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FAQ on Bharat Bond ETF

Any Better Alternatives?

Bharat Bond ETF is an exchange traded fund with a Target Maturity Date.

It will invest in bonds of Central public sector enterprises (CPSEs), Central Public Sector Undertakings (CPSUs), Central Public Financial Institutions (CPFIs) and other Government organizations.

NFO (New Fund Offer) offer period is 12th – 20th Dec 2019.

It is a Government of India Initiative to help public-sector organizations with their borrowing requirements.

An Exchange-Traded fund can be freely traded live during market hours and is a low-cost product.

  • Bharat Bond ETF is expected to have a TER (Total Expense Ratio) of about 0.0005% i.e. Rs.1 for 2 Lakh Investment. source BharatBond.in.
  • Encourage institutional buyers to participate like insurance companies, pension funds, mutual funds etc.
  • Increase trading and liquidity in these bonds.

What is a Fixed maturity ETF?

This kind of ETF has a Fixed Maturity Date. Bharat Bond ETF has 2 types: 3 years and 10 years. The underlying index will also mature at the same time. For example: BHARAT Bond ETF – April 2023 denotes the maturity date.

What is the underlying index?

Nifty BHARAT Bond Index which will be initially constructed with AAA bonds. If a bond falls below AAA but is above BBB- (investment grade), the bond will be removed from the index only in the next calendar quarter. Only if becomes junk will the bond be removed from the index in five days.

Don’t assume it will hold only AAA Bonds

Current Portfolio of NIFTY BHARAT BOND INDEX

Source: NSEindia

What is the difference between an open-ended ETF and a fixed maturity ETF?

In an open-ended ETF, the fund will keep buying new bonds upon maturity of the existing bonds. A fixed maturity ETF will try and hold the bonds up to maturity.  For example: a 3 year Bharat Bond ETF will hold bonds that mature within 12 months of the maturity date. The residual maturity of the 3-Y ETF is 282 years.

What are the advantages of a fixed-maturity ETF?

This combines the ability to sell at the exchange at any time and eliminates interest rate risk and credit rating change risk if the bonds are held up to maturity and do not default.

Is the return of principal guaranteed?

No. While the underlying risks are comfortably and acceptably low, no such guarantees can be made.

Are the Returns Guaranteed?

No.

Are returns predictable? Will I get the indicated yield if I hold until maturity?

Returns are not predictable. Even if one holds the ETF until maturity, the final returns will be governed by market forces. For example: the interest received by the fund will be reinvested into the portfolio. The yield of the bonds could be lower at that time (bonds priced higher) resulting in a deviation from the estimated yield on creation. This is known as Re-Investment Risk(People in my Whatsapp Group might understand this as this has been communicated to them). Over 3 years, this is likely to be minimal but can be significant over a 10 year period.

Any changes in the bond portfolio, especially a rating downgrade resulting in the need to sell the bonds, will impact yields.

Public sector bonds are the safest, are they not?

Relative to a corporate bond = YES. This does not mean default is not possible. Five years ago how many would have believed a 100% government-controlled company like BSNL would find it difficult to pay staff salaries?

How to invest in Bharat Bond ETF?

Obviously, through Demat Account. No other route is available currently.

Taxation in the Bharat Bond ETF?

The maturity date of 3 year bond is a little more than three years. This is to ensure the gains will be denoted as long-term capital gains with 20% tax after indexation. This means that the purchase price can be inflated using the cost inflation index before computing the gains. So effective tax rate would be about 18-20% depending on the rate of inflation.

Pls note the rate is applicable for all tax slabs. For those in the 5% slab, a simple FD will work better.

For senior citizens, this is not particularly attractive as fixed deposits carry an Rs. 50,000 income tax exemption.

For a sale mid-term, the gains will be added to income and taxed as per slab.

Min & Max Investment for Retail Investor?

Min: 1000, Max: 2 Lakhs (Only for NFO period).

Any Better Alternatives?

