This is a watchlist-cum-portfolio template I created and modified from the web. It sources the stock codes from yahoo finance.
I have kept buy levels for stocks on the watchlist as BUY UNDER. The Buying Heatmap changes colours based on the current price of the scrip relative to the BUY UNDER price. Red means the CMP is farther away from the buy under price and green means its closer to the buy under price. Once the CMP falls below the buy under price, the scrip name cell changes to black background with green text.
The refresh button runs the macro query to get the latest prices from finance.yahoo.com
Disclaimer - I got the barebones template from the web and modified it to suit me and I think others should have access to it, so its here. Also, the stock names are arbitrary, so if the SEBI/ IT dept of India are watching this, these are not the stocks I hold :D
Any questions/ clarifications, please email me. This template is filed under the "Attribution-NonCommercial-ShareAlike 3.0 Unported (CC BY-NC-SA 3.0)" Creative Commons License. Please ensure if you share/ reuse or modify this template, the CC license remains in the Excel sheet.
You can get the file here.
Showing posts with label Investing. Show all posts
Showing posts with label Investing. Show all posts
Friday, January 21, 2011
Monday, August 25, 2008
10 Calculations to know
I came across this splendid article in Outlook Money.
It talks about 10 of the most useful financial calculations for us to know. Most of them are to be fed in MS Excel while some can be simple calculations you can do mentally or on a sheet of paper. I found this article very helpful.
Presented below is the abridged text from the article above:
1. Compound Interest
I want to take a loan of Rs 1 lakh to buy a used car. How much will the car cost me at an annual interest rate of 8 per cent for four years?
The compound interest formula can be used here to calculate the final cost, which would include the loan amount and the interest paid. The amount that is actually paid for Rs 1 lakh is Rs 1,36,048.90. The total amount of interest charged for borrowing Rs 1 lakh is Rs 36,048.90.
Formula: Future value = P(1 + R)^N
Type in: =100000(1+8%)^4 and hit enter. P: amount borrowed; R: rate of interest; N: time in years.
Also used for: Calculating the maturity value on lumpsum investment (bank fixed deposits and National Savings Certificate, for example) over a fixed period at a certain rate of interest.
2. Compound Annualised Growth Rate
I had invested Rs 1 lakh in a mutual fund five years back at an NAV of Rs 20. Now the NAV is Rs 70. How should I calculate my returns on an annual basis?
Compound annualised growth rate (CAGR) will be used here to calculate the growth over a period of time. The gain of Rs 50 over five years on the initial NAV of Rs 20 is a simple return of 250 per cent (50/20 * 100). However, it should not be construed as 50 per cent average return over five years.
Formula: CAGR = {[(M/I)^(1/N)] – 1} * 100
Type in: =(((70/20)^(1/5))-1)*100 and hit enter. M: maturity value; I: initial value; N: time in years. CAGR here is 28.47%.
Also used for: Calculating the annualised returns on a lumpsum investment in shares.
3. Internal Rate of Return
I paid Rs 18,572 every year on a moneyback insurance policy bought 20 years back. Every fifth year, I received Rs 40,000 back and Rs 4.5 lakh on maturity. What was my rate of return?
The internal rate of return (IRR) has to be calculated here. It is the interest rate accrued on an investment that has outflows and inflows at the same regular periods.
In the excel page type Rs 18,572 as a negative figure (-18572), as it is an outflow, in the first cell. Paste the same figure till the twentieth cell. Then, as every fifth year has an inflow of Rs 40,000, type in Rs 21,428 (40,000-18,572) in every fifth cell. In the twentieth cell, type in –18572. In the twenty first cell, type in Rs 4,50,000, which is the maturity value of the policy.
Then click on the cell below it and type: = IRR(A1:A21) and hit enter. 5.28% will show in the cell. This is your internal rate of return.
Also used for: Calculating returns on insurance endowment policies.
