Moneycontrol News: The mutual fund (MF) industry wants to meet with the Securities and Exchange Board of India (SEBI) to seek clarity on its latest diktat that all scheme-related expenses be booked in the respective schemes, Business Standard reported.
Industry players have asked the regulator if redemption-related borrowing costs could also be included in the asset management companies' books, in the case of liquid funds.
Liquid funds are used by large companies to park excess cash and therefore, redemptions are also large. To meet these redemptions, funds usually approach banks.
"We would request SEBI's guidance and clarity with respect to borrowing costs if it would be in order for AMCs to bear that portion of borrowing costs which exceeds the day's yield to maturity of the scheme," the letter, reviewed by the publication, read.
The net asset value (NAV) of these schemes will be negatively impacted if these borrowing costs are adjusted in the liquid schemes. On the other hand, experts also say this move affects the profit margins of the funds.
The market regulator is reviewing norms to make liquid schemes better equipped to deal with tough market conditions and volatile flows. It was reported earlier that some of the proposals being considered are reducing investor concentration and flow of less than seven-day money.
Liquid funds have been under the spotlight after a series of defaults by Infrastructure Leasing & Financial Services (IL&FS). Liquid schemes had to manage redemptions worth Rs 2.1 lakh crore in September.
As a result, the regulator issued a circular on October 22 saying that all scheme-related expenses must be booked in the respective schemes, to bring about more transparency in the process.
The letter also addresses queries about non-cash commissions to distributors. In its circular, SEBI had stated that MFs would be required to adopt a full trail model of commission in all schemes “without payment of any upfront commission or upfronting any trail commission, directly or indirectly, in cash or kind”.
Some funds hold contests which provide benefits to distributors such as international cruises or foreign trips, on the basis of their contribution to the fund's assets under management (AUM). MFs wanted to know if these programmes will be considered upfront payment, and therefore, must be stopped.
MFs asked the regulator if sending their distributors to institutes across India or abroad for management and related courses will be considered as an upfront payment.
SEBI had clearly stated in its circular that there is no need to discontinue these programmes if they are not being used to give non-cash incentives to distributors.
According to the report, the industry wants an exemption from having to disclose scheme AUMs on a daily basis, saying that it could propagate unhealthy competition and attract unnecessary media scrutiny.
They have also asked the regulator for a list of expenses that can be treated as scheme-related expenses, with their own suggestions about which expenses must be included.This list was updated last in 2009.
Courtesy By: www.moneycontrol.com
What does the unknown and unexpected do to us? Are we thrown off balance, unable to decide? Are we so unsettled that we do not know what past experience to draw upon to deal with a new situation? Or, do we love the surprise? Do we enjoy the adrenaline rush and the freshness of the new? Personal finance is personal, because each of us responds differently to the unexpected.
What is the right thing to do, is the oftasked question. There is no single satisfactory answer. Don’t spend your income, some will say; put aside some for a rainy day, others will add. Some will fail to visualise what a rainy day might look like and so fearing it would seem foolhardy to them.
From among all the advice about goals, retirement, early saving, investing right, risk preference and disciplined investing, how do we choose our path? How do we stick to it? Where should we begin?
Strategic personal finance requires investors to think deeply about their financial lives, and set themselves preferences about how they would like to play the game. It is strategic because it considers both actions and consequences. It is not a whimsical orientation that seeks to live the good life without the effort to earn the money to support it.
First, have we identified what we want our money to do? What purpose would it have to fulfill to satisfy us? There is a hierarchy in play here. We seek safety and security for ourselves and our family as a primary survival goal. After having enough to meet the basic needs, do we know what we should do with the surplus?
Our spending habits are dictated by our strategic orientation about what is important to us. To some, keeping up with social circles is so important that spending on partying, clothes, gadgets and travel is something they have to do. To some, the lure of interests is so high that they have to spend on it regularly. To some, giving is the primary purpose of the surplus and they have to pursue charitable activities. Make sure you have enough for what matters most to you.
Second, how do we behave when there isn’t enough to go around? How willing are we to make sacrifices? Do we choose denial instead? Do we borrow to make up? How do we make choices when we fall short?
Our saving habits are driven by our strategic choices around money as a limited resource. If we dislike falling short, borrowing, or asking around, we willingly set money aside for the future. For an unknown eventuality that might need us to draw upon our savings, we create a buffer.
Third, how accessible do we want our savings to be? Is being able to draw on it at short notice a comfort we need? Or do we want it to be locked away out of sight so we are not tempted to access it? Do we like checking what is going on? Or are we willing to let it lie and be confident that everything will eventually work out fine?
Fourth, how well do we stick to plans? Are we able to implement and execute ideas? Are we able to respond to events as they unfold and make tactical changes as needed?
Courtesy By: https://economictimes.indiatimes.com
What is liquidity for investing context?
Liquidity reflects the ease with which an investor may turn an asset into cash without incurring any fall in its value. In a way, it relates to ability of an asset to be converted into cash during a purchase or sale transaction without adversely influencing its price. From an investment perspective, liquidity defines the convenience with which an asset can be purchased or sold to fulfill emergency cash requirements. Amongst various asset classes available, cash has the highest liquidity. Apart from that, highly-traded stocks also fall in the category of liquid assets because you may find takers of these stocks very easily and sell them conveniently to receive cash.
Assets like real estate and thinly-traded stocks may become difficult to liquidate during an economic crisis without losing a great deal of money. With respect to mutual funds, you may expect a great deal of flexibility and liquidity coupled with higher returns.
Why liquidity matters?
While assessing an investment product, most of the investors keep rate of return as a selection parameter. There is excessive importance given to performance of the underlying asset. However, not much emphasis is given to liquidity of the product. Basically, any kind of investment is done to achieve a given set of goals. You keep contributing towards the product with an intention to receive the accumulated corpus when the goal becomes due. But if you are not able to exit the product at the right time, then it might have serious repercussions. Especially, in case of market-related products like equity funds, an unplanned delay may lead to erosion in fund value when you are unable to redeem on time.