A carefully chosen Arbitrage Fund that don’t hold risky bonds, better for those in 20% & 30% tax slab. Arbitrage fund can be redeemed at any point of time with no exit load. (There can be some funds with 30 days waiting period).

Summary

People who want to still try the Bharat Bond ETF & have demat account can go ahead with 3 yrs term. 10 yrs will be too long as it may carry re-investment risk, liquidity risk and more volatility.

If you still have any more questions, kindly send me on 9029868078 / kaustubhd.1984@gmail.com alongwith your complete details & location.

How Traditional Insurance plans Exploit your Money

Traditional Insurance Plans are deadly products to invest in.

Surprised?

You never understand where the amount is invested as it is not a transparent product.

Let me show you the way how to calculate returns from any traditional insurance policy. Next time when any insurance agent shows you a policy benefit illustration or your friend or relative asks you, “Is this a good policy to invest in?”, use this method to show the annualized return they can expect (before bonuses which will not make a significant impact).

Case: Guaranteed, but Lumpsum Payout

Here is a typical “guaranteed plan” offered by many insurers. This promises to pay a “fixed returns” for Y no of years after the premium is paid for X no of years. This sounds so great on paper. Let us investigate more with an example.

Here is a plan of LIC, Jeevan Lakshya for a 25Y policy with 22Y premium paying term. The sum assured ~ Rs. 10.10 Lakh and the annual premium is Rs. 43247 or Rs. 45193 with GST (notice that illustrations will not include taxes).

At the end of 25Y, the policy will pay out Rs. 1010000/- as a guaranteed benefit. It will pay Rs.49/- per 1000 Sum Assured as Simple Reversionary Bonus, which will be 12,37,250/-. The mentioned rate is of 2015-16. (Information available on LIC official website). The rate changes every year. Point to Note:- Simple Reversionary Bonus & Final Additional Bonus Rates are not fixed & largely depends on profitability of company. Hence, I term it as NON-GUARANTEED.

We need to tabulate all the cash inflow & outflow mentioned below

insurance plan cashflow
  • Col A is just the year no starting with zero (the 1st premium)
  • ​Col B a set of premium paying dates Col A is just the year no starting with zero (the 1st premium)
  • ​Col C the premium paid (before GST)
  • ​Col D the sum of total premiums paid each year
  • ​Col E actual premium paid (including GST). Shown as negative for return calculation. ​The money we pay is shown as negative and the money we receive is positive.
  • ​Col F Sum Assured on Maturity plus assumed Simple Reversionary Bonus paid is given to us (so this is positive).
  • ​Col G is the total cash flow that is the sum of Col E and Col F.  The final payout of Rs. 2247000 is shown as the final entry (25th Year).

​The XIRR or annualized return formula is as shown below.

​The XIRR formula is = XIRR(set of cash flow values, dates)

Returns Chart

​The annualized return is meagre “5.23%”

​This example shows that it is better to use dates + payouts and use XIRR at all times.

​When the payments are not immediate, you lose immensely and insurance company gain immensely. ​And we are not even considering the fact that the insurer can invest the premiums collected and earn a return on it over the many years they hold on to it.

​When the payments are not immediate, you lose immensely and insurance company gain immensely.

​Where do you think the bonuses come from?!!

​If you receive the payout immediately, not only is the return high, you can use it any way you want. If insurance company delay payouts, they can use it any way they want. ​Time is money!!

​This idea is also known as “Opportunity Cost!”

​If the money is locked-in, we lose more than we know!

How much is the Income Tax Deduction available under Section 80C, in case of Life Insurance for every individual?

Life Insurance Plans are very popular as a tool to get deduction under section 80C of the Income Tax Act, 1961. The investment in life insurance can be deducted up to Rs 1,50,000. It a common perception that Premium Paid on all Life Insurance Policies qualifies for deduction under section 80C of the Income Tax Act,1961 and full premium amount qualifies for deduction under section 80C.

Apart from several other items provided under section 80C, a taxpayer, being an individual or a Hindu Undivided Family (HUF), can claim deduction under section 80C in respect of premium on life insurance policy paid by him/it during the year.

