Applications for repatriation of sale proceeds will be considered if the sale takes place three years either from the date of final purchase or from the date of payment of final installment of the sale amount, whichever is later.

Yes. Foreign nationals of Indian origin whether resident in India or abroad, have been granted general permission to purchase immovable property in India for bona-fide residential purposes. Permission is implied if the payment is done in foreign currency or by debit to NRE or FCNR accounts.If payment is to be paid in Indian rupees, prior permission of the RBI is necessary.

Yes, sale proceeds from the sale of a commercial property owned by a foreign citizen of Indian origin can be repatriated out of India.
In case of property purchased on or after 26th May 1993, repatriation is limited to the original investment on purchase of the property. Such repatriation is allowed provided the property is sold after a period of three years from the date of the final purchase deed or from the date of payment of final installment of consideration amount, whichever is later.
Applications for the purpose need to be to the Central Office of Reserve Bank within 90 days of the sale of property in Form IPI 7.

By registering the transaction of an immovable property, it becomes permanent public record. This is a notice to the general public. Those getting transfer of property should verify whether such property has been previously encumbered.
According to the Transfer of Property Act, 1882 right; title or interest can be acquired only if the deed is registered.

Carpet Area: This is the area of the apartment that does not include the area of the walls i.e. the area of the apartment that a carpet can cover.
Built-Up Area: This is the area of the apartment that includes the area covered by the walls.
Super Built-Up Area: This includes the built-up areas such as the lobby, lifts, stairs etc. This term is therefore only applicable for multi-dwelling units, such as flat complexes.

A Lease, defined under Section 105 of The Transfer of Property Act, 1882, is a transfer of the right to enjoy the concerned property for a pre-defined time period or in perpetuity. The lessor (owner of the property) gives the lessee (the one leasing the property) such consideration periodically, usually at the beginning or end of a lease agreement.
License is defined in Section 52 of the Indian Easements Act,1882. License does not allow any interest in the premises on the licensee's part. It merely gives the licensee the right to use and occupy the premises for a limited duration.
A lease deed needs to be stamped and registered. The amount payable towards the lease deed's stamp duty is more than that payable towards the Leave and License's. For a period exceeding three years, the stamp duty is same for both agreements.

Consistent growth in India's economy has led to a boom in incomes of the middle class. Rapid urbanization of smaller towns has resulted in a sharp growth of the real estate industry. Traditionally it has been the most preferred investment option. Now, it is the investment option beyond compare.
Come what may, the appeal of this sector has been so strong that it has overtaken all other investment options such as the capital, debt, and bullion markets. It is attracting investors by offering a possibility of stable income yields, good capital appreciation, tax structuring benefits, and higher security in comparison to other investment options.
The Indian real estate industry is driven by an ever growing economy (8.1 percent growth witnessed in the last financial year). India is going to produce an estimated 2 million new graduates from various Indian universities during this year, creating demand for 100 million square feet of office and industrial space. The presence of a large number of Fortune 500 and other reputed companies will attract more companies to initiate their operational bases in India thus creating more demand for corporate space.
The potential of India's property market has transformed the skyline of her cities, further driving investments in all real estate segments, from commercial and residential to retail, industrial, hospitality, healthcare and so on.

it's for real" ...we prefer equity to debt as it works out cheaper for us..." -promoter of a company that raised money in the 94 IPO boom
Nothing could be further from the truth.
It's true that, unlike debt, there is no fixed cash flow that a firm must compulsorily give to its shareholders on a regular basis. But that in no way means that equity is cheap. In fact, equity has a cost and the cost is real.
Dividends and its offshootsDividend payout is the most visible cost, as it represents a company's cash outflow to shareholders every year. By the way, dividend is defined as the distribution of earnings to shareholders during a year.
For a minute, let us assume it is dividend that is cost of equityA company normally announces dividend as a percentage of the face value of its share. Hence, when HLL says it is paying a dividend of 290%, it actually means that it is paying a dividend of Rs2.9 per share (remember the face value of HLL is Re1 now)!
But don't we pay Rs215 to buy a share of HLL? So we earn Rs2.9 on Rs215 that we invest! That works out to 1.35%. Incidentally, this is called 'dividend yield'
What? For bearing all the risks associated with equities we get less than a savings bank deposit return? Are we missing something?
Of course we are...
A few steps back before we take the big leap forwardRight at the beginning, we discovered that the investor has his eye on the big stakes. He is willing to risk his capital today in an investment that he believes will earn him returns over the life of the business. He believes that in future such an investment will yield much superior returns to that of a debt investment.
Hence, the price of the stock at any given point in time is the value that is placed on the expected future stream of dividends from the business over its lifetime. So when you sell a stock you are effectively selling the right to future dividends that you could have earned from the stock.
Now, does current dividend indicate future dividend flows?No. This is because dividends in future are expected dividends. The actual dividends might be higher or lower, depending on profits for that year and the profits the company wishes to plough back into its business to earn higher profits in future years.
A small aside -- the proportion of profits that a company pays out in a given year is called 'dividend payout ratio'. And the proportion of net profit that it ploughs back into business is its plough-back ratio. Since HLL paid out Rs638cr as dividend out of its profits of Rs1070cr in FY2000, its dividend payout ratio was 60%.
So as the company grows in size, enhancing its ability to earn more profits and pay higher dividends in the future, the value that the market places on the future dividend stream increases. In other words, the market price increases. We all know this as 'capital gains'.
We know that we buy stocks for capital gains but, in essence, we still invest in stocks for the future dividend stream that is captured by the 'capital gains'.
In short, stocks are bought for their dividend yield and their capital gains.
Thus, the expected rate of return from equity is:
Expected rate of return = dividend yield + capital gains
Since this is what shareholders expect from their investment, a company has to deliver on these counts in order to service its equity. This is its cost of equity.
At this stage, we could take a break to ponder over an age-old wisdom -- Isn't 'A bird in the hand is worth two in the bush'?
Is the present dividend (which is safe) always preferable to future dividends (which are risky)? Reliance Industries (has a dividend payout ratio of 17%) has a good track record of paying dividends. Infosys, on the other hand, pays out only 10% of its net profit as dividend. Its dividend payout is 10% and plough-back ratio is 90%. Infosys is held in higher esteem by the market. Why? Infosys has a return on net worth (RoNW) of 42%. Its net profit is growing at over 80% year on year. If instead of paying out this profit as dividend, the company re-invests a substantial portion back into its business, then this capital could earn an additional return next year.
For instance, in FY2000, Infosys ploughed back Rs264cr (that's 90% of its net profit) into its business. This will earn an additional return of about Rs110cr (simply 42%*264) this year even if the company maintains its RoNW. Thus, on this count alone the re-invested amount will yield a growth of 38% (simply the plough back ratio * RoNW or 90%*42%) in its earnings.
Now let us work out similar numbers for Reliance. Reliance has a RoNW of 23%. It re-invested 83% of the net profit, that is Rs1983cr, in FY2000, into its business. Therefore, this incremental amount can generate a return of Rs464cr, implying a growth of about 19%.
Thus a Rs100 re-invested in Infosys will compound at the rate of 38% while that in Reliance will compound at the rate of 19%.
According to finance gurus, Brealy and Myers, "This is because the reduction in value caused by reduction in dividends in the earlier years is compensated by the increase in value caused by the extra dividends in later years."
Simply, investors in such high-growth firms are willing to forgo dividends in the early years in the hope of enjoying much higher dividends in future years. As a result of this the stock prices rise. In other words, shareholders are indifferent, so long as a lower dividend yield is compensated for by a higher capital gain.
But how do you calculate cost of equity?Familiar path that we treaded while discussing "Risk Premium" So Capital Asset Pricing Model (CAPM) must be the answer.
Thus the cost of equity, ke = Rf + beta (Rm-Rf)
Where ke = cost of equity,Rf = the risk-free premium,Rm = market return.
If we plug in the values for HLL in the above formula, its cost of equity works out to 21.9%.
So the next time someone tells you that equity is cheap, you know better!
A company should earn a return on equity that is at least greater than the cost of its equity. Thus, cost of equity sets an important standard to evaluate the way a company does its business.