So, at the time of asset allocation, you need to keep the liquidity aspect in mind and choose the products accordingly. You might have witnessed that certain illiquid assets offer exceptionally high rate of return. However, you need to approach this from a holistic point of view. It is agreeable that liquidity and profitability are conflicting considerations. But you need to provide for liquidity while keeping profitability in mind.
Mutual funds offer a combination of liquidity and profitability packed under same scheme. Except Equity-Linked Saving Scheme (ELSS) which comes with a lock-in of 3 years, all the other open-ended equity funds are highly liquid. You can redeem the units via the buyback option and get the amount credited in your bank account. In case of Exchange-Traded Funds (ETFs), you get the real-time NAVs and the redemption facility of either buyback or selling the units in the stock exchange just like equity shares.
How liquidity in mutual funds is beneficial?
Being market-linked products, the liquidity offered by mutual funds can prove to be a boon for the investors in many ways.
In cases where a fund or a group of funds have consistently underperformed the benchmark across time intervals, you may use your liquidity option to redeem the said fund and switch to a superior fund.
There is always going to be a time lag between your investing in mutual funds and the date when your goal becomes due. In between these two data point, market may change owing to dynamic economic events. In such a scenario, liquidity offered by mutual funds helps you to review the relevance of the given funds keeping the changed scenario in mind. Based on such an analysis, you may rebalance your portfolio accordingly to keep your risk profile intact.
Some long-term goals like retirement planning require you to make an exit at an appropriate time to optimise on market volatility. Mutual funds offer the facility of Systematic Transfer Plan (STP) and Systematic Withdrawal Plan (SWP) for this purpose. STP help you to transfer funds from high-risk haven like equity funds to low-risk havens like debt funds as you approach retirement. SWPs help to redeem the fund in a phased manner to avoid any jerks.
You may come across emergencies which warrant sudden requirement of cash. In such a situation, mutual funds come in handy. You may create a highly-liquid emergency fund known as Liquid Fund for this purpose. It is a type of debt fund which gives higher returns than a regular saving bank account. It offers flexibility to withdraw money any time without incurring any exit loads. You may think of putting your six months’ worth of personal expenses in a liquid fund for your emergency needs.
Mutual funds are indeed sophisticated products. Liquidity is definitely an important parameter but not the only selection criteria. Your investing decisions need to be goal-driven and as per your risk tolerance.
Courtesy By: www.moneycontrol.com
Are you often confused on how and when to choose between large-cap, multi-cap, mid-cap and small-cap funds? A large range of mutual funds options are available in the market to help investors to achieve their allocations across mutual funds. However, the decision regarding mutual fund category to invest in would primarily depend upon the investor’s risk tolerance and investment horizon. For those looking to invest for long term, i.e. above 5 years, equity mutual funds would be the most suitable choice compared to debt funds.
If you are a risk averse investor, you can consider investing either in multi-cap or large-cap equity funds, since these funds are potentially low on volatility. Large-cap funds primarily invest a larger proportion of their investment in companies that have a larger market capitalisation, and have therefore proven stability and consistency in their returns over a period of time. Whereas multi cap funds incorporate a mix of large-cap, mid-cap and small-cap stocks in its portfolio, by investing in equity shares of companies belonging to different market capitalisation. Large cap is relatively less risky than pure mid cap or small-cap funds.
In terms of portfolio construction, there are a few basic factors you need to consider. The important ones discussed here can help you get a clear picture while selecting funds among the various categories:
Let us take a look at 5 factors which help decide on mutual fund categories.
1)Pick a mutual fund based on risk profile
Risk profile is the ability and willingness to bear risk. A conservative investor must consider large-cap funds. They generate wealth, slowly and steadily over the long term. These are steady performers which pay regular dividends.
The large-caps have performed very well over the last year, even as mid-caps and small-caps are going through a severe correction. A volatile market has forced investors to seek solace in large-cap funds.
“Mid-caps and small-caps are for investors with high risk tolerance. They outperform large-caps in a bull market but could crash in a bear market. Small-caps are for investors with high risk appetite, seeking very high returns.
2)Look at expense ratio
Total Expense Ratio (TER) is the expenses involved in managing and operating the fund. The mutual funds with lower expense ratio generally outperform those with higher expense ratio. “Large-caps have lower expense ratio vis-à-vis mid-caps and small-caps, as expenses are spread over a fund of very large size. Mid-caps and small-caps have a higher expense ratio as they meet expenses over a smaller asset base.
3)Invest based on time horizon
Time horizon is the time you can stay invested in a mutual fund. Invest in equity mutual funds for the long-term of at least 5-7 years. The past equity trends have shown that 10-year returns of small-caps are higher than large-cap funds over the same period. Small-caps are good performers even over a 5-year period. The trick of making money in any mutual fund is staying invested for the long-term. Invest in small-caps over large-caps and even mid-caps, if you have a time horizon of 10 years or more.Invest based on time horizon.
4)Small-caps and mid-caps are not suitable for everyone
Investing in small-caps is not just the volatility. Good research cuts down risk in small-caps, which is beyond the scope of first-timers. “It would be wise for first-timers to stick to large-caps. If you are not capable of ‘Do It Yourself’ investing, stay away from mid-caps and small-caps. They are not meant for everyone. A first-timer who invests in a small-cap and sees the portfolio erode by 15-20% would panic and exit the scheme, never reaching financial goals.
5)Look for diversification
Diversification is not investing in two mid-caps and two small-caps. Diversify across categories. First-timers could invest in one large-cap, mid-cap and small-cap. One fund category that stands out is multi-cap funds. They are equity diversified funds which invest in Companies of different market capitalization.
Multi-cap funds have been exceptional performers over the past year. They don’t face restrictions vis-à-vis Company size. A large-cap has to invest only in large-cap Companies and a small-cap in small-cap companies. “Multi-cap funds have the opportunity of investing across markets. Invest in multi-caps if you are a moderate risk-taker looking for long-term wealth creation.
Be Wise, Get Rich.
Courtesy By: www.moneycontrol.com
New Delhi: With the onset of the festival season, we not only have to open our hearts but also need to loosen our purse strings. With almost every festival being celebrated, most consumers are gearing up to spend big money over the next weeks on things like home renovation, gifts for family and friends, electronics, cars and so on. Retail demand continues to exhibit strong growth throughout the year and is expected to further spike during the festive season. But volatile market conditions and rising banking rates have given rise to doubts in the minds of non- bank lenders who are already facing tight finance circumstances.