Policy to be taken in whose name?

In case of an individual, deduction is available in respect of policy taken in the name of taxpayer or his/her spouse or his/her children.

In case of a HUF, deduction is available in respect of policy taken in the name of any of the members of the HUF.

No deduction is available in respect of premium paid in respect of policy taken in the name of any person, other than given above.

Deduction Allowed

Overall deduction u/s 80C (along with deduction u/s 80CCC & 80CCD) allowed is up to Rs. 1,50,000

How much deduction available u/s 80C for investment in insurance policies???
Section 80C of the Income Tax Act provides deduction up to Rs 1,50,000 provided you invest according to condition given in section itself. One of the most popular way of saving tax by deduction u/s 80C is purchase of insurance policy. There is common perception that premium upto Rs 1,50,000 on any insurance product like life insurance or Unit Linked Insurance plan is fully allowed. However, this is not correct. The reason for such conclusion is section 80C (3) and 3(A) of the Income Tax Act which specifies which premium is eligible for deduction under section 80C of the Income Tax Act,1961.

Restriction on amount of deduction with respect to capital sum assured/ Eligible Premium under Sub-section (3) and (3A) of 80C of Income Tax Act,1961 For regular Life Insurance Policies (other than contract for deferred annuity)

Issued from 01.04.2012 – premium paid not in excess of 10% of Capital Sum Assured (as amended by Finance Act 2012).

Issued from 01.04.2003 and on or before 31.03.2012 – premium paid not in excess of 20% of Capital Sum Assured

Eligible Premium under Sub-section (3) and (3A) of 80C of Income Tax Act,1961 For Life Insurance Policies (other than contract for deferred annuity) for (a) a person with disability or a person with severe disability as referred to in section 80U, or (b) suffering from disease or ailment as specified in the rules made under section 80DDB,

Issued from 01.04.2013 – premium paid not in excess of 15% of Capital Sum Assured ( Inserted by the Finance Act, 2013, w.e.f. 1-4-2014).

Therefore , it is clear from section 80C (3) that whatever insurance premium is paid for any insurance policy( other than deferred annuity) or ULIP, the maximum allowable is fixed at 10% of the sum assured.

So, next time you buy any insurance product , think about sum assured and whether the insurance premium is just below 10 % of sum assured regular policies and 15% for for (a) a person with disability or a person with severe disability as referred to in section 80U, or (b) suffering from disease or ailment as specified in the rules made under section 80DDB.

Minimum holding period for Life insurance policy – 2 Years.

Minimum holding period for ULIP- 5 years

Taxability of Premium allowed in Earlier year- If any of Life insurance policy is terminated, sold, etc., before the minimum holding period specified above, then the deduction allowed in earlier years would be deemed as income of the previous year of termination, sale, etc. Further, no deduction will be allowed in respect of contribution, payment, etc., made towards such policy (i.e., which is terminated) during the year of termination.

Example:-

Mr. Kiran had made the following payments during the financial year 2018-19 to avail of the advantage of deduction under section 80C:

1. Premium paid on his life insurance policy of Rs. 8,400. Policy was taken in April 2011 and sum assured was Rs. 25,000.

2. Premium of Rs. 1,000 on his another life insurance policy. Premium was due in March 2015 but was actually paid in April 2016.

3. Premium of Rs. 30,000 on life insurance policy taken in the name of his wife. Policy was taken in April 2012 and sum assured was Rs. 2,00,000.

4. Premium of Rs. 30,000 on life insurance policies taken in the name of his three children (one is minor daughter, second is major married daughter and third is major married son, who is a practicing doctor). The policies are term plans and premium on all the policies worked out to be 5% of capital sum assured.

5. Premium on life insurance policy taken in the name of his parents who are dependent on him. Premium paid during the year amounted to Rs. 25,200.
6. Premium on life insurance policy taken in the name of parents of his spouse who are dependent on him. Premium paid during the year amounted to Rs. 2,520.

