With increased internet penetration , most financial transactions have gone online. Not only online transactions take less effort, they are also easy to organise. Furthermore, a search for a history of transactions is easily possible. These advantages and more are available when you buy mutual funds online.
RESEARCH AVAILABILITY
With several hundred mutual fund schemes on offer, which one to buy is a tough question . Most websites facilitating purchase of mutual funds online offer live research support , which means you can check out the topperforming funds in each category for different time periods.
Comparisons can be done right up to the last NAV. In-house research teams also advise investors based on their individual investment horizons.
This apart, there are readymade asset allocation models you can use to construct your portfolio based on your age and risk appetite, and if you want to keep it simple, you can just mimic these model portfolios. You are also supported with various calculators.
PORTFOLIO TRACKER
Your portfolio is updated on a daily basis. Your entire mutual fund portfolio — be it in equity or debt — is consolidated and can be viewed on a single screen. “The customer’s portfolio is updated daily with the latest NAV and he can also see our research recommendation against the schemes,” says Vineet Arora, head (products and distribution), ICICI Securities. This helps the investor take decisions about his portfolio quickly and with minimum delay.
INTEGRATED PAPERLESS APPROACH
In the physical route, investors are burdened with paperwork and movement of paper. With online, they get the ease of transacting from any corner of the world at any point of time. You can just go online and invest. As internet banking spreads, the integration of your banking account with your mutual fund account also ensures seamless transactions and instant confirmation of transactions.
“When you transact online, you do not have to wait for paper to know whether your cheque is cleared, or something is missing in your form,” says Rajesh Krishnamoorthy, managing director, fundsupermart.com, a website where investors can transact in mutual funds.
INVEST IN SIP/SWP Investing in a systematic investment plan or a systematic withdrawal plan is a pleasure when you do it online. In the case of an emergency , even at the last moment, one can stop a payment. In the physical mode, one would have to fill in forms and send it to registrar, which would require a minimum of two days. An added advantage is automatic reminders that inform you when your SIP gets over.
BUY THROUGH BROKERS With stock brokers now being allowed to buy and sell mutual fund units through the exchange , you can also buy mutual funds by logging on to your trading account. However, it is yet to catch investors’ fancy.
QUERIES
Some websites give you an opportunity to build communities where you can interact with other investors. The communities provide a platform to clarify doubts on investments in mutual funds, financial planning and such other related areas
WHY ONLINE MUTUAL FUNDS ARE CATCHING ON
SEBI abolished entry load on mutual funds in August 2009. Prior to this, whenever investors invested in an equity mutual fund, they were charged an entry load of 2.25%. This amount was deducted from the investor’s investment by the asset management company (AMC) and passed on to the distributor as fees.
However, this has changed after August 2009. Now, distributors can charge an advisory fee from investors for their services and earn a trail fee of 0.5% from the AMC. The reaction of distributors to this move has been mixed. While some distributors charge an advisory fee for their services, others do not. Hence, this has reduced distributor margins.
For example, if a customer wants to invest Rs 10,000 in an equity fund today, a distributor may earn only Rs 50 as trail fees plus advisory fees charged if any, compared to Rs 225 which he earned as entry load plus the trail fees. Fall in margins makes industry players invariably look at boosting business volumes.
As a result, more distributors are going online because it helps to reduce costs and maintain their margins. For example if a customer invests online, he does not interact with an advisor, nor does the advisor have to physically complete the transaction for the customer. This saves valuable manpower cost and other servicerelated costs for the distributor which makes up the biggest component of distribution cost.
Saturday, March 27, 2010
Saturday, March 20, 2010
Beware of highest-NAV schemes
Over the last few months, one after another, a number of insurance companies have launched ULIPs which promise to repay the investor on the basis of the highest NAV that the fund has achieved. The pitch is that these funds' NAV effectively does not drop. Once a level is achieved, then the investor is assured of getting at least as much, no matter what happens to the market. It's certainly a very attractive idea. From the way insurance companies are stampeding into launching such products, I'm sure investors must be putting down their money in good numbers-in just a couple of months, six ins
urance companies have launched such products. Any investor who is told of this concept will immediately start salivating at the thought. Imagine how rich you could have been had you been invested over the last ten years and had been able to lock your investments at the magical value that the markets achieved on the day when the Sensex touched 20,873!
Any investor thinking about this product would say, "What a wonderful idea!" Why don't all investment schemes-whether mutual funds or ULIPs or even portfolio management schemes offer this kind of a protection on all their products anyway. The answer to this obvious question is simple. There is no free lunch. These products don't actually offer what you think they are offering. That is, they do not offer equity returns that never fall. Instead, they offer an investment system with a very long lock-in (seven to ten years) in which protection is achieved by progressively putting your gains in a fixed income assets which will give returns far more slowly than a pure equity option. The lock-in and the non-equity assets make this a very different kind of investment than the equity-gains-without-losses dream that these funds' advertising seems to imply.
