Dear Krishnamurthy, Ur observations clear echoes the views time & again expressed here @ MMB by Me & fellow boarders.
1. Avoid NFOs.
2. Invest only in a fund with a long history of at least 5+ years.
3. Invest 50-60% of ur MF portfolio in Large cap funds.
3. Mid cap & Small cap funds should not be more than 10-15%.
4. Review the performance of funds every 6-12 months & take corrective actions if necessary.
5. Invest only for long term.
6. Don`t bother about short term volatility.
7. Avoid lump sum investing.
8. Be disciplined in investing.

For ur observations - Please note that Midcap & small cap index r down more than what Nifty & Sensex r & that is showing in the performance of funds related to Midcap & small cap.

Thanks

Ashal...

Dear Radhika_nandlal, My take on Interest Rate -

Almost every indian Investor/saver have deposits in Banks. Over the last 18-24 months, the banks r offering higher rates on deposits (test case u r thinking to join this @ 11% FD).

Add 2.25-2.5% administrative cost & profit margin for banks on these deposit rates. The effective lending rate works out to around 12-13% but wait there is another twist in the tale named as CRR (Cash reserve ratio). For every 100 Rs. accepted by bank as deposit, it `ll have to keep 7.5 Rs. (after recent reduction of 1.5%) mandatorilly with RBI & it `ll be non income earning.

So from the 100 Rs. deposited by u, the bank `ll be able to lend only 92.5 Rs. & before the CRR cur the same figure was 91 Rs. only. So the effective lending rate comes around 14-15%. Now add at least 1-2% NPAs (non performing assets), the same lending rate `ll move on to on more higher level around 15.5-16%.

Now change ur shoes from depositor to borrower, R u ready to borrow at such higher rates to purchase -
1. That Plasma Panel
2. That High speed Mobike for ur son
3. That Grand new sedan costing 10+L
4. That sweet little (lavish) home costing anywhere from 20L to some crores depending upon in which place of india u r.
5. That drean swiss vacation
.......
......

The list goes on & on, but one thing is certain u `ll certainly cutback some of the above mentioned purchases or delay the same.

Now imagine u r not a domestic borrower but a corporate borrower. To increase ur capacities or starting a new factory or any other business requirement, after taking loans at such higher rates, how `ll u earn profits when the sale of ur products (CAR, Bike, Consumer goods, Homes....) is going down.

Sooner or later, the interest rate `ll go down, how much
I DON`T KNOW, by when, again I DON`T KNOW.

I know only one thing, for a healthy growth, low interest rates r essential.

Thanks

Ashal...

Dear Radhika_nandlal, U r time & again talking about Jeewan dhara Plan, but in my view ur Hubby had started New Jeewan Dhara or New Jeewan Dhara - 1.

The reason is, the plan named as Jeewan dhara was discontinued by LIC way back in 2001. This plan was just like an FD/KVP offering from LIC. Under this plan, the single prem. invested `ll be returned after 10Years as 3 times. Say u had invested 1L Rs. in 2000, u `ll get 3L Rs. in 2010.

As u r telling that u r paying prem. yearly, it means the older jeewan dhara plan is not with U. Infact the new Jeewan dhara Plan is a deffered annuity plan. Returns under this plan r very pathetic. Only around 2.5 to 3.5% during accumulation phase. Every year LIC announces bonuses for these policies & these bonuses r simple reversionary bonuses.

Even after completion of defferment period (read prem. paying term), the pension received from these plans is very - very poor.

Make an informed decision.

Thanks

Ashal ...

Dear Radhika_nandlal, here is the No. crunching u wanted. The bank FDs u r talking about current one u r holding & new one u want to switch, normally offers quarterly compounding.

Case - 1 Continue the current FD of 9.5%
Base amount = 35L
Maturity amount (pre Tax) = 4638686
I assume u r in 30.9% Tax slab, Post Tax maturity amount = 4286832

Case - 2 break the current FD & invest the maturity proceeds in a 1 year 11% FD.
As the older FD is completing 2 years & as per ur info the applicable interest rate is 8.5%,
Base amount = 3500000
Maturity amount for 2 years @ 8.5% (Pre Tax) = 4141185
Post Tax maturity amount = 3943059 This `ll be the base amount for new FD of 11%
Maturity amount @ 11% (Pre Tax) = 4395017
Post Tax maturity amount = 4255362

U can see urself that, Post Tax mat. amount is more in ur Older FD, so the bottom line is continue the same. ...