What would you wish for if an Investment Genie came to you and granted you a wish. No prizes for guessing?You would like to be told when a stock was at a bottom so that you could buy and make a lot of money when it went up. With this knowledge, you reckon, you can make a fortune without the risk of any loss.
But then, you are not Aladdin?and do you really believe that the Investment Genie exists?
Back to reality my friend. Don?t lose heart. You can still make money in the market. Want to know how? It?s simple actually?Invest steadily!
Steady investments need little timing
In January 1991, Mr. Orderly developed a habit of investing Rs100 in Hindustan Lever Ltd. (HLL) stock on the 5th, 15th and 25th of every month. By September 1999, his investment amount added up to Rs31,500. He decided to sell his shares on September 30, 1999. The sale netted him Rs170,708. An impressive 441.93% return on his investment.
Why 5-15-25? Because Orderly likes the number 5. What if he was obsessed with the number 3 instead? He would then have invested on 3rd, 13th and 23rd of every month. And, surprise! surprise! His returns would have been much the same?444.89% to be exact!
There?s a lesson here: If you?re planning to invest steadily, don?t worry too much about the timing.
Timing does earn a premium, but it?s not much?
Mr. Timer is somewhat of a genius. He has this uncanny ability of identifying the lowest level of any stock during a month (?he?s got it made..?, say friends). Timer also started buying HLL shares worth Rs300 every month starting January 1991. The edge he had over Orderly was that he could pick the stock at its lowest level every month. Timer also sold all his stock (worth Rs31,500) on September 30, 1999. He received Rs180,730. His return? A whopping 473.75%. Impressive! But wait a minute?didn?t that 5-fixated Orderly earn a 441.9% return on the same investment? That means, for all his genius, Timer earned only a 31.8% higher return than Orderly. Considering that we?re talking of returns in excess of 400% here, and that the investment period was over 9 years, it doesn?t sound all that impressive now, does it?
?requires a lot of effort and experience?
Mr. Follower is a former employee of Timer. He learnt a lot (he thought so at least!) about the market and identifying the bottoms and peaks of stocks from his boss. In December 1990, Follower felt confident enough to quit his job and start out on his own. He also started buying HLL shares worth Rs300 every month. He applied the rules learnt from Timer to identify the stock?s lowest level for a month. But, the stock market is not governed by a perfect science. Experience plays an important role in successfully applying any rules. Due to his lack of experience, Follower managed to identify the monthly bottoms in HLL for only 6 months in a year. For the other 6 months, he ended up investing at the average monthly price. When he sold his stock on September 30, 1999, he received sum of Rs171,640. His return?457.67%.
?and may not really be worth it
Follower earned a 15% higher return than Orderly. And for that, he took the pains of following the HLL price movement all the time?trying to identify the monthly bottom levels (and as we read above, he didn?t do a very good job of that anyway!).
Compare that to Orderly?s effort. All he did was call up his broker on the 5th, 15th and 25th of every month and ask him to buy HLL shares worth Rs100.
Now, was the 15% higher return earned by Follower really worth the effort?
Tomorrow never comes
Mr. Waiter is not really an investor (though he does have pretensions). He spends 5 minutes every morning pouring over the market pages in the newspaper and noting down the stock prices. He wants to wait for the stock prices to fall to a bottom before buying. With this kind of mindset, more often than not he never actually buys a stock.?all money-making opportunities pass him by.

A series of statistics carried in the pink dailies scream: "Arbitrage Opportunities".
A friend of yours working as a dealer in an FII brokerage house is difficult to catch hold of as he is busy doing GDR arbitrage.
A big hedge fund that your neighbour works for arbitrages S&P 500 futures and the S&P Index.
"Arbitrage! Arbitrage!!Arbitrage!!!" Ever wondered what this arbitrage is all about?
Why not try and learn it from the streets for a changeMr. Arb King is a smart smalltime vegetable trader operating in the Juhu (a posh suburban area in Western Mumbai) vegetable market. He is always on the look out for opportunities to buy cheap vegetables from one place and sell them at a higher price in the Juhu market for a good profit. One day, as he was passing through the vegetable market in Santa Cruz (West) (a neighbouring suburb), he heard a vendor cry: "Tomato lelo, bus chhe rupaiya kilo".
Mr. Arb King, who was on his way to his uncle's, stood stupefied as he heard the vendor's cry. They must be out of their minds to sell tomatoes at Rs6 a kilo when I sell the same stuff for Rs9 a kilo just a few kilometers away, he thought. He checked around and discovered that almost all vegetables sold cheaper here, but tomatoes were the cheapest. Maybe people here ate fewer tomatoes than did the rich people in Juhu. Anyway, who cared! Our Mr. King was a trader at heart and he instinctively smelt a profit.
He had a bright idea. Why not buy from Santa Cruz and sell at Juhu. Purchase, say, around 30kg of the stuff at Rs6 a kilo from Santa Cruz and sell the same at Rs9 a kilo in Juhu, where the rich men seemed to have a soft spot for this particular vegetable. It would cost him Rs180 (assuming he would not bargain for a better price, which he would anyway), and he could make a neat profit by selling at Rs9 per kg (Rs270 per 30kg!) in the Juhu market.
So, what did Mr. Arb King capitalise on?Mr. Arb King was not well read but he had enough common sense to figure out that tomatoes at two places not far apart cannot trade at a big price difference.
Your economics textbooks will also tell you that any two similar goods with the same utility function (i.e. the same level of customer satisfaction) should quote at the same price.
What about cost incurred in transporting the tomatoes?
Of course, Mr. Arb King needed to factor in the transport costs between Santa Cruz and Juhu. A cab trip was enough to transport his 30kg of tomatoes.
The cab trip meant an additional cost of Rs30. Mr. Arab King started reworking his margins. It all worked out to a neat profit of Rs60 per 30kg of tomatoes sold! All for just an hour's work! Mr. King's trading instincts were aroused and he set about making a quick buck.
What happens if the price difference is actually higher?Smart traders like Mr. Arb King will notice that there is a profit to be made. Hence, they will buy from the place where the item trades cheaper, to sell it where it commands a higher price, and make a cool profit from the transaction.
Better still, if they can negotiate in such a way that they can execute both ends of the transaction at the same time, then, the business becomes absolutely risk-free. Because under the circumstances, they would not need to worry about any price changes that may happen while they are moving from the lower price point to the higher price point. Literally a free lunch.
Economics text books will call the above set of actions "arbitrage" - an attempt to profit by exploiting price differences of identical or similar goods, in different markets or in different forms. Ideally, arbitrage is a pair of opposite transactions that take place simultaneously and generate profit with zero risk. People like Mr. Arb King will be branded as "Arbitrageurs"
Coming back to our Mr. Arb King. Though a profit of Rs60 per 30kg of tomatoes does appear to be a small amount, imagine if he were to earn such profits every day for a whole year! Do the sums and you will figure out that he would make more than Rs20,000 from nothing! Yes, money from nothing!
Give me a break! Can these profits last for long?You have a point. Let us see what happened at the Juhu and Santa Cruz markets once Mr. King started exploiting the arbitrage opportunity.
Mr. Arb King's frantic selling of tomatoes in the Juhu market without much sweat on his brow did not go unnoticed. One of the other traders, Mr. Jealous Guy, caught up with our King's activities.
He decided to start the very next day to make his share of profits. No sooner decided than done! He got 20kg of tomatoes from Santa Cruz. In order to wean away Mr. Arb King's customers, Mr. Jealous Guy dropped his price to Rs8.5 per kg. This competition went on for a week, bringing down the price of tomatoes in Juhu to Rs8 per kg.
Meanwhile, a vendor in Santa Cruz, sensing the rise in demand for tomatoes, with both Mr. Arb King and Mr. Jealous Guy becoming regular buyers, hiked his price to Rs6.5 per kg. This hit Mr. Arb King's business hard and he saw his profits dwindle from Rs2 per kg to 50 paise per kg. Soon Mr. Arb King walked away in search of greener pastures.
In the meantime, Mr. Me Too got into the act too. In his exuberance, he started selling at Rs7.5 per kg. What are the profits up for grabs now?
The price of tomato in Santa Cruz was Rs6.5 per kg, making the 30 kg of tomato more expensive at Rs195. The transportation cost stayed the same at Rs30. But at a selling price of Rs7.5 per kg, the realization was just Rs225. So sad! No more profits.
At the end of it all, the residents of Juhu got tomatoes at a cheaper price while the vendors in Santa Cruz got a better price for their tomatoes. And the arbitrageurs like Mr. Arb King and Mr. Jealous Guy made hefty profits from their arbitrage, which, in turn, made the market more efficient or a fairer place, where nobody got anything cheaper than anybody else.
Like tomatoes, financial instruments like shares, bonds, futures, et al, can also be arbitraged. In fact, it is easier in case of financial instruments as they are very clearly defined. After all, a share of Reliance is the same whether it is listed on the BSE or the NSE or as a GDR in Luxembourg, as it represents the same percentage of ownership in exactly the same business.

Speculation ain’t a four-letter word
Last time, we had mentioned that what makes the stock market unique is that no matter who is selling or buying, there is always a person on the other side. It is the much-maligned traders/speculators who impart this liquidity to the stock market. This week, we delve deeper into the role of a speculator/operator.

