IIFL NCD - GRAB THIS LUCRATIVE OFFER

The carnage in the Equity, Gold, Real Estate and even the Debt markets have shattered investors faith.
They are now looking at "fixed" returns and to cash in on the same, India Infoline Limited's NBFC subsidiary, India Infoline Finance Limited (IIFL) has launched a Public Issue of Secured Redeemable Non-Convertible Debentures (NCD) of Face Value of Rs.1000/- each aggregating to a total of Rs.1050 crores today.
The NCD will carry a coupon rate of 12% interest annually.
The face value of each NCD is Rs 1,000 and the minimum application amount is Rs 5,000 (5 NCDs). The NCDs have an investment horizon of 3 years and 5 years. Allotment is on a first-come-first-served basis except on the last day where, in case of an oversubscription, the allotment would be made on a proportionate basis. The issue will close on October 4, 2013.
Investment can be made for a period of 3 years and 5 years.

MERITS :
1. This issue, unlike its 2012 avatar, is SECURED. So, in case of company going bust, your money is SAFE. Consequently, the claims of NCD holders will be superior to the claims of unsecured creditors (like company FD holders, which are unsecured deposits). The NCD is secured and shall rank pari passi with other credit holders. Even Banks and Company FDs do not offer this safety.

2. Rating too has gone up to "AA" from CARE, implying high degree of safety.
3. No TDS will be deducted if you invest via Demat, thus investor will get full cash flow of 12%. Though, you should note, the interest should be added to your overall income and will be taxable as per your tax slab
4. Good Liquidity due to listing of the NCD in both NSE and BSE. Though, NCDs are not traded regularly, IIFL's previous NCDs have good trading interest.
5. Monthly interest payment available, wherein annual yield works to 12.68%.
6. Company cannot prematurely redeem the NCDs as there is NO Call and Put option.
7. Company is in excellent financial condition and has among the lowest NPA in the industry. In fact, the NPA is progressively getting lower and lower from 0.36% in FY11 to 0.17% in FY13.
8. If you sell at the stock exchange after 12 months, your gains will be treated as long-term capital gain and will be taxed at 10 per cent without indexation. If you sell in less than 12 months, your gains will be treated as short-term capital gains and taxed at the marginal income tax rate.



DEMERITS :
1. For someone in the highest tax bracket, the yield will reduce to a paltry 8.4% from a lucuratively attractive 12%. They are better off investing in Tax Free Bonds of HUDCO which opens on the same day. However, please note that IIFL is for a maximum of 5 years, whereas HUDCO Tax Free bonds, your money could be locked for 10,15, 20 years.

CONCLUSION :
The company enjoys sound fundaments with low NPAs and High Capital Adequacy Ratio, which means that the Company has higher amount of capital held as compared with the value of risky assets

If you are a HNI and fall in the Highest Tax Bracket, you can skip the issue and look at HUDCO Tax Free bonds.
If you are a retail investor then, you may go for the Bonds in moderation.
Senior Citizens too can take advantage of the high interest and lock in at these rates and are advised to go for Monthly Interest Option.
Unless you have a monthly commitment or are sure of reinvesting the Monthly interest you receive, I strongly advocate investors to go for Annual Option.
SHOULD YOU INVEST??

YES!!! OF COURSE!!!
Even for a risk-averse saver bitten by ever falling Bank FD rates, NCDs are great alternative. After all, a three-year fixed deposit will earn you 9-9.5% interest, but a three-year NCD will fetch 12%, a clear gap of 250-300 basis points.
Investors can definitely take up the offer as they not only offer Returns higher than Bank FDs but their money is also secured by the Assets of the Compnay.
The markets are volatile, be it Equity, Gold, Debt, Real Estate. And among Fixed instruments, IIFL NCD is an attractive offer which retail investors should seriously consider investing.

Not only will you be locking your returns at a higher rate than a Bank FD but also liquidity is easy due to its trading in the Stock Markets!!! If you want to get out, you can get out any time.

Best of luck,
Srikanth Matrubai



Also visit http://equityadvise.blogspot.com

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FALL IN BOND FUNDS NAV......AN OPPORTUNITY?

