How To Smartly Use SWP In Mutual Funds

How To Smartly Use SWP In Mutual Funds
by Divya Nair 11/07/2016

SWP or Systematic Withdrawal Plan is a facility offered by mutual funds to redeem units. The plan allows investors to exit their investments in small portions at regular intervals to meet their short-term goals or regular monthly income needs. These intervals can be monthly or quarterly.

Uses Of Systematic Withdrawal Plans (SWP’s) IN Mutual Funds

Usually, retired people use SWPs to create a regular flow of income from their investment corpus in mutual funds. But others can also use it for goals such as child’s education, to pay EMIs, to pay bills etc.

Salient Features Of SWP’s

  • Minimum Account Balance - In order to start the SWP facility, the minimum account balance should be Rs 25,000.

  • Time Intervals - The frequency generally available to withdraw are on monthly, quarterly or annual period basis.

  • Nature/Type Of Withdrawal Possible - Investors normally have two options to choose from fixed withdrawal wherein a certain amount of money can be withdrawn.

  • Appreciation Withdrawal - Wherein amount of appreciation only can be withdrawn.

Benefits Of SWP In Mutual Fund -

  • Rupee Cost-Averaging - SWP can be more beneficial if it is designed for a longer period as it let investors take the advantage of rupee cost averaging. Rupee cost averaging is an approach in which a person invest a fixed amount of money at regular intervals. This ensures that the investor buys more shares of an investment when prices are low and less when they are high.

  • Tax Advantage - When investors withdraw the money invested in mutual funds within a year, it attracts some amount of short-term capital gains. However when we withdraw the amount through SWP, it would not attract any tax. All the amount withdrawn in the first year would be the capital itself.

  • Good For Investors Looking For Fixed Income - SWP is good for investors who look for regular income for over a period of time.

How SWP Can Be Used Effectively -

  • Post-Retirement Income - SWP is one of the best ways to create a regular source of income post-retirement. Investments in debt funds, balanced funds etc can help gain more, apart from letting you withdraw at regular intervals.

  • Better Use Of Surplus Funds - If you have lump-sum surplus fund, a SWP allows you to invest that amount in mutual fund schemes and withdraw that amount in as per your requirement, hence enabling a disciplined way of managing your savings.

  • Best Substitute For Pension - Income from most of the pension plans is taxable, whereas if you invest in mutual funds and do a SWP, the amount you withdraw is tax-free. People can try creating a corpus 3-4 years before retirement and invest that later in an equity mutual fund to choose a SWP plan in order to save tax more efficiently.

  • Capital Protection - Risk-averse individuals can invest in arbitrage mutual funds as returns on these funds are risk-free. Under arbitrage funds, dividends are totally tax-free. Investors can reinvest the dividend received from their investments made in arbitrage funds and do a separate SIP, which can later be used to do regular SWP.

Conclusion - If you are ready to spend the money invested in mutual funds, SWP is a convenient way to get your cash without contacting the fund house every time you want to sell the units.

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Why Purchase Term Insurance Policy Online?

Why Purchase Term Insurance Policy Online?
by Divya Nair 11/07/2016

With more and more people shifting their preference to online shopping for almost everything now, buying insurance products on the net is no exception. Widely known as E-insurance, online insurance plans are proving to be value for money products, with regard to both charges and premium. Of all the life insurance plans, buying a pure term insurance plan is the most cost-effective way.

If you are yet to purchase a term insurance plan, we give you top reasons to buy one ONLINE ASAP:

  • Cost-Efficient - When purchasing a term plan online, premiums are comparatively lower than that when you buy a plan offline due to the absence of insurance agents or any other intermediaries. Buying a plan online means a direct transaction between the buyer and the insurer. As a result, this saves on the commission and other operation costs.

  • Quick - Many insurance companies and financial services firms have launched advanced platforms to make online insurance shopping more convenient. 5paisainsurance has recently launched India’s first 100% automated insurance advisor. It takes every aspect of an individual from family details, income & expenses, current assets & liabilities, lifestyle, family health history, risk profile, existing insurance and future goals into consideration and provides a fully automated advice for insurance requirement in totality. With 5paisainsurance, all you need to do is spend just 5 minutes of your time and fill in your details in 3 easy steps.

  • Ease Of Choosing - Insurance portals allow online comparison of various plans. Also, such websites allow you to read online reviews of several insurance products. Therefore, making it easier for people to buy the term plan best aligned to their needs, with maximum benefits at affordable premiums.

  • Transparency - When you purchase a term plan online, you are informed almost about everything. Also when the details are filled and the form is submitted online, insurance shoppers get the necessary email or text message to track the current application status and receives guidance about the next course of action.