The stock market is a dangerous place because of the existence of traders and speculators.?
My mother used to tell me that the stock market is not the place for anybody's hard earned savings. But after having invested in some good mutual funds a year back and seeing the returns, she now has a vastly improved opinion of the market.But, mention trading and speculation and the thaw is instantly replaced by a chill. Images of the Big Bull, Nick Leeson, CRB, etc, etc, begin to loom large in her mind. Images of untold misery of thousands of small investors, caused by the actions of these speculators.So, is all trading and speculation bad Or is mom missing the wood for the trees?
The truth is that in the stock market, everybody has a role to play, whether it be the small investor, the mutual fund, the FII or the much maligned operator/speculator.
Why speculators? Let us presume for a moment that the market is devoid of any traders and speculators. Then the market would be devoid of liquidity. In other words, it would be difficult to buy or sell stocks without significantly affecting the prices. Enter the speculator. He is willing to take more risks than your average investor; he is willing to buy stocks with a very short-time horizon?days, even hours perhaps. The speculator knows that daily price moves are as much a function of the daily sentiment as they are a function of the fundamentals of a company. And he looks to profit from them.
To understand this better, let?s peek into a typical day in the life of a speculator.Bajaj Auto workers have gone on a strike and the price has fallen 8%. I bought Bajaj Auto just a week earlier and am starting to feel pretty sick. But the speculator?he begins to scent an opportunity.
Next morning: I?m heading for the exit?The next day, the newspaper headlines scream out that Bajaj Auto?s EPS could fall 3% if this strike lasts more than 10 days. I can really feel a chill going down my spine. Oh my God! If this stock falls any further I would be sitting on a loss, I tell myself. But hey, I am a smart guy. So I?ll sell the stock today and wait for it to fall another 10-15% and then buy it back.
?while the speculator is moving in for the killThings are going according to plan. I place my order to sell at 10:00 a.m. sharp. The stock opens down 2%, but my broker has an order to sell at the market price and he promptly does so. Guess many other brokers had similar orders as well and soon the stock crumbles a further 8%. Now the speculator moves in for the kill. Fine, Bajaj Auto?s profits may drop 3% if this strike persists for more than 10 days. But the stock is down nearly 16% since the news came out. That may be justified if this strike last longer than 10 days. However, he feels the market has overreacted and starts to buy gradually at the lower circuit (the lowest price that the exchange permits the stock to fall on a day). In the process, he absorbs the selling pressure coming from some other friends of mine who called me in the morning and decided that my strategy was very wise indeed.
1.30 p.m.: The foreigner steps in? It?s now 1:30 p.m. in Bombay; the stock is down only 7% and only some stray trades are taking place. A large foreign fund in London, which has been looking to buy Bajaj Auto for the last 6 months, senses an opportunity. This fund manager has a 5-year horizon when he buys a stock. As far as he is concerned, even if the strike were to persist for a month, the impact on the earnings of the company would be only a blip over the 5-year horizon he has in mind. He places his orders for a very, very large quantity of Bajaj.
?and the speculator?s eagle eye detects his presenceAs his broker in Bombay starts buying, you can see some stirrings of life in the stock. It?s now up 2% from its low. Some more friends of mine think this is a heaven sent opportunity. When they had earlier reached me for advice, there were no buyers in the stock. Now there are buyers 2% above that price. Hallelujah! Promptly, they decide to follow me and place their sell orders too. Our speculator is watching the screen and he now senses that perhaps some other buyer in the stock has emerged. He offers a large-sized block on the screen (only a small portion of his total purchase, though). Immediately, somebody grabs it up. Now he is convinced that there is a buyer. He promptly buys back the small quantity he sold and then a little more. He senses the entry of a bigger fish.
Sometime later: more buyers in the ringShah and Sons is a venerable BSE broking house and has always been positive on Bajaj Auto ever since the stock traded in its late teens. It has a lot of clients who bought Bajaj Auto when it was in the late teens. Having become millionaires thanks to their investment in the stock, they have complete trust and faith in the ability of the company to make it through this strike. Shah & Sons recommends the stock yet again to its clients, who start to buy...
It?s 3.00 p.m.: the stock?s recovered?The foreign fund is an unrelenting buyer and by 3:00 PM the stock is down only 1%, nearly 7% above its low for the day?which was when our speculator friend bought his stock.
?and ?short-sellers? are scurrying for ?cover?Enter the short-sellers. They are the guys who sell stocks they don?t have because they think the stock is going to fall. And when it does, they will buy the stock back (the jargon is ?covering?). Some of them had sold the stock yesterday because they expected it to fall further. They were right. It did. Some have covered and booked their profits. But some have not. And now they want to do so too?might as well take home the meagre profit we are still making, they say to themselves. Some of my friends not only sold their existing holdings of Bajaj Auto but also went short (i.e., sold stock they did not possess) as they were very confident that the stock would drop further. As their brokers called them with the bad news that the stock had gained since they had short sold, they panicked and asked their brokers to buy back the stock they had sold short. For them, it is now only a question of reducing their losses on the short trade.
It?s closing time?and party time for the speculator Now the action is really heating up. With just 15 minutes to go, the stock is now trading 1% above yesterday. Our speculator friend had made 9% in just a day. Meanwhile, some funds which have been sitting on the fence wondering when to make their purchases start feeling left out. They come rushing in to buy. Our speculator friend decides to cash in his chips. As these new funds and the shortsellers come charging in to buy, he starts to sell. For the next 15 minutes, the stock is extremely volatile, rising nearly 4% above yesterday?s close?the speculator sells all his stock.
Post script: not every day?s as good It?s not always a happy ending like this for the speculator. Sometimes, he can be spotted drinking away his sorrows late into the night at Mahesh Lunch Home, in the vicinity of the BSE. But today he had a good day (calls for nothing but Geoffreys). He took a contrarian view (we would call it a common sense view) and profited from it. He provided an exit route for distressed sellers like me and provided supply to the few funds who came late to the party. In the process, he made a neat profit. But as I said earlier, sometimes he makes a loss as well.
So that then is the role of a speculator?he provides liquidity by buying when (nearly) everybody else wants to sell, and by selling when the opposite happens. In the process, he matches time horizons as well?my limited time horizon which made me decide to sell with the idea of buying back later, with that of our London-based FII who decided to buy with a 5-year view. He provided the liquidity. He did it because he knows that all the players in the market have different time horizons and expectations. He just helps bridge the gap.
After this, I hope you will all have something good to say about the speculator. Mom does!
(All characters and events in this write-up are fictitious. Any resemblance to real-life characters and/or events is purely coincidental.)

Dividend income from MF units is exempt from income tax with effect from July 1, 1999. Investors can claim tax rebate under section 88 of Income Tax Act, 1961 with investments in Equity Linked Saving Schemes (ELSS). Tax benefits will also be available under section 54EA and 54EB with regard to relief from long-term capital gains (LTCG) tax in specific schemes.

Load is the cost charged to the investor by fund houses for various expenses of their schemes, such as distribution, sales, marketing, and so on. Entry load is the amount charged to the investor at the time of entry into a scheme. The charge to be paid for exit from a scheme is called an Exit Load.

To be able to get the Net Asset Value (NAV) of the same day, you must purchase the MF units inside the cut-off time of that scheme. Delay on this part will mean that you will only get the next day's NAV. Also, if the next day happens to be a holiday, the NAV of the next working day will be applicable.

The systematic withdrawal plan (SWP) is a facility available to the investor to withdraw funds at regular intervals.

The Net Asset value (NAV) = (Market value of the fund's investments + Receivables + Accrued income Liabilities - Accrued expenses)/Number of outstanding units

As the name implies, mutual funds are funds that are raised and invested mutually, i.e. on behalf of everyone participating in the mutual fund scheme. If you are apprehensive of investing in the stock market because of its somewhat unpredictable fluctuations, mutual funds can a safe bet.
Thus mutual fund is a financial instrument using which an investor can indirectly invest in equities or debt instruments. A mutual fund takes the contributions of a large number of investors. It then appoints professional managers to invest this common pool or corpus of funds in accordance with the predefined objectives of the mutual fund. The corpus is jointly owned - the fund belongs to all investors; and its investment purpose is mutual, i.e., common for all investors; hence the name, mutual fund.
Investors receive units of the mutual fund in proportion to the money they have put in. Initially, the units issued have a face value of Rs 10 each. Later, as the corpus is invested and the value of the investments changes, the value of each unit changes proportionately. The value of each unit is also impacted when management fees and other expenses are deducted from the overall pool of funds.
The value of a unit is called the Net Asset Value (NAV) of the mutual fund. It changes on a daily basis. Net assets on the other hand would mean the current market price of all investments held plus cash and any accrued income, minus liabilities.Mathematically,NAVnonce= (Market value of the fund's investments + Current assets + Accrued income) - Current Liabilities - Accrued Expenses / (Total Number of units outstanding) Investors who wish to purchase or sell units of a mutual fund after the scheme is fully functional must do so at a price that is linked to the NAV.

Estate planning refers to the process of building a bridge from one generation to the next one by passing on one's assets. In India, the whole concept of estate planning is perceived as being a rich-man's exercise, for those who have enough cash, property or valuables, to leave it behind for their loved ones. The middle class can barely make ends meet, right? And the less said about the impoverished in this regard, the better. But this is not the case...Fact of the matter is, estate planning is essential, regardless of your economic standing. First of all, if you audit all your assets, you are bound to be surprised at its size. The mistake most of us make is in recognizing our assets, which in turn, our final estate. Your estate should consists of cash, property, income from property, shares, jewelry, insurance policies, provident fund, recurring and fixed deposits, any other. In this instance, let's look at insurance as an estate planning tool. Off the bat, let me make it clear - there are better avenues for estate planning than insurance products. Having said that, the majority of us have "invested" in insurance products as some sort of a legacy to our near and dear ones.Insurance policies, such as whole life policies, act as vital assets that you can leave behind for legal heirs and/or nominees. They represent large corpus of funds that can be of immense use to your next of kin/nominee/legal heir after you have passed on. Plus, you have the feeling of contentment that comes from doing what is right for them.Whole life insurance plans provide insurance throughout your life or up to a specified pre-determined age. The maximum age of coverage differs from insurer to insurer. The maximum age of expiry for a whole life policy could be as late as your 99th birthday. The sum assured is paid out to the nominee on your expiry, OR to you, if you survive till the pre-determined age. Whole life policy payouts include the sum assured (i.e. death benefit) as well as bonuses accrued in the course of the policy tenure. The whole life policy works on the principle that you are not entitled to any payout during your lifetime. That is, there is no survival benefit to the policy holder. It represents value accrued through out your life, bequeathed to your legal heir/nominee.But here's a surprise! If you were to survive till the almost-impossibly high pre-determined age, congratulations, you have earned the right to keep the payout! In this event, consider the payout as a gift for the long life you have managed to lead. A very nice birthday present indeed.As an estate planning tool, the whole life policy is the best in the insurance stable. But, (and it is a big but)...a whole life policy will work as an estate planning tool only if you keep to some conditions:
The whole life policy you choose should have the least investment component in its premium break-up. Finding this is easy - compare whole life premiums across insurers. The insurer giving you the smallest premium quote for the same sum assured and tenure will have the least investment component.Why do we say this?An insurance product is not an ideal investment vehicle. Returns from insurance plans rarely beat inflation, never mind positive year-on-year rates of return. Therefore, why would you want to pay extra premium towards an investment that is going to be a bad investment when even basic investment or savings avenues such as the public provident fund (8% annualized return, guaranteed by the government of India)
Buy the whole life policy that also has the longest termRemember, you haven't bought a whole life plan for your benefit - it is primarily an estate for your heirs. The longer the term of the policy, the lower will be the premium. i.e. maximum benefit at the least cost.
Also buy the whole life policy that allows you limited premium payment facilityInsurers offer whole life plans that allow you to pay premiums for just the first twenty years of a 50-year plan. This means that you have sewn up payment on your plan during your working years, AND you remain covered long after you have retired. While estate planning, think twice before purchasing any asset or any policy. When it comes to the insurance component of your estate, your focus should be on lending a helping hand to your legal heirs. At the end of a productive life, you can pass on in the comfortable thought that you have left your dear ones in financial comfort.