 

The Lay Investor will be shell shocked for sure.

First his favourite, “Can never fall” Gold fell by 15% and next

his “Can never ever fall” Bond/Liquid Funds Fell by a massive 4% in a single day.

His definition of “safe” investment would have gone for a toss.!

We all now know why Gold fell. (Read http://goodfundsadvisor.blogspot.in/2013/05/do-not-buy-gold-this-akshaya-tritiya.html)

What should you do if you have a investment in Liquid/Bond fund?

WHY BONDS FELL?

The Reserve Bank of India (RBI) in its effort to rein in Dollar decided to tighten Domestic Liquidity and restricted overnight finance to banks as well as sell bonds in a bid to restrict liquidity in the system, a move that would take pressure off a weak rupee. This pushed up interest rates in the domestic money market.

This sudden jolt shook the Banks and they rushed to redeem their investments from Mutual Funds, especially Liquid and Gilt Funds. This resulted in Bond Yields shooting up to above 8% from 7.5%, the single biggest day gain in more than 3 years.

As Bond prices are inversely related to Interest Rates, a Rise in Bond yields pushes the NAV of Bond Funds down and hence, NAV followed suit with a fall of more than 2%. Even liquid funds were not spared and it was a “shocker” for many investors to see the supposedly “safe, very safe” Liquid funds too posting negative returns.

WHAT COULD HAPPEN NOW:

RBI could manage to sell only about Rs.2500 crore worth of bonds out of its targeted Rs.12000 but surprisingly it rejected most of the bids. Thus, RBI has sent a strong signal that these measures were temporary by rejecting bids and RBI is not in favour of strong interest rates.

The Liquidity pressure on Mutual Funds is ignorable as can seen from the fact that Mutual Funds were yet to make use of the Special Liquidity Window opened by RBI as they were eyeing higher yields which clearly shows that they have enough liquidity to manage redemption pressure.

WHAT EXPERTS SAY:

The Most experienced Fund Manager in the Industry on the Fixed Income side, Mr.Amandeep Chopra of UTI assures Investors “no need to panic, stay invested as this is a short term reaction”. In fact, he further goes on to encourage new investors to jump in these funds as these RBI measures are expected to be reversed sooner rather than later”.

IDFC Mutual Fund says that “Bond funds have become much more attractive due to this short term disruption”

TATA Mutual Fund has recommended investment in Dynamic Bond Funds at current levels with a 1 year Investment horizon as the Fund House feels that Investors like PF, Insurance Cos will use this opportunity to enter bond funds and thus ease yields on Bonds.

Kotak Mutual Fund feels that the sharp drop in the NAV of liquid and Bond funds is temporary and the drop provides lucrative investment opportunity for investors across the curve.

WHAT TO DO NOW:

If you have invested in these funds with a horizon of another year to go, you have nothing to worry as interest will accrue to the Funds holding and the NAV would rise. Moreover, the interest rates are expected to fall, at least Not Go Up, and in worst case scenario for an investor, the rates could be stable.  So your money is safe.

Continue to hold and those who would mind a bit of volatility, entering the Bond Funds should give you Double Digit returns, especially after the NAVs have dropped due to “Mark to Market” impact.

In the year 2008, Bond and Gild Funds generated returns of above 20% and next year gave a negative return of -15%, so you need to be very quick to get in and get out of these funds.

Best option would be to invest in Dynamic Bond Funds where the Fund Manager will take the call of moving in and moving out of short term and long term Debts.

The decline in NAV of BOND Funds during current week was a GOD GIFTED Opportunity for those Investors who wanted to Invest in such Funds & had some spare money.

Going forward, the investors can benefit from steady accruals from these funds and also benefit from rate cuts, when they happen.

I would recommend Short Term Debt Fund and Dynamic bond, especially those with lower duration.

Low risk investors should look at Accrual funds.

Enjoy the ride but be warned the ride could be bumpy.

Also visit http://equityadvise.blogspot.com

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MAXIMISE YOUR RETURNS ON IDLE MONEY

MAXIMISE YOUR RETURN ON "IDLE" FUNDS : 

 

Suppose you get your Salary/Rent on the 1st of every month.

