My Idea of Financial Freedom!

Save more taxes – Invest in IFCI Infrastructure Bonds!

2010-08-21T20:50:00.002+05:30

I love to save Taxes and so do most people. And if you remember Finance Minister’s announcement in recent budget gave an opportunity to save taxes on additional Rs 20,000 by investing in Infrastructure bonds. In keeping with this IFCI has launched the first infrastructure bond recently. The subscription is open till 31st August 2010 and the interest rates are 7.85% to 7.95%,

But the question is should you invest in them?

I know for some this doesn’t matter as most people just invest hearing that you can save tax and this clearly shows in the number of junk life insurance policies sold every year just to save tax. But for all those savvy investors who plan their taxes and investments lets see how much returns you would get!

Here are some facts you might consider while calculating your returns;

1. You must realize the interest you would get every year on these bonds would be added to your income and taxed accordingly.

2. It has a locking period of minimum 5 years after which you can either sell it into secondary market or back to IFCI.

Now let’s do some calculations and I love this part

You are in highest tax bracket of 30.9% and have Rs 20000 to invest. Now you have two options

Option 1: You can pay 30.9% tax on Rs 20,000 and keep Rs 13820 and do what you want to do.

Option 2: You invest in the IFCI Infra bond and be invested for the locking period of 5 years. Here the initial investment is Rs 20000 but your opportunity cost is just Rs 13820 (as this is the amount you would have had if you choose not to invest in IFCI Infra bonds). So we would do all the further calculations on the opportunity cost.

Now here is how your cash flows would work out.

Investment today: Rs 13820 (In reality its Rs 20000 but the opportunity cost is Rs 13820)

Interest gained at end of Year 1: 7.85%*20000 = 1570

Post tax interest at the end of year 1: (1-30.9%)*1570 = Rs 1085

Similarly you would get Rs 1085 each at the end of Year 2, 3, 4 & 5. Also at the end of 5 years you can sell your bond at Rs 20000.

If you do a simple IRR function in Ms Excel you would get an Internal Rate of Return of 14.54% which means if you invest Rs 20000 today you would actually get return of 14.54% annually for next 5 years (taking tax saved in account).

Now if you do the same calculation for 10% and 20% tax bracket – your annual rate of return after tax would be 9.75% and 11.95% respectively, which by all standards seems to be decent when compared to other fixed income instruments.

Some significant points about investing in IFCI Infrastructure Bonds:

1. No TDS would be deducted in these bonds.

2. This would be listed on BSE and you can sell your bonds in secondary market at the end of 5 years

3. The bonds shall be compulsorily issued in Demat mode, so investors without demat shall not be eligible.

4. The maximum tax benefit you can get from this bond is Rs 20,000 under section 80CCF and this is in addition to the 1 Lac limit under 80C.

5. The minimum investment amount is Rs 5000

6. These bonds may be mortgaged or pledged to avail the loans after the lock in period.

Q&A Session:

Ques: This IFCI Infra Bond has 2 options - one with buyback which gives 7.85% interest while the other without buy back which gives 7.95% returns. Which option should I subscribe?

Ans: In case of buyback option IFCI is offering interest rate of 7.85% and after 5 years you have option to sell it back to IFCI while in the case of without buyback you get interest rate of 7.95% but you need to hold the same for 10 years. So if you calculate as in the case above your annual return on investment would be 14.54% in buyback option (provided you exit the bond at the end of 5 years) while 10.67% for non buyback option (if held for 10 years). The other thing is after 5 years you might exit in the secondary market by selling it in exchanges but I am not sure how liquid would the markets be for these bonds. So if you ask me what I am subscribing to - I would go for buyback option!

Ques: I don’t have Rs 20000 with me right now. Is this the only opportunity for investing in Infrastructure bonds or I would get some other options going forward?

Ans: Infrastructure Finance Companies like LIC, IDFC, IFCI and other NBFCs which are classified as Infrastructure Finance Companies by RBI are allowed to issue these long term infrastructure bonds. These bonds are good source of cheap finance for these companies. So going forward I think we would get more such bond offers. But be careful and look out on blogs and financial newspapers for these new subscription offers. Some newspaper reported that LIC would be coming out with Infrastructure bond pretty soon.
Also some reports suggest that in next few months you might get better interest rates.

Ques: I got an email asking about what should he choose Cumulative or non-cumulative option?
Ans: For cumulative option you get interest at the end of bond maturity and also this is true compounding i.e. you get interest on interest but in case of non cumulative you would get interest every year directly to your bank account. I would advise to go for cumulative option.

Final words:

To start with a pre tax return of 7.85% doesn't seem very attractive in these high inflation days but once you change your perspective and look through the opportunity cost window the return in the highest tax bracket turns out to be around 14.5% which seems to be excellent considering this is an assured return and almost risk free kind of tax saving investment. Also for 20% bracket the return turns out to be around 11.95% while 9.75% for people in 10% tax bracket which seems to be decent.

I suggest everyone in the higher tax bracket to subscribe to the Infrastructure bonds. You may subscribe to this IFCI bond or wait for other institutions to issue these kinds of bonds. But by the end of this financial year you must opt to save tax on additional Rs 20,000!

For details of the issue you can visit -

http://www.ifciltd.com/IFCIBonds/InfrastructureBonds/Issue201011/tabid/212/Default.aspx

Thanks to email Subscribers!

In the last 3 months www.finwinonline.com got more than 300 email subscriptions and it feels great concidering the blog is just 9 months old. Thanks to the readers and from now on I would try updating this blog more regularly.

The other thing is some people have provided their emails for subscription but not activated the acknowledgement mail. So you won't be able to receive the emails until you activate the subscription. For activating your subscription just look for email from FeedBurner Email Subscriptions with the subject "Activate your Email Subscription to: My Journey to Financial Freedom!"

How much time it takes to settle life insurance claim?

2010-05-02T12:31:00.000+05:30

In the last post I wrote about the Claim Settlement rate for Indian life insurance companies. This time I wanted to check how much time Life Insurance companies take to settle a claim!

Claim settlement time also becomes an important factor in choosing any life insurance as you don’t want your survivors to wait indefinitely or run pillar to post to claim the insurance money, but obviously I would place time taken to settlement of claim second to actual claim settlement ratio.

Below is the table showing the percentage claim settled in terms of number and value in 30 days, 60 days and so on.

The winner here is Reliance Life with more than 90% of claims settled within a month of claims made, which is awesome considering other companies. On the other hand LIC is able to settle only 60% of claims within a month which needs improvement.

The next thing I want to find out what part of the life insurance claims made and settled is due to actual loss of life and what part due to policy expiration. I am not able to find the same in IRDA Report. If any of the readers are aware of the same please share. For me it’s the claim settlement due to loss of life is what seems to be true claim settlement ratio.

Best Life Insurance provider in India – based on Claim Settlement Ratio

2010-04-17T09:06:00.003+05:30

Deciding which company to choose for Life Insurance has always been tough and with so many new entrants customers are spoiled for choice. It’s always a dilemma which factors to look at while choosing your life insurance provider – cost, convenience, past performance, claim settlement rate, etc.

I think the most important factor should be tension free claim settlement for your loved ones once you are not there. And in that case the recent Annual Report (2008-09) from IRDA shows LIC (Life Insurance Corporation) tops the chart. It has claim settlement rate of 95%, which is 5% higher than its nearest competitor Max New York Life with 90% settlement rate. But if you have a look at the premium rates for term plans here LIC generally has the highest rate.

So in all you can think of LIC as a costly but still the one with most hassle free settlement for your insurance.

The other thing I could see is Companies with higher number of settled claims have a bit lower claim settlement rate in terms of amount which means that low value claims are settled more easily than higher value claims which makes sense for companies. So the next question is should you have multiple small policies rather than one large value life insurance policy? Think about this – it would cost you more but probably have higher chances of getting claim paid!

I am publishing the chart which for 2008 – 09 which shows the Life Insurance claims filed in a year both in terms of number and amount and the percentage of claims settled, rejected and pending for each company. I hope this would help you to select the right insurance provider for you.

I am in process of going through the annual report of IRDA and would publish some interesting facts and figures about Indian Insurance providers in next few days.

Credits: Thanks to Pawan Shastry – my friend, classmate and reader of this blog for forwarding the IRDA Annual Report!

How to get 25 Lakh Life insurance for free?

2010-04-10T09:33:00.001+05:30

It’s not a trick question or a marketing gimmick! And if you have been a regular reader of this blog you know that nothing in this world is FREE! But then there are exceptions – always!

Imagine this – You are 28 year old healthy male and need an insurance of Rs 49 Lakhs for 25 years. So you opt to go for the cheapest term life insurance available – Aegon Religare – iTerm Plan. You need to pay annual premium of Rs 7497 for this plan.

So where’s the free 25 Lakhs insurance?

Well its very simple just check the annual premium rate for Aegon Religare – iTerm Plan for 74 Lakhs insurance and what do you see it’s available for Rs 7474 – around Rs 23 cheaper than 49 Lakhs insurance premium!

For a slightly lesser premium you get extra 25 Lakhs Life insurance isn’t it amazing.

Now picture this if you had opted for a 50 Lakhs insurance you would have paid Rs 5050 as annual premium while you pay Rs 7497 for 49 lakhs insurance in the same plan for same tenure. A savings of Rs 2447 per year and extra life insurance of 1 Lakh!

Here are some more results for a healthy 28 year old male.

