8 Investment Myths To Be Avoided

                            8 Investment Myths To Be Avoided

Today we are going to debunk a few investment myths. You will know ‘why individual investors are failing miserably and how you can avoid being one of them’.

1. I am too young to plan for retirement

Have you started planning for your retirement? You may be saying ‘who me? I am too young to be thinking about retirement”. It is not so! Rethink. You should have started thinking about it yesterday. Because time flies quickly.

If you were smart, and planned for retirement when you are young, your retirement years will be really those “Golden years”. If not you need to compromise and you need to work longer and retire later than others.

1. 2.  East or west FDs are safe and best

 Nothing wrong in investing in FDs. FDs are really safe and it gives us fixed return. But there is no meaning in investing all your money in FD. The post tax return of an FD will hardly beat inflation. If your investments are not beating inflation, then your money is losing its purchasing power. FDs are safe but not always the best option.

1. 3.  I can never be as good as Warren Buffet or Rakesh Jhunjhunwala so why try?

In the words of Warren Buffet “Success in investing doesn’t correlate with IQ once you’re above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.” You don’t need a super brain for making investment decisions. You only need common sense and discipline. If you don’t have enough time and expertise, then you can get assistance from professional financial planners like Us ( Vcare Investment Services PVt ltds)

  4.  Stock markets can earn me quick bucks

This is a common myth among investors. Stock market will reward the long term investors. Stock market is a system which transfers money from investors who are fearful and greedy to the investors who are balanced and rational.You need to be calm, patient, disciplined, and rational. You don’t have to be smarter than the rest; you have to be more disciplined than the rest.

  5.  Timing the market is important

Investors often spend a lot of their time in trying to identify when the market is very low or high, and timing the purchase and sale of investments accordingly.

In other words, they want to time their exit when the market has reached its top and to time their entry when the market has reached a bottom. This not a practical idea because there are so many influencing factors to the stock market. Predicting all the factors and making investments is practically not possible.  Instead of that stagger your investments through SIP, STP and stay invested for long term.

  6.  There is no such thing as too much diversification

Diversification is needed. A well diversified portfolio can be created with 10 stocks or 4-5 mutual funds. Having more than 20 stocks or 8-10 mutual funds  Schemes can dilute your returns. The reason is you are not only investing in best stocks and funds, you are investing in above average and average stocks and funds. So your returns will come down. Instead of over diversification, you need to concentrate on a few stocks. It is possible to achieve the required diversification with a few stocks or funds.

  7.  The best way to make money is investing in what is hot

If you are investing in what is hot, then you are following the crowd. If you follow the crowd, you will get what others are getting. You will not get anything more. You need to be fearful when others are greedy and you need to be greedy when others are fearful. So don’t go by the market trend or the hot pick of the month. Think like a contrarian and follow value investing.

  8.  Saving tax is the only objective for me to Invest

Which group you are in? There is a group of people who invest just to save taxes. They will not bother to invest anything more than that. They will meet their objective of saving tax. There is another group which invests to save tax as well as to save for their other life goals like retirement, children’s future. They will meet the objective of saving tax and achieving other life goals. Kindly check you belong to which group.

You can be an assured successful investor if you could avoid these investment myths � o t @SD �oD 0pt;font-family:"Helvetica","sans-serif"; mso-fareast-font-family:"Times New Roman";color:#333333;mso-fareast-language: EN-IN'>The best way to make money is investing in what is hot

If you are investing in what is hot, then you are following the crowd. If you follow the crowd, you will get what others are getting. You will not get anything more. You need to be fearful when others are greedy and you need to be greedy when others are fearful. So don’t go by the market trend or the hot pick of the month. Think like a contrarian and follow value investing.

  8.  Saving tax is the only objective for me to Invest

Which group you are in? There is a group of people who invest just to save taxes. They will not bother to invest anything more than that. They will meet their objective of saving tax. There is another group which invests to save tax as well as to save for their other life goals like retirement, children’s future. They will meet the objective of saving tax and achieving other life goals. Kindly check you belong to which group.