Imagine you are the breadwinner in your family and suddenly you were to be taken away from them. Your income flow to the family will freeze.
Would your savings be sufficient to take care of your family's needs from then on?
Life insurance is a tool that can reduce that risk. It replaces your income in the event of your not being there to take care of your family.
Therefore, the most common reason to buy life insurance is to provide your family for the sudden loss of your income. The proceeds from a life insurance policy could be used to support the financial need of your family members.
So, yes, you need life insurance. The only factor that you need to consider is how much life insurance you need.
Now that are aware of the need to be insured, buy an insurance policy as soon as possible. The logic of calculating life insurance premium is simple - the younger you are, the lower the premium you will have to pay. Another aspect you will need to consider: the younger you are the higher insurance cover you will need to make up for the productive years lost in the event of your passing away.
Yet another point to consider is the term of your life insurance i.e. the period for which you intend to insure your life. Here too, the younger you are the longer you need to provide for adequate risk cover benefit for your family. Even if you are 40 years old and not yet insured, the insurance plan you choose needs to be for the long term - at least 20 years, assuming conservatively that you will provide your family with your income till the age of 60. Thus, for the duration of your future productivity, you have ensured your family's financial welfare even if you were to pass on at any time during that period.

Once the decision to purchase life insurance has been made, then you need to determine the amount of insurance required to secure your family's financial needs and risks.
An average Indian insures herself or himself for Rs. 100,000 to Rs. 200,000. Now, ask yourself a simple question. In fact, even if you do not belong to the unfortunate above-mentioned category and feel that you have insured your life for an adequate sum, ask this question:
If you are the breadwinner in your family or a likely significant contributor to the household expenditure, is your life insurance amount sufficient to take care of your family's lifetime needs if you pass on?
The answer more often than not is an emphatic NO.
How long could a spouse and other family members sustain their lifestyle on a Rs. 100,000 or Rs. 200,000 insurance claim payout? Keep in mind that you were the principal earning member of the family and you are no longer there to take care of them.
So, let's start with a general rule of thumb:
You should insure your life for at least ten to twelve times your present annual income. This amount is considered to be adequate for a family to sustain themselves at present expenditure and lifestyle levels until they recover from the financial loss caused by the breadwinner's absence.
However, if you use only the rule of thumb, you are not incorporating your present financial state i.e. your savings, actual and/or expected household expenditure, loans and liabilities, present insurance cover, etc. As a result, you may not get an accurate picture of what your insurance needs are.
In order to determine the amount of insurance that is adequate for you, use an Insurance Planner. This planner will help you with an easy step-by-step procedure to estimate your family's financial requirements, taking into account your present financial condition. Once you are aware of the estimate, you will have a much better idea of the amount you must insure your life for.

The basic premium rate offered by an insurance company is not negotiable.
However, life insurance cost could be lowered if you:
Select a term plan that offers you no money in case you survive the term of the policy. This is the purest form of life insurance. It provides your family with viable income but offers no benefit on survival.
Increase the period of your insurance. If you want to purchase an endowment plan or a Unit-Linked Insurance Plan (ULIP), increase the term of your insurance policy. Note however that this idea will not work for a pure term plan - longer terms mean higher risks and therefore higher premiums.
Offer to pay premiums annually. The more premiums you pay in a year, the higher will be your premium costs towards the policy.
Do not purchase riders or additional benefits that do not add value to your insurance needs.
Last but not the least - compare plans across insurers before you make a decision.

Survival benefits, also called maturity benefits depend totally on the type of life insurance policy purchased.
Term Plans: The insured will receive no benefits on surviving the term of the policy.
Return of Premium Term Plans: The insured receives the value of the premiums paid for the entire term of the policy.
Whole Life Plans: These plans typically offer no survival benefits, since there is no definitive term to the policy. However, the insured can make withdrawals or take loans against the cash value (the profit or bonus earned) of the policy. Some policies provide survival benefits if the insured lives up to the age of 80. Upon maturity of such policies, the insured receives the sum assured plus the bonus for the term of the policy.
Endowment Policy with Profit or Unit Linked Endowment Plans: In these plans, the insured receives the sum assured plus bonus/profit/guaranteed additions, if any. Unit linked endowment plans pay out the sum assured plus the value of the investments accrued over the course of the policy term.
Money Back Plans: During the term of the policy, you receive a tax-free, fixed portion of the sum assured at regular intervals. On maturity, you receive the balance portion of the sum assured, if any, plus the bonus/profit/guaranteed addition for the term of the policy, if any, or the value of the investments accrued over the course of the policy term.
Children's Policies:The child receives the sum assured plus bonus/profit/ guaranteed addition, if any, or the value of the investments accrued up to that point in the policy term, at a pre-determined age. This money is receivable irrespective of whether the proposer, i.e. the parent/guardian survives the term of the policy.
In case of a money back policy, the child receives fixed portions of the sum assured at regular intervals. On maturity, the child receives the balance sum assured, if any, plus the bonus/profit/ guaranteed addition, if any, or the value of investments; whichever is higher.

PPF
Public Provident Fund
SENIOR CITIZENS SAVINGS SCHEME, 2004

Stock market is down by around 50% since January last years, while most of the mid cap & large cap mutual fund schemes have generated around 45% to 60% negative returns in the same period. The bloodbath in Indian and global financial markets along with slowdown in industrial and GDP growth numbers have made retail investor less risk averse and they are shifting their investments towards safer instruments such as PPF, Fixed deposits with Public sector banks, Senior Citizen schemes, Gilt funds, assured return plans of insurance companies etc. Some of these schemes are not only safe and risk free but also offers tax benefits. With increased volatility in capital markets, there is a surge in demand for small saving schemes as a safe haven. Some of these options such as PPF and senior citizen schemes need to be part of asset allocation for investors.
The following chart shows comparison of various investment avenues for retail investors.
Particulars
Senior Citizens Savings Scheme
RBI Savings Bonds
Post office Monthly Income Scheme
Post office Recurring Deposit
National Savings Certificate
Kisan Vikas Patra
PPF
Rate Of Interest
9%
8%
8%
7.50%
8%
8.40%
8%
Interest payment frequency
Quarterly
Half Yearly / Cumulative
Monthly
Compounded quarterly
Half Yearly
Compounded annually
Compounded annually
Eligible Age (Years)
Above 60Above 55 for VRS retirees
NA
NA
NA
NA
NA
NA
Tenure
5 yearsExtendable by 3 more years
6 years
6 years
5 yearsExtendable by 5 more years
6 years
8 years 7 Months
15 Years
Premature withdrawal
After 1st year
Not Available
After 1st year
After 1st year
After 4th year
Available
After 7 years (Conditions apply)
Transferability
NA
Can be gifted to close relatives
NA
NA
Yes
Yes
NA
Taxability of Interest Income
Fully Taxable
Fully Taxable
Fully Taxable
Fully Taxable
Fully Taxable
Fully Taxable
Fully Exempt
Max Investment ceiling Rs.

15,00,000
NA
4,50,000 in Single Name9,00,000 in Joint Names
NA
NA
NA
70,000 p.a
Min Investment ceiling Rs.
1,000
1,000
1,500
10
100
500
500
Nomination facility
Available
Available
Available
Available
Available
Available
Available
Mode of Holding
Physical
Bond ledger a/c
Physical
Physical
Demat, Physical
Demat, Physical
Physical
Tax benefit u/sec 80 C
Not Available
Not Available
Not Available
Not Available
Available
Not Available
Available
A word of caution: Although, it is good to keep some risk free investment in your portfolio as a part of overall asset allocation, there are certain pitfalls as under.
Excessive investment in such schemes may keep you away from your financial goal
Some of the investment plans are neither tax efficient nor do they beat inflation. You need to look at post tax return and real rate return. Despite higher interest rate, the real rate of interest may be negative because of higher inflation.
Some of the schemes like NSC are illiquid.
Although, there is no credit or market risk in such schemes, there could be re-investment risk, as the interest rate may be lower at the time of renewal.
Investors need to match their time horizon with a suitable product and thus reduce some of the risks on investment. To accomplish financial goals within the desired time it is always prudent to have exposure to equity, real estate, gold and other assets. One should diversify investment into various investment options and across companies. Depending upon the time horizon for a financial goal, calculated risk might be taken with the investment.