Insured Amount - Premium Amount

10 Lakhs – Rs 1730

25 Lakhs – Rs 3825

33 Lakhs – Rs 5049

49 Lakhs – Rs 7497

50 Lakhs – Rs 5050

74 Lakhs – Rs 7474

93 Lakhs – Rs 9393

99 Lakhs – Rs 9999

1 Crore – Rs 9400

Did you notice now the premium rates for 50 Lakhs insurance is same as that of 33 Lakhs insurance? So initially if you were planning insurance of 33 Lakhs now you can buy 50 lakhs insurance at the same premium! So here you get 17 lakhs insurance for free!

You can notice similar discrepancies in premium rate being same for 1 crore and 93 Lakhs insurance!

I really don’t know what the pricing model for insurance premiums is but you might gain if you are a little careful and do some research!

Check your insurance premium at the Aegon Religare iTerm site here.

If you too had some similar experience with any financial product please share, it would help all the readers!

And thanks to Rahul, my friend and reader of this blog for pointing out the above.

Celebratre The Financial Plan Weekend!

2010-04-03T02:08:00.004+05:30

Its start of the new financial year and what could be better than an extended weekend! So how do you plan to spend this weekend?

A weekend getaway?

Just chill – the last month was too hectic anyway!

Or plan your new financial year investments!

I personally feel this is the right time to start planning about your finances including your investments, insurance, and taxes among other things for the new financial year. And what better time you would have than this extended weekend!

But First thing first

Lets see what has changed in this new financial year and how it affects us and then probably we need to change our plans for the year accordingly.

Higher Salaries – In India we generally have salary revision effective from April every year. So a lot of you might have got your hike or would come to know soon. And if one goes by media reports it seems this year you can expect a decent hike. Clubbed with lower taxes for the year you would have a good increase in disposable income.

Less Personal Income Tax – The good news is you need to pay less personal income tax than the last year which would lead to higher disposable income in your hands. You can download Excel based Tax calculator for FY 2010-11 here.

New Tax Saving Instrument introduced – This year in addition to 80C benefit of 1 Lac you can also invest additional Rs 20,000 in infrastructure bonds. The details of the same are not out yet but it might be attractive option for few of us.

Get more interest in your savings bank account – RBI has mandated banks to payout daily interest on savings bank account. Read the details here.

High Inflation – India is going through high inflation phase and the worst hit is the poor and the middle class. Imagine food inflation at 20%! Probably you would need to factor in more monthly expenses for this year.

Increasing Interest Rate – With inflation hitting the roof, RBI has started credit tightening process. This would for sure lead to increase in interest rates for all your loans.

Single Base Rate for banks - RBI has decided to curb the current practice of banks using different benchmark rates for different customers. From April 1, 2010 all banks will have to use a single base rate that will be the reference rate for all customers. Probably this would lead to better rates for customers and less fleecing by banks.

Other effects of budget – See what has become cheaper and what costlier due to the budget here.

What next?

Once you know these changes the first thing you need to calculate is what would be your monthly in-hand or disposable income. It’s much easier to calculate for salaried class as they have a constant cash flow throughout the year.

Calculate your monthly in-hand income – First factor in this year increment and then calculate your income tax on the same. This would give you your monthly inhand income. With new tax slabs I am sure you might have a higher inhand salary. You can use this excel sheet for tax calculation of FY 2010-11.

Add any other income – Are you the lucky one with other sources of variable income like rent from house or income form blogs? Check on the tax treatment for the same and see what net income you can expect from them. Now lower this net income by 20% for conservative estimates and to factor in events like vacant house for a few months or less clicks on your adsence.

Plan your expenses – Keep in mind the high inflation. Even on a conservative estimate, I expect more than 10% increase in your monthly expenses including rent as compared to same month last year. So factor it to avoid cash crunch in the later part of the year. Also don’t forget to include any planned big ticket expenses and some contingency funds.

Plan your EMIs – In case you are a borrower and have any of the loans like Home Loan, Auto Loan, Personal Loan or Education Loan, expect an upward revision of interest rates anytime in the year. This would lead to either increase in tenure of the loan or your monthly installment. If you can afford it’s always recommended to go with increased EMI than to extend your tenure as you pay more interest with higher tenure. If resources permit then a part prepayment can also be considered to keep the EMI & tenure constant. Calculate your EMI here.

Calculate your Savings – Now subtract all expenses from total income to calculate your savings.

Now the BIG question – What to do with these savings?

Answer: Invest!

But if you now ask me where?

I can just say – It depends!

There are various instruments you can use for your investments:

Stocks

Mutual Funds – Equity, Debt

Fixed Deposits

Tax Saving Instruments – ELSS, ULIPs, PPF, EPF, Pension Plans, NSC, etc

Company Debentures or bonds

Real Estate

and many more…

Now choosing and allocation among these depends on a lot of factors like your risk profile, your asset allocation, your goals and your personal preferences among other things. But whatever you want to invest in draw a plan for the same.

Here I would take example of Mutual Fund Investment. So you have decided to put x% of your money in Equity Mutual Funds.

The next steps would be to select what equity funds to invest into (with several hundred funds it’s not an easy task).

I hope and suggest you to go for SIP – so you need to choose your date and amount for each fund.

Select the channel which you are comfortable investing.

Keep revisiting your funds every quarter or six months.

You would need to do all these things for the instruments you select for your investment. And I would try and cover these topics in my future posts.

Final Words

At the end of it whatever budget and plans you draw, make sure you put it in written format or it’s very easy to overlook and forget these!

I really didn’t want to be spoilsport for your financial year’s first weekend plan but then getaways can wait but your Financial Plan cannot!

Spread the word – email it to your friends or put this link - http://www.finwinonline.com/2010/04/celebratre-financial-plan-weekend.html in your chat status message!

How is my blog doing? (March 2010)

2010-04-02T09:04:00.001+05:30

Thank you readers for visiting, referring and commenting on this blog! “My idea of Financial Freedom” is now 5 month old and has registered about 8,000 page views this month (March 2010). Interacting with you has indeed been a wonderful and enriching experience.

Here are some of significant events of March 2010:

Got an offer from Sahara Samay to appear in their TV show “Budget Guru” and speak about ELSS. Read the details here.

Received a lot of friends request on my Linkedin profile. It’s great but if you want to connect because of my blog but please mention so in the request. I would be happy to connect and know you better.

Now continuing with the regular features of this post:

Six most Read articles in March 2010:

1. ICICI Pru ACE – Best ULIP in the market?

2. Which Tax Saving Fund / ELSS Fund to invest?

3. Demat Account – Which is the Best?

4. Which is the Best day for SIP in Mutual Fund?

5. Can ULIP beat Mutual Funds in Return?

6. How to invest in Mutual Funds – step by step guide!

If you missed any of the above posts, it may be good idea to go ahead and read it.

March 2010 statistics:

There has been significant growth in terms of page views, visitors, etc as compared to February 2010. (Figures in Bracket show % rise from last month)

Page views: 7988 (76%)

Visitors: 3341 (83%)

New Visitors: 2130 (111%)

Page Views per Visit: 2.39 (-4%)

Bounce Rate: 57.08%

The growth rate of more than 75% seems to be quite satisfying and encouraging for me. A worrying thing probably seems the Bounce Rate and I need to figure out how I can retain visitors.

Traffic Source:

This gives an overall breakup of my traffic sources:

Direct Traffic 24%

Referring Sites 23%

Search Engines 53%

The search engines have started dominating my traffic source which I think is a great thing. Usually search engine traffic has higher conversion rate on adsence than regular traffic. These days I am getting 60-100 search traffic daily.

Indiblogger: My indiblogger rank has improved to 73 from 71 last month

Alexa: figures around top 1.5 million sites in the world and around top 1.7 Lac in India

Revenues

Well I believe my blog is too new to generate any revenues. But still I am running some advertisements to see how it goes. It’s mainly for my learning purpose.

Infolinks: These are the green colored double underlined texts you see in my blog. If you hold your mouse on these texts a bubble pops up to display an ad. I don’t think it’s a high revenue generator but then it can run with any other advertisement. It takes around a second for the ad to load and I guess visitors are not very patient to see what ad is loading and then click on it. In March 2010 I made $ 4.17, around 100% more than last month!

Shoogloo Network: I had also joined this affiliate program where you can choose your advertisement display. This has a lot of choices for Indian traffic right from shopping portals like Indiatimes to travel portals like yatra.com and financial service providers like Citibank. I made around Rs 300 last month (March 2010). The affiliates in this program are generally linked to getting a lead or as commission of actual sales made, unlike adsence pay per click. So it may be a good revenue generator for sites with high traffic and trustworthy content.

Chitika: I had signed with chitika in February 2010 but it doesn't seem to work for this blog. I have hardly made anything from them till date. Let me know if you use Chitika and how is it doing for you?

New Features added to blog:

I have added the following new features to my blog:

Email Subscription – Now you can directly get posts of this blog in your inbox. Subscribe here.

Feed Subscription – A more prominent button on the top right of the page. It seems to have worked as I am getting a lot of feed subscriptions from last few days.

3 columns template – I just made my blog from 2 columns to a 3 columns template. This I feel is more professional and gives more space for all the widgets. Your feedback would be appreciated on the same.

Still to come

Navigation Bar – I am still looking to make the navigation bar more appealing and convenient.

Google Adsence – I am planning to get google adsence by May 2010 when my blog is more than 6 months old to avoid any rejections from google.

I hope I would be able to cross 10,000 pageviews by April 2010 and then I plan to go for a professional make over of this blog. So if you do provide such service or could refer someone it would be great.

To conclude, I am satisfied with the progress of my blog and I hope going forward I would be able to fulfill my readers’ expectations in a better way. I would like to thank my readers and my friends again for all the suggestions and feedbacks they gave to make www.finwinonline.com a better experience and request you to continue your support.

Opportunity for readers of www.finwinonline.com to go live on TV!