7. Premium on life insurance policy taken in the name of his younger brother and sister dependent on him. Premium paid during the year amounted to Rs. 5,000.

8. Investment in PPF Rs. 60,000.

9. Investment in NSC Rs. 10,000. Interest accrued during the year on NSC amounted to Rs. 1,000.

10. Payment of tuition fees of his minor daughter Rs. 5,000.

11. Repayment of housing loan Rs. 12,000.

12. Investment in post office time deposit Rs. 10,000.

What will be the extent of deduction under section 80C for the year 2018-19, which Mr. Kiran will be entitled to claim in respect of above payments?

(A) The taxpayer can claim deduction under section 80C in respect of premium on life insurance policy paid by him during the year. Deduction is available in respect of policy taken in the name of taxpayer, his spouse and his children. No deduction is available in respect of premium paid in respect of policy taken in the name of any person other than given above. Deduction is restricted to 20% of capital sum assured in respect of policies issued on or before 3 1-3-2012 and 10% in case of policies issued on or after 1-4-2012. Considering the above provisions, deduction in respect of life insurance premium will be as follows:

1) In respect of premium of Rs. 8,400 on his life insurance policy which is taken in April 2011, deduction will be restricted to 20% of capital sum assured. Sum assured is Rs. 25,000 and 20% of the same will work out to be Rs. 5,000. Hence, out of Rs. 8,400, he will be eligible to claim deduction of Rs. 5,000.

2) Deduction under section 80C is available on payment basis. In respect of premium of Rs. 1,000 on his another policy (which is due in March), no deduction will be available in current year, since the premium is not paid in the current year. Premium is paid in next year and hence, he can claim deduction of Rs. 1,000 in next year.

3) In respect of premium of Rs. 30,000 on life insurance policy taken in the name of his wife, deduction will be restricted to 10% of capital sum assured. Sum assured is Rs. 2,00,000 and 10% of the same will work out to be Rs. 20,000, hence, out of Rs. 30,000, he will be eligible to claim deduction of Rs. 20,000.

4) Premium in respect of policy taken in the name of his children works out to be 5% of capital sum assured. Hence, entire amount of premium of Rs. 30,000 will be eligible for deduction. Further, it should be noted that deduction is allowed for all children irrespective of the fact whether they are dependent/independent, major/minor, or married/unmarried.

5) No deduction is available on account of premium paid in respect of policy taken in the name of any person other than the taxpayer, his spouse and his children. Hence, no deduction will be available in respect of premium paid by him on policy taken in the name of his parents, parents of his spouse and his brother/sister.

6) Total premium eligible for deduction under section 80C will amount to Rs. 55,000 (Rs. 5,000 + Rs. 20,000 + Rs. 30,000).

(B) The taxpayer can claim deduction under section 80C in respect of any contribution made by him towards statutory provident fund or recognised provident fund or approved superannuation fund or public provident fund (PPF). Thus, contribution to PPF of Rs. 60,000 will be eligible for deduction under section 80C.

(C) The taxpayer can claim deduction under section 80C in respect of amount paid by him towards purchase of NSC. Hence, he will be able to claim deduction under section 80C in respect of Rs. 10,000 paid by him towards purchase of NSC.

Accrued interest on NSC is taxed in the hands of the receiver and the same will be treated as an investment during the year of accrual (except for last year) and will qualify for deduction under section 80C. Hence, accrued interest of Rs. 1,000 will be treated as taxable income and on the same hand will also qualify for deduction under section 80C.

(D) The taxpayer can claim deduction under section 80C in respect of amount paid by him during the year towards tuition fees (excluding development fees, donation or similar payments) paid at the time of admission or thereafter, to any university, school, college or other educational institution situated in India, for full time education of any two children of the taxpayer. Hence, Rs. 5,000 paid by him on account of tuition fees of his minor daughter will qualify for deduction under section 80C.

(E) The taxpayer can claim deduction under section 80C in respect of amount paid by him towards repayment of housing loan. Hence, Rs. 12,000 paid by him on account of repayment of housing loan will qualify for deduction under section 80C.