You can be an assured successful investor if you could avoid these investment myths.

 

Is your portfolio like a cricket team with only batsman?

            Is your portfolio like a cricket team with only batsman?

            

                  UNDERSTANDING ASSET ALLOCATION

When the cricket selection committee met to select the team for the next match, they were in dilemma. Question that was going on the mind of each and every selector was what should be the composition of the team. How many batsmen, bowlers, and fielders should be included in the team? In the previous match batsman had played a pivotal role in winning the match. Therefore this time it made sense to have all 11 batsmen. Going by past performance and outcome of the match, that was the best option. In the next match team lost miserably. After winning the toss opposite team decided to bat first. Since team consisted of only batsmen, they could not bowl out the opposite team. Eventually the team lost the match.

In the next match, realizing the importance of bowlers, selection committee selected 11 bowlers. This decision also went against the team.

An ideal cricket team consists of batsmen, bowlers and players who are excellent fielders. Selection committee as well as captain may tweak the composition little bit here and there based on local circumstances like weather condition, type of pitch and strength of opposite team but there are never drastic changes.

Similarly our portfolio should never consist of only equity, only debt or only gold. A balanced portfolio is one which has combination of all three debt, equity and gold. Proportion of equity, gold, and debt should be decided based on our financial goals. Financial goals are our future financial responsibilities and dreams which will require funding.

For all those financial goals which are likely to occur within next 2/3 years choose debt as an asset class. For goals which are beyond 7/9 years choose equity as an asset class. For goals which are likely to occur between 3/7 years make combination of debt and equity. Apart from this gold should be part of everyone’s portfolio. At any given point in time, individuals/families will be saving for several financial goals. Firstly for each goal, choose an asset class as recommended above. Since we have multiple responsibilities and dreams, we will have overall portfolio consisting of debt, equity and gold.

In most cases our financial goals are not explicitly defined. Therefore instead of aligning our portfolio to our financial goals, we end up aligning our portfolio to market situations of recent past. If in recent past equity market would have performed well we would chase equity. If interest rates are on rise, we will run after fixed deposit or if there was rally in gold we will invest in gold. It is like choosing a cricket team based on situation of previous match. If past match was won due to large score, selectors choosing only batsmen in team and if past match was won because of bowlers, selection committee choosing only bowlers in the team.
While investing it is a well known fact that ‘winner’s rotate.’ Good performers of previous times may not necessarily remain best performers. Therefore making a portfolio based on past performance is like choosing a cricket team based on result of previous match.

Another well known fact is that ‘if part of our portfolio is not giving negative return, we are not diversified enough.’ It is like a cricket match, in each match some players will be super performers and some will play supporting role. The super performer will keep changing and hence it is important to have a balanced team. Similarly in long term wealth creation it is important to have a balanced portfolio

IS YOUR BANK FIXED DEPOSIT CHEATING YOU??

IS YOUR BANK FIXED DEPOSIT CHEATING YOU??

IS THERE AN ALTERNATIVE TO A BANK FD 

                                                            FOR SAFE INVESTMENTS?

Nobody likes to lose money. The most common refrain that we hear as a Financial Planner is – “I may not make much money, but I don’t want to lose any ever!” Why not - after all it is your hard-earned money, why lose even a bit of it? But then that person puts the very same money in a Fixed Deposit (generally of a bank, sometimes in a Company) for a few years, without realizing that he has done exactly what he wanted to avoid!!

Let’s give it a closer look. Let’s say you have Rs 5 Lakhs which you want to invest in a safe place for 3 years. Let’s also say that your bank offers you a good 9.5% per annum (pa) rate of interest. You go ahead with the FD and expect the interest of Rs 1,42,500 three years later at 9.5% per year. But, when your FD matures, your bank deducts 10% TDS (Tax Deduction at Source) and when you file the Income Tax Return at the end of the Financial Year, the balance 20% tax also needs to be paid (assuming you are in 30% tax bracket). Thus, you actually get Rs 98,470 as the interest – amounting to just 6.56% per annum! Not only bank FDs, Post Office and Company FDs are also similarly treated tax-wise.