2010-03-30T12:16:00.003+05:30

I got this mail from Sahara Samay.

This mail is regarding a business show that we are doing for Sahara Samay News channel, called Budget Guru. It is a show where through real life case studies we set examples for people to do smart investments and grow money. I just went through your blog and wanted to ask if you would be interested in coming on our show and speak on ELSS? We have already shot with 10 candidates on different topics like mutual funds, futures market, etc. We will be starting with our third schedule soon and wanted to meet you regarding the same. Our show is an anchor based show and our anchor is Cyrus Sahukar (MTV Fame).

Please do get back to me asap. Waiting for your reply.

Now the problem is I am in Delhi while the shoot takes place in Mumbai. So I won’t be able to go for it. Here is an opportunity for the readers to go live on TV. Just mail me back with your brief profile if you would like to go for the show. I would forward the same to the concerned person in Sahara Samay and then she can take forward from there.

You should meet the following criteria:

1. Should have good investment in ELSS.

2. Invested in ELSS for long

3. Should be able to speak about ELSS and answer questions on the same.

4. Should be residing in Mumbai or willing to travel to Mumbai as required by the channel

My email id: (Removing my id to prevent any further mails)

Put subject as: Sahara Samay

Deadline: March 31, 2010

And please don’t spam!

Update: Thanks to the readers who responded I have forwarded your profile to the concerned person in Sahara. But I really wished we had some more respondents. I am sure a lot more people want to make their appearance on TV shows (the reality shows are a proof to the same) but probably the ELSS thing limited the respondents.

So visit my blog more often and keep yourself updated on these personal finance know-how’s. U never knows what’s waiting next!

Disclaimer: I don’t have any role in selection of the candidate. I would just forward your profile and contact details to Sahara Samay. Its on them to take it forward.

Want “Cheap & Best” Life Insurance Policies – Go Online!

2010-03-29T12:39:00.000+05:30

Insurance companies have always been on the wrong side when it comes to their distribution/ sales channel and expense management. They have often been an eyesore for the exorbitant commission that they reward to distributors and sellers of the policies, which in turn also lead to lot of miss-selling. But now things are changing bit by bit - More and more life insurance companies are aggressively looking to sell policies online in an effort to make their operations more cost effective and keep a check on expenses.

In order to encourage online sales, life insurance companies are offering various incentives to customers including policies at cheaper premium, easier and hassle-free buying procedures and instant verification. Some insurers have launched products to be sold exclusively through the online mode. This is a win – win situation for both the customers and the company.

Here is list of some incentives & exclusive online plans from different Life insurance companies:

Aegon Religare iTerm policy - Depending on the age, tenure and value of the policy, it is cheaper 7-40% cheaper than the next best term insurance. This policy is not available through the company's agents, and payment has to be made online on the company's website only. You can read the review here.

Bajaj Allianz offers its iGain Ulip policy exclusively online. This policy has lower charges than comparable policies from its own stable. I found that for gross yield of 10% the Net yield for iGain- II policy was around 8.53% as compared to 8.25% for other similar policies from Bajaj. This comparison was for 28 years male, 30 year term, Rs. 50,000 premium & 30X multiplier insurance.

HDFC Standard Life offers online purchase for three of its plans, and offers the benefit of lower charges and bonuses for customers buying online. The plans from HDFC stable are:

Young Star Super Suvidha

Pension Super

Endowment Super Suvidha

If you buy online, there is a special discount of 40 % on 1st and 2nd year premium allocation charges allowing a larger part of premiums to be invested. These also pay back the first year annualized premium through a Bumper Addition. For policies with a term of 11 years and more you get your entire annual premium base and for policies with a term of 10 years you get 50% of original annual premium as Bumper Additions.

ICICI Prudential Life Insurance and Reliance Life Insurance now offer the online purchase option for some of their insurance plans, though, unlike Aegon and HDFC Standard Life, these plans are available through their agent network as well.

There are four plans available from ICICI Pru Stable:

ICICI Pru ACE – This is till date the cheapest ULIP plan available in India. I had reviewed the same here.

ICICI pru Pure Protect

ICICI Pru Life Stage Pension Advantage

ICICI Pru Hospital Care Plan A

Reliance Life offers two plans for online purchase:

Life premier Basic Plan

Life Premier Term 10 Plan

I checked and saw these plans have a better net yield (around 0.25% on gross yield of 10%) than other similar plans from Reliance.

I have noticed that the plans available online have low Premium Allocation charges as compared to normal plans from the same Life Insurance company which in turn leads to more investment and higher returns.

Other than the life insurance companies, some of the top general insurance private firms like ICICI Lombard, Bajaj Allianz, Reliance General, Tata AIG (travel policy only), Cholamandalam (car policy only) and Royal Sundaram, etc. offer health, auto and travel insurance to be bought online. Even a PSU like Oriental Insurance offers its retail policies online.

Why should you go for Online Buying?

As you have seen in the above examples companies are actually offering incentives in terms of lower charges and higher bonuses. But other than these there are a lot more other advantages. A big benefit of buying policies online is that you can see the best rates on offer as the internet is a transparent mechanism and companies need to offer the best rates to ensure the consumer does not go away.

It empowers consumers to make decisions on their personal investments at their own pace without being pestered by someone. Instant access to tools and calculators on respective websites also assist to make a well researched decision regarding financial needs.

You can buy policies at any time during the day Also, most of these sites offer a 24/7 chat facility to enable you to clarify doubts. It enables easy payment. And last but not the least there is almost no miss-selling in this channel and also the privacy is guaranteed.

The Opportunities:

This is not to say that the online experience cannot be bettered. First, there are irritants such as some online buy pages do not working on browsers other than Internet Explorer. Second, some benefits that are available in the offline world are not available in the buy-online option due to fraud control requirements.

But such disadvantages are few and far and the immediate advantages are substantial enough for most consumers to go online. A good example would be those buying health insurance policies at the last minute (before March 31, 2010) for tax reasons. It is possible to instantly get the digital copy of the policy in your mailbox even in the evening of March 31.

The new online channel is not only beneficial for customers but has helped Insurance companies too in a big way:

There is no major advertising cost and so a lot of it can be passed on to end users.

Internet helps them reach to far flung areas where appointing an agent may be difficult

It’s obviously low cost for them too as no commission to agents is involved!

To conclude:

I feel the new online channel is the way forward and Insurance companies are able to offer a lot more value for its customers through this - For e.g. – both the cheapest Term Plan (Aegon Religare iTerm) and the Cheapest ULIP (ICICI Pru ACE) are available online. This would also help in curbing the biggest menace of the industry – miss-selling of insurance products to unsuspecting customers.

So next time you need to buy “Cheap & Best” insurance just be a bit net savvy and do a quick search – it would not only give you plans & options, that your neighborhood agent didn’t know but would also save you a few thousand rupees!

VIP (Value Averaging Investment Plan) – Better than the Best!

2010-03-28T11:42:00.000+05:30

If you are a regular investor in Mutual Funds or equities, you always wished that you could invest more when the market were low and invest less when the markets are high. But it’s a known fact that timing the market is impossible. So the next best thing for an investor is to invest regularly the SIP (Systematic Investment Plan) or Rupee (Dollar) cost averaging way. But is there something or some other way we can outperform the SIP or overcome some of its disadvantages?

I think I have an answer – invest the VIP (value Averaging Investment Plan) way.

What Does Value Averaging Mean?

It’s an investing strategy that works like SIP in terms of steady monthly contributions, but differs in its approach to the amount of each monthly contribution. In value averaging, the investor sets a target growth rate or amount on his or her asset base or portfolio each month, and then adjusts the next month's contribution according to the relative gain or shortfall made on the original asset base.

Does it sounds too alien; let me explain it by an example.

Suppose you want Rs 1,000 added to your equity mutual fund every month and you start with investing Rs 1,000. Now at the end of first month the value of your fund becomes Rs 1100. So now you need to invest only Rs 900 (1000-100) to make the investment worth Rs 2000. In the following month the value of investment reduces to Rs 1800 due to correction in the market, so you need to invest Rs 1200 (3000 - 1200) to make the amount to target amount of Rs 3000.

So what happens that you invest more when the prices fall and invest less when they rise. Like in the first month when the market rose you bought units with Rs 900 only while when the market corrected next month you invested Rs 1200. In other words, you buy more (units) when the prices are low and you end up investing less (buying less units) when the markets peak.

Value Averaging - Advantages

It invests more rupee amount when markets are lower and less when markets are higher.

As a discipline, it helps investor overcome emotions.

In most cases it generates higher returns than normal SIP which is based on rupee cost averaging technique.

It achieves lower cost of acquisition in most scenarios as compared to SIP.

The probability of achieving target value for a portfolio is much higher and hence ideal for financial planning.

Longer the investor horizon, higher the benefits.

Value Averaging - Challenges

The key disadvantage of the VIP is that the sum you invest each month will be highly unpredictable. A salaried individual whose income is constant may find it difficult to commit to a VIP knowing that the sums debited to his account may vary so widely. This may prompt him to commit to a low monthly investment. Therefore, investors who have the flexibility to overshoot their investment targets significantly can consider the VIP.

In long term and constantly falling markets the investment amount may increase much beyond the investor’s cash flow.

The second factor is that investing through a VIP is most effective when the market is not moving in one direction. If on starting the VIP the market is in a steady decline for many months, investors in a VIP would find themselves committing larger and larger sums to the equity fund, even while the investment loses value. Such a course may be difficult to stick to, as the absolute loss to the investor can be very high.

The third factor is in rising market it generates sell which may result in unwarranted short term taxation and transaction charges

Who offers the VIP?