Does that mean that consumers looking to fund their festive season shopping will find it difficult to do so? While banks and NBFCs are unequipped to offer loans in a very short time, peer to peer lending on the other hand, is fast emerging as one of the major alternative options for borrowing festive loans.
There has been an uptrend in the number of festive loan enquiries in peer to peer lending platform over the last three years. The sector has been witnessing a surge in demand for loans from September to December every year. While banks look for good credit history for disbursing festive loans, a borrower can raise urgent loan during the festive season even if he/ she does not have any collateral. The use of CIBIL data has been the backbone of instant loans in case of peer to peer lending. The technology driven lending model in peer to peer industry enables a faster loan processing. Risk assessment algorithms evaluate the credit profiles of lenders and borrowers in a quick time frame and give almost instant approvals. Thus, a loan which takes six to seven days to reach beneficiary accounts in case of other financial platforms usually just take two to three days in case of peer to peer lending. The process is more seamless, efficient and convenient for customers. Another reason for the rise in demand for festival loans in the P2P segment is that there are no penalties for repayment, no hidden charges and the loan can be availed for festive purchase starting from family gift items to expensive consumer durables like electronics, cars and any and every kind of festive related purchase. To add on to these, the repayment terms are also flexible and one can repay the loan at any point of time which is convenient to the borrower. It is however important to keep in mind that consumers do not go overboard with borrowing due to easy access of loans. Since access to loans has become easy, there is risk of excessive borrowing. Borrowers rather should first plan for repayment of loan even before taking the loan so that the finances do not get stretched. It is thus advisable to make a budget and also to have some liquid funds in case the spending exceeds the estimated budget.
Courtesy By: http://www.millenniumpost.in
In most products, features are thought to be a good thing. However, when it comes to financial products, this passion for features is a problem, since features tend to obscure the inherent attributes of a product. Worse, when the disease of featuritis afflicts financial concepts like mutual fund SIPs (Systematic Investment Plans), whose very reason for existence is to provide simplicity, then the problem becomes serious.
It’s easy to get involved in overcomplex analysis and lose sight of what is important. Some time ago, I got an email from an investor who said he had read in an article somewhere that that if one increased one’s monthly SIP amount by 10 per cent every year, then the final value would increase by 45 per cent. The investor wanted to know if this was true and if it was, then should this 10 per cent increase be a simple increase or a compounded one. I didn’t quite know how to respond.
At one level, it’s good to see that a saver is taking his investments seriously and is examining what he is doing, and what effect it is producing. However, there’s a problem because there’s a touch of ritualism. Someone is applying the maths slavishly without understanding what is going on. Firstly, settling the answer to this question is a fairly straightforward arithmetic exercise, although the idea is dubious even without running any numbers. Secondly, even though it’s maths is not quite there, what the original article seems to be trying to convince readers is, if you invest more then you will end up with more money. One can hardly argue with that, even if it is not some magical number produced by an investment ritual.
However, the bigger problem is the idea that there is some magic to the very simple concept of investing in a volatile asset by averaging your cost. The idea of a SIP is that you should keep investing a fixed sum regularly in an equity fund, regardless of market conditions. Over long-term, you end up buying more units when the markets are down and fewer when the markets are up. Thus, your average purchase price is much likelier to be higher than what it would have been otherwise.Therefore, when the time comes to redeem your investments, they are very likely to be worth more than what they would have been. There are no guarantees, and there are no fixed formulae of expected returns. Hypothetically, if stock markets were to go into a long-term stagnation or decline, then it won’t work out. But in the real world, since you are investing in something that has high volatility but a general trend upwards, you’ll come out well.
However, the value of a SIP is not in the maths, but the psychology. It’s the simplest way of investing regularly and getting good returns from equity. Mutual fund markers have exploited the attraction that complex, feature-laden investment options have for investors. There are a number of SIP plans to which market-timing has been added as a feature. If there’s one investment technique where keeping it simple and avoiding every complexity is of the highest value, it’s SIPs.
Courtesy By: economictimes.indiatimes.com
Mutual funds can provide you products that can meet your financial goals with relatively lesser risk. The key benefits of investing in mutual fund (MF) are given below:
• Safety: MF offers you to choose the fund that suits your financial goals and risk appetite.
• Liquidity: MFs are almost as liquid as your bank deposits and other investment products. You can withdraw and get the money in your account on T+3 days basis, T being the day on which you did the transaction.
• Returns: MFs offers you to chose the fund that suits your returns and risk appetite. Historically equity has delivered higher return than any other asset class over a long period of time. As an investor you must consider Real returns (Returns – Income tax – Inflation).
• Diversification: Don’t put all eggs in one basket as it increases the risk of breakages. MF allows you to participate in products across investment class and also across various companies and institutions there by spreading your risk and letting you enjoy the benefits of diversification.
• Convenience: Once you open an account, that account becomes your identity with the MF. It also allows you to invest at your convenience, withdraw at your convenience, make payments directly through your bank etc. You can start as small as a monthly commitment of Rs.1000.
• Outsourcing of fund management: By investing in MF, you are basically outsourcing fund management expertise at a very nominal average total expenses ratio of 2.25% to 1.05% for equity funds and 2.00% to 0.80% for debt funds.
• Outsourcing of advisors: There are 43 mutual fund companies and over 1000 schemes to choose from. Imagine the amount of work that is required to find out what suits your financial objective. The best way forward is to consult a financial advisor who will advise based on your financial objective.
Isn’t investing in MF risky?
Tell me what is not risky. The risk in life starts from the very moment we arrive in this world. Do we stop living? If the answer is no, then how can we stop investing just because we feel it is risky. The good news is that MF provides you product choices across risk and return horizon. You can chose the fund depending on your investment objective and goals. If you are looking at capital appreciation, you can look at equity mutual funds from a long-term horizon. However if your objective is capital preservation and returns that are a bit more than bank deposits, you can look at debt funds. Start embracing risk. Consult an advisor who will help you understand your risk appetite.