Can you do anything about it? If I were to tell you about an investment avenue which is almost as safe, gives you much better returns, is tax-efficient, may or may not have any lock-in period and you can keep adding or taking out money from it as you desire, what would you say?    ‘Wow’!

 we are referring to debt Mutual Funds (MFs) here. You may be surprised. Aren’t MFs supposed to invest in stocks only? Not at all.

The debt route in MFs

Debt mutual funds are like equity mutual funds. But instead of stocks, they invest in government bonds, corporate bonds, certificates of deposit generally of banks, commercial papers of companies and other fixed income instruments of varying maturities.

They have lower risk than equity mutual funds; as a result they have lower returns too, but that is offset by the high safety that they provide to investors. Even though debt funds invest in fixed income instruments, the returns from debt funds are not fixed as in a bank FDs but vary as per the general interest rates prevalent in the economy. However, investing in debt funds like Income Funds which have longer maturity papers and the FMPs (Fixed Maturity Products) of long durations (1 to 3 years) give you interest rate protection over long periods.

Having seen the safety aspect of Debt MFs to be similar to bank FDs, let us go back to the original topic – how are they better than bank FDs. It is so due to their lower taxation rates as also Indexation benefits; latter - if held for a period longer than one year. In case of Debt MFs, if the fund is held for less than a year, then its taxation on the interest (called Capital Gains in case of MFs) will be the same as a bank FD though rate of interest earned may be slightly higher along with the attendant advantage of the flexibility to take out your money any time. If the fund is held for a period longer than one year, the maximum tax rate applicable on the Capital Gain will be 10% if no indexation benefits are taken. If indexation is applied, it is 20% but your tax is reduced depending on the rate of inflation in the economy and there is likelihood that you may pay no tax at all!

Options in Debt MFs

Debt funds have a fairly wide range of schemes offering something for all types of investors. Liquid funds, Liquid plus funds, Short term income funds, GILT funds, income funds and hybrid funds are some of the more popular categories. For long term investors, debt income funds provide the best opportunity to gain from interest rate movements. There is also the short term plans for investors looking to invest for periods of 1-2 years. Liquid funds can be used for very short term surpluses, as a better alternative to surplus money lying in savings bank account. Fixed maturity plans (FMPs) have been gaining in popularity lately as they minimize the interest rate risk and offer good returns to debt investors. Those emphasizing shorter term securities and higher credit quality tend to be more conservative than ones offering longer maturities and lower credit quality. More conservative funds generally hold out the prospect of reasonable returns and low risk exposure, while aggressive funds seek to offer higher returns in return for accepting higher risk exposure. As the relative risk profile of such securities is higher, investors in such bonds expect higher income streams compared to higher-rated bonds.

Summarizing on Debt Mutual Funds

In the investment world, it is not an either/or scenario between debt and equity. Basic principle of sound investing postulates a diversified portfolio. Though debt funds often may just be the difference between being able to retain the profits and losing it all in the next round of volatility, the main advantage of debt funds is relatively lower risk and steady income in addition to liquidity of investments, professional fund management expertise at low costs besides diversification of portfolio to have a balanced risk return profile. Debt funds also tend to perform better in periods of economic slowdown. We believe that debt should be looked upon as an effective hedge against equity market volatility, which lends stability in terms of value and income to a portfolio. Some hybrid debt schemes take exposure in equities allowing investors to participate in the stock markets as well. As with any mutual fund, investors should look at factors such as Performance track record over interest rate cycles, transparency and investment style consistency, before investing in a debt fund.

Understanding Color Coding In MF

For most of Invesator , Choosing the Right Mutual Fund Can be Confusing, given the various categouries and obscure nomenclature.

All you wanted to know about colour coding 

 

SEBI has asked AMCs to colour code all their existing as well as new schemes from July 1, 2013. Let us clearly understand the concept of colour coding.