It is unusal for you to have your entire months expenses on the 1st itself. The expenses will be staggered and spread throughout the month.

Ex

Mobile bill on 5th

School Fees on 10th

Credit Card on 15^th

EMI on 20^th

Monthly SIP on 25th

Till these expenses come up, you tend to lock your money in Bank wherein you are getting 4% (yes, some banks do offer 6% for Saving Bank Account, but these rates come with lots of conditions like balance of more than 1 lakh)

So, when I consider 4%, you are better off investing in Liquid Funds where returns match 1 year Fixed Deposits. Right now, even the underperforming liquid funds have been giving 8%, which is DOUBLE the rate of Saving Bank Deposit.

Another Advantage of investing in Liquid Funds instead of keeping in SB account is that Liquid Funds are in true sense “liquid” that is, you get your money within 24 hours and whats more some AMCs also offer ATM Card for your investment which you can use to withdraw money anywhere, anytime.

Theoretically speaking Liquid Funds are not Capital Safe but Liquid Funds invest in Money Markets, Short Term Corporate Deposits and Treasury and hence very liquid and very safe as all these instruments have very low risk and enjoy high liquidity.

Open Ended  - Debt: Liquid -  one Year Return
Fund	NAV (Date)	Returns(%)	Return as on
Escorts Liquid	18.52  (3-Jul)	9.78	7/3/2013
Principal Retail Money Manager	1,345.26  (3-Jul)	9.46	7/3/2013
Peerless Liquid Super Inst	13.12  (3-Jul)	9.13	7/3/2013
Tata Liquidity Management Plan A	1,619.69  (3-Jul)	9.08	7/3/2013
Taurus Liquid Super Inst	1,293.96  (3-Jul)	9.07	7/3/2013
Kotak Floater ST	1,964.69  (3-Jul)	9.05	7/3/2013
Indiabulls Liquid	1,166.53  (3-Jul)	9.05	7/3/2013
ICICI Prudential Money Market Reg	165.95  (3-Jul)	9.04	7/3/2013
Templeton India TMA Super Inst	1,785.54  (3-Jul)	9.03	7/3/2013
Birla Sun Life Cash Plus	192.10  (3-Jul)	9.01	7/3/2013

Returns Chart as on 4^thJuly 2013

Another point to note is that since Savings Account Interest is de-regulated, the interest on SB Accounts also vary and is not fixed. Which means now if the bank has set the interest rate at 6%(increasing interest rate scenario) .It can also reduce below 3.5% also when interest rate dives low.
My personal feeling is, there will always be a gap of at least 1% in Favour of Liquid Funds compared with SB account.

TAX ANGLE :

Recent hike in Dividend Distribution Tax to 28.3% (including Cess & Surcharge) may make many wonder SB Account with its upto Rs.10000/- Interest as Tax Free a better option.

I beg to differ for 2 reasons.

1. The Average returns of Liquid Funds has always beaten SB Account Interest by a minimum of 1%
2. True, Dividend on Liquid Funds are taxed at 28.3% but Interest on SB interest is added to your overall Income and is taxed as per Tax Slabs.
3. Interest on Liquid Funds is paid out on Daily basis where Interest on SB Account is paid on Quarterly basis.
4. There is no charges by AMCs if minimum balance in Liquid Fund goes below the prescribed minimum balance, whereas Banks charge anywhere between Rs.50 to Rs.1000.

So, if you an investor who comes under High Tax Bracket of 30%, you are advised to go for Dividend option wherein your Capital Gains is nullified and if you are in Lower Tax Bracket, you can go for Growth option and take the advantage of Indexation to reduce your Tax Outgo.

Prudent financial planning says that an investor should have some Contingency fund to face any Emergency situation in Life. So, keep cash at home and the balance should be divided in SB Account and Liquid Fund depending on your requirements.

I normally advise investors to keep 1/3^rdof Contingency Fund in Liquid Funds.

After all, an 8% return with 1 day Liquidity is always much better than a 4% in SB Account!