What are the various categories of funds available for investing?
In the modern world, there are multiple asset classes available for investing and within those asset classes there are multiple choices of fund managers. The asset classes/ fund categories available today are:
• Equity: Investments are made in equity shares of the company. This is most ideal for those who are looking at capital appreciation. However one should look at an investment horizon of five years and more.
• Debt: Investments are being made in fixed income instruments like fixed deposits, bonds, government securities etc. These funds give you a choice of time horizon from 1 week to 2 years depending on you financial objective.
• Hybrid funds: These funds give you the best of both the worlds by investing the amount both in equity and debt. Balanced fund is a very good example. This can be a very good starting point if you do not want to invest 100% in equities to start with. You should be looking to invest with a minimum 3 years time horizon.
• Gold funds: These funds invest in gold. Smart investors will invest in these funds and not buy physical gold. The fund will give you market related returns. The advantage is that you can always withdraw and buy gold or jewelry whenever you want to. The extra risk and cost of storing, making charges etc. is eliminated.
• International funds: You should be introducing geographical diversification in your portfolio. It reduces portfolio risk. You can invest in companies across the globe through these schemes.
In near future, we will be able to participate in Real estate and other asset class funds as well.
Disclaimer: Mutual funds are subject to market risk. Please read offer document before investing.
Courtesy By: https://www.moneycontrol.com
An increasing number of consumers are now taking personal loans for their purchases, especially the big-ticket ones. They are also converting their purchases into equated monthly instalments (EMIs).
Personal loans help the households meet any shortfall they experience in buying a house or a car, in children's higher education, or even in cases of medical contingencies, among other things.
Here's a low down on personal loans to understand them better.
What is a personal loan?
Simply put, it is an unsecured loan taken by individuals from a bank or a non-banking financial company (NBFC) to meet their personal needs. It is provided on the basis of key criteria such as income level, credit and employment history, repayment capacity, etc.
Unlike a home or a car loan, a personal loan is not secured against any asset. As it is unsecured and the borrower does not put up collateral like gold or property to avail it, the lender, in case of a default, cannot auction anything you own. The interest rates on personal loans are higher than those on home, car or gold loans because of the greater perceived risk when sanctioning them.
However, like any other loan, defaulting on a personal loan is not good as it would reflect in your credit report and cause problems when you apply for credit cards or other loans in future.
For what purposes can it be used?
It can be used for any personal financial need and the bank will not monitor its use. It can be utilised for renovating your home, marriage-related expenses, a family vacation, your child's education, purchasing latest electronic gadgets or home appliances, meeting unexpected medical expenses or any other emergencies.
Personal loans are also useful when it comes to investing in business, fixing your car, down payment of new house , etc.
Although it varies from bank to bank, the general criteria include your age, occupation, income, capacity to repay the loan and place of residence.
Maximum loan duration
It can be 1 to 5 years or 12 to 60 months. Shorter or longer tenures may be allowed on a case by case basis, but it is rare.
Disbursal of loan amount
Typically, it gets disbursed within 7 working days of the loan application to the lender. Once approved, you may either receive an account payee cheque/draft equal to the loan amount or get the money deposited automatically into your savings account electronically.
How much can one borrow?
It usually depends on your income and varies based on whether you are salaried or self-employed. Usually, the banks restrict the loan amount such that your EMI isn't more than 40-50% of your monthly income.
Any existing loans that are being serviced by the applicant are also considered when calculating the personal loan amount. For the self employed, the loan value is determined on the basis of the profit earned as per the most recent acknowled profit/Loss statement, while taking into account any additional liabilities (such as current loans for business, etc.) that he might have.
From which bank/financial institution should one borrow?
It is good to compare the offers of various banks before you settle on one. Some key factors to consider when deciding on a loan provider include interest rates, loan tenure, processing fees, etc.
How do banks decide on the maximum loan amount?
Although the loan sanctioning criteria may differ from one bank to another, some key factors determining the maximum loan amount that can be sanctioned to you include your credit score, current income level as well as liabilities. A high credit score (closer to 900) means you have serviced your previous loans and/or credit card dues properly, leading the lenders to feel that you are a safe borrower, leading to a higher loan amount being sanctioned.
Your current income level and liabilities (outstanding credit card dues, unpaid loans, current EMIs, etc.) have a direct bearing on your repayment capacity. Therefore, if you are in a lower income bracket or have a large amount of unpaid credit card bills or outstanding loan EMI, you will be sanctioned a lower personal loan amount than those with a higher income or fewer financial liabilities.
Should I always go for the lowest possible EMI when choosing a loan provider?
Low EMI offers can typically result from a long repayment term, a low interest rate, or a combination of the two factors. Thus, sometimes, you may end up paying more interest to your lender if you choose low EMIs. So use online tools like the personal loan EMI calculator to find out your interest payout over the loan tenure and your repayment capacity before taking a call.
Being unsecured loans, personal loans have a higher interest rate than those on secured 'home and car' loans. At present, many leading banks and NBFCs offer such loans at interest rates of as low as 11.49%. However, the rate applicable to a borrower is contingent on key factors, including credit score, income level, loan amount and tenure, previous relationship (savings account, loans or credit cards) with the lender, etc.
Extra charge payable
Yes. In addition to the interest payable on the principal amount, there is a non-refundable charge on applying for a personal loan. The lender charges processing fees, usually 1-2% of the loan principal, to take care of any paperwork that needs to be processed as part of the application process. The lender may waive this charge if you have a long-term association with him.
Fixed or floating interest rates
For a fixed rate personal loan, the EMIs remain fixed. Floating rate means the EMIs keep decreasing as it follows the reducing balance method of calculating interest payout on a personal loan. As per the new Marginal Cost of Funds based Lending Rate (MCLR) rules, floating rates may be changed either on a half-yearly or annual basis.
Difference between reducing and flat interest rate
As the name implies, in the former, the borrower pays interest only on the outstanding loan balance, i.e., the balance that remains outstanding after getting reduced by the principal repayment. In flat interest rate scenario, the borrower pays interest on the entire loan balance throughout the loan term. Thus, the interest payable does not decrease even as the borrower makes periodic EMI payments.
