The stock market is suddenly looking up with sensex breaching the 15,000-mark. Not surprising, so-called market experts are also back in action. Some predict a turnaround may be just around the corner. Others claim that investors can safely bet on stocks if they are prepared to wait for at least two years. And almost everyone is sure of handsome returns from the stock market once again.
However, there is a small problem. Most potential investors don’t have a clue on how to go about investing in the stock market. After all, only a small percentage actually opts for investments in stocks. If you are among the novices waiting to test the waters, here’s the scoop: just hire a brilliant stock market investor.
No, don’t worry. This tie-wearing expert won’t charge you a bomb for fee. You also don’t have to pledge lakhs of rupees to hire his service. All you need is small change. Even an investment of as little as Rs 100 a month would do. Surprised? Don’t be. We are speaking about hiring the service of a mutual fund (MF) manager to take care of your investments in stocks.
Here is how it works. An MF actually collects money from a pool of investors and puts the money in stocks on their behalf for a small fee (1.5-2% annually). An investor has the option of a variety of debt schemes (that invest in fixed income instruments) and/or equity schemes (that go for stocks). The only difference is that unlike in a portfolio management scheme, where one has the option of setting his or her own parameters, here an investor has to choose a scheme with pre-set parameters that will match his investment objective.
According to experts, investing in an MF scheme is a win-win situation for the retail investor as most of them are not well-versed in the working of the stock market. “For most people, the stock market is still an unsolved puzzle. They get scared when the market goes up and they are equally scared when there is continuous slide," says a wealth manager in a bank.
Also since most people don’t have the expertise or time to monitor stocks on a regular basis it is better to give the responsibility of taking the investment decisions to a professional fund manager. This will ensure that emotions don’t dictate the buying and selling of stocks.
Another reason why you should opt for an MF scheme is that it is the most effective way to diversify your portfolio. Sure, one can argue that these days there is a choice of buying a single share of a company and so it is easy to diversify across stocks and sectors.
Experts believe that MFs do a better job of itThere is no point in diversifying if you really don’t have a proper view. A fund manager would be in a better position to take a call on various sectors as he has a large team of research professionals to help him.
The most important aspect of investing via MFs is the convenience. For example, one can start investing with as little as Rs 100 a month in an equity scheme. Also, one can enter and exit a scheme at any time, as most of them (called open-ended schemes) permit that.
Additionally, they also offer tax benefits. For example, if you hold equity schemes for over a year, you qualify for long-term capital gains tax, which, at present, is nil. Always check the reputation of the fund house first. The next should be to review the performance of the scheme at least for three years.
Make sure that the scheme has performed well during the boom as well as bear phase. This would give you a fair idea about the investing skills of the fund manager.
Thursday, June 25, 2009
Post Office Monthly Income Scheme
Only scheme in Post office where monthly interest is payable.
Suitable scheme for senior citizens and for those who need regular monthly income.
Interest rate of 8% per annum payable monthly.
Maximum amount is Rs.4.5 lacs in single account and Rs. 9 lacs in a joint account.
Maturity period is 6 years.
Facility of automatic credit of monthly interest to saving account if accounts
are at the same post office.
Facility of premature closure of account after one year @2% discount.
After three years with 1% deduction
Transferability
Account is transferable from one post office to any Post office in India free of cost.
Nomination facility available.
Income Tax
Rebate under section 80 C not admissible.
Interest income is taxable, but no TDS
Deposits are exempt from Wealth Tax
Suitable scheme for senior citizens and for those who need regular monthly income.
Interest rate of 8% per annum payable monthly.
Maximum amount is Rs.4.5 lacs in single account and Rs. 9 lacs in a joint account.
Maturity period is 6 years.
Facility of automatic credit of monthly interest to saving account if accounts
are at the same post office.
Facility of premature closure of account after one year @2% discount.
After three years with 1% deduction
Transferability
Account is transferable from one post office to any Post office in India free of cost.
Nomination facility available.
Income Tax
Rebate under section 80 C not admissible.
Interest income is taxable, but no TDS
Deposits are exempt from Wealth Tax
Senior Citizen Saving Scheme
Tenure of the scheme - 5 years which can be extended by 3 more years.
Rate of interest - 9 per cent per annum.
Frequency of computing interest - Quarterly.
