expensive or regular products repackaged.

Doing the above will take you no more than a week. So stop that partying for a week. With your finances sorted out, the party will not stop for the rest of your life. With or without your husband.

Author: Kartik Jhaveri
Source: Wealth, MoneyControl

Buy mutual funds, cheap

IT pays to buy mutual funds directly from the fund house. Here’s why.

You save money on the ‘entry load’, a deduction made by the mutual fund company from your invested amount and used to pay the agent’s commission.

If you choose not to use the services of an agent, you can save anything between 2 to 6 per cent of your invested amount.

For instance, if you want to invest Rs 10,000, earlier (three months ago when you could not buy mutual funds directly from the company but only through its agent), the fund house would have deducted around Rs 200 (for the agent) and made a net investment of Rs 9,800 on your behalf.

But now, if you choose to invest directly from the mutual fund house, Rs 10,000 will be invested. There are three ways to buy a mutual fund, directly.

1: Head to the nearest office of the mutual fund house.

Visit the office, fill up the form, submit the documents and voila, you have saved 2 per cent. Remember that your bank and the mutual fund house, even if they belong to the same group, are separate entities.

For instance, if you want to invest in a mutual fund scheme from SBI Mutual Funds, you cannot go to the nearest branch of the State Bank of India. In this case, the State Bank of India will act as an agent for SBI Mutual Funds, and you will not save on the entry load.

Instead, head to the nearest SBI Mutual Fund office.

2. Drop in at a collection centre or investor service office.

Applications submitted to the collection centre or investor service centre will not attract entry load. If the fund house does not have an office, collection centre or investor service office in the city, you could courier your form. If the cost of the courier is the same as the entry load, it would make sense to hire an agent and save yourself the trouble.

3: Buy them online.

If you are Internet-savvy, online shopping is the way to go. Buy the mutual fund of your choice by visiting the web site of that particular fund house. Fill up your personal and investment details as asked in the application form and quote your Permanent Account Number (PAN) (this is mandatory).

You can pay through your bank account debit card, if that fund house has tied up with your bank. In case your bank does not feature in list of tie-ups, don’t worry.

There’s always Plan B:Choose to make the payment through a cheque or demand draft. In this case, you need to courier the same.

If you opt for a Systematic Investment Plan (SIP), choose the Electronic Clearance Scheme (ECS). Some fund houses do not offer SIP investments, online. In this case, you will need to visit a branch to do the same.

Top documents

When buying mutual funds you need to submit these:

• Application form
• Cheque, demand draft (depending on mode of purchase)
• Copy of PAN card attested, by an officer at the mutual fund office, your financial advisor, your bank manager, any gazetted officer/notary or judicial authority.

Agent or direct purchase: what’s best for me?

“This move is controversial but progressive. It will empower retail investors. But it makes sense to those who do not want advice and service from their agents,” says Dhirendra Kumar, CEO of Value Research.

This means that if you are a savvy investor and do not need the advice of an agent to know which fund is best for you, the direct route is a blessing. However, if you need that little bit of help, it’s always better to choose an agent and invest in the right fund.

There’s no point trying to save a few rupees if you end up making a bad investment. Also remember, that an agent will take care of all the paper work and will also be around if you need help with redeeming your investment. So, choose the route that works the best for you.

Author: Kapildeo Singh
Source:  Wealth, Moneycontrol

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

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