Can I apply jointly with my spouse?
Yes, you can apply for a personal loan either yourself (singly) or together with a co-applicant (jointly), who needs to be a family member like your spouse or parents. Having a co-borrower means your loan application will be processed in a higher income bracket, making you eligible for a larger loan amount. However, keep in mind that if you or the co-applicant has a poor credit history, the chances of success of your loan application may ..
Yes, however, some banks allow borrowers to prepay the loan only after certain number of repayments has been made. Some lenders do not allow partial prepayment. Prepayment charges may be levied on the outstanding loan amount.
Key documents required when applying for a loan
Though the documentation requirements vary from one financial institution to another, some key documents you will have to provide with your personal loan application include:
*Income proof (salary slip for salaried/recent acknowledged ITR for self-employed)
*Address proof documents
*Identity proof documents
*Certified copies of degree/licence (in case of self-employed individuals)
Repaying the loan
It can be repaid in the form of EMIs via post-dated cheques (PDC) drawn in favour of the bank or by releasing a mandate allowing payment through the Electronic Clearing Services (ECS) system.
If you decide to pay off your loan before its tenure has completed, you get charged an additional fee called prepayment/foreclosure charge/penalty. This penalty usually ranges between 1 and 2% of the principal outstanding. Some banks, however, charge a higher amount to foreclose a loan.
Difference between part payment, prepayment and preclosure
*Part payment: This amount is less than the full loan principal amount and is made before the loan amount becomes due.
*Prepayment: When you pay off your loan in part before it becomes due as per the EMI schedule. The prepayment amount may or may not be equal to the total due amount. Prepayment charges are usually in 2-5% range of the outstanding loan amount. Additionally, many banks do not allow prepayment/preclosure of loan before a specified number of EMIs have been completed.
*Preclosure: It refers to completely paying off a personal loan before the loan tenure has ended. Just like prepayment charge, preclosure charges range from 2- 5% of the loan amount.
Loan approval process
The approval is at the sole discretion of the loan sanctioning officer whose decision is based on the criteria specified by the bank/financial institution. The entire process can take between 48 hours and about two weeks. Once all the necessary documents are submitted and the verification process is completed, the loan, if sanctioned, is disbursed within seven working days by the bank. Do keep all necessary documents ready along with PDC and/or signed ECS form to avoid delays in loan processing and disbursement.
Defaulting on scheduled EMIs
If you miss your scheduled EMIs and are unable to make future payments, the lender first will try to recover the due amount through settlements and recovery agents. If such attempts fail and your loan account is marked as a default, the loan will show up on your credit report as a default, adversely affecting your credit score and making it difficult for you to get loan and credit card approvals in future.
Although personal loans usually have no tax benefits, but if you take one for home renovations/down payment, you may be eligible for I-T deduction under Section 24. However, this tax benefit is limited to only the interest, not the principal amount. Also, to claim deduction, you will have to furnish proper receipts.
Balance transfer offer
A lender, in some cases, will allow you to transfer the balance (amount still to be repaid) on your loan from the present lender to a new one. The new lender will pay off the balance amount to the present lender. At the end of the balance transfer process, you will owe the new lender payments plus applicable interest that is left on your loan.
A balance transfer helps you benefit from the lower interest rate offered by the new lender, however, there are a few charges such as balance transfer fee, prepayment charges, etc., that may be applicable.
Why do my initial EMIs have little impact on the principal amount due?
A major portion of your initial EMIs is actually used to pay off the interest due on your loan. This process is called "front loading", hence only a small portion of the principal is paid off initially. As you progress further with your EMIs, these small decreases in the principal amount add up, leading to a decrease in the interest charged on the outstanding amount. A larger portion of the EMI is, thus, , used to pay off the loan principal in later years.
Personal loan versus loan against credit card
Credit card loan is an offer that you may be able to avail on your card. Such a loan is only applicable to specific cards and you can only approach your card issuer for a loan on it. When it comes to a personal loan, on the other hand, you can approach any lender. Moreover, unlike a personal loan application, card loans don't require any additional documentation.
Credit report and score
Since a personal loan is an unsecured loan, therefore your credit history usually plays a significant role in the approval process. Equifax, Experian and CIBIL TransUnion are the three credit reporting agencies that operate in India.
All 3 have tie-ups with lenders and provide their credit rating services to help lenders evaluate prospective borrowers. Experian India has collaboration with Union Bank of India, Sundaram Finance, Punjab National Bank, Magna Finance, Indian Bank, Axis Bank and Federal Bank to provide credit information services.
Equifax India has tie-ups with State Bank of India, Union Bank of India, Religare Finvest Limited, Kotak Mahindra Prime Ltd and Bank of Baroda.
Credit Bureau (India) Ltd (CIBIL) is the country's first credit information company that, in collaboration with TransUnion, is a globally recognised credit reporting agency.
All three maintain detailed records of your credit history, including repayment track record of all your credit card bills and any current or previous loans. Before approving your loan, the prospective lender cross checks your repayment track record.
How is having a higher credit score beneficial?
A higher credit score indicates that you have a good track record with respect to loans. Therefore, if your credit score is high (more than 750 in case of CIBIL TransUnion), your chances of being granted a loan are much. Additionally, you may be able to negotiate benefits such as a lower interest rate, higher loan amount, waiver of processing charges, etc., by leveraging your high credit score.
Courtesy By: economictimes.indiatimes.com
Dividends are the best friend of stock investors: John Bogle
Dividends are an investor’s best friend, said John Bogle, founder of the Vanguard Group, on Wednesday.
he compounding power of dividends is amazing, he said, adding that dividends are the key to the huge wealth creation done by index funds.
“In the long run, corporate earnings and dividend yield drive stock prices,” he said.
“In the long run, corporate earnings and dividend yield drive stock prices,” he said.
Vanguard is a Pennsylvania-based investment advisor that manages over $5.1 trillion in assets spread across 180 US funds and 208 additional funds in markets outside the US.
In a recorded interview at Morningstar Investors Conference, Bogle said he does not believe in simple age-based formula for asset allocation.