Benchmark mutual fund is the only AMC offering VIP in S&P 500 Fund. Also there is FundsIndia where you can do VIP in different funds. You can read the same about the same here.

To Conclude:

Data suggests that the VIP delivers a higher return on an average as compared to a SIP. For investors looking for a more intelligent way of investing compared to the SIP that contributes a fixed amount every month, the VIP is an option worth considering.

Soon to come:

VIP – Do it yourself calculator.

How can you get rid of above challenges?

SIP vs VIP!

Keep watching this space!

NITIE beats IIM A at CNBC’s Lessons in Marketing Excellence initiative

2010-03-21T20:22:00.001+05:30

First of all Congrats to the winning team (Jitin Sharma, Abhijit Kamra and Jeeta Das from PGDIM – 2011, NITIE). As an alumnus you make me proud!

To the people who are not aware of the competition it was a Marketing Challange by CNBC & HUL with participation from best of the India's Business Schools - ISB Hyderabad, IIM Ahmedabad, IIM Bangalore, IIM Lucknow, IIM Calcutta, IIM Indore, IIM Kozhikode, NITIE Mumbai, XLRI Jamshedpur, SP Jain Mumbai, JBIMS Mumbai, FMS Delhi. You can know more about CNBC - LIME here.

And now the news:

MUMBAI: City based college National Institute of Industrial Engineering (NITIE) from Mumbai beat out the Indian Institute of Management (IIM), Ahmedabad to win the Lessons in Marketing Excellence initiative organized by CNBC TV18 and Hindustan Unilever Limited. The initiative which took place over several months gave the opportunity to B Schools to deal with real world issues.

The final challenge was to create a campaign for Unique Identification (UID) that is being spearheaded by Nandan Nilekhani of the Unique Identification Authority of India. Each Indian under the initiative will have a unique number and the two teams had to create a marketing campaign that would reach out to every Indian. NITIE noted that a community based social marketing imitative was the way forward. The thing to bear in mind is that different age groups have their limitations. Adults for instance do not like thumb impressions. So behavioral changing communication is key. Kids can be targeted using posters, stickers and cartoon strips.

For women the message would be that a UID would empower them. They would no longer just be influencers. To reach tribals the students advocated tying up with NGOs and health workers. Slum communication needs to involve the municipal corporations and a top down approach. It is also key to track word of mouth in general to dispel any rumours. The overarching theme of the campaign would be Mera Pehchaan Mera Vimaan. This time won on the basis of several parameters including clarity of thought and measurability of solution.

The judges were Hindustan Unilever executive firector, HPC Opal Vittal, HUL executive director, foods Shrijeet Mishra, . Rama Bijapurkar, an Author and thought leader on Market Strategy and Consumer Issues in India, Ad filmmaker turned director of Paa and Cheeni Kum, R. Balki and CNBC Awaaz editor Sanjay Pugalia.

The theme of the campaign that IIM Ahmedabad proposed was Pehchaan Ek Fayda Anekh. They noted that in rural areas child benefit is high on the list of parents’ priorities. This could be used to push UID. In urban areas one could do several things like celebrity campaigns, celebrity UID days. They also advocated an Each One Preach One initiative. This would involve having a rich person talk to somebody who is poor like a rickshaw driver and inform him of UID and its benefits. Interestingly the team also said that of they just had Rs. 100 to spend they would start with pamphlets.

Nilekhani expressed his appreciation of the effort that went in by both the teams. “We can use these suggestions. The UID will allow for better delivery of services and cerate equal opportunities.” Another expert noted that there was a disconnect between the campaigns presented and the actual reality of those living below the poverty line. Ad filmmaker Prahlad Kakkar felt that the programmes need to be more proactive. Television and posters may be enough to reach those who are below the poverty line which is around 240 million. Sam Balsara noted the enormity of the task that lies before Nilekhani. Many people are media dark. “It will be a task to reach people not exposed to media. Also the brand name is a key communication point. So UID needs to be re-branded as another name.” It was also suggested that mobile phones could be used as a marketing tool. So one cannot buy a mobile phone or a Sim card unless one has UID.

Source: http://www.indiantelevision.com/release/y2k10/mar/marrel45.php

Bajaj Allianz Shield Plus - Review - Who is laughing on whom!

2010-03-21T00:24:00.003+05:30

Have you the advertisement of Bajaj Shield Plus? It shows people in a bus making fun of a person investing his money in fixed deposits and then telling him advantages for Bajaj Shield above fixed deposits:

It gives a guaranteed return of 170%

It gives insurance

It gives tax benefit

And so it’s better than any fixed deposit

I just wonder who’s laughing on whom!

Now let’s do some myth busting

Tax benefit: You can get tax benefit in fixed deposits too and it has a locking period of 5 years. With present rate of 7.25% - 8% you would get a post tax return of 5.1% - 5.6% (in highest tax bracket) to 6.5% - 7.2% (10% tax bracket) depending on the tax slab you fall.

Insurance benefit: It has two multipliers for insurance. You can either get insurance of 1.1 times your premium or 5 times your premium. 1.1 times insurance cannot be considered an insurance cover and it’s totally an investment product. For 5 times insurance – I need not repeat myself that term insurance is far cheaper and 5X would hardly cover total life risk for anyone. Check out the term insurance rates here.

Guaranteed return of 170%: And this is the major selling point for this plan. But probably they forgot to convey (in the advertisement) that it was in 10 years. So it’s essentially is an annualized return of 5.45% (not great by any comparison).

But wait there is more to it. You forgot to account for the expenses that you would incur in the policy. With policy allocation charge (1%), fund management charge (1.35%) and mortality charge, the annualized return comes in the range of 3.5%. So your guaranteed return on your total policy premium has effectively reduced to 141% from 170%.

Your investment of Rs 50,000 in Bajaj Shield Plus would guarantee you Rs 70,000 (141%) at the end of ten years and not Rs 85,000 (170%) that you initially thought.

But this is the minimum returns guaranteed by Bajaj Allianz and with equity funds performing well the returns could be much more.

So the question now is if Shield plus is better than Fixed deposits?

If you do Fixed deposit today for Rs 50,000 @ 8% interest rate in HDFC Bank you would end up anywhere between Rs. 86,220 to Rs. 107,946 , depending on the tax bracket you belong to. This is around 23% to 54% more than the guaranteed return of Rs 70,000 in Bajaj Shield Plus. But then for Shield Plus with 0-50% allocation to Equity the return would hopefully be more than guaranteed sum. But how much is anyones guess!

Is there a better way to outperform the above fixed deposit returns?

You want to lock your money for 10 years. Generally for 10 years you can expect a much better return if you invest in equities. An expectation of 12% - 15% return per year would be a reasonable estimate. And then it would also be tax free (as per the present tax structure). But having said that it’s for aggressive investors and may not suit the conservative types.

Is there a plan for Conservative Investors then?

If you want to stay away from equities completely then you have two options.

Invest in PPF (Public Provident Fund) – this has interest rate of 8% and is tax free and also eligible for tax saving 80C investment. The caveat the max per year you can invest is Rs 70,000 only.

EPF (Employee Provident Fund) – This has going interest rate of 8.5% but can only be availed by salaried employees. So you can increase your contribution and get a risk free return of 8.5%.

Both PPF & EPF are guaranteed by Indian Government and so is risk free. The rates for both are determined by the government and notified every year in advance. Since this is politically sensitive; the rates are among the best you can get for risk free debt instruments.

I am moderate risk taker; can you suggest something for me?

Yes, you can have a mix of debt & equity. This is how the math would work for you. I assume that you want guaranteed returns at par with Bajaj shield plus. So for investment of Rs 50,000 you want at least Rs 70,000 at the end of ten years.

Invest in PPF

For getting Rs. 70,000 at the end of 10 years @ 8% per annum you need to invest Rs 32,500 today. So after investment in PPF you are left with Rs. 17,500.

Invest the remaining amount in ETF / Diversified Mutual Fund:

Now you can invest the Rs 17,500 in any Mutual Fund and can expect an annual return in the range of 12 – 15% per annum for 10 years.

Total Returns:

So taking both PPF + MF returns you would get returns anywhere in the range of 9.5% to 11% per annum.

To conclude:

For an investment of Rs 50,000 here is the return you can expect from different alternatives above:

Guaranteed Return Extra Return

Bajaj Shield Plus 70,000 0 - 50% in equities

Fixed Deposit 86220 - 107946

PPF 107,946

EPF 113,049

PPF + Equities 70,000 35 - 50% in equities

Higher equities exposure has greater chances of better returns. So with my PPF + Equities strategy I expect to outperform Bajaj Shield Plus with a good margin.

Depending on your risk profile and your understanding you can decide what suits you best. But if I were to choose I would choose PPF + Equities for someone who wanted to invest in Bajaj Shield Plus but after reading this has changed his mind!

And by not opting for Bajaj Shield Plus probably its you who would have the last laugh!

Mutual Funds got a little better for small investors!

2010-03-19T21:21:00.000+05:30

The good news is SEBI the regulatory body for Mutual Funds has been very active for last few months and this has favored small Mutual Fund investors most of the time. A few days back it passed on a notification which essentially has five major changes. Let’s see how each one of it affect the retail investors:

Asba, for Mutual Fund NFOs (New Fund Offer)

Change: Money would be debited from your account only after the NFO closes.

Benefit: You continue to earn interest on the same. Remember the savings account would now get interest on daily basis from 1st April 2010. Read the details here

NFO Period reduced

Change: Period of all NFOs have been reduced to 15 days. ELSS NFOs would still be allowed 90 days as before. Allotment period for NFOs have also been reduced to five days from 30 days earlier.