4. XIRR
I bought 500 shares on 1 January 2007 at Rs 220, 100 shares on 10 January at Rs 185 and 50 shares at Rs 165 on 18 May 2008. On 21 June 2008, I sold off all the 650 shares at Rs 655. What is the return on my investment?
XIRR is used to determine the IRR when the outflows and inflows are at different periods. Calculation is similar to IRR’s. Transaction date is mentioned on the left of the transaction.
In an excel sheet type out the data from the top most cell as shown here. Outflows figures are in negative and inflows in positive. In the cell below with the figure 4,25,750, type out
=XIRR (B1:B4,A1:A4)*100
Hit enter. The cell will show 122.95%, the total return on investment
Also used for: Calculating MF returns, especially SIP, or that for unit-linked insurance plans.
5. Post-Tax Return
My father wants a bank FD at 10 per cent return for five years. He pays income tax. What will be the returns?
The post-tax return has to be calculated here. The idea is to know the final returns on a fully taxable income. Interest income from the bank is taxed as per your tax slab.
Formula: ROI – (ROI * TR)=Post-tax return
Type in: =10 – (10 * 30.9%) and hit enter. You will get 6.91%
ROI: rate of interest; TR: tax rate (depends on tax slab)
Also used for: Calculating post-tax returns of national savings certificates, post-office time deposits, and Senior Citizens’ Savings Scheme
6. Pre-Tax Yield
My brother says that the investment in public provident fund (PPF), which gives 8 per cent, is the best. Isn’t 8 per cent a low rate of return?
An investment’s pre-tax yield tells us if its return is high or low. The return on PPF (8 per cent) is tax-free. Also, this has to compare with returns of a taxable income to estimate its worth. For someone paying a tax of 30.9 per cent, the pre-tax yield in PPF is 11.57 per cent. At present, there is no fixed, safe and assured-return option that has 11.57 per cent return and a post-tax return comparable to PPF’s 8 per cent.
Formula: Pre-tax yield = ROI / (100-TR)*100
Type in: =8/(100-30.9)*100 and hit enter. You will get 11.57%. ROI: rate of interest, TR: tax rate, (depends on tax slab)
Also used for: Calculating the yield on an Employees’ Provident Fund or any other tax-free instrument.
7. Inflation
My family’s monthly expense is Rs 50,000. At an inflation rate of 5 per cent, how much will I need 20 years hence with the same expenses?
The required amount can be calculated using the standard future value formula. Inflation means that over a period of time, you need more money to fund the same expense.
Formula: Required amt.=Present amt. *(1+inflation) ^no. of years
Type in: =50000*(1+5% or .05)^20 and hit enter. You will get Rs 1,32,664 as the answer, which is the required amount.
Also used for: Calculating maturity value on an investment
8. Purchasing Power
My family’s monthly expense is Rs 50,000. At an inflation rate of 5 per cent, how much will be the purchasing value of that amount after 20 years?
Inflation increases the amount you need to spend to fetch the same article and in a way reduces the purchasing power of the rupee. Here, Rs 50,000 after 20 years at an inflation of 5 per cent will be able to buy goods worth Rs 18,844 only.
Formula: Reduced amt.= Present amt. / (1 + inflation) ^no. of yrs
Type in: =50000/(1+5%)^20 and hit enter. You will get Rs 18,844, which is the reduced amount.
9. Real Rate of Return
My father wants to make a one-year bank FD at 9 per cent. On maturity, he says, the capital will be preserved and he would get assured return on it.
It is true that fixed deposit is safe and gives assured returns. However, after adjusting for inflation, the real rate of return can be negative.
Formula: Real rate of return=[(1+ROR)/(1+i)-1]*100
Type in: =((1+9%)/(1+11%)-1)*100 and hit enter. -1.8% is the real rate of return. ROR: Rate of return per annum; i: rate of inflation (11 per cent here)
10. Doubling, Tripling of Money
I can get 12 per cent return on my equity investments. In how many years can I double or even triple my money?