During the process of asset allocation, financial advisors will generally recommend an allocation to Public Provident Funds in the debt portfolios of their clients. Debt allocations are meant to reduce volatility of returns and provide stability to the portfolios. Amongst various instruments available to individual investors, the PPF is a must have for the following benefits.
1. Safety of returns - The PPF is a statutory scheme of the Central Government2. Tax Free returns - 8 % compounded annually is tax-free 3. Scheme qualifies for Section 80 C benefits4. Deposits are exempt from wealth tax. 5.The balance amount in PPF in PPF account is not subject to attachment under any order or decree of court in respect of any debt or liability.6. Easy to operate - the PPF account can be opened in any public sector bank or post office Other features
The minimum deposit is 500/- and maximum is Rs. 70,000/- in a financial year.
PPF can be opened in minors name too
Minimum time period is 15 years which can be extended in blocks of five years with or without contributions
Limitations of the Scheme
1.Limited Liquidity- The PPF does not allow for premature closure or withdrawal of funds. Part withdrawals are allowed after 7th year only. 2. The rate of interest of 8 % is not contractual. The government can change the rate any time even on existing accounts. Of course this is with prospective effect i.e. applicable to the period from which change is made.
One must open PPF accounts in all family members name (including minors) as part of their long-term debt allocations. Over 15 years a sum of Rs. 70000 invested every year grows to Rs.2, 05,270 tax free and safe (subject to the interest rate reminding at 8 %). If invested in a disciplined manner in other family members name as well, the corpus will be sizable for meeting major milestone expenses like child's education, marriage and retirement too. Of course starting early is the key.
Employers Provident Fund
Most salaried individuals would have a part of their salary going into the EPF scheme from their monthly salaries. The employer also invests 12 % of employee's basic salary into the fund. The EPF scheme ensures systematic investments into debt, and has the advantage of being 100 % safe .In these times of job-hopping most individuals simply encash their EPF investments when they move to the new employer. If their EPF contributions are less than 5 years old such withdrawals are subject to tax in the year of withdrawal. To avoid this scenario it is highly recommended that one should simply transfer the EPF to new employer by submitting form 13. This form will be available with the HR department of all companies .Not only will transfer ensure smooth accumulation of funds, but also help avoiding unnecessary tax payments. Remember the EPF is an important component of debt portfolio of salaried individuals and can contribute to a significant corpus at the time of retirement.

Senior Citizens Savings Scheme has been notified with effect from August 2. The government in the Budget 04-05 announced the scheme. What are the salient features of SENIOR CITIZENS SAVINGS SCHEME, 2004?Main features of the scheme are as follows:- The person should be above the age of 60 years to apply for this scheme. Citizens who have retired under a voluntary or a special voluntary retirement scheme and have attained the age of 55 years are also eligible, subject to specified conditions.- The 9% p.a interest, which is payable quarterly, is fully taxable.- The scheme will have a 5-year term, extendable by 3 more years.- The maximum amount of cumulative deposit is Rs.15,00,000/- per senior citizen. - Premature withdrawal facility is available after one year. The penalty for premature withdrawal is 1.50 % of the deposit amount if withdrawn after 1 year but before 2 years. However, if the deposit is withdrawn after 2 years, it will attract penalty of 1 % of the deposit amount.- The interest will be credited to the Post Office Savings Account or it can be withdrawn in cash. The Department of Post has decided to issue post dated cheques and eventually move towards Electronic Clearing System (ECS).- PAN number is compulsory. Incase, deposit holder has not so far been allotted the PAN, attested photocopy of the receipted application form for allotment of PAN is required to be attached with the application form.- Age proof is required. Self attested copies of Birth Certificate issued by municipal authority / voter ID Card / PAN Card / passport / ration card / date of birth certificate from the school last attended or driving License can be enclosed as age proof. Original of the documents attached should be produced simultaneously for verification, which will be returned immediately. Those below 60 years and above 55 years will have to provide proof of having availed of a VRS.- If husband is applying, only wife can be the second holder and vice versa. Each senior citizen can apply for 15,00,000/-, if husband is applying and wife is not a senior citizen still she can be the joint holder and vice versa.- The depositor can appoint a nominee, but in case the first holder expires and the second holder is not a senior citizen the deposit will be paid back to the second holder or nominee. - Deposit cannot be pledged for loan.- Nomination can be cancelled or revoked.- Non-Resident Indians and Hindu Undivided Families are not eligible to invest in the scheme.Can a joint account be opened under the scheme with any person?Joint account under the SCSS, 2004 can be opened only with the spouse.What should be the age of the spouse in case of a joint account?In case of a joint account, the age of the first applicant / depositor is the only factor to decide the eligibility to invest under the scheme. There is no age bar/limit for the second applicant / joint holder (i.e. spouse).What will be the share of the joint account holder in the deposit in an account?The whole amount of investment in an account under the scheme is attributed to the first applicant / depositor only. As such, the question of any share of the second applicant / joint account holder (i.e. spouse) in the deposit in the account, does not arise. Whether both the spouses can open separate accounts in their individual capacity with separate limit of Rs.15 lakh for each of them?Yes. Both the spouses can open individual and / or joint accounts with each other with the maximum deposits upto Rs.15 lakh each, provided both are individually eligible to invest under relevant provisions of the Rules governing the scheme.Whether any income tax rebate / exemption is admissible?No. income tax / wealth tax rebate is admissible under the scheme. The prevailing income tax provisions shall apply.Is TDS applicable to the scheme? Yes, TDS is applicable to the scheme as interest payments have not been exempted from deduction of tax at source. The facility of furnishing a declaration in Form No. 15H (prescribed under the Income Tax Rules, 1962) is available to a person (payee) resident in India and who is of the age of 65 years or more at any time during the previous year (since a person who has attained 65 years or more at any time during the previous year only is treated as a Senior Citizen under the provisions of Income Tax Act, 1961). A declaration in Form 15 G can be furnished by a depositor of less than 65 years of age. In cases where a certificate under Section 197(1) of the Income Tax Act, 1961 from the Assessing Officer is furnished, the agency banks / post offices shall not deduct tax at source or, as the case may be, deduct at a lower rate as specified in the certificate. Whether any minimum limit has been prescribed for deduction of tax at source? Tax is to be deducted at source if the interest paid or payable exceeds Rs.5000/- during the financial year. Whether only one person or number of persons can be nominated in the accounts opened under the Scheme? The depositor may, at the time of opening of the account, nominate a person or persons who, in the event of death of the depositor, shall be entitled to payment due on the account.Can a nomination be made after the account has already been opened?Yes. Nomination may be made by the depositor at any time after the opening of the account but before its closure, by an application in Form C accompanied by the Pass book to the deposit office.Can a nomination be cancelled or changed?Yes. The nomination made by the depositor may be cancelled or varied by submitting a fresh nomination in Form C to the deposit office where the account is being maintained.Can nomination be made in joint account also?Nomination can be made in joint account also. In such a case, the joint holder will be the first person entitled to receive the amount payable in the event of death of the depositor. The nominee's claim shall arise only after the death of both the joint holders.In case of a joint account, if the first holder / depositor expires before maturity, can the account be continued?In case of a joint account, if the first holder / depositor expires before the maturity of the account, the spouse may continue the account on the same terms and conditions as specified under the SCSS Rules. However, if the second holder i.e. spouse has his / her own individual account, the aggregate of his/her individual account and the deposit amount in the joint account of the deceased spouse should not be more than the prescribed maximum limit. In case the maximum limit is breached, then the remaining amount shall be refunded, so that the aggregate of the individual account and deceased spouse's joint account is maintained at the maximum limit.What happens to the accounts if both the spouses are maintaining individual accounts and not any joint account and one of them expires?If both the spouses have opened separate accounts under the scheme and either of the spouses dies during the currency of the account(s), the account(s) standing in the name of the of the deceased depositor / spouse shall not be continued and such account(s) shall be closed.Is premature withdrawal of the deposits from the accounts under the SCSS, 2004 permitted?Premature withdrawal / closure of the deposits from the accounts under the SCSS, 2004 has been permitted after completion of one year from the date of opening of the account after deducting the penalty amount as given below:(i) If the account is closed after one year but before expiry of two years from the date of opening of the account, an amount equal to one and half percent of the deposit amount shall be deducted.(ii) If the account is closed on or after the expiry from the date of opening of the account, an amount equal to one per cent of the deposit shall be deducted. However, if the depositor is availing the facility of account under Rule 4 (3), then he can withdraw the deposit and close the account at any time after the expiry of one year from the date of extension of the account without any deduction. Are Non-resident Indians, Persons of Indian Origin and Hindu Undivided Family eligible to invest in the SCSS, 2004? Non-resident Indians (NRIs), Persons of Indian Origin (PIO) and Hindu Undivided Family (HUF) are not eligible to invest in the accounts under the SCSS, 2004. If a depositor becomes a Non-resident Indian subsequent to his opening the account and during the currency of the account under the SCSS Rules, the account may be allowed to continue till maturity, on a non-repatriation basis and the account shall be marked as a Non-Resident account [Rule 13 and GOI letter F.No.2/8/2004/NS-II dated June 19, 2006)Can an account be transferred from one deposit office to another?A depositor may apply in Form G, enclosing the Pass book thereto, for transfer of his account from one deposit office to another, in case of change of residence. If the deposit amount is rupees one lakh or above, a transfer fee of rupees five per lakh of deposit for the first transfer and rupees ten per lakh of deposit for the second and subsequent transfers shall be payable [Rule 11 and GOI Notification GSR..(E) dated March 23, 2006)What happens if an account is opened in contravention of the SCSS Rules?If an account has been opened in contravention of the SCSS Rules, the account shall be closed immediately and the deposit in the account, after deduction of the interest, if any, paid on such deposit, shall be refunded to the depositor.Which banks are permitted to handle SCSS, 2004?At present there are 24 Nationalised banks and one private sector bank which are handling the SCSS, 2004. The list is given below:1. State Bank of India2. State Bank of Hyderabad 3. State Bank of Indore 4. State Bank of Bikaner and Jaipur 5. State Bank of Patiala 6. State Bank of Saurashtra 7. State Bank of Mysore 8. State Bank of Travancore 9. Allahabad Bank 10. Bank of Baroda 11. Bank of India 12. Bank of Maharashtra 13. Canara Bank 14. Central Bank of India 15. Corporation Bank 16. Dena Bank 17. Indian Bank 18. Indian Overseas Bank19. Punjab National Bank 20. Syndicate Bank 21. UCO Bank 22. Union Bank of India 23. United Bank of India 24. Vijaya Bank 25. ICICI Bank Ltd. It may be noted that only designated branches of these banks have been authorized to handle SCSS, 2004.