What is product labeling or colour coding in mutual funds?

As the name suggests, colour coding depicts the level of risk involved in mutual funds.SEBI has introduced it in the MF industry in an effort to check mis-selling.

On which parameters is colour coding based?

Colour coding is mainly based on two parameters - nature and investment objective of the mutual funds scheme. The nature of scheme defines the time frame of the fund i.e. short, medium or long term scheme while the investment objective indicates the kind of product i.e. equity or debt.

Which do the colour codes depict?

SEBI has mandated three colours - blue, yellow and brown.

Ø Blue colour indicates that the principal of investment is at low risk.

(Category Will include Debt Funds Such as Incoem Fund, Gilt Fund, Dynamic Bond Fund , Fixed maturity Plan Etc.)

Ø Yellow suggests your investment is at medium risk (Moderate Level Of Risk)

( This Category include Hybride Product such as Monthly Income Plan, Balamnce Fund as Well As Multi Asset Fund.)

Ø while brown indicates that your principal investment is at high risk.

(This Category include All Diversiifed Equity Fund, Index Fund 7 Sectorial Funds)

However, colour coding is just an indication of risk level. SEBI is not giving any kind of recommendations to the investors for investments – it is not suggesting that blue colour investments are worthy of investments because it is low risk.

When it will be implemented?

The proposed regulation will be applicable with effect from July 1, 2013. However, AMCs can adopt the regulation before the effective date. All the mutual funds houses have been instructed to label their new as well as existing products as per colour coding guidelines.

What is the purpose of colour coding?

Colour coding enables investors to better understand the risk associated with the product. Now, investors are expected to be better aware of the risk involved in their investments.

How will colour coding be placed in advertisements and information?

SEBI has mandated that the colour coding must be depicted on the front page of initial offering application forms, KIM, SID and common application form. In advertisements, AMC are required to place the colour coding in such a manner that it could be prominently visible to the viewers.

Vcare Investment Services Pvt ltd

201 Sai Sadan, 76/78 Modi Street, 

Fort, Mumbai 400001

022- 66548814/15

www.vcareinvests.com

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Nomination

            

          Nominations- A must after buying a financial instrument!

In case of the unfortunate demise of a family member apart from the emotional loss, the most unfortunate thing that can happen is not being able to claim funds which belong to the deceased. A nomination ensures that the investments are passed on to the nominee. A nominee is the person who legally receives funds as a “trustee”.

In India the concept of nominee is not clearly understood by the people, they assume that a nominee is a person who receives the money and keeps it with himself. However the law of nomination is otherwise. A nominee is a trustee who is handed over the fund for the benefit of the legal heirs of the deceased. When a nomination is not made it gets too difficult for the legal heirs to claim it as they need to produce the Grant of Probate or Letters of Administration or Distribution Order. Thus we at Vcare Investment suggest that everyone should get their nominations done NOW!

How do Nominations work in Various Instruments?

Savings Bank Account: When one opens a bank account a special nomination form is given. The a/c holder needs to fill the form completely and all the copies and original form needs to be signed. There can be only one nominee for each account and the signing needs to be witnessed. In case of demise of the account holder the nominee needs to approach the bank with all the required documents i.e. claim form, death certificate, proof & customer copy of Nomination. If the legal heirs want to lodge a complaint it would be against the nominee and not the bank as bank has paid the money as per the terms of the nominations filed with them.

Mutual Funds: The Mutual Funds Regulations of SEBI allow nominations for their unit holders. This is beneficial as many people invest through mutual funds. The Asset management company ( AMC’s)provides a nomination facility for their unit holders in case of any sudden demise of the unit holder. Multiple nominations can also be done in Mutual funds. A non-resident Indian can be a nominee, subject to the SEBI rules & regulations. In case of death the units in the name of the unit holder will be transferred in the name of the nominee.