Formula: No. of years to double = 72/expected return
Type in: =72/12 and hit enter. You will get 6 years. For tripling, type in: =114/12 and hit enter. You will get 9.5 years. For quadrupling, type in: =144/12 and hit enter to get 12 years.
It talks about 10 of the most useful financial calculations for us to know. Most of them are to be fed in MS Excel while some can be simple calculations you can do mentally or on a sheet of paper. I found this article very helpful.
Presented below is the abridged text from the article above:
1. Compound Interest
I want to take a loan of Rs 1 lakh to buy a used car. How much will the car cost me at an annual interest rate of 8 per cent for four years?
The compound interest formula can be used here to calculate the final cost, which would include the loan amount and the interest paid. The amount that is actually paid for Rs 1 lakh is Rs 1,36,048.90. The total amount of interest charged for borrowing Rs 1 lakh is Rs 36,048.90.
Formula: Future value = P(1 + R)^N
Type in: =100000(1+8%)^4 and hit enter. P: amount borrowed; R: rate of interest; N: time in years.
Also used for: Calculating the maturity value on lumpsum investment (bank fixed deposits and National Savings Certificate, for example) over a fixed period at a certain rate of interest.
2. Compound Annualised Growth Rate
I had invested Rs 1 lakh in a mutual fund five years back at an NAV of Rs 20. Now the NAV is Rs 70. How should I calculate my returns on an annual basis?
Compound annualised growth rate (CAGR) will be used here to calculate the growth over a period of time. The gain of Rs 50 over five years on the initial NAV of Rs 20 is a simple return of 250 per cent (50/20 * 100). However, it should not be construed as 50 per cent average return over five years.
Formula: CAGR = {[(M/I)^(1/N)] – 1} * 100
Type in: =(((70/20)^(1/5))-1)*100 and hit enter. M: maturity value; I: initial value; N: time in years. CAGR here is 28.47%.
Also used for: Calculating the annualised returns on a lumpsum investment in shares.
3. Internal Rate of Return
I paid Rs 18,572 every year on a moneyback insurance policy bought 20 years back. Every fifth year, I received Rs 40,000 back and Rs 4.5 lakh on maturity. What was my rate of return?
The internal rate of return (IRR) has to be calculated here. It is the interest rate accrued on an investment that has outflows and inflows at the same regular periods.
In the excel page type Rs 18,572 as a negative figure (-18572), as it is an outflow, in the first cell. Paste the same figure till the twentieth cell. Then, as every fifth year has an inflow of Rs 40,000, type in Rs 21,428 (40,000-18,572) in every fifth cell. In the twentieth cell, type in –18572. In the twenty first cell, type in Rs 4,50,000, which is the maturity value of the policy.
Then click on the cell below it and type: = IRR(A1:A21) and hit enter. 5.28% will show in the cell. This is your internal rate of return.
Also used for: Calculating returns on insurance endowment policies.
4. XIRR
I bought 500 shares on 1 January 2007 at Rs 220, 100 shares on 10 January at Rs 185 and 50 shares at Rs 165 on 18 May 2008. On 21 June 2008, I sold off all the 650 shares at Rs 655. What is the return on my investment?
XIRR is used to determine the IRR when the outflows and inflows are at different periods. Calculation is similar to IRR’s. Transaction date is mentioned on the left of the transaction.
In an excel sheet type out the data from the top most cell as shown here. Outflows figures are in negative and inflows in positive. In the cell below with the figure 4,25,750, type out
=XIRR (B1:B4,A1:A4)*100
Hit enter. The cell will show 122.95%, the total return on investment
Also used for: Calculating MF returns, especially SIP, or that for unit-linked insurance plans.
5. Post-Tax Return
My father wants a bank FD at 10 per cent return for five years. He pays income tax. What will be the returns?
The post-tax return has to be calculated here. The idea is to know the final returns on a fully taxable income. Interest income from the bank is taxed as per your tax slab.