An investor thinks only about RETURN on investments. However, the word RISK is rarely understood. Like fingerprints, investment profiles of people are always unique. Age, Life stage, income, savings, dependents and mindsets are factors that define a person's attitude towards investments. Risk taking ability and mental frame of mind plays a key role in determining where the investor ultimately puts his money. The first step in asset allocation is `Risk Profiling'. Risk Profiling combines two key areas -
1) Estimating financial risk-taking capacity and2) Understanding the (psychological) risk tolerance level of an individual.
Risk profiling can unlock far more value for both investor and financial advisor. It provides advisor clear understanding of investor's mental frame of mind and his personal and financial circumstances.
Risk Tolerance test helps financial advisor to make judgments about investor's financial possibilities. It helps to understand investor's attitudes toward investment risk. Many advisors collect data that helps to assess investor's attitude towards Risk. As investor's asset allocation is chalked out as per the risk tolerance it is important to get the basic facts right through series of detailed questionnaire. Analysis of risk profiling can generate following risk tolerance level. The range is indicative only.
Conservative = Highly risk averseModerately conservative = Risk AverseModerate = Risk NeutralAggressive = Risk tolerantVery Aggressive = Risk seeker
Investor's existing investment can be altered based upon the outcome of Risk Profiling. e.g An investor Mr.A (age 30 years) has 90% investment in fixed income securities and 10% investment in equities. He has a steady job in a multinational pharma company, no liabilities, two dependent in his family (wife & a son), adequately insured for life and health. Although, Mr.A is a risk taker, his investment is tilted towards fixed income, returns on which may not be good enough to achieve financial milestones set by him. His existing investment can be restructured to include more of equity component and his investment in fixed income can be reduced. Risk profiling exercise reveals that he falls into `Aggressive category' but his existing investment is into `Moderately conservative category'.
Another investor Mr.B (age 58 years) has 80% investment in equities, 15% in fixed income securities & 5% in gold. He is planning to retire in next two years. As per the latest valuation of his overall portfolio, he has almost achieved the retirement corpus that he planned for retirement at the age of 60 years. He wants to maintain the same lifestyle post retirement. He has no liabilities and his only son is well settled abroad. He does not have steady income stream (apart from his salary income, which he is going to loose after 2 years) from any other source. As per his Risk profiling, he falls into `Moderately conservative' category. However, his existing investment is `Aggressive' in nature as his exposure to equity is quite high. Considering the fact that he requires steady inflows post retirement, he needs to sell substantial part of his equity holdings and move funds to debt investments.
There are different life stages for an investor and at each life stage his risk profile could be different. Risk profiling helps investor to find appropriate asset allocation strategy at different stage of life.

There are many financial mistakes that we all make, which are quite common and perpetuated generation after generation. `Financial mistakes', which if avoided, can result in financial freedom and wealth creation. We should take a look at some common financial mistakes that can be avoided easily. We all know that if we want to reach somewhere fast we need to start early. Similarly, if we want to create wealth faster in our life - we need to start creating it early. Overspending creates hurdle in wealth creation. Unfortunately, most of us postpone our wealth creation process by overspending.Overspending:While we seem to think overspending is normal, it is not wise. It can be disastrous. When we are young and start earning, we think that we will continue to earn same income and even more - forever! Excessive spending results into lower savings and rising level of debt. We tend to postpone investment and prepone expenses. In fact, we should be doing exactly the reverse i.e prepone investment and postpone expenses. Most of us do not have monthly expense budget. When we go out to shopping mall, almost everything on display seems like a necessity to us. Whenever there is a `SALE' we tend buy irrespective of the fact whether it is required or not, for immediate consumption. While it is not wrong to buy from `SALE', we should realize that we end up buying something which may not be required or which can be easily postponed. We also need to return to ground reality and make the crucial decision between a necessity and a luxury. If we want to reduce our debt, save more and achieve financial freedom, it is important to identify the root cause of overspending.There are few tips to reduce excessive spending:
Don't go to a shopping mall without clear objective of what you need to buy. Don't buy things just because you like them or they look nice rather buy things you 'need'.
Draw up your monthly expense budget. Be clear how much you should spend per month and how much you need to save for your retirement plan. If you realize how much you have to spend towards various items, this alone is sufficient to reduce your spending.
Avoid impulsive spending.
Don't spend time at a place where it is easy to spend money. Don't go to a shopping mall at the weekends to relieve your boredom.
Ask yourself a simple question - Can you really afford a purchase? Making payment for a purchase and to afford a purchase are two different things.
Pay with cash or use debit cards instead of paying your bills through credit cards. It is not your salary or income that makes you wealthy, it is your spending habits that make you rich or otherwise.We often learn from our mistake, sometime we learn from other's mistakes. However, it is never too late to learn. Not only common man makes mistake, even seasoned investor end up making financial mistakes, some of them are difficult to rectify. Disaster management is not just the responsibility of civic authorities, but also of families who must take care of their finances. Every one must put in place a financial plan to deal with unexpected calamities. This could help even in dealing with unexpected emergencies or misfortunes. In our last report, we discussed financial mistake of overspending, we shall look at other financial mistakes. Delaying or ignoring a Will Updated nomination and the existence of a will is of crucial importance whether the person is single or married. Even if a person has nominated someone, it does not automatically mean that the concerned persons will get to own that asset. Nomination is the right to receive, not the right to own. For example, if the person has nominated his wife in various assets (bonds, bank deposits, shares, etc), the wife gets the right to receive the asset. But, in case there is no will, any other family member, for example his mother, has the right to take the matter to the court. A written will ensures that the asset goes to the person one desires. A will need not be drafted only with a help of a lawyer. One can draft it in own handwriting and the format / draft is simple and can be easily accessed on the net. A handwritten will, attested by two persons, preferably one of them the person's doctor, and would ensure that the will would not be challenged. Most parents leave the idea of making a will after their retirement. They feel that nomination or joint holding will serve the purpose. If a person dies intestate, then the possibility of legal disputes and division of assets under succession acts become a reality amongst the family members. Insurance FolliesRisk management is ensuring that health and life insurance is in place (and adequate too) and that there are no lapses in premium payments. Many of us take more than one insurance policy to provide maximum safeguards against risk. Instead of taking multiple policies, one should go for increasing life cover in the existing policy. We often have adequate life cover, but ignore to take a medical policy, which ultimately force us to shell out hefty sums out of our savings to cover medical expenses. We often forget to take medical policies for the kids or parents, leaving them exposed, in the case of eventuality. During the last couple of years, insurance products like ULIP have gained popularity because of the rising equity markets. However, such products are expensive and provide less life coverage. People end up buying products, which are inappropriate for their requirement. Investment is not an expense. It is money put away for future use. So, cutting down on investments is not a good idea. Not creating contingency fund: One should keep aside contingency fund for rainy days, part in form of cash and part in bank account. Contingency fund is required to take care of medical emergency, loss of income due to job loss etc. This amount should be roughly equivalent to three to five months of living expenses including funds required for emergency. Few people keep such emergency fund. Putting Off Financial Planning: Financial planning helps us to make provision for financial needs that will arise in the future. Financial planning involved setting up of financial goals and appropriate asset allocation. Without a proper plan, people often try to maximize returns and take undue risk. There is a danger of not achieving the life goals, if proper asset allocation is not adhered to. For example, if you set aside certain funds (and allocate to equities!) for your daughter's marriage, which is say one year away. If there is a crash in the equity market, the required funds cannot be made available to take care of marriage expenses. Such funds need to be parked in safe assets for short-term needs without taking any risk. The biggest mistake that people make is to ignore the value of financial planning. Not starting savings early and not realizing power of compounding: When we start our career and earn, we want to buy whole world from it. We get married; we buy home, have our family, expenses keep adding up. Our income increases but so does our expenses. When we start earning we don't think about savings. We tend to forget power of compounding. Because of the power of compounding specially over a long period of time, the difference between starting to invest early versus starting late can have a significant impact on your wealth. Benjamin Franklin described power of compounding as `the eight wonder of the world'. Legendary investor and wealthiest man on earth Warren Buffet made his first investment when he was 11 years old and according to him he started late. Warren Buffest was millionaire by the time he was around 30 years old.