Benefit: Now you have not to wait for ages to get your allotment

Experts take: Some experts’ feel that five days is too small a period for Mutual Funds to collect cheque, deposit them and allot the units for far flung areas. It may be operational and logistical challenge.

Dividends payout only from realized gains

Change: fewer dividends for investors

Benefit: No marketing gimmicks by MFs by declaring fake dividends which was nothing but a form of returning investors money after deducting their expenses.

Make corporate governance in invested companies stronger by playing an active role

Change: Represent the small investors’ interest in the invested companies. Sebi has now made it mandatory for funds to disclose whether they voted for or against moves (suggested by companies in which they have invested) such as mergers, demergers, corporate governance issues, appointment and removal of directors.

Benefit: Remember Matyas & Stayam scandle last year. It was the active fund managers which helped lakhs of investors being cheated. Going forward a more active role in would lead to better corporate governance.

No revenue sharing arrangements for fund of funds (FoFs) investing abroad

Change: Life just got tougher for fund of funds (FoFs) that invest their entire corpus in international funds. Typically, FoFs charge a maximum of 0.75% per annum. Out of this, the MF pays agent commission and incurs costs on running the scheme and keeps what is left, which fund houses claim is a pittance. To compensate, FoFs enter into a revenue sharing agreement with international funds in which they invest. The international fund pays a small portion, typically 50-80 basis points, to the Indian FoF, which would then retain this amount as its income. Sebi has now put a stop to this revenue sharing agreement.

You can read the detail explanation of each point in Mint here.

Best ELSS (Tax Saving) Mutual Fund for 2010 - 2

2010-03-13T10:36:00.000+05:30

If you are the one who’s still to invest for your tax saving this year or would like to start SIP for next finacial year, you got a few more Tax saving fund (ELSS) options. A few months back I posted the list of “Best ELSS to invest for FY 2009-10”. You can read the complete details of how I selected these funds by clicking here.

In this post I would like to add two more funds to the list of 5 ELSS funds selected previously.

Religare Tax Plan

DSPBR Tax Saver

Here is a brief review of both the funds:

Religare Tax Plan

Religare Tax Plan is a relatively new kid on the block, having just completed three years; we feel it has a good future. With a corpus of just over Rs100 crore and fund manager Vetri Subramaniam’s good track record, the fund did well in both the falling markets of 2008 and rising markets of 2009, despite having around 56% investments in mid- and small-sized companies.

The fund in the 3 month & above period has consistently outperformed its benchmark index S&P CNX Nifty, registering an annualised return of 20.53% in the last 3 years while in the stated period Nifty has given 12.47% return.

If the fund manager plays his cards well, the fund is set for a good run ahead. If you must invest in Religare, we suggest minimal exposure due to the presence of other long-term funds. But do keep it on your watch list.

DSPBR Tax Saver

DSPBR Tax has a fund corpus of around Rs 750 crore and has done well in last three years of its existence. The fund in the 3 month & above period has consistently given an above average performance as compared to its peer group and has also outperformed its benchmark index (S&P CNX 500 Equity Index) in the stated period, registering an annualized return of 18.59% in the last 3 years while its benchmark could register a growth of 12.47%.

DSPBR follows a flexi-cap investment strategy — it invests in large- and mid- and even small-cap stocks, depending on the market fancy. Banking sector, a favored sector in the past rallies, does figure as the top sector even in the recent portfolio. Its Top 5 sector picks constitute both growth-oriented and defensive sectors.

The churning of stocks too is quite aggressive, with turnover ration of around 200% which may subject the fund to volatility in returns.

The other thing is DSP BR still doesn’t offer Online Investment Platform for investor which is a bit surprising and inconvenient.

For list of top ELSS funds for 2010 click here.

Can ULIP beat Mutual Funds in returns?

2010-03-10T09:18:00.004+05:30

Strange Question!

If you guessed No for the above question, you are not wrong most of the times. But then things change with time. And so do some answers.

Refer to my earlier post about ICICI Prudential Ace ULIP and probably you may know what I am talking about. Yes this is the latest launch from ICICI prudential and it has potential to beat equity mutual fund/ Tax Saving (ELSS) return in the long run.

My method of comparison

Comparing ULIP with Mutual Fund is like comparing oranges & apples, but then agents here are selling both of them as fruits (or investment opportunities).

For my comparison there are a few things that need to be understood.

First – ULIPs as a product provide both insurance & investment. The returns of ULIPs are based on the underlying fund you invest in – which may be a diversified, sectoral, index, balanced or debt fund.

The second assumption is the underlying fund in ULIPs can give a gross return as good as its respective Mutual Fund. So the only thing that would differentiate your returns is the respective expenses.

So for my comparison I would take any Tax saving Mutual Fund (ELSS) and assumes that for ICICI Ace – I would have chosen its Multi Cap Growth Fund. Both of these would invest 80-100% in equity and 0-20% in debt. So I assume that the gross returns from both the funds would be same.

The reason for comparing ULIP with ELSS is because most of the investment in ULIP is done for tax saving.

Investment made: Rs 30,000 per annum

Age: 28 years

Tenure of Policy: 30 Years

ICICI Multi Cap Growth Fund FMC: 1.35%

ELSS FMC: 2%

Service Tax on FMC: 10.3%

*FMC - Fund Management Charges

Assuming gross yield of both the funds @ 10%, this is how the mathematics works out.

If you are reading in feed the xls table may not be visible. Please visit the blog to see it.

We can assume the surrender value of ICICI Ace as its return in respective years. So we see that after 6 years Ace starts to outperform ELSS. And at the end of 30 years the Ace outperforms ULIP by 27% which is huge.

Some observations:

As the premium amount increases ULIP tends to further outperform ELSS because ULIP charges are fixed + Variable while for ELSS it’s always percentage of Fund value.

ELSS expense can vary from 1.5% to 2.5%, with majority of ELSS having expense of 2.5%. In the above case if we assume 2.5% expense for ELSS, by the end of 30 years ULIP returns are 42% more than ELSS.

You can change the Annual Premium, gross yield; Fund Management charges yourself in the above sheet and see how it affects the returns in different cases.

Conclusion:

To conclude if you want to remain invested for long term (more than 6 years) then investing in ICICI Ace may turn out to be a better option than investing in ELSS (Tax Saving) Mutual Fund. The additional benefit of 5 times life insurance on annual premium seems to be the icing on the cake. But like any other ULIP this may not be able to cover your life insurance. For that you should always look to Term Plans. Click here to see a comparison of Term Life Insurance Plans.

The only caveat here being that ICICI Ace funds don’t have a long track record, which means nothing can be said about the quality of fund management and the kind of returns the fund would generate.

ICICI Prudential Ace – Best ULIP in the market?

2010-03-08T10:19:00.003+05:30

Don’t you think Best investment & ULIPs are kind of oxymoron! I am sure you might have heard about several horror stories about investors being cheated by agents through ULIPs, and at the end of locking period the returns not even equal to the total investments made.

But thankfully things have changed and this time for better. IRDA, the insurance regulator in India had modified certain rules which essentially meant cutting expenses of ULIPs. And adhering to this ICICI Prudential Ace is a new launch from ICICI Prudential stable.

Features:

Type I Ulip - Death benefit is higher of sum assured or fund value

Minimum premium - Rs 18,000 p.a.

Term - 10 to 30 years

7 Fund Options, Four are equity-based

No premium allocation charge in any year

Rs 60 of policy administration charge each month

Fund Management Charges on equity funds of 1.35 per cent of fund value

What makes this plan the best?

The major problem of all the ULIPs launched till date is their expenses. There were plans when 80% of your first premium was charged as Premium Allocation Charge. And this was used to reward the agent handsomely and which in turn promoted more misinformation and miss selling.

What makes Ace different is that it has no Policy allocation charge, a big relief for investors. This in turn controls majority portion of expenses.

The other beneficial features of the plan are:

Loyalty Additions: At the end of every five policy years, starting from the 10th policy year, on payment of all premiums

Additional allocation of units: More than 100% allocation to funds on premium payment from the sixth policy year to the end of the policy term

Benefit Illustration:

Age: 28 years

Sum Assured: Rs 500,000

Premium Payment Term: Rs 10 years

Amount of Premium: Rs 100,000 / year

For Gross Yield of 10% - The net yield is: 8.94% for 10 Years policy term, 9.03% for 15 years & 9.05% for 30 years

For more details on how to read/understand benefit illustration table click here.

Probably you may not have realized but ICICI Prudential Ace net yields are higher than any equity Mutual Fund. The expense of the policy comes to around 1.05% to 0.95% while for Mutual Funds its generally 1.5% to 2.25%.

Click here to see how ICICI Ace can beat Mutual Fund in returns!

Returns of the underlying Fund:
The total return on ULIPs depends on two factors - Retun the underlying fund generates & the expenses. As far as expenses are concerned ICICI Ace beats all the present ULIPs. But since ACE funds doesn't have a long trackrecord nothing can be said about the return the fund would generate.

To conclude:

I think it’s a very low cost product and seeing this it seems there would be tough competition for Mutual Funds in future. With expenses of just 1%, this seems to be good investment product.

But as far as insurance is concerned you would get just 5 times of your annual premium which would be generally inadequate for most people. So top up your insurance requirement by buying any Term Insurance. (To see term insurance premiums click here)

The other thing is the surrender charges for the policy is 0 after 5 years but to get its complete benefit you should be invested for at least 10 years.

For more details & product brochure check ICIC Prudential site here.

Understanding Benefit Illustration & charges of ULIPs

2010-03-05T00:23:00.000+05:30

Insurance in itself is a complex product and ULIPs (Unit Linked Insurance Plans) make them even more complex. All the ULIPs are different with different features, different clauses and bonuses & expenses structure which at times is even difficult for an expert to comprehend.