Shares: Every shareholder can nominate a person to whom the shares will be held by in the event of the shareholder’s death. However in case of shares the rule of nomination at the time of claim is little different. If the shares are jointly held, then the ownership of the shares goes to the surviving holders. The nominee is nowhere in the picture. In case of single holding, the nominee is superior to legal heirs and also to whatever one writes in their will. In case of death the shares are transferred in the name of the nominee and become entitled to all the rights attached.  Regardless of what is stated in a privately executed will, a company would have to deal with the nominee as a person implementing the rights of the deceased shareholder.

Fixed Deposit: Since most of us have a fixed deposit account it is very essential to have a nominee for the same so that the heirs don’t face any trouble to claim them incase of death of the holder. If the fixed deposit is held jointly, then all the account holders need to give a nomination. The documents need to be signed by all account holders to make it valid. The banks only consider registered nominees and not the legal heirs for claims.

Property: In case of property it is required to nominate so that if the owner dies it can be easily transferred to the nominated person. However nomination only provides the convenience of transferring the property from the name of the deceased to the nominee. The property can always be claimed by the heirs in accordance with the law of succession. A nomination is useful when there is no possibility of challenge or if there is only one beneficiary. Thus it is necessary for the owner of the property not only to nominate but also to have a will mentioning who the property should go to.

Life Insurance: A Life insurance policy holder has the right to nominate a person or persons who shall receive the insured amount in case of death. In fact a nomination is asked at the time of proposal itself. In case of demise, the nominee needs to submit the policy document along with Death certificate, etc. If death occurs within 3 years of commencement of policy, then it is known as early claim. In such case additional documents may be required such as medical reports prior to death, FIR if accident is involved, attendance report from employer, etc.

Thus whenever one decides to buy a financial product to invest their funds one should remember that it is equally important to have a nominee(s) for the same. Since financial products are bought for a future goals for your heirs, nomination makes it easy for them to receive it incase of one’s sudden demise. A nomination can however be changed as and when the owner wants during his life. To claim after the demise of the owner the nominee needs to produce all the legal documents as decided and asked by the bank, company etc.

Nomination is the simplest form of Estate Planning. It is also the first step in your succession planning. Along with nominations, do make a will also. This will ensure that the wealth created by you during your lifetime is passed on without hassles  to your family members!

Vcare Investment Services Pvt ltd

201 Sai Sadan, 76/78 Modi Street, 

Fort, Mumbai 400001

022- 66548814/15

www.vcareinvests.com

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Estate Planning

                        "Understanding Estate Planning"

For hassle-free transfer of wealth from one generation to another, it is essential that individuals focus on estate planning.

Family fights over the division of assets are often the subject of movie plots and soap operas. Such disputes are an increasing occurrence in the real world too.

In the last two decades, individuals have accumulated a lot of wealth and hold a number of assets, but they do not devote equal attention to estate planning.

For hassle-free transfer of wealth from one generation to another, it is essential that individuals focus on “ Estate Planning.”

What is Estate planning?

Estate planning is concerned with the distribution of your assets according to your wishes or preferences after your passing.

Nominate

The first and most simple step most of us can take to make sure our wealth is passed on is to nominate beneficiaries for all of our financial assets.

While buying insurance it is mandatory to fill in the nominee's name. In mutual funds too, the application form allows for nomination and investors must use it.

Even if you have not mentioned a nominee at the time of investing, you can do so later.

Write a will

The easiest and simplest form of transferring wealth to intended beneficiaries is by writing a will. The will takes effect upon the death of the testator (the person who wrote it).

Any person over the age of 18 and in sound mind can draft his own will. It is not mandatory that it should be written by a lawyer.

A will can be written on plain white paper in any style. According to the Hindu Succession Act, there is no formal style for writing a will. The succession of property may differ based on the religion and customs of the testator.

An individual can also register the will. In Tamil Nadu, it costs less than Rs 1,000 to register a will with the Registrar office. Registration prevents tampering of the will as a copy is preserved with the registrar.

What assets can you will?