Caveat : Do not use Liquid funds for Investment use them purely for parking your Temporary money.

Also visit http://equityadvise.blogspot.com

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Planning for your kids future

Now, just casually mention "I WANT TO SAVE FOR MY CHILD'S FUTURE" and you will be flooded with hundreds of calls, emails, messages, etc from Insurance agents and Banks.

And, with info overload, more often than not, investors fall into the "cheapest" bait and then regret in leisure.

So, in a genuine attempt to clear the clutter and confusion, here is an article on the way to go about setting up a Financial Plan for your kid’s future.

Congrats.  So, you have just been blessed with a angel like child and you have already started dreaming making the child a Doctor/Engineer.

You being educated have decided that you will invest in the child's name right now to build a corpus for the same.

Another congratulation since you are on the right track of Financial Planning by choosing to invest for your child at such a young age. This will ensure that the investment to give the Compounding Magic. The biggest aspect in your favour is TIME. You have clear goal and you have sufficient time to achieve the same. Because the earlier you start, the more the time available for your investments to grow, and the bigger the corpus.

BEFORE INVESTING:

It is inevitable that you prepare a road map of future goals for your child wherein you plan when and how much you require for your kid.

Ex : College Admission (15 years)

        Grand Birthday (10 years)

        Marriage (25 years)

This road map will help you and your Advisor to decide on the Asset wherein your investment can go. While arriving at the figure, do factor in the inflation. While calculating the figure, it is better to err on the higher side rather on the lower side. 

WHERE TO INVEST:

          After you prepare a list of your future goals and approx dates, you should decide on your risk tolerance and prepare an ideal Asset Allocation preferably with your Financial Advisor.

Jointly decide on how much percentage should be invested in Mutual Funds, Insurance, FDs, PPF, Gold, Real Estate, etc.  Strike a good balance between capital safety and returns.

It is widely accepted fact that majority of Indian parents blindly look at low yielding PPF and other Fixed income instruments for their children which obviously, due to inflation and taxes, may leave well short of your targeted corpus. With this in mind, you should have a higher exposure to Equity (via mutual funds, preferably) to generate inflation plus returns.

CHILDREN INVESTMENT NO DIFFERENT:

          The basic thing which every Parent has to understand that whether you are investing for yourself or your children, each investment carries the same risks, same returns and even the same tax.  Just because you are investing for your kid does not make the Insurance Company or the Mutual Funds to show any favour in terms of either costs or returns.

FIRST THINGS FIRST:

          The Foundation of a Proper Financial Plan rests on Adequate Life Insurance. You need to take Adequate Term Insurance Plan as Term Plans are very cheap as it is pure risk policy.

Next step is taking a Health Insurance Plan. Take Adequate Health Cover and increase the Cover by topping up in about a decade.

Then invest in Diversified Mutual Funds, which I keep recommending in these columns.

CHILD PLAN:

          Regarding Child Plan, I am not in favour of any Child Plan, be it Mutual Fund or Insurance. They are pure Marketing Gimmick and work in the same way as any other scheme by investing in a mix of equity and debt instruments. There is nothing special here. Avoid child specific investment schemes.

I have observed that 9 out of 10 people blindly go for Child Insurance Plans. This is a waste of money.

Child Insurance Plans are long term gambles similar to ULIPs. The returns depend on how well the Insurance Company manages the Investment portion.

Child Plans also are very expensive because of their charges. In fact, these charges are not just for the 1st year but continue for several years.

Insurance companies bring out these Child Plans to play on your emotions and squeeze money from your pocket. I am against these Child Plans and Pension Plans. While investing, the brochure paints a rosy picture and you are sure to get lured to invest. But, at maturity you will realise that the returns are very poor. It is always better to keep Insurance and Investment separate.

An ideal Child Plan is the one which covers the Parent and not the Child. Insurance is taken to provide financial security in case of death of proposer and hence there is no point in taking Insurance in child's name. You are advised to take Insurance in your name, make your Child Beneficiary nominee under the guardianship of your wife.  Opt for a Plan which has "Waiver of Premium" clause wherein all future premiums are waived off in event of death of parent and most importantly, your child will continue to get all the Benefits promised by the Policy.