(F) The taxpayer can claim deduction under section 80C in respect of investment made by him in post office time deposit. Hence, he can claim deduction of Rs. 10,000 under section 80C.

Considering above eligible items given in (A) to (F), the eligible amount of deduction will come to Rs. 1,53,000.

However, total deduction under section 80C cannot exceed Rs. 1,50,000, hence, deduction will be limited to Rs. 1,50,000. In other words, Mr. Kiran can claim deduction of Rs. 1,50,000 under section 80C.

Total:- Rs. 55,000 Life Insurance + Rs. 60,000 PPF + Rs. 11,000 NSC +Rs. 5,000 tuition fees + Rs. 12,000 housing loan + Rs. 10,000 time deposits.

P.S: Pure Term Cover is flavour of the season, offering wide benefits against traditional insurance policies & Ulip.

Kindly consider your risk profile, life goals, family objectives etc before buying any product. Do discuss your case with Fee Based Financial Planner or Fee Only Financial Planner against regular insurance agent receiving commissions due to conflict of interests.

Is it Time to Exit from Mirae Asset India Equity Fund?

Mirae Asset AMC has announced to change the current Multi Cap category to Large Cap with effect from 1st May 2019.

Today’s blog is all about performance, risk rating and takeaways for existing or new investors of this fund.

Reasons for change to Mirae Large Cap Fund

CEO Mr. Swarup Mohanty’s arguments are:

  • The fund was managed as Large cap for last 4 years.
  • The fund will hold midcaps according to SEBI rules, i.e. 15% – 18%
  • Growing AUM (Assets Under Management)

A Multi Cap Fund is an Open Ended Equity Scheme investing across Large Cap, Mid Cap and Small Cap stocks. Now, the CEO says from last 4 years, the fund was managed as Large cap, which also means the fund manager has not exercised his right to invest across sectors.

Does’nt sound convincing

For eg:- If I wanted to buy this fund, then i would had gone through scheme document, key information memorandum, one pagers, amc classification, rating portals etc, I would have got impression as a Multi Cap fund.

So, when i had a look at portfolio nearly 87% is in Large cap, 11.5% in Midcap and sparing allocation to small cap.

Many investors will have to re-jig their portfolios now due to change of the scheme mandate which is a frustating job.

Rolling Returns and Risk (5 years)

Rolling Returns and Risk (2 years)

Performance Dip due to major allocation to Large cap

2 and 3 years

Decrease in outperformance

New Investor: Should I Stop / Exit?

If you have another Large cap fund, then decide which one you want to hold. All large cap fund performance will be approx same…(just few % more or less)

Existing Investor: Should I Stop / Exit?

If you have a major allocation in this fund, kindly review the situation and act upon what suits you the best.

Evaluate your position carefully. Focus on risk management instead of aggressive returns.

Investors willing to Exit from this scheme can do it freely in April 2019. No Exit Load will be levied.

Investors who cannot evaluate their scheme’s performance based on risk analysis can reach us. We will be happy to help.

Smart Money Management for your kids

The more time you give to your children, the better they grow;

The more time you give to your Money, the better they grow.

  • Open a Savings A/c on your child’s name. Guide him how to save money he receives on birthday or any other occasion in his savings account.
  • Make him understand the difference between Saving & Investing.
  • Don’t take your child along with you in ATM to withdraw money as they might mistaken that they will get money whenever required.
  • Make them understand the educational expenses you are paying on monthly or early basis.
  • Ask them to write / maintain the monthly household expenses book.
  • Invite them to hear the financial discussions, they cannot express their views but can logically think on it.
  • Make them understand why the loans has been taken for Home, Car or Education, the breakup of EMI’s, Prinicipal & Interest.
  • Visit an orphanage & donate some with your child through which he will understand the things he uses are not available to them.
  • You have started the Journey of becoming a Smart Investor, its your duty to train your child to become a smart investor by teaching him about financial literacy, products like mutual funds, stocks etc.