Tips to lower your Tax bill
Taxes are said to be as inevitable in life as death and it is our social responsibility to pay them. Taxes are burdensome for all taxpayers. Saving money in taxes is high priority in Financial planning exercise. There are legally permissible ways to reduce taxes and retain more of your hard-earned money in your savings kitty. There are various tax deductions available under the present Income tax act and you should take advantage of them.
Here are some tips to lower your tax bill:
Deductions under Section 80C
Section 80C tends to be most popular since you can get an exemption of up to Rs 1 lakh on contributions to a wide range of investments.
Broadly these deductions can be classified into two options:
Investment Oriented &
Non Investment Oriented
Investment Oriented options would comprise of the following.
- Premium paid on life insurance policies- Payment for deferred annuities- Contributions to provident funds- Contributions to super-annuation funds- Contributions to Unit Linked Insurance Plans- Subscription to notified security- Subscription to NSC - Payments towards annuity plans of LIC or other insurers- Subscription to notified mutual funds or UTI- Subscription to Home Loan Account Scheme of National Housing Bank- Investment in companies engaged in providing infrastructure facilities- Term deposits (5 Years)- Senior Citizens' Saving Scheme.
Non -Investment Oriented options would comprise of the following.
Payments for acquisition of a residential house
Tuition fees paid for education of children
Section 80C provides for an outright deduction on certain contributions/payments subject to following conditions:
- The contributions/payments must have been made during the relevant previous year- The aggregate amount qualifying for deduction should not exceed Rs.1 Lakh.
Section 80 D - Medical insurance
If you take a medical insurance plan for yourself, your spouse, dependent parents and dependent children, you can under Section 80D claim deduction up to Rs 15,000 for the premium paid. A bonanza is available in the form of an additional deduction of Rs.15,000 towards medical insurance premium paid for your patents. For senior citizen taxpayers, the limit now has been enhanced to Rs.20,000. One condition being that the premium should be paid through a cheque.
In case you have paid any amount for the medical treatment of any disabled person dependent on you then again you are entitled to a deduction in the range of Rs. 40,000 to Rs. 75,000.
However, to claim any deduction under this section, certification by a medical authority is mandatory.
Interest component of home loan - Sec 24 (b)
Your home is not only your living shelter but also your tax shelter. You can claim a deduction for the interest paid on a housing loan, even on loans taken for repair, renewal or reconstruction of an existing property. The interest component of home loan is allowed as a deduction under the head 'income from house property' under Section 24(b) up to a limit of Rs 1.5 lakh a year in case of self-occupied house.
One condition being that your house must have been financed by a housing loan taken after April 1, 1999. It is also essential that the acquisition or the construction of the property is completed within three years from the end of the financial year in which the loan is taken.
Cash gifts
Cash gifts received from specified relatives are exempt from income tax, and there is no upper limit also. Similarly, cash gifts of any amount and from anyone received during your childbirth, marriage or any other specified event are totally tax-free.
However, if you receive a cash gift of more than Rs 50,000 from a friend, you are required to pay tax on the excess amount exceeding Rs 50,000.
Charity - Sec 80 G
You get a tax relief if you donate to institutions approved under Section 80G of the Income Tax Act. The rate of deduction is either 50 or 100 per cent, depending on the choice of fund.
There is no restriction on the amount of charity. However, donations must be made only to specified trusts. Also, only donations of up to 10 per cent of your total income qualify for such a deduction.What is the provision for deduction in respect of donation?
After computing the Gross Total Income, assessor can deduct the amount of donations, which he made to certain funds, charitable institutions, in accordance with the provisions of the Income Tax Act. Deduction is allowed depending upon the status of the donee, as follows:
After applying a qualifying amount
Without applying the qualifying amount Again in some cases, deduction is allowed to the extent of
100% of the donations and in some cases;
50% of the donations
Education – Sec 80 E
In case you have availed of a loan for higher education of your child or your spouse, then you can claim a deduction of the interest paid on such loan.Tax Liability for A.Y 2009 - 2010
Taxable income slab (Rs.)
Rate (%)
Up to 1,50,000Up to 1,80,000 (for women)Up to 2,25,000 (for resident individual of 65 years or above)
Nil
1,50,001 - 3,00,000
10%
3,00,001 - 5,00,000
20%
5,00,001 upwards
30%*A surcharge of 10 per cent of the total tax liability is applicable where the total income exceeds Rs. 1,000,000. Education cess is applicable @ 3 per cent on income tax, inclusive of surcharge if there is any.

Will or Trust?The assets of someone who dies without a Will or a Trust is disposed of by operation of law, which may not be according to the wishes of the deceased person. Estate planning is a process of arranging and planning your succession for management and distribution of your wealth in a systematic and pre-determined manner to your heirs and to other beneficiaries. The most common vehicles for this purpose are the drafting of Wills and setting up of Trusts. Estate may include any movable and or immovable property like equity shares, bonds, deposits, jewellery, cash, bank balance etc that then gets passed on to the next generation. In order to make the optimum use of wealth created over a period of time and to protect it for the near and dear one's it becomes crucial to plan. Both wills and trusts are designed to do the same thing - to pass on assets at death. Both can be very effective, but they use different methods to do it. Wills and trusts are essentially two different tools that accomplish the same goals. Deciding which tool is better for you depends on personal situation. What is right for one person might be very wrong for another person. Therefore, you need to fully understand these differences in order to decide which method is better under your circumstances. Many assume that they only need a simple will to best take care of their affairs when they pass away, and that only the wealthy need to have a trust. Estate planning through Trust involves much more than merely making a Will. Trust is effective not only during the lifetime but also after death. Estate Planning through a trust route is one of the most reliable ways to assure that your assets will be managed for your family and loves ones as you had intended. In Estate Planning through Trust route, the person who owns the estate sets up a Trust, appoints trustees to manage the trust, transfers his estate to the trustees and names the beneficiaries of the trust.There are certain advantages on why one should opt for a Trust over Will:
The primary disadvantage of a Will over is that it can be disputed after the death of a person making the Will. Even the best-drafted Wills can be challenged. Also, mental soundness of a person making the Will can be challenged in the court of law. Disposition of assets through Trust ensures passing on assets without causing any untoward problems for your heirs.
Will is a legal declaration of your desire to distribute property during the lifetime of a person but intended to take effect after his death. Trust involves transfer of your estate to a trustee for the advantage of certain beneficiaries while you are alive. Trust leads to efficient management of your estate during and after your death.
A trust is not subject to probate and can be kept confidential, whereas a Will becomes public document once probated.
A Trust saves some Probate Court expenses.
Probate is a sometimes a big hassle for survivors. There are numerous filings and notices, and sometimes delays occasioned by the necessity of getting Court approval for so many things.

Retirement is the period of your life when you are no longer working and you need to fund your day today expenses from your savings. Retirement planning is a part of overall financial planning process and it enables a person to enjoy the desired post retirement lifestyle. When you stop earning, you would certainly want to maintain the same (or even better!) standard of living. Post retirement, a person does not have his monthly paycheck and will have to depend on the annuity he receives from his investment corpus. Planning for the sunset years acquires added importance because people over-estimate what they have and under-estimate how much they need post retirement. People live longer today and are lot healthier today. They spend more years in retirement and therefore they need to save more to cover the risk of living more than their life expectancy. Retired people love pursuing new interests such as playing golf, going abroad etc and therefore post retirement life style is extravagant than those prior to retiring. When planning for retirement we do not know how much is enough? Although, we can draw up a plan that includes future cash flows, savings and spending assumptions, it is not always possible to accurately assess this corpus amount. To compute retirement corpus, following variables are considered:
Life expectancy
Rate of return from existing equity and fixed income securities.
Annuity from insurance schemes, pension schemes from Govt. / Pvt. sector etc.
Tax slabs.
Rate of inflation.
Growth rate in salary / business income.
Household expenses and saving rate. To achieve your life dreams, even when you stop working, one should follow the under mentioned basic principles.
It is a myth that one should start planning for retirement when you are 40 plus. If you start early, you can build large corpus for retirement. Remember the power of compounding!
Define your need and financial objectives.
Seek advice of a financial planner, who shall chalk out a plan for you. A financial planner can guide you to invest in appropriate asset class to build corpus for your retirement.
Diversification and optimal asset allocation in accordance with one's risk appetite is a key to successful financial and retirement planning.
Review your plan at regular interval to ensure you are on track. Retirement is an exiting time, but it can be a scary one unless you have a retirement plan.

