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There once lived a great mathematician in a village. He was often called by the local king to advice on matters related to the economy. His reputation had spread in all directions. So it hurt him very much when the village headman told him, "You may be a great mathematician who advises the king on economic matter but your son does not know the value of gold or silver”.
The mathematician called his son and asked, "What is more valuable - gold or silver?" "Gold," said the son. "That is correct. Why is it then that the village headman makes fun of you, claims you do not know the value of gold or silver? He teases me every day. He mocks me before other village elders as a father who neglects his son. This hurts me. I feel everyone in the village is laughing behind my back because you do not know what is more valuable, gold or silver. Explain this to me, son."
So the son of the mathematician told his father the reason why the village headman carried this impression. "Every day on my way to school, the village headman calls me to his house. There, in front of all village elders, he holds out a silver coin in one hand and a gold coin in other. He asks me to pick up the more valuable coin. I pick the silver coin. He laughs, the elders jeer, and everyone makes fun of me. And then I go to school. This happens every day. That is why they tell you I do not know the value of gold or silver.”
The father was confused. His son knew the value of gold and silver, and yet when asked to choose between a gold coin and silver coin always picked the silver coin. "Why don't you pick up the gold coin?" he asked. In response, the son took the father to his room and showed him a box. In the box were at least a hundred silver coins.
Turning to his father, the mathematician's son said, "The day I pick up the gold coin the game will stop. They will stop having fun and I will stop making money.”
Sometimes in life, we have to play the fool because, people around us like it. That does not mean we lose in the game of life. It just means allowing others to win in one arena of the game, while we win in the other arena of the game. We have to choose which arena matters to us and which arenas do not.
Life is a sum of all your choices
UTI Mutual Fund (UTI MF) launches the largest Investor Education Initiative called “Swatantra” for creating awareness about the concepts of financial planning and benefits of investing in mutual funds. As a part of this initiative three UTI Knowledge Caravans will travel through the length and breadth of the country for spreading financial literacy. UIT MF’s Investor Education Initiative called “Swatantra” was dedicated to the nation today in Mumbai by Shri Pranab Mukherjee, Hon’ble Finance Minister.
UTI Knowledge Caravans will travel from Porbandar, Jammu and Guwahati covering all the major towns and cities in India and will complete their journey at Kanyakumari. During the journey Investors Meets will be held in various centres for spreading financial awareness.The Investor Education Initiative is in Partnership with Ministry of Corporate Affairs, Government of India. Shri U K Sinha, Chairman and Managing Director, UTI Asset Management Company Ltd. said, “ ‘Swatantra’ is India’s Journey to financial freedom and is the largest investor campaign in the country which will cover over 300 cities in 100 days through 100 investor meets. Financial Education is very crucial for the growth of India’s capital market and India will progress at a faster pace if there is higher retail participation in the capital markets. This Campaign will target inculcating financial literacy to potential investors which will help them to take informed decisions.” Shri Jaideep Bhattacharya, Chief Marketing Officer, UTI AMC said,” UTI Knowledge Caravans will travel throughout the country and will cover a total distance of over 9500 kms. The Investor Education Initiative will be conducted in 10 languages. Penetration of Mutual Funds in India is still very low. This Initiative will help in increasing investor awareness, wealth creation and will also help in creating Financial Advisors across the country.” On the occasion, UTI Mutual Fund also entered into a tripartite agreement with Bharat Petroleum Corporation Ltd (BPCL) and Corporation Bank for providing Micro Pension initiative through UTI-Retirement Benefit Pension Fund to the Short Distance Commercial Vehicles (SDCV) Community Members of BPCL Dealers Network. The tripartite agreement was signed by Shri U K Sinha, Chairman and Managing Director, UTI AMC, Shri Ashok Sinha, Chairman and Managing Director, BPCL and Shri J M Garg, Chairman and Managing Director, Corporation Bank in the presence of the Hon’ble Finance Minister. Members of the SDCV associated with BPCL & Corporation Bank, will contribute an amount as low as Rs.200/- every month towards UTI-Retirement Benefit Pension Fund. This initiative aims to provide the much needed social security cover for the low income group during their old age. Hon’ble Finance Minister also presented mementos to organizations like SEWA (Ahmedabad), COMFED (Patna) and Mann Desi (Satara, Maharashtra) where the Micro Pension concept has been successfully implemented.