Dear Rkdave17, The plans of Birla r neither here nor there. I mean not effective for getting Insurance at cheaper cost & also not performing well on investment front.

I personally invested 20K in a ULPP of Birla around sept. 2003. It was s single prem. plan & no insurance component. In Sept 2004 I again Top up 10K. At the time of investment, i invested in 35% Eq. fund (it was the highest Eq. component in that pension plan). After watching its performance, till Dec. 2005, I decided to quit.

The reason was, the performance of fund was not upto the benchmark, forget about beating it. In the same duration, with same Eq. exposure, TIPP (Temp. India Pension plan) performed much better.

Even 2day after surrendering the policy, whenever I checked the returns of this Plan, well my decision of quitting is right.

Thanks

Ashal ...

Dear Radhika_nandlal. Investing in bank FDs is not a wise thing on ur part if u r already a Tax payer. According to our prev. discussions i know u r a tax payer. For every Tax slab of 10, 20, 30 & highest Tax slab the post TAX return of this 11% FD `ll be as below.

For 10.3% Tax slab - Effective interest earning from FD 9.867%
For 20.6% - 8.734%
For 30.9% - 7.601%
For 33.99% - 7.261%

It `ll be better on ur part if u invest this amount in a mix of FMP, MIP, Floating rate, Short Term & Long Term debt funds. Dividend in each of the above funds is taxed @ 14.15% by MF itself & the same is taxfree in ur hand. So if u r above 10.2% Tax slab, u may opt dividend transfer option, to invest the dividend in Eq. MFs of ur choice. This way ur basic capital is almost secure, u r earning an average return of 8-11% in the form of dividend & increase in the value of Units & the dividend invested in Eq. MFs for 3 years, `ll provide the extra kick in ur returns, so for a time frame of 3 years u may expect a post tax return of 10-12%.

Regarding ur Jeewan Dhara policy i already expressed my views some days back.

Thanks

Ashal ...

Dear jr.prased, For accumulation of retirement funds, don`t opt ULPP as ur preferred vehicle of investment. The reason is - common problem or disadvantages attached with Unit plans & i hope u r aware of the same, the another problem is the Taxation angle.

The amount u `ll receive as pension after vesting age `ll be taxable in ur hand. Even if u go for 35% cash commutation & opr pension from the remaining 65% fund, tell me dear where `ll u invest that 35% cash commuted part to earn healthy & taxfree return at the than ur age of 60+. Also the returns generated on ur corpus after start of pension of r very poor in the range of 4-5.5%.

A better way `ll be to invest majority of ur retirement needs in Eq. MFs now & a small part in PPF. Once u enter the age of 50 years gradually reduce ur exposure to eq. & increase ur allocation in PPF & transfer some of ur Eq. part in balanced funds.

Once u reach the age of 60, u may have a major part of ur investment in debt & hybrid funds & a small portion say 15-20% in Eq. MFs at that time too.

Thanks

Ashal...

Dear Ashal, Good informative post, keep it up.....

Ashal, Yes sooner or later bank interest will go down. The best thing to book long term FDs coz interest may go down just as swiftly as it went up....

Ashal, I realized i am no good in finance. If i remember one thing i forget the next and my parents know nothign but FDs... so its no use.. most brahmins are like that... I have so many policies, ICICI MILLINOARE BONDS, etc etc.. the houses i sold off coz i knew if i sell this i get this and its a multiple but in these insurance policies and millionare bonds i have to calculate inflation to see the worth and i dont know how to consider inflation when arriving at networth. BTW ystday finance minister said IIP numbers may not be correct.. i was aghast.. i though IIP numbers are released by the govt? Wonder who releases the IIP numbers.. so they have no hand in the release of such data? What a disconnect between growth and IIP numbers. When u plan do u take inflation also into account. Going forward do u see interest rates hardening or softening?...

Ashal, Thanks, yes its new jeevan dhara. I think i will remove the money here and invest it in some good stock....

Ashal, Thanks a million, this is what i wanted.. even the bank manger gave me to continue giving me some calculations, but i was too ashamed to ask my doubts... thanks....

ashalanshu, But i blew up all my hubby`s money and sold things for a song in the past.. dont want to be so consumed by money anymore.. i think these FDs represent stability... let me keep them.. besides i understand debt instruments are not 100% risk free... i am afraid to invest huge money in risky instruments and MFs are definitely risky. You replied to my jeevan Dhara query.. oh i completely missed it.. let me check. Thanks a lot....

Dear Ashal Congratulations! on being awarded the recognition! it is well deserved thanks -Ritul...