According to Bogle, an investor must consider his financial as well as emotional abilities to withstand risk while deciding asset allocation. "Asset allocation should be in tune with emotional qualities," he said.
Bogle talked about index funds gaining popularity in the US partly because of high management fee of mutual funds.
"If you are earning an average of 7 per cent market returns and 2 per cent goes away in the name of fund management fees, it would be a lot of cost to pay," he pointed out.
"There is nothing as a stock picker market. A good manager should be able to outperform the index anyway. Index funds now manage 43 per cent of all money invested in equity funds in the US market," Bogle emphasised.
Courtesy By: economictimes.indiatimes.com
Best large and midcap schemes to invest in 2018
Thanks to the recent categorisation and rationalisation drive by Sebi, there is a new equity mutual fund category available to investors: large and midcap schemes. These schemes, as the name suggests, would invest in a mix of large and mid-sized companies. Before re-categorisation of mutual fund schemes, most multicap schemes used to follow a similar allocation - some would have a tiny exposure to smallcap companies.
However, the new large and mid-cap category is different because of its investment mandate. As per Sebi mandate, large and midcap schemes will have to invest in a minimum 35 per cent of the corpus in largecap companies and another 35 per cent will have to be deployed in midcap companies. These category makes sense after Sebi put down strict guidelines for the broader mutual fund categories.
Sebi has defined the universe for all the categories which makes it even more difficult for these schemes to move away from their mandate. For example, a largecap scheme must invest at least 80 per cent of its corpus in largecap stocks. This makes largecap schemes very conservative. On the other, midcap schemes must invest 80 per cent of their corpus in mid-sized companies, which makes them a little extra risky.
In such a scenario, aggressive investors have one more option: large and midcap schemes. Remember, the 35 per cent minimum exposure to midcap companies make them riskier than earstwhile multicap schemes that had the freedom to switch between market capitalisation based on the market conditions.
Mutual fund advisors ask investors to look at the portfolio and strategy of the schemes before investing. Some of the large and midcap schemes might be inclined towards midcaps and some might hold more of largecaps in its portfolio. Investors should pick schemes according to their risk appetite.
Currently, there are 22 large and midcap schemes in the market. We have listed five large and midcap schemes for you. Our recommendations include:
*Mirae Asset Emerging Bluechip Fund
*Sundaram Large and Midcap Fund
*Invesco India Growth Opportunities Fund
*Canara Robeco Emerging Equities Fund
*Principal Emerging Bluechip Fund
Courtesy By: economictimes.indiatimes.com
HOW TO IMPROVE CIBIL SCORE IMMEDIATELY?
A poor CIBIL score can increase your financial problems and make it difficult to access credit, whether as a loan or credit card. The good news is that it is possible to improve your score – you need to stop worrying about the problem, and begin to take concrete steps right away to improve your score.
CIBIL is one of the four authorized credit bureaus in India which provide a credit score, the others being Equifax, Experian and CRIF High Mark.
Here are a few tips that will have a positive impact on your score:
Obtain your credit report and check for errors: While you might think you have a good credit history, there might be certain reporting errors that are unnecessarily dragging your score down. For example, if you have paid off your loan in full and closed the account, it might still be shown as current due to an administrative error. By correcting these errors, you can put an immediate stop to a negative effect on your score.
Similarly, it is also useful to check for any suspicious activity (e.g. a loan that you have not taken) which could be fraud. Filing a dispute with the bureau and making sure it is resolved can also have an immediate positive impact on your score.
Do not delay or miss any payments: Your repayment behaviour is a very important factor in calculating your credit score. Your track record of loan and credit card payments can make up almost one third of your score. Even a single late payment can adversely affect your CIBIL™ score. Many people pay their bills late or skip a payment completely. If you start paying all your bills on time and in full, you will see an immediate effect on your credit score.
You should aim to make your payments must be made at least 5 working days before the due date. If you are planning to make the payment by cheque, you must be sure that you make the payment 10 days before the due date.
Limit your utilization of credit limit: One of the easiest way to improve your credit score is to avoid utilising your credit card to its full limit. Limit your monthly credit card bill to not more than 50% of your limit. E.g. If you have a credit limit of Rs. 1,00,000 a month, make sure you do not exceed monthly expenses of Rs. 50,000. Using more than 50% of your card limit signifies that you might have issues with spending discipline and that you might not be able to keep aside enough to repay your debt obligations. This causes your score to drop.
Avoid multiple loan/ credit card applications in a short span of time: if you have too many enquiries in a short span of time, it is not looked at very positively. Imagine that you have made a credit card enquiry, a personal loan enquiry and a home loan enquiry within months - what does it look like to a lender? It shows that you are credit hungry and looking for multiple sources of credit. One way you can prevent a drop in your score is to avoid making several new applications for credit within a short time frame.
On average, it takes 4-12 months to repair your credit score, depending on your individual situation. All you need is some patience, commitment and self-discipline and you will achieve your credit goal.
Courtesy By: creditmantri
With market volatility on the rise, many investors want professional help in choosing the right product. It may make sense to choose a financial adviser who can help you with asset allocation, invest as per your time horizon and help you choose products . ET gives a lowdown on the checklist when choosing a financial adviser
What is the background of the distributor?
When it comes to investments you need a person you can trust a lot. A lot of this can be known by asking people around for a right reference. Of the people referred check the qualifications and experience of the adviser. He should have good knowledge of different asset class such as equity, fixed income and gold and worked through multiple cycles. He and his team should be in a position to decipher and understand how these asset classes would be affected by various domestic and international events. The adviser should be able to identify products that will meet your life stage requirements as and when they are needed.
How accessible is the adviser?
There is no limit on the number of clients which an adviser can enrol or engage with. It should not be that you engage with one only to realise that he has no time for you after a few months. The adviser or his team should be able to answer your queries in a reasonable period of time and should be accessible by whatever means of communication you choose which could be telephonic, email and meetings. Time is of essence in the financial world and he should be able to execute your investments in a short turnaround time.
Does your adviser offer products of all fund houses?
A fund house may have that one product in which it does well and you may want that. Hence ensure that your distributor can offer your products from all fund houses and not just 2-5 fund houses.
