Saturday, February 25, 2012

Tips to Save Money

"I don't have money to save". That is probably the most common and most dangerous excuse ever. Truth is, it's never too late to start saving.

If you don't save now, you'll probably never have enough money to save in the future.

Savings is the most important aspect for money management. If you have understood the basics of money management, you must have got the importance of saving money.

If you can save more money, you can invest more and pay-off your loans and other liabilities in time and without much hassles. There are various ways by which you can save significant amount of money, but in order to accomplish your goals and save money, it requires some hard work and commitment from your side. If you will not try, you can not save any money. So first thing is you must start and try to be consistent.

When you plan to save money, you need to start from today. If you will plan to do it from next week or from a particular date, you will always postpone it and eventually will not be able to save any money. Saving money is within your control, what you need is to just change some of your spending habits.

To start saving money, Save for Future first you need to check your monthly expenses and see where your money is going. Download a copy of budget planner to check your expenses.. From the expense list, try to figure out which expenses can be minimized. Suppose, if you are going out for dinner 3-4 times in a month or more, you can minimize the number of dinner outings and prepare food at home, it can save you a good amount of money every month.

Tuesday, February 21, 2012

IDFC INFRA BONDS- Extra Tax Saving Under Section 80CCF

What are infrastructure bonds?

To channelize long term retail flows into the Infrastructure sector, the Government of India had introduced Section 80CCF under the Income Tax Act, 1961 (‘the Act’). This section provides for an income tax deduction for an individual investor who subscribes in the Long-Term Infrastructure Bonds (‘Bonds’), issued by certain financial institutions.

Presently, individual investors have various options to invest upto 1 lakh into various instruments such as PPF, Insurance, ELSS etc as allowed under sections 80C, 80CCC and 80CCD of the Act.

An investment in infrastructure bonds under Section 80CCF is an additional window to save tax upto 20,000, over and above the 1 lakh limit already available.

Long term Infrastructure Bonds by IDFC

IDFC has come up with its second tranche of Long Term Infrastructure Bonds for financial year 2011 – 12. These Bonds would be for a period of ten year. The company has offered an option to buyback the bonds from the investors at the end of five years. These bonds have got the highest credit rating of (ICRA) AAA by ICRA and Fitch AAA(ind) by Fitch.

Issue opens: January 11, 2012
Issue closes: February 25, 2012

Series 1 2
Face Value 5,000 per Bond

Minimum number of bonds per application

Two Tranche 2 Bonds and in multiples of one Tranche 2 Bond thereafter.
For the purpose fulfilling the requirement of minimum subscription of two Tranche 2 Bonds, an Applicant may choose to apply for two Tranche 2 Bonds of the same series or two Tranche 2 Bonds across different series.
Interest payment Annual Cumulative
Interest Rate 8.70% p.a. N.A.
Maturity Amount per Bond 5,000 11,515
Maturity 10 years from the deemed date of allotment
Yield on Maturity 8.70% 8.70% compounded annually
Buyback Facility Yes
Yield on Buyback 8.70% 8.70% compounded annually
Buyback Date Date following 5 years and one day from the deemed date of allotment
Buyback Amount 5,000 per bond 7,590 per bond
Buyback Intimation Period The period beginning not before nine months prior to the buyback date and ending not later than six months prior to the buyback date

Invest in IDFC Bonds Today

  • The bonds don't attract any TDS in case the investments are in demat form
  • The bonds are available in Demat & Physical form
  • The bonds will be listed on NSE and BSE and can be traded after the 5 year lock-in period
  • Investors can mortgage or pledge these bonds to avail loans after the lock-in period.
  • An investor would need a PAN card to invest in these bonds.
  • The bonds will be issued only to Resident Indian Individuals and HUF
  • An applicant may subscribe to the two series of Bonds offered but the minimum application under each series shall be one bond i.e., 5,000
  • Interest on the Bonds shall be payable on annual or cumulative basis depending on the series selected by the bond holders
  • The interest accrued on the bonds will be credited to the respective bank registered with the demat account through ECS on the due date for interest payment

Issue Structure: The Bonds, with a maturity of ten years, will be issued
in two series.

  • Series-1: Carry a 8.70% coupon, payable annually; with a buyback option#
  • Series-2: Cumulative option, 8.70% coupon, compounded annually; with a
    buyback option#
#: after expiry of lock in

Tax adjusted rate of return *

Tax Rate (%) Tax Benefit adjusted rate of return on Maturity (with Tax Benefits upto 20,000 u/s 80CCF of the Income Tax Act, 1961)
10.30 10.40% 9.88%
20.60 12.40% 11.23%
30.90 14.80% 12.78%
Tax Rate (%) Tax Benefit adjusted rate of return on Buyback (with Tax Benefits upto 20,000 u/s 80CCF of the Income Tax Act, 1961)
10.30 11.51% 11.08%
20.60 14.80% 13.82%
30.90 18.73% 17.03%


All investors proposing to participate in the public issue of the Tranche II Bonds by the Infrastructure Development Finance Company Limited should invest only on the basis of information contained in the Prospectus – Tranche 2 filed with Registrar of Companies, Chennai, Tamil Nadu, on January 3, 2012.