Infact I remember seeing ULIP benefit illustration for the first time and I was not able to make anything out of it. So here is a post that would help all the naïve investors to see and understand the Benefit Illustration table for ULIPs.

Any Benefit Illustration has two tables – The first shows returns based on 10% gross yield while the second table shows returns based on 6% gross yield.

Here is a picture of Benefit Illustration Chart for LIC Wealth Plus Plan. You can have a look at the compete page on LIC's website by clicking here.

Net yield means returns after all expenses.

Does all Benefit Illustration have only 6% & 10% returns?

Yes, the insurance regulator has made it mandatory for agents to share the benefit illustration, assuming 6% and 10% growth, with policyholders. They cannot and should not alter this percentage return.

Also, with effect from 1st January 2010 the insurance regulator has capped the difference between gross and net yield based on term of ULIP. For ULIP with term less than 10 years the cap is at 3% while for ULIP with term of 10 or more years the cap is 2.25%.

Benefit Illustration Glossary and Charges

Policy Year – This shows the number of Policy years from start of your ULIP

Annualized Premium – This is the annual premium the policy holder needs to pay every year. You should check if you can alter the premium or if there are any losses if you skip any premium? Generally there are some bonus additions if you are regular with your premium.

Premium allocation charge (PAC) – It’s a front end cost and probably the one which worst effects the returns. It is generally stated as a percentage of annual premiums and changes over the term (though at times it may be a flat charge too). Initial years have more PAC than later years. You should find out what is the Premium allocation charge for any top up premiums you pay in future?

Amount Available for investment (out of premium) – This is the amount which would be invested and is equal to Annualized Premium minus Premium allocation charge.

Mortality Charge – This is the cost that you pay for your insurance cover. It would vary depending on policyholder's age, sum assured and policy term. For ULIPs which pay higher of sum assured or fund value on death, Mortality Charge falls with time while ULIP which pays both the sum assured and fund value, it remains constant.

Service tax – This is 10.3% tax that you pay to the government for services offered by ULIPs. It was levied on Premium allocation charge, Policy administration charge, Guarantee Charge, Mortality Charge, Rider Charges and Fund management charge but Finance Minister has given some relief here in Budget 2010. Now service tax would only be levied on Fund management charge. The illustrations still show the old service tax but it would soon be updated.

Policy Administration Charge – It can be fixed or variable (as % of fund value) and is deducted from the fund value each month as long as the policy runs.

Fund Management Charge – The most important charge of Ulips. Deducted as a percentage from the fund value. Impact grows over the years as the fund value rises. It could be as high as 2.5% in older plans but now has been capped at 1.35%

Guarantee Charge – This is charge you pay for getting a guaranteed return (For e.g. if a ULIP promises 170% after 10 years, you need to pay a guarantee charge for the same). It can vary depending on the kind of guarantee and also has not been capped by IRDA. This is usually 0.25% to 0.5%.

Addition to Fund (if any) / Bonus – ULIP is a long term product and to keep policy holders invested for long term, they generally have bonuses or other incentive structure built into them for e.g. You may get additions based on regular payment of Premium.

Fund before FMC – This is the underlying fund value before deduction of Fund management charges.

Fund at End – Fund value at year-end after deducting all the charges and taking growth into account.

Surrender value – Paid to policyholder when he exits the plan. The exit can be made any time, but the value is paid only after three years. In some Ulips, the surrender charge is expressed as a percentage of the first year’s premium, varying with the year of exit. With the new rule there would be no surrender charges after 5th year of policy.

Death Benefit – Nominee gets this on insured’s death. Type I ULIP pays either sum assured or fund value while Type II pays both. Choose a sum assured that optimizes protection and investment.

Other than above stated there can be additional charges under the following headers.

Rider charges - Riders are add-on policies that give additional insurance benefits apart from the base plan. The charges are generally low compared to the benefits added. Some of the popular riders are related to accident cover, disability cover, waiver of premium, and critical illness cover.

Switching charges - Switching is the shifting of our investment from one fund to another. This is done to preserve our profits or to protect our principle. During market highs or the beginning of a downturn a switch from equity oriented funds to debt oriented funds will protect the policy holder's profits. The funds can be switched back after the market falls or is in the recovery phase.

Similarly towards the maturity of the plan a gradual shifting of the funds can be done towards the debt funds to preserve capital.

Switching is a market timing activity and has to be done with knowledge and skills. It is advisable for a normal investor to seek the support of experts in using the switch option.

ULIPs generally offer a number of switches ranging from 4 to 12 for free in a year. Any switches above this will be charged.

Partial Withdrawal charges - ULIPs generally allow withdrawal from our funds after the stipulated 3 years. However there may be charges if there is request for more than one withdrawal in a year. Some plans may restrict the amount of withdrawal to a percentage of the available fund (say 20 per cent of the fund value).

To conclude:

I hope this post helps you in better understanding "the benefit illustration table" for ULIPs and hence make more informed decisions.

Save 1 Lac Income Tax by investing Rs. 90,000 - 2

2010-03-03T10:47:00.002+05:30

Yesterday I told you about how you can save income tax on 1 Lac by investing Rs 90,000 in SBI Magnum Taxgain (D). Today you can use the same strategy by investing in HDFC Taxsaver (D) on or before 4th March 2010.

The best thing about HDFC Taxsaver (D) is it is the only Tax saver (ELSS) Fund that has given consistent dividend continuously for last 5 years in the month of February/March. You can read details about the same here.

HDFC Taxsaver (D) too has declared 60% dividend i.e. Rs 6 per unit and the record date is 4th March 2010.

As this is a good ELSS Fund and I have also recommended it in my previous posts. So people looking for Dividend Payout or Reinvestment option can invest in the fund before 4th March.

The dividend yield as on 2nd March NAV of Rs. 61.221 is around 9.8%.

As I have written in my previous posts to get tax benefit of Rs 1 Lac You need to invest around Rs. 91,100 if you choose Dividend Reinvestment option and Rs. 100,000 (in which you get back Rs. 9,800 within a month) if you choose Dividend Payout option on or before 4th March 2010. (Click on links to see how you can save more by investing less by choosing different options). The calculations are based on NAV of 2nd March (Rs. 61.221). The markets are volatile these days and investment amount would increase (in Dividend Reinvestment Option) as the NAV goes up (since the dividend yield decreases with rising NAV) and vice versa.

You may also want to see "How to invest in Mutual Funds" if you are a first time investor or looking for different channels to invest.

HAPPY TAX SAVING!

Save 1 Lac Income Tax by investing Rs. 90,000

2010-03-02T23:43:00.000+05:30

It’s the last month for saving taxes for Financial year 2009-10 and also the season when most of ELSS (Tax Saving) Mutual Funds declare dividends. And if you are the one who have still not invested for tax savings, here is an opprtunity to invest less nad save more taxes. Read on to understand the complete strategy and how the news below would help you in the same.

SBI Magnum Taxgain (D) too has declared 40% dividend i.e. Rs 4 per unit and the record date is 5th March 2010.

As this is a good ELSS Fund and I have also recommended it in my previous posts. So people looking for Dividend Payout or Reinvestment option can invest in the fund before 5th March.

The dividend yield as on 2nd March NAV of Rs. 42.01 is around 9.5%.

As I have written in my previous posts to get tax benefit of Rs 1 Lac You need to invest around Rs. 91,500 if you choose Dividend Reinvestment option and Rs. 100,000 (in which you get back Rs. 9,500 within a month) if you choose Dividend Payout option on or before 5th March 2010. (Click on links to see how you can save more by investing less by choosing different options)). The calculations are based on NAV of 2nd March (Rs. 42.01). The markets are volatile these days and investment amount would increase (in Dividend Reinvestment Option) as the NAV goes up (since the dividend yield decreases with rising NAV) and vice versa.

You may also want to see "How to invest in Mutual Funds" if you are a first time investor or looking for different channels to invest.

HAPPY TAX SAVING!

How is your blog doing? (February 2010)

2010-03-02T13:39:00.000+05:30

When I visit blogs which have grown over time I am always curious to know when the blog started, how was its journey, how it grew through years, what’s its revenue potential and much more.

But I rarely find such posts in many blogs. So in order to answer my readers & friends curiosity, I had started reporting my monthly statistics for my blog from last month and plan to do it going forward every month.

This would serve the following three purposes:

First being it would let me and my readers know how is my blog progressing
Second it helps me look back, analyze and plan my blog ahead and
Third it would help any new blogger to know how is his blog doing by comparing to my blog

Top 5 most read pages - February 2010:

If you missed it may be you would go ahead and read it.

www.finwinonline.com/ statistics (February 2010):

January 2010 statistics was based on Hitstats and I had signed for Google analytics in mid January. Going forward I would post data only for Google analytics.

(Figures in Bracket show % rise from last month)

Page views: 4539 (57%)

Visitors: 1823 (77%)

New Visitors: 1011 (63%)

Page Views per Visit: 2.49 (-11%)

Bounce Rate: 56.77%

The growth rate of more than 55% seems to be quite satisfying for me. I think the blogs grow at a very fast rate in the starting months and it would slow down in few months. A worrying thing probably seems the Bounce Rate and I need to figure out how I can retain visitors.

Traffic Source:

This gives an overall breakup of my traffic sources:

Direct Traffic 28.3%

Referring Sites 36.7%

Search Engines 35.0%

The traffic source has been increasing from search engines significantly. I am started getting around 20-30 search traffic daily from mid February which seems good.