ULIP (Unit Linked Insurance Plan)
Term Plan
Medical Insurance for the Elderly
Riders in Insurance Policy
Mediclaim Policies
Adequacy of Protection/Life Cover

Asset AllocationWhat is Asset allocation?The five-year Bull Run from 2003 to 2008 had made concepts like debt, cash, asset allocation and financial planning quite unfashionable. The only investment destination one could think of was equity, thanks to the soaring stocks markets. The steep fall in equity market since January 2008 has left many equity investors licking wounds, leaving virtually no place to hide. Bull market or bear market, there is never a time to abandon asset allocation. Times have changed and so has the thinking. It is essential to recognize the power of asset allocation all times, including tough times. Investors are now giving more relevance to asset allocation and planning of investments keeping in mind the long-term financial goals. Asset allocation refers to the process of allocating your investments between different asset classes. Asset allocation means diversifying your money among different types of investment categories, such as stocks, bonds, gold, property and cash. The goal is to help reduce risk and optimize returns. The goal of asset allocation is to create an optimum mix of asset classes that have the potential to appreciate while meeting your risk tolerance level and financial goals. Most investors prefer equity for their core portfolio, adding bonds to reduce volatility and downside risk. With low real returns in debt instruments and rising inflation levels, there is a danger that investors may not meet some of their long-term financial goals. Goals for an individual could be meeting child's college education five years hence or buying a house ten years from now. Different asset categories behave differently in terms of risk - return profile. Stocks, for instance, offer potential for both growth and income, while fixed income instruments offer safety of capital and steady income. The benefits of different asset categories can be combined into a portfolio with a level of risk one finds acceptable. Establishing a well-diversified portfolio may allow you to avoid the risks associated with putting all your eggs in one basket.What is the right asset allocation?There is no simple formula that can find the right asset allocation for every individual. However, the consensus among most financial professionals is that asset allocation is one of the most important decisions that investors make. Your selection of individual securities is secondary to the way you allocate your investment in stocks, bonds, and cash and equivalents, which will be the principal determinants of your investment results.Asset allocation decisions depends on the following factors:- Time frame - Risk tolerance - Personal circumstances - Liquidity needs- Tax considerationDepending on your age, lifestyle and family commitments, your financial goals will vary. You need to define your financial goals like buying a house, marriage of son/ daughter, paying for your children's education or retirement. Besides defining your objectives, you also need to consider the amount of risk you can tolerate.For example, when you retire, you might want to earn steady income from bonds / deposits, financial advisor might recommend say 100% debt portfolio. On the other hand, for young investor, if he does not need money for 20 years and is comfortable with the volatility in the stock market, a financial advisor might recommend an asset allocation of 80% in stocks.Once the asset allocation is done, it does not mean that you just set it and forget it. Reviewing your portfolio regularly with your financial advisor to monitor and rebalance your asset allocation can help make sure you stay on track to meet your goals. Asset Rebalancing Definition: The Process of rearranging assets to bring allocations to predetermined original level as per Financial Plan.Over time some of your investments may become out of alignment with your investment goals. You'll find that some of your investments will grow faster than others. By rebalancing, you'll ensure that your portfolio does not overemphasize one or more asset categories, and you'll return your portfolio to a comfortable level of risk.Needless to say Asset Rebalancing forms part and parcel of every Financial Plan While a lot has been written about asset allocation and about the virtues of having the correct asset mix , very little of an investors attention goes to asset rebalancing. Also as part of reviewing your portfolio it is necessary to periodically check your portfolio's asset allocation and ensure it's still in line with your goals.Let us explain in detail with an example: Mr .Suresh owns a 10 lakh portfolio as on June 2007 with 50:50 in debt and equity. He is has five years to retirement and needs to build on his debt portfolio . His aim is to maintain 5 lakhs in equity and all excess funds in debt. He rebalances his portfolio every six months. In Dec 2007 he checks valuations of his portfolio to find that during the market boom of 2007 his equity portfolio recorded a gain of 40%. Total portfolio value is Rs.12.3 lakhs in Dec 2007. He sells Rs. 2 lakhs worth of shares and invests the same in debt. Now his portfolio in equity is valued at 5 lakhs again while the debt portfolio is at Rs 720000 (520000+200000) accounting for a 8 % interest on debt.Next Rebalancing is scheduled for June 2008. Equity portfolio has corrected by 30% to 3.5 lakh, while debt portfolio stands at 750000. Mr. Suresh switches back 150,000 into equities . He now holds 6 lakhs in debt plus 5 lakhs in equity . His annual return is 10 % despite market correction.Mr. Ramesh too holds 5 lakhs in equity and 5 lakhs in debt as on June 2007. He does not rebalance his portfolio. By December 2007 he too sees a 40% jump in equity portfolio but does nothing. His Portfolio value in June 2008 would be 10.3 lakh - a mere return of 3% . The example above covers a very small period of time i.e one year .Also it gives an example of an investor wanting a fixed sum in equities. You could devise your own plan and criteria and there are many ways of doing it.Some advisors recommend rebalancing only when the relative weight of an asset class increases or decreases more than a certain percentage that you've identified in advance. The advantage of this method is that your investments tell you when to rebalance (as against a timetable).Over long periods of time asset rebalancing has proven to substantially contribute to better average return and hence to the success of your financial plan . The biggest advantage of this exercise is that it helps you sell overvalued assets and buy undervalued ones.Assets mostly owned by investors are Cash/Debt, Equities, Bullion, Real Estate and Alternative investments like Art/ Private Equity etc. Except for the super HNI, lay investors would typically hold a portfolio of debt ,equity, and real estate. Rebalancing can be done with almost any asset class, depending on its weightage in an investors portfolio . However some assets are easier to transact in as compared to other. For example bullion is mostly held in the form of jewelery and sentiment value does not allow us take economical decisions when it comes to these investments. Real estate too has it drawbacks in terms of limited liquidity, difficulty in part selling (Can't sell half a flat can u?) and high transaction costs . Also most real estate held by the middle income and upper middle income investors will be for self consumption . Equities debt and cash become the best choices for an asset rebalancing exercise. Because Equities are prone to irrational ups as well as down , a mere mechanical asset rebalancing between the three asset classes can give superior returns.Points to note :
Taxes and Transaction costs can cut the extra returns accruing from asset rebalancing. You must weigh the impact of both before planning on a asset rebalancing schedule.
This process has to be mechanical with no scope for opinion or emotional decisions. It also requires a certain degree of discipline to ensure that rebalancing takes place on schedule/change in weightage.
How often should one rebalance: As an investor a half yearly/annual rebalancing if time based adequate. Where asset rebalancing is done based on change in weightage, the frequency should be kept at minimum by simply keeping the cut off levels on the higher side. Frequent rebalancing does not aid in increasing long term returns.

ULIP is a scheme, which in addition to a life cover gives you an opportunity to make investments. It's a two in one plan that offers benefits of life insurance plus savings. In ULIPs, a part of the investment goes towards providing you life cover. The residual portion of the ULIP is invested in a fund which in turn invests in stocks or bonds; the value of investments alters with the performance of the underlying fund opted by you. It is critical to understand how money gets invested once you purchase a ULIP. When you decide the amount of premium to be paid and the amount of life cover you want from the ULIP, the insurer deducts some portion of the ULIP premium upfront. This portion is known as the Premium Allocation charge, and varies from product to product. The rest of the premium is invested in the fund or mixture of funds chosen by you. Mortality charges, ULIP administration charges and ULIP fund management charges are thereafter deducted on a periodic basis. Since the fund of your choice has an underlying investment – either in equity or debt or a combination of the two – your fund value will reflect the performance of the underlying asset classes. At the time of maturity of your plan, you are entitled to receive the fund value as at the time of maturity. Why investment in ULIP makes sense?Flexibility: You have an option to switch between the investment funds to suite the changing requirement in life. One can switch from high risk to low risk fund option. There is an added advantage of switching between funds, which offer different rations of equity, and debt, a few times without paying any extra fees. These options are designed to help you choose an option fitting your risk appetite, investment horizon, financial goals and life stage. Multiple Investment options: If you are a risk adverse investor and believe in goal based investing, ULIP is an ideal financial product where you can park your funds. Depending on your life stage, you can decide on equity and debt mix in your plan. Tax benefit: your investment is eligible for exemption under Section 80C of the Income Tax Act (subject to a limit of Rs 1 lakh). Besides the premium, the maturity amount in ULIPs is also tax-free , irrespective of whether the investment was in a balanced or debt plan. Goal based investment: ULIP gives you a platform to plan for your child's education or child's marriage or your retirement needs. Since there is a life cover, in case you are not alive to take care of your family, your family financial goals remain intact and on track. The Flip side of ULIPs: High cost product: ULIPs are quite expensive, as most of the charges are recovered at the start of the tenure—usually in the first three years when your money is locked in. Insurers levy enormous selling charges, averaging more than 20 to 40% of the first year's premium, and dropping to 10% and 7.5% in subsequent years. So very little is actually invested during those years. Most investors discontinue early, or sign up for five- to 10-year terms, thus suffering high costs and poor returns. ULIPs make sense only if investments are made for a long tenure—say , 15 or 20 years—thus defraying initial costs. ULIPs score low on liquidity. According to guidelines of the Insurance Regulatory and Development Authority (IRDA), ULIPs have a minimum term of five years and a minimum locking of three years. You can make partial withdrawals after three years. The surrender value of a ULIP is low in the initial years, since the insurer deducts a large part of your premium as marketing and distribution costs. ULIPs are essentially long-term products that make sense only if your time horizon is 10 to 20 years.Death benefit: In case of ULIPs, policy holders gets either the sum assured or the value of the units one holds, whichever greater, in case of death. In case of mutual funds + term insurance, one avails the benefits of both; fund value and the sum assured in case of death.ULIPS are subject to the vagaries of the market. Recently most of the ULIPs have under performed Nifty. ULIPS does not fit into for investors with active fund management. ULIPs are sold by agents promising very high return, which may not be achievable. Conclusion: It is always better to keep insurance and investment needs separate. A better alternative to a ULIP is a combination of low-cost term insurance and a direct exposure to equity / equity mutual fund. Term insurance provides coverage for a specified period and is amongst the cheapest insurance products. Its no-frills design only covers your life for a fixed period. Combining it with equity, balanced or debt mutual fund gives you the benefits of a ULIP at a much lower cost. In the end, your long-term returns are higher.