The Prospectus Tranche - 2 is available on the websites of the stock exchanges at and, the website of the Company at and the respective websites of the Lead Managers at,,, and Co-Lead Managers at,,

*Note: The Tax Adjusted Rate of Return (TARR) is calculated assuming a gross investment of 20,000 less the relevant tax benefit under Section 80CCF of the Income Tax Act, 1961 available to the investor (varying according to the tax rate applicable to the relevant investor) resulting in a net invested amount. The aggregate of annual or cumulative interest coupon and the redemption amount receivable by the investor, as applicable, discounted over time divided by such net invested amount leads to the TARR.

*Note: The TARR figures provided in the table above are representative only and are subject to the assumptions and qualifications made by the company in arriving at the above mentioned figures. The figures contained in the table above do not in any manner whatsoever constitute financial or tax advice or any recommendation to invest in the tranche 2 bonds. The figures are given as per the prevailing rates of taxation. The investor is advised to consider in his or her own case the tax implications in respect of subscription to the tranche 2 bonds. Investors must consult their tax and financial advisors before making any investments in the tranche 2 bonds. The company is not liable to the investor in any manner for placing reliance upon the contents for calculating TARR as mentioned in the table above.

Thursday, February 16, 2012

Why systematic investment plan (SIP) make sense even when debt seems to score

Why systematic investment plan (SIP) make sense even when debt seems to score

Every pundit on Dalal Street has his favorite 'retail' joke. "Retail investors have only one strategy: Buy when the market is at all-time high, and sell when it is at all-time low. The best strategy to lose money in the market," laughs a seasoned stock broker, who never gets tired of repeating the story. "I used to tell my team it was time to scoot when worthless IPOs would start getting subscriptions from small towns you have never heard of," jokes a mutual fund manager, who prefers not to be named.

Well, these jokes were out of fashion in the last two years. Suddenly, the same people were talking about the 'mature' retail investors and their commitment to the market. The proof is in the systematic investment plan (SIP) numbers, they would aver. However, it seems, the celebration was a bit premature. Guess what, investors are back to what they do the best: Selling or getting out when the market is low. Probably, they will also get back when the market recovers.

As per the data from Karvy Computershare, a registrar of mutual funds, the number of SIP investors dropped sharply to 80,823 in 2011-12, from 3.16 lakh in 2010-11. According to CAMS, another registrar, new SIP registrations dropped from 23.65 lakh to 18.9 lakh during the same period. "It is due to three different reasons. One, equities are not doing well. Second, even mutual funds are pushing debt products at the moment. Third, there is still a distribution vacuum created by the ban of entry load on mutual funds," says Mukund Seshadri, founder, MSVentures Financial Planners.

For example, a SIP in HDFC Top 200, the scheme with the largest asset under management (AUM) at more than Rs 10,000 crore, has given a return of 6.5% in the past year (if you had put in money using the SIP route every month, this was the return you would have got) HDFC Equity Fund, the scheme with the second-largest AUM, has given a negative return of 1.71% while Reliance Growth has given a return of a mere 3.46% in the same period.

Compared to such uninspiring performance, bank and company fixed deposits are offering returns in the range of 9%-11% per annum. This difference in returns, according to MF distributors, has resulted in investors closing their SIPs and shifting money to fixed income instruments.

But is it a smart strategy? Sure, it may make sense if you look at the numbers in the short term. However, it could prove a huge mistake if you look back after a longer period of, say, 10 years.

"Keep your SIP running for a longer period and do not stop it in downturns. You will lose out a chance to make money in the long term if you stop your SIP midway when the market tanks," says Ranjit Dani, a certified financial planner. In fact, that statement encapsulates what SIP stands for.

The whole idea behind starting a SIP with an equity scheme is to go on investing regardless of the market conditions. In that sense, SIPs help you control your emotions and go ahead with your long-term investment plans in equity. Another important feature of SIP is that it helps you buy more number of units when the market is down, this would help you to average your cost of holdings in the MF scheme of your choice.

Look at the numbers for yourself. According to mutual fund tracking firm Value Research, those who have stayed invested in good MF schemes for 10 years have pocketed handsome returns. Reliance Growth tops the list with an annualised return of 26.86%, followed by DSPBR Equity at 25.48% and HDFC Top 200 at 25.18%.