However, even that's not the real reason that these funds are useless. The real reason is that if you are willing to lock-in for seven to ten years, then practically any equity mutual fund would deliver this dream of equity-gains-without-losses. Seven years is a very long time. Over such a period practically any equity portfolio into which any kind of thought has gone would capture substantial gains. This is not mere conjecture. Since at least 1997 the minimum total return that the Sensex has generated over its worst seven is 12 per cent, which was over the seven year period from 6th July 1997 to 5th July 2004. The truth is that in a growing economy like India's it's extremely hard to lose money over a long period like seven years. If you are willing to lock in your money for seven years, then for all practical purposes, you have a guarantee of making a profit.
Of course, this is not a guarantee that is signed in a contract and legally enforceable, but it's the kind of guarantee that any thoughtful investor would be willing to believe in. Mind you, this is also not a guarantee that you will get the highest NAV achieved but again, that's the kind of thing that can't be attained if you want the gains of pure equity anyway.
The most instructive thing in this whole business of guaranteed highest NAV products is the contrast between the illusions spun by those peddling complex financial products and the reality of simple, straightforward investing. It just reinforces one's belief that financial products are being designed whose goal is nothing more than to create a marketing hype which can manipulate the psychology of the ordinary saver.
Source: valueresearchonline.com
urance companies have launched such products. Any investor who is told of this concept will immediately start salivating at the thought. Imagine how rich you could have been had you been invested over the last ten years and had been able to lock your investments at the magical value that the markets achieved on the day when the Sensex touched 20,873!
Any investor thinking about this product would say, "What a wonderful idea!" Why don't all investment schemes-whether mutual funds or ULIPs or even portfolio management schemes offer this kind of a protection on all their products anyway. The answer to this obvious question is simple. There is no free lunch. These products don't actually offer what you think they are offering. That is, they do not offer equity returns that never fall. Instead, they offer an investment system with a very long lock-in (seven to ten years) in which protection is achieved by progressively putting your gains in a fixed income assets which will give returns far more slowly than a pure equity option. The lock-in and the non-equity assets make this a very different kind of investment than the equity-gains-without-losses dream that these funds' advertising seems to imply.
However, even that's not the real reason that these funds are useless. The real reason is that if you are willing to lock-in for seven to ten years, then practically any equity mutual fund would deliver this dream of equity-gains-without-losses. Seven years is a very long time. Over such a period practically any equity portfolio into which any kind of thought has gone would capture substantial gains. This is not mere conjecture. Since at least 1997 the minimum total return that the Sensex has generated over its worst seven is 12 per cent, which was over the seven year period from 6th July 1997 to 5th July 2004. The truth is that in a growing economy like India's it's extremely hard to lose money over a long period like seven years. If you are willing to lock in your money for seven years, then for all practical purposes, you have a guarantee of making a profit.
Of course, this is not a guarantee that is signed in a contract and legally enforceable, but it's the kind of guarantee that any thoughtful investor would be willing to believe in. Mind you, this is also not a guarantee that you will get the highest NAV achieved but again, that's the kind of thing that can't be attained if you want the gains of pure equity anyway.
The most instructive thing in this whole business of guaranteed highest NAV products is the contrast between the illusions spun by those peddling complex financial products and the reality of simple, straightforward investing. It just reinforces one's belief that financial products are being designed whose goal is nothing more than to create a marketing hype which can manipulate the psychology of the ordinary saver.
Source: valueresearchonline.com
Friday, March 19, 2010
Home loan repayment reduces tax liability
You can reduce your income tax burden through the interest you pay on a home loan. Under Section 24 of the Income Tax Act, interest paid up to Rs 1.5 lakhs a year on a home loan can be set off against 'loss' from other heads for a self-occupied property.
In case the property has been acquired before April 1, 1999, interest up to Rs 30,000 a year can be set off. In case the property has been rented out, the entire interest paid is deductible from the taxable income after computing rental income. If the loan is taken for renovation, interest up to Rs 30,000 a year is deductible.
The pre-equated monthly instalment (pre-EMI ) interest amount (the interest amount paid during construction) is deducted under Section 24 of the Income Tax Act equally over five years from the year of completion of construction. It is to be noted that if you have taken a loan only for the land purchase, it is not eligible for any tax benefits.
In case you take a composite loan (for land and house construction), you will be eligible for income tax benefits only after the completion of the construction.
Tax benefits are available on loans to construct a residential property, buy a residential property, extend a house, and for major repairs or renovation of a house. The home loan is disbursed through a number of instalments as the construction progresses.