Indiblogger: My indiblogger rank has improved to 71 from 43 last month

Alexa: figures around top 2.2 million sites in the world and around top 1 Lac in India

Revenues

Well I believe my blog is too new to generate any revenues. But still I am running some advertisements to see how it goes. It’s mainly for my learning purpose.

Infolinks: These are the green colored double underlined texts you see in my blog. If you hold your mouse on these texts a bubble pops up to display an ad. I don’t think it’s a high revenue generator but then it can run with any other advertisement. It takes around a second for the ad to load and I guess visitors are not very patient to see what ad is loading and then click on it. I registerd with the Infolinks on 10th January 2010 and for this month of February has generate $ 2.13 as revenues. So in two months I have made around $4.

Chitika: I have signed with chitika a few days back and so obioulsy has not genrerated any revenue.

New Features added to blog:

I have added the following new features to my blog:

Table of Contents Page – Now you can view all my posts arranged by date here.

Navigation Bar

Widgets – Added four wowzio widgets – tag cloud, thumbnails for posts, slideshows & live traffic feed.

About me section

Still to come:

Email Subscription – Wanted to start it last month but am not able to sort it out. Lets see how can I resolve it.

Navigation Bar – I would try to make the navigation bar more appealing and convenient.

I am satisfied with the progress of my blog and I hope going forward I would be able to fulfill my readers expectations in a better way. And I hope that I would see more participation form my readers in form of comments and testimonials.

Please do comment on how I can make http://www.finwinonline.com/ a better experience for you.

Union Budget 2010: How it affects your Budget?

2010-02-28T10:22:00.002+05:30

In any Union Budget there are two things which concerns common man like us – The first being the Personal Income Tax Rates and the second "what has become cheaper and what’s expensive" post budget.

I am sure if you had browsed through any of the Indian newspaper or followed any news channels in last two days you would have almost by hearted the “What’s cheaper, what’s costlier” list and the revised tax slabs.

I had already written about the revised Income tax slabs here along with a calculator to see how much you gain. In this post I have focused on the common man’s second most important point - How budget 2010 affects your household budget : The Good, The Bad & The Ugly!

Let’s start with the good news first:

Here is the list of goods and services which have become cheaper with Budget 2010

Medical equipments:

Reason: A concessional basic duty of 5% is being prescribed on parts and accessories for the manufacture of such equipment while they would be exempt from CVD and special additional duty.

Impact: Lower Medical Bills? I doubt but may be if some of the benefit is passed on to end users by hospitals and doctors.

Microwave oven:

Reason: Reduction in customs duty on one of its key components, namely magnetrons from 10% to 5%.

Impact: More Healthy and Tasty food in Indian Kitchens along with greater convenience to Homemakers

Mobile phones:

Reason: To encourage the domestic manufacture of accessories, duty exemptions are now being extended to parts of battery chargers and hands-free headphones. Also, the validity of the exemption from special additional duty is being extended till March 31, 2011.

Impact: You can flash the new mobile phone and with the call charges on ever decreasing trend probably you would anyway need to purchase more phones.

Watches:

Reason: FM has proposed to provide an outright 4% exemption from special additional duty to goods imported in a pre-packaged form for retail sale.

Impact: Young India Fashionable India!

Refrigerators:

Reason: Full exemption from customs duty to refrigeration units required for the manufacture of refrigerated vans or trucks has been proposed.

Impact: Less wastage due to more Refrigerators units. Seems now you can have frozen foods, ice creams in far flung areas too

LED lights:

Reason: Central Excise duty on LED lights reduced from 8% to 4%, at par with Compact Fluorescent Lamps.

Impact: More LED lights less Electricity consumption

Toys:

Reason: FM has proposed to fully exempt them from Central Excise duty.

Impact: Smiling Babies and Happy Mothers!

Long pepper and Asafoetida:
Reason: Basic customs duty on long pepper reduced from 70% to 30% and on Asafoetida from 30% to 20%

Impact: Ummm more spicy food in your kitchen

Digital Cable Transmission/ Set top boxes:

Reason: FM has proposed project import status to Digital Head End equipment at a concessional customs duty of 5% with full exemption from special additional duty to the initial setting up of such projects.

Impact: Get that cable connection now and spare yourself from DD

Electric vehicle:

Reason: The duty on critical components required to manufacture electric vehicles has been reduced to 4%. The finished vehicles also will suffer only 4% duty.

Impact: Green Environment, save on fuel

Reverse Osmosis based household water filter kits:

Reason: Duty has been reduced to 4%

Impact: Cleaner drinking water

Two star and above Hotels:

Reason: reduced the investment-linked tax deductions for two-star hotels and above

Impact: Cheaper Hotel stays, More outings

Farm Equipments:

Reason: Reduction in duty

Impact: More efficient farming, lesser inflation of food items?

So too much of good news, let’s see the bad news:

Here is the list of goods and services which have become expensive with Budget 2010

Cars :

Reason: Peak excise duty increased. Ad valorem component of excise duty on large cars, multi-utility vehicles is being increased by 2% points to 22%.

Impact: Major automakers like Maruti Suzuki, Volvo and Hyundai have announced a price hike of Rs 6,000 to Rs 25,000. Hmm should have purchased my car this year itself.

Jewellery:

Reason: The FM has raised the duty on imports of gold and platinum to Rs 300 per 10 grams from Rs 200.

Impact: Wear watches but say no to expensive Jewellery

Tobacco:

Reason: FM proposes excise duty on all non-smoking tobacco such as scented tobacco, snuff, chewing tobacco etc. In addition, he introduces a compounded levy scheme for chewing tobacco and branded unmanufactured tobacco based on the capacity of pouch packing machines.

Impact: Less of passive smoking for all of us and one more reason for people to quit smoking.

Air travel:

Reason: All classes of air travel to pay service tax.

Impact: Want cheaper Holidays? Take the good old Indian Railways

Air Conditioner, TV:

Reason: Partial roll back rate reduction in central excise duties and enhance the standard rate on all non-petroleum products from 8 per cent to 10% ad valorem.

Impact: Compensated for cheaper set top boxes!

Cement:

Reason: The specific rates of duty applicable to portland cement and cement clinker are also being adjusted upwards.

Impact: Costlier Homes! Unaffordable becomes even more unaffordable

Under Construction Homes:

Reason: Brought in Service Tax ambit

Impact: Costlier Homes! Unaffordable becomes even more unaffordable

The bad is over but the ugly is still there!

Petroleum Products:

Reason: Customs duty on crude oil to 5%, on diesel and petrol to 7.5% and on refined other products to 10%. Re 1 hike in excise duty on petrol, diesel.

Impact: By the time you are reading this, the petrol prices have been up by Rs.2.71/liter and diesel by Rs.2.55/liter. Learn to use Public Transport

Cost of most goods will go up:

Reason: The basic excise duty has been increased from 8% to 10%.

Impact: This will have a compounding effect on almost all goods. Almost all commodities like steel, copper, plastics, etc are going to cost more.

The above two factors i.e. increase in petrol/diesel prices and hike in excise duty will have a cascading effect on almost all the goods. This would increase the prices of almost all the products leading to even higher Inflation. This for sure is going to up your overall expenses for next year.

So if you thought with new tax rates you would save more, Dream on!

Image courtesy: timescontent.com

How much Taxes would you save next year (2010-11)?

2010-02-26T20:17:00.005+05:30

Personal Income Tax Calculator for FY 2010-11

Today Pranav Mukerjee has all but surprised the common man with his budget. The tax slabs has been altered and it has lead to the benefit of up to Rs. 57,680 depending on which tax slab you belong to. I just made a quick calculator for the new financial year 2010-11 to see how much I would gain in taxes the next year.

This Calculator will be used to compute the Tax for salaried individuals only. You can compute your tax liability for the year and plan your investments accordingly.

The new tax slabs are

There is a new provision where you can get additional Rs 20,000 tax exemption benefit (in addition to 1 Lac in 80C) by investing in Infrastructure Bonds. Though its not clear what kind of bond they would be, what tenure, who would issue them and how would they be taxed on maturity.

You can refer to - Personal Income Tax Calculator for FY 2009-10 to know what you were paying for the present year (FY 2009-10) and get the difference.

In my example the person with an annual income of Rs 972,972 was paying Rs.59,983 as tax for FY 2009-10; while he would pay Rs. 34,414 if we take the new tax structure of FY 2010-11, a gain of Rs 25,569 or 43% less tax.

Word of Cautions for using the sheet:

Only Orange Cells are input cells.

Do not change any other cells as this may lead to Incorrect calculation.

Do not leave any orange cell blank. This may lead to incorrect calculation. Instead, enter 0

Limitations of the calculator:

This calculates Income tax only for people who have no losses/gains from House property or have a maximum of 1 House.

For detils of Assumptions & Income tax rules followed for the calculator Read - Income Tax - Some Common Rules & Regulations

You can also download this sheet in Excel format on your system for offline calculations.

Leave your comments on how much more you would save on taxes next year and what are you planning to do with the same :)

for readers through feed - the calculator may not dispaly correctly, so please visit the page

Disclaimer: I am not a tax consulatant. I have tried to incorporate all the Income tax rules & regulations best known to me. Its always advisable to consult an expert or a tax consultant to cross verify your tax liability.

Systematic Investment Plan (SIP) – The dark side!

2010-02-21T23:11:00.004+05:30

I personally am a great fan of Systematic Investment Plan (SIP) in Mutual Funds and have posted several articles on the same. Also known as Rupee cost Averaging (in India) or Dollar cost Averaging (in US) it’s no doubt a well known strategy to create serious wealth in long term. But I have not found many sites talking about the disadvantages or the flip side of SIP. So here is a post to make you aware of the disadvantages of using SIP and suggest if there is a way out?