In fact, even the worst performing SIP, Taurus Discovery Fund, delivered 8.23% while JM Equity delivered a return of 11.11% in the period. Sure, some self-proclaimed pundit may tell you that you could have done better if you timed the market, but always remember that timing the market is easier said than done.

"We advise investors to do equity SIPs for a minimum period of seven to 10 years. They should link equity SIPs to their long-term goals such as children's education, retirement or buying a house," says Anil Chopra, Group CEO, Bajaj Capital. "If you are investing Rs 10,000 per month in SIPs, split it up into four or five funds. Have a mix of large-cap, mid-cap, value style and thematic funds as part of the SIP portfolio."

Experts like him reiterate SIPs are the best way for individuals to enter the stock market, as it imparts discipline and also one can invest as little as Rs 50 a month in an equity scheme. Just identify a scheme from a good fund house that has been a consistent performer over the past five years and start investing in it. And don't forget to review the performance of the scheme regularly.

Tuesday, February 14, 2012

You could have been a millionaire today

IF you had bought 100 shares of Wipro at the rate of Rs 100 per share in 1980, they would be worth Rs 200 crore (Rs 2 billion) today.

If you had invested Rs 10,000 in Infosys shares in 1992, you would be richer by Rs 1.5 crore (Rs 15 million) today.

If you had invested Rs 1,000 in Ranbaxy in 1980, you would have got Rs 1.9 crore (Rs 19 million) today!

And, not so far back in time, if you had invested Rs 40,000 in Unitech during the lows of 2004, your bank account would see a whopping Rs 1.1 crore (Rs 11 million) today!

Some guy out there knew this. Today, he is laughing all the way to the bank. So, what was this guy's magic strategy? It is simple.

He bought, he waited
Waited for all those share splits and bonus declarations. Waited for the company to grow from strength to strength. Waited even when the shares teetered only to recoup in a few years' time.

Just as a child takes time to realise his/ her full potential, so does an investment need time to reward you handsomely. Sure, the times are uncertain now. But let that not scare you to sell for a loss.

Patience pays
Look back. You will notice that selling in such times makes no real sense in the longer run. Those who didn't sell their stocks during the May 2006 crash but had, in fact, bought more would be a very happy lot today. Investing long term is like that: it rewards you handsomely. Always.

Exercise patience. As champion broker Rakesh Jhunjhunwala said recently, if you want to learn more about patience, get married!

The way I see it, you don't really need to get married to learn patience. Just look back in time. All these stocks have been multi-baggers for those who stayed on for the long-term. They would have fetched you unimaginable returns today.

Do your research
You will learn a thing or two about making millions from a few thousands. You can still make those millions! Turn a deaf ear at the sceptics; look at beaten down sectors. Consider aviation and hospitality. Today, aviation stocks are way below their lifetime highs. But, as India grows, so will travel. And within the next three years, they will reward you handsomely.

Most people ignore aviation and hotels. And that is why they merit my attention. Pick up stocks that others are ignoring. People who create wealth do things that others do not.

I am sure you could make millions if you do, too!

Rs 10,000 becomes Rs 413 crores in 29 Years - Must Read

Suppose You Bought Wipro 100 share value Rs. 100 in 1980

1981 ,1:1 Bonus =200 shares

1985,1:1 Bonus =400 shares

1986 split to Rs 10 =4000 shares

1987,1 :1 Bonus =8000

1989, 1:1 Bonus =16000

1992 ,1:1 Bonus =32000

1995 ,1:1 Bonus =64000

1997 ,2:1 Bonus =1,92,000

1999 Split to Rs 2 =9,60,000

2004 2:1 Bonus =28,80,000

2005 1:1 Bonus =57,60,000

2010 3:2 Bonus =96,00,000

Today’s Rate Rs 431

You Earn Rs 413 Crore !!

If a business does well, the stock eventually follows-Warren Buffett

Tuesday, February 7, 2012

Lost faith in your SIP? Don’t give it up

Lost faith in your SIP? Don’t give it up

Lump sum investment outperforms an SIP in the long run, but the latter eliminates short-term volatility

If you checked the performance of your equity systematic investment plan (SIP) in the last one year, you’ve watched the value of your money go down, down, down. In fact, if you look at one- or three-year returns in SIPs in top 10 (by assets under management) equity diversified schemes, you’ve lost out to lump sum investments and in some cases underperformed benchmark returns as well. Data from Computer Age Management Services (CAMS), a registrar and transfer agent to a number of mutual funds, shows that spooked investors are voting with their money and the number of ceased SIPs has almost doubled over the calender year 2011. Ceased SIPs are those which are discontinued before their mandated time. For example, if you start an SIP mandate for 12 months but discontinue after five months then that qualifies as a ceased SIP. CAMS records 58-59% of the industry’s business. Says Sushil Jain, head-financial planning, Bajaj Capital Ltd, “No doubt people are discontinuing SIPs. But we try to educate them about the benefits of SIPs by showing past performance in market corrections.” Question investors are asking is this: should they discontinue their SIPs?