Taxability - Interest is fully taxable.No income tax / wealth tax rebate is admissible under the scheme. The prevailing income tax provisions shall apply .The tax will be deducted at source
Investment to be in multiples of - Rs. 1000/-
Maximum investment limit - Rs. 15 lakh
Minimum eligible age for investment - 60 years (58 years for those who have retired on superannuation or under a voluntary or special voluntary scheme). The retired personnel of Defence Services (excluding Civilian Defence Employees) shall be eligible to invest irrespective of the age limits subject to the fulfillment of other specified conditions
Premature withdrawal facility - Available after one year of holding but with penalty
Transferability feature - Not transferable to others
Tradability - Not tradable
Nomination facility - Nomination facility is available
Modes of holding - Accounts can be held both in single and joint holding modes. Joint holding is allowed but only with spouse
Applicability to NRI, PIO and HUFs - Non resident Indians, Persons of Indian Origin and Hindu Undivided Family are not eligible to open an account under the scheme.
Transferability - Transfer of account from one deposit office to another in case of change of residence is permitted.
Rate of interest - 9 per cent per annum.
Frequency of computing interest - Quarterly.
Taxability - Interest is fully taxable.No income tax / wealth tax rebate is admissible under the scheme. The prevailing income tax provisions shall apply .The tax will be deducted at source
Investment to be in multiples of - Rs. 1000/-
Maximum investment limit - Rs. 15 lakh
Minimum eligible age for investment - 60 years (58 years for those who have retired on superannuation or under a voluntary or special voluntary scheme). The retired personnel of Defence Services (excluding Civilian Defence Employees) shall be eligible to invest irrespective of the age limits subject to the fulfillment of other specified conditions
Premature withdrawal facility - Available after one year of holding but with penalty
Transferability feature - Not transferable to others
Tradability - Not tradable
Nomination facility - Nomination facility is available
Modes of holding - Accounts can be held both in single and joint holding modes. Joint holding is allowed but only with spouse
Applicability to NRI, PIO and HUFs - Non resident Indians, Persons of Indian Origin and Hindu Undivided Family are not eligible to open an account under the scheme.
Transferability - Transfer of account from one deposit office to another in case of change of residence is permitted.
Friday, June 12, 2009
Is this the right time to buy an apartment?
What was happening?
Home owners were postponing purchase decisions since most of them were priced out, especially since 2005. In simple words they were not finding a property within their budget because the supply that was coming into the market, especially after 2005, was catering to the high end segment. Interest rates on home loans started rising after hitting a low of around 7.5 % in mid 2004. High interest rates meant you had to pay a higher price for your loan. According to a study when interest rates hit a low, around 39% of an individual’s monthly income used to go towards servicing the EMI, after 2005 this figure shot up to around 54 %.
In 2008 the sector which was already batting high property costs and high interest rates, received a big blow from negative sentiments and insecurity among prospective homebuyers about their future earnings. While the above mentioned reason has forced likely home buyers to postpone purchases, developers too were in a spot. Their major problem was liquidity, regular sources of funds –banks, IPOs and private equity had dried up for them. Sales too had taken a severe hit since Jan 2008.
Come 2009..
Prices have come down from 15-30% all across the country. Moreover the concentration on building small more efficient houses just adds the affordability. Top that with SBI’s lead gesture to bring down home loan rates to 8%(even though it is for one year only ) and government directive to include housing sector in priority sector lending category.
So should I buy now?
Yes, this is a good time to buy. Interest rates have almost bottomed out (only to be further harden by the end of the year which will raise home loan prices too) So take advantage of that builders are offering to clear inventory & a home loan from SBI or other public sector banks and I think you’ve got a good deal.
Should I sell my apartment now?
You should sell if you had invested in that property purely for investment reasons. Realty has stabilized so no more abnormal gains in the next 3 years. Many investors are trying to pull out of their investments. Most are not finding buyers at a price that they think is fair value of their property.
If you had entered the real estate market to make quick money there is no point hanging around any longer. Even if you had invested for the medium term but are facing liquidity pressures, it is better to find a buyer and pull out. However if there is no compelling reason for you to pull out, it is a better idea to stay invested for the medium to long term, preferably more than 5 years. Also remember the returns from real estate are second only to equity.
Once you are sure you want to sell, get a fix on the price. Buyers are very sensitive about the price. Get an idea of the recent sale price in the locality of your property for similar property. Get an idea of how much prices have fallen since Jan 08 and factor in the correction. Be flexible during negotiations process. Keep in mind that your money is locked in the house (which you don’t need and keep in mind that money has opportunity cost!) so liquidate it and use it for investments or paying off liabilities. If your loan is still running and you wish to sell the house, you will have to involve the loan provider in the process.
If you are not flexible about your price expectations prospective buyers who could have bought your property will move away to mid income and low income segments. The best way to market the property is to list it in the many realty portals available like magic bricks.com, makaan.com, 99acres.com.You could contact your local broker but his reach will be limited and commission could be as high as 1 % of the sales price.
What about unfinished construction?
Visit the site regularly to check if construction is still on. If construction is on full swing, do not stop the regular checks. However if construction has stopped on the site then take up the matter with the developer. Take along like minded people who have also invested in the same project. If the developer does not listen to you, approach the local body of developers. Most forward looking bodies will help you... However if the matter does not get resolved at this level either, approach the consumer court. In numerous instances, consumer courts have taken the developers to task for delay in projects.
Whatever happens don’t worry even if the prices are down right now you will still stand to gain if you have invested for the medium to long term, because the present slowdown is, after all, a cyclical phase.
Comments, views and suggestions are most welcome....
Home owners were postponing purchase decisions since most of them were priced out, especially since 2005. In simple words they were not finding a property within their budget because the supply that was coming into the market, especially after 2005, was catering to the high end segment. Interest rates on home loans started rising after hitting a low of around 7.5 % in mid 2004. High interest rates meant you had to pay a higher price for your loan. According to a study when interest rates hit a low, around 39% of an individual’s monthly income used to go towards servicing the EMI, after 2005 this figure shot up to around 54 %.
In 2008 the sector which was already batting high property costs and high interest rates, received a big blow from negative sentiments and insecurity among prospective homebuyers about their future earnings. While the above mentioned reason has forced likely home buyers to postpone purchases, developers too were in a spot. Their major problem was liquidity, regular sources of funds –banks, IPOs and private equity had dried up for them. Sales too had taken a severe hit since Jan 2008.
Come 2009..
Prices have come down from 15-30% all across the country. Moreover the concentration on building small more efficient houses just adds the affordability. Top that with SBI’s lead gesture to bring down home loan rates to 8%(even though it is for one year only ) and government directive to include housing sector in priority sector lending category.
So should I buy now?
Yes, this is a good time to buy. Interest rates have almost bottomed out (only to be further harden by the end of the year which will raise home loan prices too) So take advantage of that builders are offering to clear inventory & a home loan from SBI or other public sector banks and I think you’ve got a good deal.
Should I sell my apartment now?
You should sell if you had invested in that property purely for investment reasons. Realty has stabilized so no more abnormal gains in the next 3 years. Many investors are trying to pull out of their investments. Most are not finding buyers at a price that they think is fair value of their property.
If you had entered the real estate market to make quick money there is no point hanging around any longer. Even if you had invested for the medium term but are facing liquidity pressures, it is better to find a buyer and pull out. However if there is no compelling reason for you to pull out, it is a better idea to stay invested for the medium to long term, preferably more than 5 years. Also remember the returns from real estate are second only to equity.
Once you are sure you want to sell, get a fix on the price. Buyers are very sensitive about the price. Get an idea of the recent sale price in the locality of your property for similar property. Get an idea of how much prices have fallen since Jan 08 and factor in the correction. Be flexible during negotiations process. Keep in mind that your money is locked in the house (which you don’t need and keep in mind that money has opportunity cost!) so liquidate it and use it for investments or paying off liabilities. If your loan is still running and you wish to sell the house, you will have to involve the loan provider in the process.
If you are not flexible about your price expectations prospective buyers who could have bought your property will move away to mid income and low income segments. The best way to market the property is to list it in the many realty portals available like magic bricks.com, makaan.com, 99acres.com.You could contact your local broker but his reach will be limited and commission could be as high as 1 % of the sales price.
What about unfinished construction?
Visit the site regularly to check if construction is still on. If construction is on full swing, do not stop the regular checks. However if construction has stopped on the site then take up the matter with the developer. Take along like minded people who have also invested in the same project. If the developer does not listen to you, approach the local body of developers. Most forward looking bodies will help you... However if the matter does not get resolved at this level either, approach the consumer court. In numerous instances, consumer courts have taken the developers to task for delay in projects.
Whatever happens don’t worry even if the prices are down right now you will still stand to gain if you have invested for the medium to long term, because the present slowdown is, after all, a cyclical phase.
Comments, views and suggestions are most welcome....
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