Financial Literacy is need of the hour, moreover staying happy in any situation & changing the view towards Money is required.

Happy Children’s Day

#kaustubhdeole, #artharthifinancialservices, #theequitylearners

Corona Kavach

IRDA has came out with guidelines with respect to Corona Kavach Policy.

This policy is called a Corona Kavach Policy. Let us see the features and benefits of it in detail

In view of the global pandemic Covid 19, IRDA has decided to mandate all general and health insurers to offer Individual Covid Standard Health Policy with the following objectives-

  • To have a Covid specific product addressing basic health insurance needs of insuring public related to Covid.
  • To have a standard product with common policy wordings across the industry.

Features & Benefits

Tenure of the Policy:

The policy period is 3 and half months, 6 and half months, and 9 and half months (including the waiting period). Hence it is always less than a year (which is the standard norm for all other health insurance products. Here, as it is a disease-specific, it is less than a year period.

Cost:

Even though the product features are same across all insurers, the price vary based on the company to company. Hence, you have to check with individual companies before buying a product.

Coverage:

The minimum coverage is Rs.50,000 and maximum cover is Rs.5,00,000

Entry Age:

The minimum age is 18 years and maximum entry age is 65 years. However, Dependent Child / children shall be covered from Day 1 of age to 25 years subject to the definition of ‘Family’

Premium Payment:

Only single premium payment option is available as it is limited for less than a year

Individual Plan / Family Floater:

This plan is available individually or as a family floater. Hence, it is acting like a typical health insurance product with this feature. Here, family means-Self, Spouse, parents and parents-in-law, and dependent Children (i.e. natural or legally adopted) between day 1 of age to 25 years

Main Product Features:

Base Cover:

The hospitalization expenses incurred by the insured person for the treatment of Covid on Positive diagnosis of Covid in a Government Authorized Diagnostic Center. The coverages are as below.

  1. Room, Boarding, Nursing Expenses as provided by the hospital or nursing home.
  2. Surgeon, Anesthetist, Medical practitioner, Consultant, special fees whether paid directly to the treating doctor or to the hospital.
  3. Anesthesia, Blood, Oxygen, Operation theater charges, surgical expenses, ventilator charges, medicines and drugs, costs towards diagnostic, PPE kit, gloves, mask, and such other expenses.
  4. ICU or ICCU expenses.
  5. Ambulance expenses to the maximum of Rs.2,000 per hospitalization.

Home Care Treatment Expenses:

It will cover the costs of treatment of Covid incurred person on availing treatment at home maximum up to 14 days per incident provided that:-

  1. The medical practioner advices the insured person to undergo treatment at home.
  2. Continues active treatment and daily monitoring expenses.
  3. Cashless home care benefit is available.
  4. If the insured willing to take the service from non-network hospitals, a prior approval is required. Insurance company will respond to the same within 2 hours of receiving the request.
  5. The expenses covered are: Diagnostic test undergone at home or at the diagnostic center, medicines prescribed in writing, consultation charges, nursing charges, medical procedure expenses or cost of a pulse oximeter, oxygen cylinder and Nebulizer.

Ayush Treatment is covered

Pre Hospitalisation:

Medical expenses incurred with respect to Covid prior to 15 days of hospitalization are also covered.

Post Hospitalisation:

Medical expenses incurred after the discharge of up to 30 days is also covered under this insurance.

Deductible:

There is no Deductible in this Policy.

Optional Cover:

Hospital Daily Cash:

The company will pay 0.5% of sum insured per day for which 24 hours of continuous hospitalization for treatment of Covid following an admissible hospitalization claim under this policy. This benefit will be payable for up to the maximum of 15 days during the policy period.

Waiting Period:

There is a waiting period of 15 days from the date of policy issued. The Company shall not be liable to make any payment under the policy in connection with or in respect of expenses till the expiry of waiting period.