Though the disillusionment with SIP returns is understandable given the market sentiment and volatility in the past two-three years, we will need to look deeper to answer this question. First, a look at why we use an SIP.

Understanding your SIP

As the name suggests, SIPs are meant for making regular, systematic investments. For the vast number of investors who earn through monthly salaries, it makes sense to decant the surplus and funnel it into an investment vehicle each month. Investors find it difficult to time the market—it is impossible to know the right time to enter the market, the best index level and the best (or worst) day. You may get it right or close to it a few times but are more than likely to get the timing wrong an equal number of times. Says Suresh Sadagopan, a Mumbai-based financial planner, “We can’t know when markets move higher or lower, so why take a chance simply because there is a possibility of higher returns in the short term?” That is where an SIP comes in—it gives the investor a regular investing vehicle.

Equity investors must understand that if markets rise over the long term, the value of the lump sum will be higher than an SIP. Let’s also understand that an SIP is a facility that calls for a different way of calculating returns. Typically, fund fact sheets give out performances for lump sum investments. If here’s where your fund has outperformed benchmark indices, it’s on the right track. Look at SIP returns over a slightly longer time frame since money gets deployed gradually, and not all at once. Whether an investor chooses an SIP or a lump sum won’t impact performance against benchmark.

Says Sundeep Sikka, chief investment officer, Reliance Capital Asset Management Ltd, “SIP returns in the last two-three years have been disappointing but that is because markets haven’t moved anywhere. But investors get nervous and redeem.”

Hare or tortoise?

Does the SIP really smoothen out the volatility? To answer this question we back-tested the data for four equity funds—HDFC Top 200, Franklin Bluechip, Birla Sun Life Equity and Reliance Growth—to see what an SIP investor would make as against what an investor who invested in lump sums on days when markets were the highest and lowest in that year. The first investor would begin his monthly SIP on the lowest and the highest day and then continue the monthly SIP till December 2011. The second investor would invest in lump sums both at the highest point and at the lowest point of the market. We did this for each year from 2001 till 2009, assuming that the SIPs started in each year were continued till 31 December 2011.

We find two things from this data. One, over the long run, if markets are trending upwards, as expected, lump sum investments will always outperform an SIP. From 2001 to 2011, the market rose at a compounded annual growth rate of 17.26% from its highest point in 2001 making lump sum investing do better than SIPs.

Two, the difference in return between investing on the best day or the worst smoothens out over time. For investors beginning in 2007, the SIP did not see a large difference in returns even if he began the SIP on the best day or the worst, but the lump sum investor saw returns vary from negative of 0.35% to positive 12.17% if he invested on the highest point or the lowest point, respectively. The story is repeated for 2008 and 2009. But step back to 2002 and the benefit of market timing begins to fade away. So, yes SIPs work, but only to smoothen out the volatility in the medium term. Over the long run, in a rising market in a growth economy, lump sum investing will always outrun SIPs.

What should you do?

First, don’t compare returns of SIPs with lump sum investing—they both serve different purposes. In an overall rising market, even in the long run, lump sum investment is likely to beat an SIP as the start point will be the lowest and the end point the highest. However, in reality investments are made at various points in time and knowing the top or the bottom of the market is possible only in hindsight. Says Sikka, “Lazy money makes the most return. In equity, invest your money and forget about it. It will be more profitable for investors in the long run.” Second, most of us do not have the luxury of making large lump sum investments and therefore the SIP vehicle suits the best. But what if you get a large infusion of cash—a bonus or money back from a policy? If you have a strong stomach and don’t mind seeing the money evaporate in the short term, a lump sum is the best option. But rather than a managed fund that runs a fund manager risk, a lump sum could go to an index fund or an exchange-traded fund. Says Sadagopan, “For slightly risk averse investors who want equity exposure, index funds work well as the risk of fund manager performance is eliminated.” For all other investors, stay with the lower risk strategy to stagger the investment. Says Sadagopan, “Regardless of the market, we advise a staggered approach. We advise to use systematic transfer plans over 45 days to three months depending on the investors’ need.” In volatile markets he adds, its better to stagger regardless of the type of fund you invest in.

So, don’t panic too much if you see negative returns on your SIP; remember equity investing is for the long run and SIP removes short-term volatility.