Equity Mutual Funds is the only asset class which grows FASTER than your kid’s tuition bills.

No child plan can match the returns of top of even average rated diversified equity fund. In the name of offering you a custom investment cum insurance product they charge high costs with lock in, surrender charges etc.

PPF:

          Yes, as a parent you can invest in PPF for your child. But, do note this will added to your Tax Status and you can claim only a max of Rs.1 lakhs and not Rs.2 lakhs.

PPF is very very safe and almost every advisor worth his name recommends PPF. But, considering that PPF tends to give returns matching with Inflation, I would suggest looking at assets which gives returns above Inflation and that obviously will be Equity Mutual Funds.

But, yes, surely a combo of PPF + term Plan beats any Child Plan any day especially since now PPF is now market linked.

But, on another note, a combo of Mutual Funds + Term Plans beats all other combo!!!

MUTUAL FUNDS:

          You should look at investing regularly in large- and large- and mid-cap funds to get the most of power of compounding and SIP investments. As said earlier, mutual funds are the only asset class which has the potential to deliver above inflation returns on a consistent basis. I strongly suggest you to invest through monthly SIPs to make use of the volatility of the fund's NAV movement.

My model mutual fund portfolio for your kid would be

AXIS TRIPLE ADVANTAGE FUND

BNP PARIBAS DIVIDEND FUND

BIRLA SUNLIFE FRONTLINE EQUITY FUND

DSP BLACK ROCK TOP 100 EQUITY FUND

HDFC PRUDENCE FUND

ICICI PRUDENTIAL DYNAMIC FUND

IDFC PREMIER EQUITY FUND

L&T EQUITY FUND

MIRAE ASSET INDIA OPPORTUNITIES FUND

RELIANCE EQUITY OPPORTUNITIES FUND

RELIGARE INVESCO CONTRA FUND

TATA EQUITY P/E FUND

UTI DIVIDEND YIELD FUND

You can choose any 5-6 funds from the above based on your risk appetite.

If you do not want to go to a financial advisor and invest in 1 single fund, then you can consider investing in ING FINANCIAL PLANNING FUND - AGGRESSIVE. This Fund is a Fund of Fund which invests in Best of Funds across AMCs and has given a good account of itself in its short history.

STICK to the Asset Allocation.

Review your portfolio regularly and take corrective action, if required.

Move your corpus away from equity to Debt as you near the Target Date.

FINALLY,

          Do review progress made by your portfolio regularly and take corrective action if required.

If there are new goals or if present goals have been met, then appropriately increase/decrease your investments and also modify your portfolio accordingly.

 Make sure to monitor the progress of these funds and consider moving to debt funds as you approach the year when you need the investment.

 Stick to the above funds for Good Gains, which should give returns definitely better than ULIPs.

Best of luck,

Srikanth Shankar Matrubai 

Also visit http://goodinsuranceadvisor.blogspot.in/

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DO NOT BUY GOLD THIS AKSHAYA TRITIYA!

 

 

If Akshaya Tritiya is an auspicious day to buy GOLD, then, when, is an inauspicious day to Sell Gold?
These "experts"(?) always recommend to buy Gold, but never to Sell Gold!!!

Buying gold this Akshaya Tritiya isn't advised

For most of us Akshaya Tritiya would be an ideal occasion to buy gold, but experts predict further correction in gold prices going ahead. From strictly a financial point of view, experts feel it doesn't make much sense to buy gold at current levels.
Praveen Singh, senior analyst - commodities at Sharekhan says barring traditional significance, it probably doesn't make much sense to buy gold at current levels.

Jonathan Barratt, chief executive officer, Barratt's Bulletin advises investors to stay away from gold for the next few months. 

 "This is not a good time to accumulate gold and silver. It is just beginning of a decline. We have broken significant support levels. A bear market has started," Sudarshan Sukhani of s2analytics.com stressed.  