All assets accumulated through your own earnings — property, jewellery, land, shares, deposits, cars and cash along with obligations and liabilities — can be passed on through a will. For inherited property, a Hindu can only distribute his share of assets to his legal heirs.

The person who is making a will should elaborately describe assets and identify them.

If it is immovable assets, it is better to mention the location and year of purchase. To avoid litigation in future, the testator should legibly affix his signature at the end of the document with date in the presence of the witness.

The will needs to be attested by two witnesses and it should be signed in the presence of the testator. If the will runs into pages, the testator needs to sign all the pages, whereas witness need sign only on the last page. The witness should know the contents of the will.

While writing a will, it should be remembered that a new will always supersedes an existing document.

Review

It is important for the testator to review the will periodically and particularly in the event of change in the family situation, such as birth, divorce, marriage and addition to the wealth.

Probate

A probate is official recognition of the original will. As per the Indian Succession Act 1925, in cities such as Chennai, Kolkata and Mumbai, it is mandatory to probate a will. In the case of financial assets, probate is necessary. However, finance companies and bankers say that in the case of deposits, proceeds may be paid to the nominee, he is legally responsible to assign benefits as per the will to beneficiaries.

Normally the nominee or the beneficiary applies to the court for grant of probate.

The time taken to complete the process may be anywhere between six months and three years.

On the demise of the investor, to effect the transmission of shares, units or other financial assets in favour of the nominee, the following documents will be required:

A letter from the nominee claimant to the Fund or Registrar requesting for transmission of units. A format of the letter is available at the Registrar and Mutual Fund web sites.

Death Certificate in original or a photocopy duly notarised or attested by a gazetted officer or a bank manager.

Bank account details of the new first unit holder i.e. the nominee along with attestation by the bank branch manager or a cancelled cheque bearing the account details and account holders name.

The procedure is much the same for shares held in the investor's name.

Vcare Investment Services Pvt ltd

201 Sai Sadan, 76/78 Modi Street, 

Fort, Mumbai 400001

022- 66548814/15

www.vcareinvests.com

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Understanding Debt Mutual Fund

                                                

                                             Understanding Debt Mutual Fund

Debt funds are funds that invest strictly in debt related securities. Unlike any other asset class like equity or Gold , debt securities are characterized by the mainly following  three factors

•           Maturity period of Debt Securities
•           Known coupon rate (known as interest rate)
•           Known maturity value  (Future Value)

Examples of Debt  instruments include, Commercial paper (CP’s),certificate of Deposits (CD’s) T Bills, Debentures, Debentures issued by Corporate, State Governments and Central Government, approved private deposits, Fixed deposits etc.

Why Debt Funds are better than Direct Debt Securities

·         It is less risky to invest into a debt fund than to invest directly into a debt security,

·         The investor of a bond or debt security gets the interest or the coupons directly, whereas an investor in a debt fund receives a Tax Free Dividend (After Deduction Of Dividend Distribution Tax) at the discretion of the fund house

·          

·         There can be times when you may not be able to sell a debt security in the debt market, or you may be able to sell only at a huge loss as there may not be anyone willing to buy.With debt funds, the fund house will always redeem ( Subject to Exit Load if any )your fund units at the declared NAV (. Except some Close Ended Funds and ,FMP’s, Consult Your Advisor Before Investing)

·         Debt funds are managed by professional fund managers whose job is to track and invest in the debt market. As an individual bond investor, one may not have the time and resources to track and invest appropriately

·         Bonds or debt securities have a maturity date but the debt funds do not have a maturity date. (Except Fixed Maturities Plan or Close Ended Debt Fund)

·         Investor  Enjoy Better Post Tax Return. Tax Benefit like Tax Free Dividends & Indexation benefit which is not available with Traditional Fixed Deposit

For Further assistance Feel Free To Contact Us 

Vcare Investment Services PVt ltd

201 Sai Sadan, 76/78 Modi Street, 

Fort, Mumbai 400001

022- 66548814/15

www.vcareinvests.com

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