Formula: ROI – (ROI * TR)=Post-tax return
Type in: =10 – (10 * 30.9%) and hit enter. You will get 6.91%
ROI: rate of interest; TR: tax rate (depends on tax slab)
Also used for: Calculating post-tax returns of national savings certificates, post-office time deposits, and Senior Citizens’ Savings Scheme
6. Pre-Tax Yield
My brother says that the investment in public provident fund (PPF), which gives 8 per cent, is the best. Isn’t 8 per cent a low rate of return?
An investment’s pre-tax yield tells us if its return is high or low. The return on PPF (8 per cent) is tax-free. Also, this has to compare with returns of a taxable income to estimate its worth. For someone paying a tax of 30.9 per cent, the pre-tax yield in PPF is 11.57 per cent. At present, there is no fixed, safe and assured-return option that has 11.57 per cent return and a post-tax return comparable to PPF’s 8 per cent.
Formula: Pre-tax yield = ROI / (100-TR)*100
Type in: =8/(100-30.9)*100 and hit enter. You will get 11.57%. ROI: rate of interest, TR: tax rate, (depends on tax slab)
Also used for: Calculating the yield on an Employees’ Provident Fund or any other tax-free instrument.
7. Inflation
My family’s monthly expense is Rs 50,000. At an inflation rate of 5 per cent, how much will I need 20 years hence with the same expenses?
The required amount can be calculated using the standard future value formula. Inflation means that over a period of time, you need more money to fund the same expense.
Formula: Required amt.=Present amt. *(1+inflation) ^no. of years
Type in: =50000*(1+5% or .05)^20 and hit enter. You will get Rs 1,32,664 as the answer, which is the required amount.
Also used for: Calculating maturity value on an investment
8. Purchasing Power
My family’s monthly expense is Rs 50,000. At an inflation rate of 5 per cent, how much will be the purchasing value of that amount after 20 years?
Inflation increases the amount you need to spend to fetch the same article and in a way reduces the purchasing power of the rupee. Here, Rs 50,000 after 20 years at an inflation of 5 per cent will be able to buy goods worth Rs 18,844 only.
Formula: Reduced amt.= Present amt. / (1 + inflation) ^no. of yrs
Type in: =50000/(1+5%)^20 and hit enter. You will get Rs 18,844, which is the reduced amount.
9. Real Rate of Return
My father wants to make a one-year bank FD at 9 per cent. On maturity, he says, the capital will be preserved and he would get assured return on it.
It is true that fixed deposit is safe and gives assured returns. However, after adjusting for inflation, the real rate of return can be negative.
Formula: Real rate of return=[(1+ROR)/(1+i)-1]*100
Type in: =((1+9%)/(1+11%)-1)*100 and hit enter. -1.8% is the real rate of return. ROR: Rate of return per annum; i: rate of inflation (11 per cent here)
10. Doubling, Tripling of Money
I can get 12 per cent return on my equity investments. In how many years can I double or even triple my money?
Formula: No. of years to double = 72/expected return
Type in: =72/12 and hit enter. You will get 6 years. For tripling, type in: =114/12 and hit enter. You will get 9.5 years. For quadrupling, type in: =144/12 and hit enter to get 12 years.
Friday, January 18, 2008
How to save Tax with Home Loan
or, Save taxes with a Housing Loan. Er, this title has been chosen deliberately for SEO. And it is a noble thought at that cos most of you who've meandered here from Google or other search engines wouldn't have been here had it not been for SEO and my submissions of the Aryan Expedition on search engines! He he...
So, I'm writing about this here as a matter of need rather than just for plain tax saving. As one's salary increases over time, there is very little one can do to save taxes; the Rs 1 Lakh limit for Section 80C just does not help. Higher salary means higher tax bracket(soon the highest tax bracket) and therefore more and more taxes. As a matter of fact, my employer deducts tax at source from my present salary today which is as much as about 65 % of my salary when I started working about 4 years ago! So what do you do? Having utilised the Section 80C to the maximum extent possible, the best way out is to go for a Home Loan.