Systematic Investment Plan (SIP) Disadvantages

SIP returns are lower in consistently rising markets:

Imagine this situation – Its New Year eve of 2009 and your rich uncle is here and impressed by you & your cousin hospitality gifts both of you Rs 1 Lac. You both being financially prudent want to grow this windfall. You approach a financial planner and as every good planner would, he recommend you to invest in NIFTY BeeS using SIP. So you follow him and plan investment in 12 monthly SIP installments while your cousin puts his entire money as lump sum investment in the same NIFTY BeeS. Who do you think made more money by 2010 New Year eve? Your cousin would have around Rs 1.72 Lac while you would have Rs. 1.37 Lac. So your cousin gained 25% more just by doing lump sum.

Lesson Learned: SIP is a good way to invest but occasional lump sum investment when the markets are highly undervalued adds to your gains.

Limited options of dates:

For a SIP in Mutual Fund you need to decide a date in advance when you like to do your SIP and give an ECS mandate for the same. Most of the MFs have limited option (mainly 1st, 5th, 7th, 10th, 15th, etc). So you tend to invest in multiple mutual funds on the same date. You want to lessen your risk by spreading your SIP in the entire month by choosing different dates for different funds.

Way out: For funds having an online option you can do SIP yourself but without emotions coming into play or second option is do SIP with fundsindia.com that provide SIP on all dates. You can read more about the same here.

Fixed Amount:

There are times when you feel that markets are undervalued and you want to invest more but then in SIP only a predetermined fixed sum gets invested. Same is the case when you want to invest less, you can’t do it.

Way out: Try VIP (Value Averaging Investment Plan). I would write about it soon.

Stopping intermediate payment:

It may so happen that you got an emergency or have a major expense this month and so you don’t want to invest. But with SIP this is not possible; if there’s money in your bank it will get debited and invested. The only way out is to cancel the SIP which can be a nightmare if you have a lot of SIPs and also when you want to start again you need to go through all the formalities to start the SIP. Also for cancellation you need to inform 2 weeks in advance and even then you may not be sure that SIP would not be debited.

Lot of delay between actual application & start/stop of SIP:

I feel this is very irritating and you may miss one monthly installment; MF houses need at least a month to start a SIP and around two weeks to stop your SIP. I think its the time they should try and comeup with quicker processing of SIPs.

Does not suit people with unpredictable cash flows:

Think of someone who doesn’t have a predictable cash flow like a self-employed professional. He won’t be able to do SIP as he would be unable to commit a fixed sum every month.

To Conclude:

Even though SIP suffers from these disadvantages but it still seems to be one of the Best investment option available to a long term investor. It particularly suits First-time investors in equity and those who do not have a lumpsum or the time to track their investments. The salaried class should also opt for SIPs since it becomes a good savings habit. Investors who do not wish to be stressed by market volatility should adopt the rupee-cost averaging method for secured long-term investment planning.

Earn 35% more interest on your Savings accounts from April 1, 2010

2010-02-20T19:53:00.001+05:30

In a measure that would bring cheers to savings accounts holders, RBI has asked banks to start calculating interest rates on these accounts on daily basis from April 1.

What does this mean for savings accounts holders?

Well it means we would be paid more interest on our money in savings account.

What is the existing system?

Right now the banks calculate interest on the lowest available balance, from 11th and the last date of a month. In the existing system, if one withdraws certain amount from his savings accounts on the last day of a month, he will lose interest on that amount for the whole month.

What’s the new system?

Under the new system, the banks would pay a daily interest for e.g. even if someone withdraws in the last day of the month, he will get the interest income on the first 29 days of the month.

Oh that’s great, so what is the present rate of interest anyway?

Banks pay an interest rate of 3.5% on the savings account deposits.

Currently, interest rates on saving accounts are de-regulated, barring up to Rs 2 lakh. The RBI only administer interest rates on saving bank deposits up to Rs 2 lakh, and for the deposits above this amount, banks are free to give any interest rates.

Tell me so how much more interest would I get?

It depends on a lot of things like your withdrawing and deposit patterns among other things. I just made a calculator for the same. I assumed a scenario where you get Rs 50,000 as salary on 1st of every month and then you start withdrawing as needed for the rest of the month. Generally you withdraw more in start of the month to pay for your rent, fees, bills etc and then withdrawals are evenly spread out. In my hypothetical example the person would get 38% more.

You can check how much more you would get.

How does it impact me?

In regular day to day situation it really doesn’t impact a saving bank account holder much in terms of monetary gains until he has a lot of cash flows in & out of the savings account. Like in the previous example you would get Rs. 96 instead of Rs 58 a month which is still peanuts.

But in special cases the difference can be a few thousands. Take this situation – you wanted to make down payment for your new house and so you keep a cash of 5 Lac in your Savings account from 1st of the month. You finally make the payment on 30th. So in the old case the interest would be 0 while with the new regulation you would get around Rs 1350.

I support RBI’s move as it seems more ethical & rational.

How does it impact the banks?

Saving Bank Account is a major source of cheap funds for banks and with this there cost of funds would get higher by around 25-40% and that’s why they really aren’t supporting this move.

But anyway RBI has mandated the new system to be implemented from April 1st, 2010.

Are you paying more for your Demat Account?

2010-02-17T11:04:00.004+05:30

I have often been asked questions like –

Which is the Best Demat account?

Which is the cheapest Demat account?

What are different costs involved in opening & operating a Demat account?

Unfortunately like most Financial Products Demat Accounts too are complex and it’s almost impossible to compare two different service providers. One account could be good for occasional investors while the other may be offering cheapest tariffs for high transaction people.

Before deciding for which Demat account to go for, you need to first determine your own requirement and then compare costs of different service providers for that segment. For details on this you can read my previous post “Demat Account – Which is the Best?”

In this post I would discuss about various charges in opening & operating a Demat account and then compare 12 major brokerage houses in terms of account opening, annual maintenance & brokerage charges.

Fees Involved

There are three major charges usually levied on a demat account:

Account opening fee

Annual maintenance fee

Transaction fee

Account Opening Fee: As the name suggest Demat Account Providers charge this fee when opening your account for the first time. It’s a one time fee and may vary from 0 – Rs 750. But more often than not it’s waived off as special promotional offers, corporate discount, etc. You can also bargain with the agent to waive off this fee or to adjust it in annual maintenance or transaction fee.

Annual maintenance fee: It’s a recurring fee and service providers charge this at the start of every year to keep your Demat account running. It’s generally charged in advance and may vary from 0 – Rs 500.

Transaction fee: Also known as brokerage and is most important for traders and short term investors. This is charged when you do any transaction (buy/sell) from your account. It varies a lot depending on your transaction volume. Some has a flat fee as in per transaction basis while others charge it as a percentage of total transaction amounts. It can be charged on both sides (buy & sell both) or can be one sided (buy or sell). Most of the times there’s a minimum fee associated with each transaction which you should keep in mind. This fee can range from 0.02% of transaction amount for very high volume traders to 0.75% for low volume occasional investors. This fee can also dent your profitability especially if you are a trader. So you need to select an account which has low brokerage for your segment.

Other charges: Other than the above three fee, demat have other charges which is usually not incurred in regular course. It can be demat/remat fee – i.e. conversion of physical shares to demat form and vice versa. It can be flat fee per request or variable fee per certificate. It may vary from Rs. 15 – Rs. 100 per request.

There can be other charges too for failed instructions, certificate requests, pledging, address/ bank account change and many more hidden charges. You need to be very careful while opening an account and be very clear of all these charges.

Below is the table which compares 12 different Demat Accounts on the above stated fees.

HNI here means high volume traders, which you can think of as the best rates offered to any customer by the respective brokerage house.

Let me know what Demat account you have and how you selected it in the first place, and what are your charges and fees. I may add the same in the above table.

Click here to know How much you need to pay if you buy Mutual Funds using Demat Account.

Disclaimer: I realised that the Demat rates change very fast for the Brokerage houses which may make the above table dated. Also they have lot of combination of schemes suited for different clients. So its always advisable to do a market research yourself.

Cost of Buying Mutual Fund through Demat Account

2010-02-16T12:34:00.002+05:30

Are you are the one who invests in Mutual Funds using your Demat Account or who loves its convinience? Well the good news is Reliance Money has finally revised its Mutual Fund Investment Fee with effect from 2nd February 2010.

As you might be aware SEBI had removed Mutual Fund Entry Load and had given the option to distributors to charge directly to the customer for the services they offer while investment.

Here is a comparison table for Mutual Fund Investment Fee for two biggest Demat players in India – Reliance Money & ICICI Direct.

per transaction cost means it does not matter how much you invest. The charges are flat.

For ICICI Direct 8 Lac slab - the "cumulative value" will be taken as per Value at NAV of entire MF holdings, at the time of order placement, as seen on MF Unit Holdings page. Transaction charges will be applied as per the new fee structure, accordingly.

I would add more fee of more Demat Accounts as I get information about the same.

But even with the convenience of Demat Account, I still prefer direct investment in Mutual Funds via their respective online platforms. Recently more & more Fund houses are going online.

Other than this if you are looking for consolidated investment in MF from one single platform then new distribution models like – www.fundsindia.com & www.fundsupermart.co.in comes very handy. I have a short review of both here. I would be doing detailed review of the service providers very soon.

One question that I find new investors often asking is - Do I require Demat Account to invest in Mutual Funds?

Ans - No you do not require Demat account to invest in Mutual Funds. Infact investment in Mutual Fund through Demat account is costly and investors should prefer alternate channels for investment in MF. For details you can check out my previous post on How to invest in Mutual Funds?