During the construction period, you have to pay pre-EMI interest every month. The entire pre-EMI interest paid is allowed as a deduction (under Section 24) equally over five years starting from the year in which the construction is completed.
However, for a selfoccupied house, the total deduction allowed towards interest on the home loan is Rs 1.5 lakhs a year. There is no limit for deduction on interest paid towards a second home loan, provided you add the rental income (annual rental value of your second house) to your income. The annual rental value will be the higher of actual rent received a year, municipal value, and fair rent fixed.
Out of the total annual rental value, there is standard deduction of 30 percent available towards maintenance charges and municipal taxes. The insurance premiums paid on the property can be deducted too.
The deduction in respect of principal loan amount repaid is restricted to Rs 1 lakh. In case you have taken a personal loan from a bank and used the money to purchase or construct a house, you can claim tax benefits on both principal and interest paid.
However, if the loan has been borrowed from a friend or relative, you can claim tax benefits on the interest paid only.
Co-owners can claim tax benefits separately, as per the shareholding in the property. If the shareholding is not mentioned in the purchase deed, they can execute an agreement on a requisite stamp paper, mentioning the shares in the property, and claim the benefits separately.
Both can claim deductions up to Rs 1.5 lakhs a year separately towards interest paid for a self-occupied house and the entire interest paid on a rented-out house, after computing rental income received, and also up to Rs 1 lakh towards principal repaid.
Under Section 80C of the Income Tax Act, home loan borrowers can claim a deduction of up to Rs 1 lakh from the taxable income on a loan repaid during the year, along with specified savings instruments.
Along with the other specified savings instruments, a home loan repayment amount, the amount spent on stamp paper and registration costs on registering a house, all up to Rs 1 lakh is deductible from the total income.
If you sell the property within five years from the year in which you started, you lose the tax benefits availed under Section 80C (on the principal loan amount) and the amount will be clubbed to the income of the year in which the property has been sold. However, you will not lose the deductions claimed on interest paid under Section 24.
source:economictimes.com
In case the property has been acquired before April 1, 1999, interest up to Rs 30,000 a year can be set off. In case the property has been rented out, the entire interest paid is deductible from the taxable income after computing rental income. If the loan is taken for renovation, interest up to Rs 30,000 a year is deductible.
The pre-equated monthly instalment (pre-EMI ) interest amount (the interest amount paid during construction) is deducted under Section 24 of the Income Tax Act equally over five years from the year of completion of construction. It is to be noted that if you have taken a loan only for the land purchase, it is not eligible for any tax benefits.
In case you take a composite loan (for land and house construction), you will be eligible for income tax benefits only after the completion of the construction.
Tax benefits are available on loans to construct a residential property, buy a residential property, extend a house, and for major repairs or renovation of a house. The home loan is disbursed through a number of instalments as the construction progresses.
During the construction period, you have to pay pre-EMI interest every month. The entire pre-EMI interest paid is allowed as a deduction (under Section 24) equally over five years starting from the year in which the construction is completed.
However, for a selfoccupied house, the total deduction allowed towards interest on the home loan is Rs 1.5 lakhs a year. There is no limit for deduction on interest paid towards a second home loan, provided you add the rental income (annual rental value of your second house) to your income. The annual rental value will be the higher of actual rent received a year, municipal value, and fair rent fixed.
Out of the total annual rental value, there is standard deduction of 30 percent available towards maintenance charges and municipal taxes. The insurance premiums paid on the property can be deducted too.
The deduction in respect of principal loan amount repaid is restricted to Rs 1 lakh. In case you have taken a personal loan from a bank and used the money to purchase or construct a house, you can claim tax benefits on both principal and interest paid.
However, if the loan has been borrowed from a friend or relative, you can claim tax benefits on the interest paid only.
Co-owners can claim tax benefits separately, as per the shareholding in the property. If the shareholding is not mentioned in the purchase deed, they can execute an agreement on a requisite stamp paper, mentioning the shares in the property, and claim the benefits separately.
Both can claim deductions up to Rs 1.5 lakhs a year separately towards interest paid for a self-occupied house and the entire interest paid on a rented-out house, after computing rental income received, and also up to Rs 1 lakh towards principal repaid.
Under Section 80C of the Income Tax Act, home loan borrowers can claim a deduction of up to Rs 1 lakh from the taxable income on a loan repaid during the year, along with specified savings instruments.
Along with the other specified savings instruments, a home loan repayment amount, the amount spent on stamp paper and registration costs on registering a house, all up to Rs 1 lakh is deductible from the total income.
If you sell the property within five years from the year in which you started, you lose the tax benefits availed under Section 80C (on the principal loan amount) and the amount will be clubbed to the income of the year in which the property has been sold. However, you will not lose the deductions claimed on interest paid under Section 24.
source:economictimes.com
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