  • No Mis-Selling - The traditional way of buying life insurance policies involved lengthy paperwork and blind trust on insurance agents. The online process is a do-it-yourself (DIY) concept with no agents involved. Online buying lets insurance seekers fill up simple and only relevant online forms , thus minimising mis-selling.

  • Less Formalities - For online policies, medical tests are not always mandatory. People are asked to go for medical tests only if the sum assured exceeds a specified amount, usually over 50 lakhs and above.

Conclusion - These factors possibly have made you think why buying a term plan online scores over the traditional way of purchasing a plan through an insurance agent. However, it is upto the customer what product he/she thinks fits his/her financial plan perfectly after a careful research.

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All About Sovereign Gold Bond Scheme

All About Sovereign Gold Bond Scheme
by Divya Nair 24/10/2016

If you are one of them who consider gold as a necessary investment, gold bond is for you. Gold bonds have all the qualities of gold investment except for shine of gold. These are backed by the government of India and undoubtedly are very secure.

What Are Sovereign Gold Bonds?

Sovereign Gold Bonds (SGB) are substitutes for holding physical gold. These are issued by Reserve Bank Of India (RBI) on behalf of government of India. When people invest in gold bonds, they get a paper against their investment instead of a gold coin or a gold bar. Sovereign Gold Bonds are also available in digital and demat form, and can be used as collateral for loans and can be sold or traded on stock exchanges.

Next Tranche Of Sovereign Gold Bonds From October 24

Government of India is launching Sovereign Gold Bonds 2016-17 - Series III from October 24 - November 2, 2016 for subscription. The bonds will be issued on November 17, 2016. In the sixth tranche of the gold bond, people can buy securities worth up to 500 grams.

The bonds will be sold through banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices and stock exchanges; NSE and BSE.

Features Of Sovereign Gold Bonds 2016-17 - Series III:

Maximum Limit:

The maximum amount subscribed by an entity will not be more than 500 grams per person per fiscal year (April-March). A self-declaration to this effect will be obtained.

Eligibility For Investment:

Gold bonds will be restricted for sale to resident Indian entities including individuals, HUFs, Trusts, Universities and Charitable Institutions.

Tenure

The tenure of the bond will be for a period of 8 years with exit option from 5th year to be exercised on the interest payment dates.

Joint Holder

In case of joint holding, the investment limit of 500 grams will be applied to the first applicant only.

Issue Price

Price of bond will be fixed in Indian Rupees on the basis of simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association Limited for the week (Monday to Friday) preceding the subscription period. The issue price of the Gold Bonds will be ' 50 per gram less than the nominal value.

Payment Option

Payment for the Bonds will be through cash payment (upto a maximum of Rs. 20,000) or demand draft or cheque or electronic banking.

Redemption Price

The redemption price will be in Indian Rupees based on previous week's (Monday-Friday) simple average of closing price of gold of 999 purity published by IBJA.

Interest Rate

The investors will be compensated at a fixed rate of 2.50%/annum payable semi-annually on the nominal value of investment.

Benefits Of Investing In Gold Bonds:

Available both in demat and paper form

  • Value of your investment in gold bond increases with the increase in gold prices

  • Gold bond gives a better return than the physical gold as it gives interest as well

  • No worries about safekeeping as a gold bond can be kept in digital form

  • No expense of locker as gold bond can be kept in house or demat account

  • Nil chances of cheating or impurities in gold bond. Investors would always get 100% pure gold bond, which may 100% value

  • Bonds can be used as collateral for loans

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Liquid Funds Or Savings Bank Accounts? Where To Park Your Surplus Funds!

Liquid Funds Or Savings Bank Accounts? Where To Park Your Surplus Funds!
by Divya Nair 25/10/2016

Both savings bank account and a mutual fund liquid account are considered as ideal routes to park money for a short period of time. Each one of us want some amount of idle money for our day-to-day expenses. But it is critical to determine how much money is sufficient to meet our short-term needs to enable our idle money to earn returns for us. Without a proper analysis, both liquid funds and savings accounts might look alike. But if looked closely, there can be a number of significant differences between the two that may give you solid reasons to choose one over the other.

The first step towards evaluating these two is to understand what exactly they are.

What Are Liquid Funds?

Liquid funds are debt mutual funds that invest in very short-term instruments — commercial papers, treasury bills, certificates of deposit, and so on for a tenure of 91 days. As the term implies, liquid funds are highly liquid. A person can invest today in liquid funds and can redeem the money tomorrow. There may not be any exit load and the amount will be transferred into his bank account.

What Are Savings Accounts?

These accounts are one of the most favored money saving instruments among Indians. People park money in a savings account for short-term in order to use it for day to day needs. Savings accounts are maintained by banks and post offices where people have the flexibility to deposit and withdraw money at any time.

A Relative Comparison Between Savings Accounts And Liquid Funds -

Factors Liquid Funds Savings Funds
Rate of Return 7-8% 4%
Tax Implication Short-term capital gains tax is levied based on investors’ applicable income tax slab tax rate Interest earned are taxable as per investors’ applicable income tax slab
Ease Of Operation No need to go to a bank to get cash. If there is some amount that needs to be paid, it can be done online Money gets deposited to bank account first
Suitable For Who want to invest their surplus to earn higher return than saving account rates, but seek high liquidity Who want to just have a storage to park money

Conclusion - While it entirely depends on investors’ preference whether to go for liquid funds or sticking to their savings bank accounts, shifting their idle money in savings account to higher returns yielding liquid funds can always be a smart decision.

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Top 2 ELSS Mutual Funds to Invest This Diwali

Top 2 ELSS Mutual Funds to Invest This Diwali
by Nutan Gupta 25/10/2016

The auspicious festival of Diwali is round the corner. This Diwali, we give you top 2 ELSS mutual fund schemes to invest in, which will help you save a lot of tax.

Axis Long term Equity Fund

Axis Long Term Equity Fund aims to generate long term capital growth from a diversified portfolio of equity and equity related securities. The scheme invests in companies with strong growth and a sustainable business model. The fund is managed by Jinesh Gopani since April 2011. The fund has given returns of 19.09% since launch. The fund has a total of 39 stocks in its portfolio. There is no exit load associated with this fund. The fund has outperformed its category returns over a 2-year and 3-year time frame.

Trailing Returns (%)
Fund Category
YTD 7.24 12.69
3-month 2.03 5.85
6-month 10.33 15.76
1-year 5.56 11.29
2-year 14.6 13.74
3-year 28.61 23.75

Birla Sun Life Tax Relief 96

Birla Sun Life Tax Relief 96 seeks long-term capital growth and invests approximately 80% of its assets in equity, while the balance would be invested in debt and money market instruments. The fund is managed by Ajay Garg since October 2006. The fund has given returns of 25.97% since launch. Moreover, if an investor chooses to redeem his investments, there is no exit load that he has to bear. The fund has outperformed its category returns over a 2-year and 3-year time frame. The fund has a total of 51 stocks in its portfolio.

Trailing Returns (%)
Fund Category
YTD 10.11 12.69
3-month 5.06 5.85
6-month 12.83 15.76
1-year 10.95 11.29
2-year 17.80 13.74
3-year 27.37 23.75

Axis Long Term Equity Fund and Birla Sun Life Tax Relief 96 have the capability of generating higher returns over a 3-year period. We wish you a very Happy Diwali & Prosperous New Year!

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Different types of trends in Technical Analysis charts and Their Uses

Different types of trends in Technical Analysis charts and Their Uses
by Nilesh Jain 29/10/2016

Trends can be classified into three types:
- Uptrend
- Downtrend
- Sideways/Horizontal trend

Uptrend In Technical Analysis Chart:

When a particular stock is making higher highs & higher lows, that stock is considered to be in uptrend. Higher highs indicate that the stock is making consecutive peaks than previous highs. Higher lows indicate that bottom is higher than the previous lows.

When stock is in uptrend, it is advisable to buy on dips. The optimism is that the stock may rise further. The uptrend may last as short as few weeks or as long as few years.

As you can see from following chart, Nifty was in uptrend from Feb 2016 to Sept 2016

Technical Analysis Chart- Uptrend

Technical Analysis Chart - Uptrend

The line which is connecting higher high & higher low is called Trend line. The higher high trend line is called resistance line and higher low trend line is called support line.

Downtrend In Technical Analysis Chart:

When the stock is making lower highs & lower lows, it is considered to be in downtrend. Lower highs mean that previous peak is higher than the current peak. Lower lows mean the current bottom is lower than the previous bottom.

When the stock is in downtrend, it is advisable to sell on bounces as there is pessimism that stock could fall further.

As you can see from following chart, JUSTDIAL was in complete downtrend since August 2014 to March 2016

Technical Analysis Chart- Downtrend

Technical Analysis Chart - Downtrend

Sideways Trend in Technical Analysis Chart

When the sstock trades in a range, it is called sideways trend. Sideways trend occurs when the force of demand & supply are nearly equal. A sideways trend is also called ‘horizontal trend’

As you can see from the following chart TATACOFFEE was in sideways trend since July 2013 to July 2016

Technical Analysis Chart- Sideways trend

Technical Analysis Chart - sideways trend