Exclusions:

  • Expenses related to any admission primarily for diagnostics and evaluation purposes. Any diagnostic expenses which are not related or not incidental to the current diagnosis and treatment.
  • Rest, Cure & Rehabilitation.
  • Dietary supplements and substances that can be purchased without prescription, including but not limited to Vitamins, minerals and organic substances unless prescribed by a medical practitioner as part of hospitalization claim or Home care treatment.
  • Expenses related to any unproven treatment, services and supplies for or in connection with any treatment. Unproven treatments are treatments, procedures or supplies that lack significant medical documentation to support their effectiveness.
  • Any claim in relation to Covid where it has been diagnosed prior to Policy Start Date.
  • Any expenses incurred on Day Care treatment and OPD treatment.
  • Diagnosis /Treatment outside the geographical limits of India.
  • Testing done at a Diagnostic center which is not authorized by the Government shall not be recognized under this Policy.
  • All covers under this Policy shall cease if the Insured Person travels to any country placed under travel restriction by the Government of India.

Bottom Line:

If someone is willing to buy the health insurance immediately with the fear of corona virus, then this policy may be suitable to you.

Individuals with Existing Health Cover

Those who are having health insurance may no need to buy this policy. Instead, they can enhance the cover either in the base plan or buy a super top-up plan. 

NO COST EMI; Is it Beneficial?

EMI stands for Equated Monthly Installments. It is a fixed amount lender pays to the borrower each month until the principal and interest are fully paid. No Cost EMI is where the consumer “thinks” there is no extra cost other than the price of the product.

Loan without Interest:

According to RBI circular from 2013, Banks should refrain from offering any zero-interest loans on retail products.

“some banks were loading the expenses incurred in sourcing the loan (viz DSA commission) in the applicable RoI charged on the product. Since the very concept of zero per cent interest is non-existent and fair practice demands that the processing charge and RoI charged should be kept uniform product / segment-wise, irrespective of the sourcing channel, such schemes only serve the purpose of alluring and exploiting the vulnerable customers. The only factor that can justify differential RoI for the same product, tenor being the same, is the risk rating of the customer, which may not be applicable in the case of retail products where the RoI is generally kept flat and is indifferent to the customer risk profile”.

Now-a-days, Online Shopping Portals offers a discount equivalent to Interest, so the effective price seems to be the same as without Loan to Customer.

Here, the retailer offers discount equivalent to Interest, It seems like a good deal in first look, but there is a reason retailer’s offer this.

One reason is where you lose money since you have to let go of the discount which would have been yours (If you pay upfront amount). That discount is higher than the interest which retailers have to pay to Banks. In the second case, the Company might not want to devalue the product as it will affect the brand value.  So instead of offering a direct discount, they offer No Cost EMI to increase sales.

No Cost EMI is usually offered on the credit card associated with the bank making the offer. This way, they are betting on consumers paying credit card interest too!

Let’s understand it with a example. Kiran is a Professional Outdoor Photographer. He wants to buy OnePlus 7T Pro Smartphone worth 53999 INR. He doesn’t have to pay the upfront amount, but can manage to pay off in 6-7 months. He found a deal on ecommerce portal where he can pay 9000 INR for 6 months. He is delighted to purchase the product without opting for EMI. Isn’t it a great deal? Let’s find out.

Such loans carry 18% to 30% interest. Let’s assume for the case study, it’s 18%. Here’s the break-up:

  • Original Price 53,999
  • Discount Offered -1990
  • Interest on Loan 1990
  • Amount to be paid 53,999

The problem with such deals is, online sites never provide such breakdown upfront; otherwise very few people will fall for it. If you randomly search any site at any time there are 5% off offers available. But if you wait a couple of months (Which most people like Kiran hate to do), you can find a deal worth 10% off + Additional Cashbacks which means Kiran could have got the phone for 51,000. You can take any product at any time and do this math you will find out paying money upfront is a better option.

Even if there is no other discount available, remember you are buying things on loan at more than 15% Interest.

That’s a matter of choice; people should make.

The real problem is when Interest is added to the Price, and then it is offered on No Cost EMI. Any company paying Interest from their pocket to increase sales is a bit difficult for me to digest.