THE New Pension Scheme (NPS) is likely to get a makeover if the revised Direct Tax Code is implemented. However, the government is doing its bit to lure investors to take a close look at the NPS. Recently, the government announced the ‘Swavalamban’ scheme through which it would add Rs 1,000 co-contribution every year for the next three years for everyone who joins the New Pension Scheme in this financial year. Any NPS subscriber who invests Rs 1,000-12,000 per annum between April 1, 2010 and March 31, 2011, will get Rs 3,000 free from the government.
THE LIKELY DTC IMPACTThe revised DTC, if implemented without any changes, will keep the NPS out of the tax net. This new change will make the NPS an attractive investment opportunity. The government has proposed EEE (exempt-exempt-exempt) method of taxation for NPS, which implies the NPS will be exempt from taxes at all the three stages of deposit, appreciation and withdrawal. Earlier, the NPS proceeds were taxable at maturity. ADVANTAGES One of the major advantages is also the lowest fund management charge, which is Rs 99 per lakh (0.0009%) compared to charges of a pension plan offered by an insurance company, which is around 0.75-1.75% per year. This low-cost structure makes it more attractive than most annuity/pension plans offered by insurance companies, financial advisors say. The custodian charges are in the range of 0.0075% to 0.05%. Despite all charges, the cost of investment is cheaper than charges of mutual find and ULIPs. HOW DOES IT WORK? Investors have an option to choose their investment mix among three categories. The first one (E) refers to high investment exposure in equity, which targets investors with a high risk appetite. Equity investment, however, is capped at 50%, which mainly comprises index funds. The second option (C) is high exposure in fixed income instruments, which targets investors of a moderate risk profile. These instruments include liquid funds, corporate debt instruments, fixed deposits and infrastructure bonds. The last option is pure fixed investment products (G) which offer low returns. Ideally, you should start investing for your retirement in your early thirties. If you have the advantage of longer investment horizon (20 years plus), equity is the best option to start with. But in the case of the NPS, you have to buy a life annuity offered by life insurance companies. The NPS requires the investor to use the retirement corpus to buy annuities to avoid taxation. As per the existing stipulations, you have to invest 40% of the corpus in annuities. OTHER ALTERNATIVES Annuity plans which don’t return the purchase price offer 8-9% and the ones that return the purchase price offer 50% a year are other options. Any bank deposits over five years, which offered 10% a couple years ago, offer around 8-8.5% today because of a decline in interest rates. There are other assured monthly income options like the Senior Citizens’ Savings Scheme (SCSS) which offer 9%, PPF at 15% and the post office monthly income scheme at 8%. WHY GO FOR IT: If you are planning to invest in the NPS, invest now to make the most of the compounding effect of Rs 3,000 (the government contribution) WHY NOT: You have to buy annuities at maturity, which offer a return of 5-6.5% Source: EconomicTimes
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Question: I am 61, retired and have paid all loans. I need Rs 40,000 as monthly expenses. I never invested in mutual funds but want to do so now. I have saved Rs 8 lakh. Please suggest some good funds I can invest in. My risk appetite is very low and I want regular returns. - Suvidha Your target seems unachievable. Even if you invest your entire savings in equity diversified funds (risky) that provide high returns against debt instruments, you will fall short of the target. Conservatively assuming equity yields 10-12 per cent yearly, you get only Rs 6700-8000 a month.
Answer: You may invest in monthly income plans (MIPs) - Reliance MIP, DBS Chola MIP - that give income by investing in debt schemes (80 per cent) and rest in equity. They are risky and the returns can be irregular. But, they can return more than debt. In the last 1-, 3-and 5-year, the category average gave 12.19, 8.43, and 9.18 per cent, respectively (as on April 30). Alternatively, you may invest in Senior Citizen Savings Scheme (SCSS) that give an assured annual return of 9 per cent.Also, you could split your corpus between SCSS and MIP in a ratio of 50:50, or 60:40.
The Indian stock markets have given the highest returns compared to any other asset class over the past decade, according to a new study.
According to a recent study, the Indian stock markets have given the highest returns compared to any other asset class over the past decade, provided you adopted a long term approach.
The research conducted, by value-based investment firm, FAMS analyzed long term investments in real estate, stock markets, commodities, Mutual Funds, art and ULIPS over the past decade.
According to the findings stock markets outperformed other assets classes on an average by 60%. The outperformance in certain cases was as high as 3000%. For instance an investment in Bank of India's FD (Fixed Deposit) would have given you a return of around 8% per year, while on the other hand investing in Bank of India's stock would have given you a return of around 3300% from 2001 to 2007. The stock rose from Rs. 12 to Rs. 410 in that period.