There is no official website which tracks advisers in India. Hence it is important to ask for referrals or know the past background of the adviser. Use social media websites, to understand if anyone has recommended the adviser or his firm. That will give you some idea of his strengths. Check online for referrals, ask your friends or relatives for references, how long the adviser has been in business and his way of operating.
How does the adviser earn his income?
A good adviser needs to be compensated well, if you want his time and attention. Ask your adviser if he uses a distribution model, where he gets commission from the fund house for every investment that you make. Alternatively some advisers charge you a fee for the service, depending on the time they have to spend with you or your personalised requirements. There are many online portals that do help you make a financial plan, by gathering data from you and it could be free, while there are seasoned financial planners who could charge a fee for the same.
Courtesy By: https://economictimes.indiatimes.com/mf/analysis/how-to-hiring-an-mutual-fund-adviser/articleshow/66269965.cms
Stewart & Mackertich Wealth Management
Currently, there is a fear among market participants about the liquidity crunch in the system. Valuations for non-banking financial companies (NBFCs) and housing finance companies (HFCs) are also at a premium.
The details coming out suggest a number of NBFCs had been using short-term borrowings for long-term lending. This has created an asset liability management mismatch, which has further created panic.
A lower rate of interest and their easy rollover attract financing companies to short-term borrowings. It also gives the companies to take advantage of any fluctuations in the interest rate.
The growth rate in NBFCs and HFCs are at an all-time high, surpassing the credit growth rate of banks. The area tapped by them, mainly in the rural and semi-urban India, will be difficult for banks to capture.
This current situation is more panic-driven than any due to any fundamental damage. Companies with strong financials and management will continue to grow. However, the events that have taken place will be an eye-opener for the sector and could bring in updated rules and regulations from the Reserve Bank of India.
Instead of assuming that majority of the loan book of NBFCs are of low quality, it is necessary to understand the specific sector exposure. Companies having good quality assets and strong asset liability management coupled with high corporate governance will continue to stand out among its peers.
Disclaimer: The author is Research Analyst at Stewart & Mackertich Wealth Management. The views and investment tips expressed by investment expert here are his own and not that of the website or its management.
Courtesy By: https://www.moneycontrol.com
Offered to those who have desirable credit scores and financial history.
If you are looking for a quick personal loan this festival season, cheer up. You can get the amount credited to your account in less than five minutes.
In what could be seen as a result of digitisation and data mining, some banks are now offering instant personal loans to cheer up customers.
The rate of interest has also dropped to less than 12 per cent, with individual variations across banks, making these loans affordable.
“I got a text message stating that a pre-approved loan of ₹2 lakh is on offer to me. When I opened my mobile banking app, it took three minutes for me to get the loan amount credited to my account,” V Lalitha, a State government employee, and a customer of SBI, told BusinessLine.
According to an official with SBI, the instant loans are being disbursed for eligible customers through Yono, its integrated digital banking platform.
“There is no human interface or documentation. Every aspect is checked by the system, and loan offers, sanction and electronic disbursal of loans happen online either on the mobile or portal,” he said.
The Xpress Credit personal loans in the retail segment of SBI has been growing fast. In the first quarter of the current financial year, it grew 31 per cent at ₹78.691 crore against ₹60,100 crore in the same period last year. ICICI Bank, too, is sanctioning and disbursing instant loans through its ATMs for existing salaried customers of the bank. It is a pre-qualified personal loan, which will be credited to the savings account instantly in a paperless manner. Through this offering, a customer can get personal loans of up to ₹15 lakh for a fixed tenure of 60 months. Along with normal personal loans being processed at branches, instant loans have also been driving growth.
The unsecured credit card and personal loan segment portfolio posted a 41 per cent year-on-year growth in the first quarter for ICICI Bank.
Other banks such as HDFC Bank, and some public sector banks, also have a similar story to tell. The use of CBIL data has been the backbone of instant loans. The loans are offered to those who have desirable credit scores and financial history after being scanned by the systems.
The Know Your Customer (KYC) norms were also streamlined in the recent past by banks, along with Aadhar and mobile linkages. However, instant loans are generally extended only to those customers who operate salary accounts.
Courtesy By: https://www.thehindubusinessline.com/money-and-banking/instant-personal-loans-to-add-cheer-this-festival-season/article24865799.ece
When managing an existing personal loan becomes difficult, you begin to search for ways to reduce the outstanding amount of the debt. One easy and preferred way to do this is to get a personal loan balance transfer. Balance transfer means transferring your current personal loan at a comparatively lower interest rate and with new terms and conditions. This way, you can significantly reduce your monthly EMIs. However, before you do this, you need to know how a loan balance transfer works. In this article, we will highlight all the important aspects of the balance transfer facility and explain why it might be beneficial for you.
Suppose you have taken a personal loan of Rs. 5 Lac for 4 years at an interest rate of 15%, you have to pay Rs.13, 915 as an EMI every month. After a few months, you come to know that another financial institution is offering an easy personal loan at 13% interest rate. Obviously, it is a great opportunity for you to transfer your loan to reduce your monthly EMI by availing another offer at lower interest rate. The reduction of 2% interest rate will bring down your monthly EMI to Rs. 13, 414 and you will save Rs. 501 every month.
Benefits of Balance Transfer
A Balance Transfer benefits individuals in following three ways:
1. Lower Interest rate
If you are reeling under the pressure of a high amount EMI, transferring your loan to another financial institute at a comparatively lower interest rate can give you some relief. However, you should do the exact calculations before you opt for it. You should also consider the tenure, processing fees and other charges of the balance transfer.
2. Reduction in Tenure
Depending on the terms of the Balance Transfer, you may get the same or a marginally reduced loan tenure. A reduced loan tenure is a good news for you as this means you would get debt free a few months earlier. It is a great relief if you have opted for a long-term repayment period while availing a personal loan.
3. Balance Transfer May Improve Your Credit Score
Under favorable situations, a balance transfer can help you boost your credit score. Since credit transactions affect your score, you can increase your credit score by a few points leading to more credit options for you in future. However, in many cases, credit score decreases after the balance transfer, so it totally depends on your case and the new offer you are going to avail.