Summary: Even though many examples prove that No Cost EMI is harmful, there is an even bigger risk present when you opt for such plans. If you often have this habit of buying things on EMI, you are essentially spending before you earn. If you do not pay attention to this habit, it will not take long to turn into spending more than you earn.

Feel free to provide your feedback on +919029868078

#FundReview #MFReview

Is it Time to Exit Icici Prudential Value Discovery Fund?

Icici Pru Value Discovery Fund has not outperformed its benchmark BSE 500 over last 5 years.

Is it time to exit the fund? Answer could be “YES / No” or “With some considerations”, Let’s find out which can be the option.

For any Mutual Fund Strategy, Investment Mandate is of critical importance. Hence, the fund manager of the scheme cannot go against the mandate to improve the performance.

Value Discovery Fund strictly belongs to Value Category with Blend Portfolio. Value is used to diversify the portfolio. Make sure you understand truly the meaning of Diversification.

All funds in your portfolio will never generate returns at most times. While some funds will have upside & some at lower. Value Funds will help you regain your losses over longer period.

Investment Objective of this scheme says: To generate returns through dividend income & capital appreciation by investing primarily in a well-diversified portfolio of value stocks.
It also says, “However, there is no assurance or guarantee that the investment objective of the Scheme would be achieved.”

This might be a warning bell according to me.

In this fund’s case, inflow has stopped & redemptions has increased. In Sept 2018, AUM of this scheme was 16477.28 Crores, whereas, in Sept 2019 it was 15095.61 Crores. Can you think what would be the reason for this?

Source: ValueResearch

Through above image, you can understand the fund has underperformed its benchmark & category for 1 yr, 3 yrs & 5 yrs duration.

Rolling Returns of the fund V/s. Benchmark
Rolling Risk V/s Benchmark

The fund has outperformed the index by only 2044 times as compared to 2113 times.

To understand it more clearly how the fund has performed vis-a-vis with other fund of same category i.e. Value Style, view the comparison.

Rolling Returns for 4 yrs
NAV Growth for 4 yrs

What should you do as an Investor? Is it time to Exit?

What will be your call:- If the fund manager deviates from investment mandate to improve performance

OR

Is the Mandate Important?

  • If Mandate is important, Can you Handle Value Strategy? If the answer is YES…then stay invested. If NO, then Exit.
  • If returns make you happy….then you are investing in wrong strategy & hope some strategy will be created in future.

#FundReview

Sundaram Midcap Fund

Sundaram Mid Cap Fund, previously known as Select Mid cap is one of the consistent performer in mid cap space since its launch in July 2002. Total AUM (Assets Under Management) is 5700 Crores, makes it stand at 4th position which has comfortably outperformed the Nifty Midcap TRI Index.

Investment Philosophy

The fund uses 5 S approach alongwith Growth at reasonable valuation.

  • Simple Business
  • Scalable Opportunity
  • Sound Management
  • Sustainable Competitive Advantages
  • Steady & Sustainable Cash-Flow

Morningstar Risk & Return Rating

Over the last 3, 5 and 10 years we see that the fund has a higher upside capture than the category but poor downside protection. So existing and potential investors should keep in this mind. See the change in numbers when you change settings to 3Y and 5Y.

Rolling Returns

10 years

Sundaram Mid Cap has an impressive long-term record, comfortably outperforming mid cap index, Franklin Prima and L & T. HDFC Mid Cap Opportunities has outperformed in its shorter history both in terms of risk and reward.

5 years

Over five years too, Sundaram Mid Cap has consistently beat Nifty Midcap 100 which is difficult to do.

Summary – Should I Invest?

Newer investors must understand that this fund can test your patience and take time to deliver. So use it only for truly long-term goals.

This is a consistent performer in the mid cap space, but do not expect downside protection from it. When the index falls, this is likely to fall more and make up for it when the cycle reverses. So unless an investor has the right mindset to weather such storms, they should consider this fund.