The study further added that the high returns and transparency due to electronic systems have attracted several new investors both local and international; over two lakh new Demat accounts are opened every month. There is a potential for this number to easily double or even triple in coming years.
Speaking about the research, Yogesh Chabria, investor and bestselling author said, "The irony is that even though stock markets as a long term asset class have given the highest returns, short term trading in futures and options has also caused the maximum losses. Our study showed that the maximum numbers of bankruptcies were caused during to the stock market crash in 2008-2009 amongst high risk speculative traders."
Indians continue to be underinvested and less than 3% of the Indian population directly invests in stocks. The main reasons for this is a lack of knowledge, awareness as well as unethical practices by a small minority of participants who encourage regular churning based on tips and rumours.
"The study proves that investing in the stock market can be profitable if you have knowledge, experience and above all patience on your side," Chabria added.
Life cover to be bundled with pension plan from July. Unit-linked pension plans may not be the best option for your post-retirement needs, as the Insurance Regulatory & Development Authority (Irda) has made life cover mandatory with these products from July.
Compared to retirement products offered by mutual funds and New Pension Scheme (NPS), unit-linked pension plans have become more expensive.For instance, the fund management charge on pension products offered by insurance companies is 1.35 per cent of the difference between the gross and the net yield, while on NPS, it is 0.09 basis points per annum. This charge is 2 per cent on pension plans offered by mutual funds. “NPS is the cheapest pension plan in the market. Mutual funds come next, followed by unit-linked pension plans. In case of NPS, there is no track record, while UTI and Templeton have been around for some time,” said Amar Pandit, a certified financial planner with My Financial Planner. Other fee, such as administrative and allocation charges, are as high as 30-35 per cent in the first year for unit-linked insurance plans. Similarly, in case of NPS, the cost comes to Rs 300 for every Rs 2,000 invested. This includes the cost of opening an account, which is Rs 50, the annual maintenance charge of Rs 350 and a per transaction charge of Rs 10. “We prefer pension products of mutual funds and NPS over those offered by insurance companies,” said certified financial planner Gaurav Mashruwala. Another drawback of unit-linked pension plans is that partial withdrawal is not allowed during the policy term. Though a person cannot withdraw even from NPS, he can do so in case of critical illness, for buying a house and for some other purposes. The maturity proceed in pension plans are divided into two parts. One-third is withdrawn as lumpsum and the rest is used to buy annuity. The latter part is taxed. The policy term is chosen by policy holders for products offered by life insurers, while under NPS, it is fixed at 60 years. Under NPS, after the term gets over (60 years), a person can only withdraw 60 per cent of the corpus as cash, while the rest can be used to buy an annuity. Like pension products of insurance companies, one can withdraw funds in two tranches. While no partial withdrawal is allowed during the term of the policy in case of unit-linked pension plans, if a person withdraws before 60 years in NPS, he needs to immediately buy an annuity with 80 per cent of the money accumulated. There are only two retirement plans available from mutual funds — UTI Retirement Benefit Plan and Templeton India Pension Plan. Funds can be withdrawn at 55 and 58 years, respectively. Both NPS and pension plans of insurance companies offer a choice of investment plans and are managed by professional fund managers. NPS, though regulated by the pension regulator, does not have any government guarantee or security. A person can invest 50 per cent of the total invested amount in equity under NPS and 40 per cent in case of a mutual fund pension plans, while there is no limit in case of insurance-linked pension plans. With new norms kicking in from July, returns on pension plans offered by insurers are likely to come down by up to two per cent. For instance, if a 35-year-old person now pays Rs 10,000 premium for a pension plan, the entire sum goes for investment. From July, Rs 70-100 will be used for covering his life and the rest will be invested. Apart from t his, a part of it will be used for health check-ups. “There is a cost for the insurance cover. If the premium on pension plans is used to provide the insurance cover, returns will definitely come down,” said Aegon Religare Life Insurance Appointed Actuary KS Gopalakrishnan. “Mortality charges are not very high, so the returns may not see any significant impact. The death benefit will be an added advantage for pension plans,” said Bharti Axa Life Insurance Vice-President (Products & Customer Management) Rishi Mathur. Industry experts believe pension may not be as attractive as earlier because of the insurance element attached to it. “Worldwide, pension is an investment product and not a life cover. Clubbing the two is not the right thing to do. It will lose its charm,” said an insurer.
The government, the Pension Fund Regulatory and Development Authority, and civil society have to work in tandem to protect the common man from economic misery post his working life, says G N Bajpai