Before you opt for the Balance Transfer, you should study the new loan offer thoroughly to make sure that it is beneficial for you. A mistake from your side may land you into a debt trap so you need to be careful.
Find out the terms and charges of the new Personal Loan
When you transfer the loan amount from existing loan to a new one, the lock-in period of the loan will be reset and you would be bound to a new service provider for a certain period of time. So you need to know all the terms and charges that would be levied upon you and compare them against your existing loan. If you find the terms and conditions of the new loan beneficial, only then opt for the Balance Transfer. Furthermore, you should keep in mind that if you close down your old credit account and open a new one, it may affect your credit score.
While you may cut down the interest rate by availing a low-interest personal loan offer, you have to pay the processing fee which is 1 to 2% of the loan amount depending on the service provider. Moreover, you also have to pay other charges as per the terms of the new loan.
In short, you should weigh the pros and cons of the entire deal and if you feel that you will save money, then certainly it is a good option for you. Moreover, financial experts believe that balance transfer is a beneficial move in the long term as it may improve your credit score and finances.
Courtesy By: Internet
Credit Risk Fund
A Credit Risk Fund has suddenly become a talk of the town. It is mainly due to recent credit rating downgrades of bonds. It has affected investor sentiments. Many investors are worried, and they are looking for an answer that what to do in Credit Risk Fund? In this post, let’s try to explore What is credit risk fund? and things to consider while investing in credit risk funds.
What is Credit Risk Fund?
Credit Risk Fund is a separate category under debt fund. Credit Risk Fund invest in low rated, medium to long-term debt instruments with an aim of generating a higher yield. Credit Risk Fund invest at least 65% of its asset in corporate bonds which are at rating AA or below. These funds were earlier known as Credit Opportunity Funds. These types of fund are expected to generate higher returns as it takes a higher risk of investing in low rated bonds. These funds generate 2-3% higher returns compared to risk-free corporate bonds.
These types of mutual funds are risky in nature. As credit risk funds invest in a corporate bond with lower rating the chance of default is high.
Also Read – Top 20 Best Mutual Funds SIP to invest in India for 2018
How do these funds work?
As discussed above, this fund adopts accumulation strategy to provide higher returns. They don’t intend to trade in securities based on the changing interest rate scenario. They hold credit instrument till maturity.
This fund invests in debt instruments especially in the corporate bond with a rating below AA and securities. The primary idea of this fund is to generate higher returns by taking a higher risk. Usually, everyone prefers a bond with higher rating AAA and above. The possible reason why credit risk fund manager selects AA bond is a possibility of an upgrade in rating in near future is high. This may be due to strong fundamental or various prevailing factors.
Credit Risk fund gives returns in two ways they offer returns by accruing the coupon (interest) payments arising from the securities they hold. They also offer capital appreciation at the time of rating upgrade.
The chance of an upgrade in rating is high during an economic recovery period. It advisable to avoid these type of funds during an economic slowdown. As the chance of a downgrade in rating is very high.
Things to consider while investing in Credit Risk Funds
This fund comes with the inherent credit risk of a rating downgrade. In case of rating downgrade fund may not generate expected returns.
If you are not a market-savvy person, you should make yourself away from these types of fund. You can go for diversified mutual funds.
You should select a fund with a reputed and experienced fund manager.
Investors should also look at a fund with a lower expense ratio.
Make sure to select large-sized funds. It is because higher the corpus better scope of manageability.
The portfolio should be well distributed and not concentrated. It reduces the risk of credit incident.
Dividend from this scheme is exempted provided fund pays DDT. LTCG and STCG are applicable to this fund.
These types of funds are more suitable for high-risk high returns investors.
Should you invest in Credit Risk Fund?
Credit Risk Fund is high-risk high return fund. Although it is a debt fund, it comes with fairly higher risk. One should understand the risk factors associated with this fund before making a purchase decision. These types of funds are not for new investors or investor with low-risk appetite. An investor looking for steady income and low risk also should stay away from these funds. Any fund that has tendency to invest in low-rated funds may create dent in your portfolio. Don’t be so casual about your mutual fund portfolio.
This type of fund is advisable only for high-risk investor with good market knowledge and surplus money. This fund offers higher tax efficiency. A person with the highest tax bracket can plan to invest in this fund as they need to pay 20% LTCG instated of 30% tax. If you are planning to invest in credit risk fund, make sure your total exposure to this fund does not exceed more than 20%.
It is advisable to consult a financial advisor or experts before making any investment in credit risk fund.
Courtesy By: Money Excel
Fear has returned to Dalal Street. Caught in a perfect storm of weak macroeconomic numbers, the IL&FS crisis and fear of more defaults, equity markets have retreated more than 15% from their all-time high levels achieved in the last week of August.
The 806-point drop in the Sensex on 4 October was the fifth biggest single day loss registered by the BSE benchmark in the past five years. In Mumbai, newbie investor Rashmi Rajagopal is feeling jittery about her portfolio of equity funds. She started investing in equity funds about a year ago. “My portfolio grew handsomely till last month, but is now in the red. Frankly, I don’t know whether I should stop my SIPs, withdraw my money or continue investing,” says the 44-year-old marketing manager.
It’s a dilemma small investors like Rajagopal face every time the markets tumble. Unfortunately, they usually end up making the wrong choices. Some stop their SIPs in equity funds while others redeem their investments to avoid further losses. “Investors who started SIPs this year will obviously be in the red. But if they redeem now, they will turn temporary losses into permanent ones,” cautions Raj Khosla, Managing Director, MyMoneyMantra.
Market timing is a myth
Volatility is inherent to equities. It is practically impossible to predict how markets will behave on a certain day. ET Wealth back-tested to see whether mutual fund investors should try to time the market by getting out before they crash. An investor who started SIPs in a diversified equity fund five years ago and continued investing irrespective of market movements would have earned a return of 10.5%. But an investor who managed to avoid the 10 biggest falls in the Sensex by getting out a day before the crash would have earned 13.8% returns.
Courtesy By: //economictimes.indiatimes.com/articleshow/66095696.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst