In long term, MFs score over bank FDs | ||
 Sandeep Sabharwal | ||
When it comes to growing one's money, be it to meet life-stage financial goals or build a nest-egg for retirement, nothing quite works like mutual funds. This might sound a little odd in a country obsessed with bank fixed deposits (FDs) and other traditional fixed-income instruments, but it is true. Though India has one of the highest savings rates in the world, its household savings do not quite measure up in terms of wealth creation primarily because the real returns (real return = nominal return – inflation) are not significant. Indeed, with retail inflation, as measured by the consumer price index, averaging 7.31% in the last one year, the 9% interest rate on FDs translates to a real return of just 1.69%. Investors may consider investing in capital market instruments (including equities, bonds and mutual funds) as per their risk return profile for successful financial planning and wealth creation. Compared to traditional investing in FDs, investment in equity would be apt for wealth generation for those with a long-term investment horizon. This approach would nullify any risk associated with short term aberrations. For instance, Rs 10,000 invested in the domestic equity benchmark CNX Nifty index 10 years ago would have grown to Rs 46,490 as on October 31, 2014, growing at 16.61% a year as against FDs which would have grown to Rs 23,674 at an average 9% a year over the 10-year period, or almost half the equity return. It is commonly observed, retail investors often lack the skills and time required to invest in capital market instruments on their own. This is where mutual funds come in handy. Thanks to professional management, many mutual fund schemes deliver returns above their respective benchmarks. They also offer additional benefits in terms of diversification, cost and liquidity. For instance, if one had invested in equity-oriented mutual funds (represented by Crisil – Amfi equity fund performance index) instead of equity directly, he would have got annualised returns of almost 20% over ten years vis-à-vis the 16.61% given by CNX Nifty Index. Depending on individual's risk-return profile, one can opt for a wide range of mutual fund categories and schemes offered. Picking the right fund scheme Not all mutual funds are winners. Hence, one should do due diligence to pick a good performer. The performance of the scheme should be compared across market conditions, benchmarks and peers. For peer comparison, one can use Crisil – Amfi mutual fund performance indices, which represent the performance of mutual fund categories across time-frames and market cycles. Investors should also look at features like stock and sector holdings, credit rating profile of the debt instruments, risk factors, costs structure and taxation aspects. They can consider third-party unbiased rankings done by research houses to select the best options from the respective mutual fund categories. Review and rebalance portfolio Financial markets may exhibit volatility, which means the performance of asset classes varies across time due to a host of factors. These market gyrations are bound to reflect in the performance of mutual fund schemes. Hence, a regular check-up of the portfolio is a must to weed out non-performers and re-balance one's portfolio to the pre-defined asset allocation. Portfolio review should ideally be done on a semi-annual or annual basis. The writer is senior director, (capital markets) at Crisil Research |
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Published Date: Nov 18, 2014
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Story from page 13 - Personal finance, dnaofmumbai
Worried about locker contents? | ||
Insure your valuables, jewellery kept in bank lockers with householder's policy | ||
| Khyati Dharamsi @KhyatiDharamsi | ||
A theft in bank lockers at Sonepat, Haryana, branch of Punjab National Bank by digging a tunnel into the locker room has left scores of bank locker holders astounded. What aggravated the fury of the 89 locker holders of the branch was the realisation that a bank isn't bound to compensate for the theft. A bank is in no position to compensate as there is no proven way of finding the locker contents. The relationship of a bank and a locker holder is just of a tenant and landlord. Don't just rush to the locker and stash jewellery and valuables at home. Barring a few cases of theft at bank lockers each year, they are still the safest place to park your valuables. By splitting valuables between home and bank locker you can reduce the geographical risk. But if you are having sleepless nights over the safety of your jewellery and valuable stored in the bank locker, a jewellery insurance cover offered by Axis Bank or a householders' policy would offer some solace. Insurance coverage These insurance covers protect jewellery stored at home, in bank lockers, and some companies also offer compensation for jewellery worn by the insured or being transported within the country. The policyholder is compensated in case of damage or loss of jewellery due to accidents and unfortunate instances. "Apart from the Axis Bank locker holders, we offer such coverage to all our customers insured with us under the Home Insurance plans – household or My Home All Risk," says Praveen Chhajed, head- non motor claims at Bajaj Allianz General Insurance. Process You can opt for various limits from Rs 2 lakh to Rs 10 lakh. "The customer has to give details of the jewellery, such as type, weight and replacement cost up to items of Rs 10 lakh. However, if the replacement cost of the jewellery is above Rs 10 lakh, the customer is required to submit a valuation certificate at the time of purchasing home insurance, adds Chhajed. Check if there are any limits applicable under home insurance cover for jewellery. Companies such as ICICI Lombard, Tata AIA General among others apply a sub-limit for jewellery portion under the home insurance policy. So, if you have opted for a Rs 3 lakh policy then only 25% or jewellery worth Rs 75,000 would be covered under the policy. During the policy term if you make any high-value gold purchase then you can inform the insurer about it and extend the protection to the new adornment. Premium The cost of getting these covers is low compared to the value that they hold. "The premium is in the range of 0.5-1% of the market value of jewellery," says B K Sinha, managing director of Unison Insurance Broking Services. This market value of gold would differ based on the day gold is valued. If the gold price was Rs 26,000 per 10 gram when you insured it, but declined to Rs 24,000 when the theft occurred, which value would be considered? The agreed value between the customer and the insurance team while taking the policy would be considered as the value of gold, according to Bajaj Allianz General Insurance. "If you took the policy when the gold was at Rs 30,000 per tola then the same price would be applicable at the time of theft," clarifies Sinha. Don't forget to ask for a discount if you are opting for two or more sub covers under the householder's or home insurance policy. Other sub covers are baggage protect, pedal cycles, appliances cover etc. Insurers offer 10-20% discount based on the actual package asked for. Not covered Though the cover would protect your jewellery from most damages and thefts, there are damages resulting from large-scale acts that aren't covered. If your jewellery is lost or damaged as a result of war or hostility or due to direct or indirect use of nuclear weapons then the insurance company wouldn't compensate. The policy wordings of most jewellery and contents cover mention that if the house has been unoccupied for more than 30 days, during which the theft or burglary took place, then he claim may be rejected. When you are moving in a car with the jewellery ensure that you lock the doors and roll up windows as any negligence on these aspects could lead to claim rejection. Also, file the claims within the timeframe specified by your insurance company. Preserve the invoice as claims for jewellery worth Rs 50,000 and above would be accepted only if a valuation certificate or the invoice of purchase is available. |
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Published Date: Nov 18, 2014
Copyright restricted. For reprint rights click here
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