 SP Tulsian of sptulsian.com also believes that weakness in Gold will continue for sometime. "Coming on gold the kind of technical levels which is being talked about are anywhere between USD 1200-1250 per ounce. One can look to see the level of Rs 25000." 

 

 Gold prices do tend to soften after the wedding season in May and before the festive season that begins after August, but there is no technical or fundamental reason to buy gold on Akshaya Tritya.
Because Akshaya Tritiya comes only once a year and anyway the prices are lower than what it ought to have been. On the flip side, if you research well, Akshaya Tritiya was only meant for engaging in some good deeds and not worshiping Goddess Mahalakshmi. The gold craze was created by our friends in the jewelry business. Three cheers to the visual media.

 

A seller is always bullish on Gold. If you ask a barber whether you need a haircut, he will 100% say, YES.
Gold is due for a correction. If not price correction, definitely Time correction.
I personally recommending to my clients to avoid buying GOLD for investment purposes.

 As gold offers no regular cash flows, there is no intrinsic value that we can assign to, say, a bar of gold. This means that gold prices can theoretically decline to any extent in a corrective phase. It would be a good idea to start buying now, but to phase out your purchases over 4-5 instalments to benefit from volatile prices. 

If your Asset Allocation is telling you to BUY Gold., then buy Gold ETFs or Gold Saving Funds via SIPS. 

My choice would be RELIGARE GOLD FUND. 

 

 

Also visit http://equityadvise.blogspot.com

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IDFC EQUITY OPPORTUNITY FUND - NO Opportunity here. SKIP

Analysis of  IDFC Equity Opportunities - Series 1 NFO
IDFC Mutual Fund is coming out with a New Fund Offer on 9^th April namely IDFC Equity Opportunity Fund. The Fund will be a 3 year Close Ended Fund. The Fund will aim to invest in Small and Mid cap fund.


POINTS TO CONSIDER ABOUT THE FUND:

1. IDFC Equity Opportunity Fund will be investing in small and mid cap and hence I would categorise the fund as a High Risk High Return fund.
2. IDFC, as a Fund House, enjoys a good reputation of investing in mid cap space.
3. The Fund will limit its size to 125cr as the Fund House feel this will ensure investors make early returns in the next cycle.
4. The Fund is a Close ended fund.
5. Fund will have a diversified portfolio of 60-80 stocks. The key for diversification is to manage liquidity/risk considerations and play across sectors.
6. The most interesting aspect of this NFO is that there is NO Growth Option and there is COMPULSORY DIVIDEND option.

POSITIVES:

1. The 3 year lock in allows the Fund Manager the to buy and hold stocks and not worry about the daily NAV as well as any Redemption Pressures.
2. The Fund Manager Kenneth Andrade has gained reputation of identifying small caps which has the potential to become Larger Mid Caps. Some notable examples being Page Inds, Kaveri Seeds among others.

NEGATIVES:

1. Star Fund Manager Kenneth Andrade besides managing the highly successful IDFC PREMIER EQUITY FUND also manages like IDFC 50-50 Equity Fund, IDFC Infrastructure Fund, IDFC Equity Fund whose performance is nothing to boast of.
2. Small Caps and Mid Caps tend to be highly volatile and investing in SIP way would be the BEST method to negate the volatility but sadly this NFO does not give this option as this is a Close ended fund and hence no SIP option.

CONCLUSION:
IDFC is advertising this Fund as “an opportunity presenting itself after a decade”.

Sure opportunity is there, but why should I do go for a Close ended fund when I can do the same with a Open ended fund which I can always switch if the Fund is inconsistently performing poorly which i cannot do with a Close ended fund as this NFO is?
The Fund is for investors who are ready to take High Risk in pursuit of High Returns. Even then, I would prefer investing in proven small cap funds like Religare Mid n Small Cap Fund, Mirae Asset Emerging Bluechip Fund, DSP Small and Mid Cap fund, etc  rather than risking some more by going for a NFO, that too close ended.
My advise.........AVOID.  If you still want to invest in this fund, ensure that your expose is limited to 5% of your overall portfolio.
Best of luck,
Srikanth Matrubai

Also visit http://equityadvise.blogspot.com

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