Presented here are some of the best links to scout for information on home loans. The best way is to compare Home Loan offers from various banks and HFCs and go for the best offer:
http://www.indianpropertyloans.com/
http://www.honeybeeindia.com/
Here is an illustration on how much tax you can expect to save by taking a home loan. You can find your own tax savings by entering you info here. Very good tool.
For this illustration, we've considered a Floating rate Home Loan of Rs 30 Lacs, for 20 years and considered the taxable income of our friend Ramu to be Rs 5 Lacs. We've taken this loan from IDBI Home Finance which offers probably the cheapest floating rate home loan @ 10.25% p.a. Monthly rest.
Here is what we get:
For the first year, Loan Repayment(before tax benefits) is Rs 3,53,392 which is the summation of Rs 3,05,281 of Principal and Rs 48,110 of interest. The Tax payable(without the Home Loan) is Rs 1,18,830 (We haven't considered the other rebates / deductions like Section 80 C here for the sake of simplicity). Now here is the best part - with the Home Loan, the tax payable comes out to only Rs. 72,930. The Annual Tax saved comes to Rs 55,522 (Rs 45,900 + Rs 9,622). So, Ramu's Annual Repayment(after tax benefits) comes to only Rs 2,97,870. This has also reduced the Post Tax Effective Interest Rate(PTEIR) of the loan to 7.69% p.a. Monthly rest.
The Total Tax saved over the period of this loan, that is 20 years comes out to a neat Rs 11,60,565(A-B):
(A)Total repayment over the period of the loan WITHOUT tax incentives : Rs 70,67,832
(B)Total repayment over the period of the loan WITH tax incentives : Rs 59,07,267
The Annual Tax saved figure will keep on increasing with each passing year except the last 4-5 years when Ramu won't get the full tax benefits. The explanation which is given on the link I provided above is reproduced here:
You will notice a drastic fall in the effective interest rate that you pay after TAX benefits.
The above table examines for you the year from which you are not getting your full tax benefit. Normally, in the last couple of years you may not be able to avail the full tax benefit as the level of interest & principal payments are low. However if you don't have the full tax break even earlier than that you may not be efficiently using the Tax Policy. Go back and try to reduce the tenure of the loan (or take a larger loan) to get higher tax breaks.
You might also want to see how post tax effective interest rate changes as the Tax Policy changes in the future or the tax rate that is applicable to you changes.
So there you have it! Saving income tax by taking a home loan. Works like a charm I'm told, although I have to give it a try soon myself...
So, I'm writing about this here as a matter of need rather than just for plain tax saving. As one's salary increases over time, there is very little one can do to save taxes; the Rs 1 Lakh limit for Section 80C just does not help. Higher salary means higher tax bracket(soon the highest tax bracket) and therefore more and more taxes. As a matter of fact, my employer deducts tax at source from my present salary today which is as much as about 65 % of my salary when I started working about 4 years ago! So what do you do? Having utilised the Section 80C to the maximum extent possible, the best way out is to go for a Home Loan.
Presented here are some of the best links to scout for information on home loans. The best way is to compare Home Loan offers from various banks and HFCs and go for the best offer:
http://www.indianpropertyloans.com/
http://www.honeybeeindia.com/
Here is an illustration on how much tax you can expect to save by taking a home loan. You can find your own tax savings by entering you info here. Very good tool.
For this illustration, we've considered a Floating rate Home Loan of Rs 30 Lacs, for 20 years and considered the taxable income of our friend Ramu to be Rs 5 Lacs. We've taken this loan from IDBI Home Finance which offers probably the cheapest floating rate home loan @ 10.25% p.a. Monthly rest.
Here is what we get:
For the first year, Loan Repayment(before tax benefits) is Rs 3,53,392 which is the summation of Rs 3,05,281 of Principal and Rs 48,110 of interest. The Tax payable(without the Home Loan) is Rs 1,18,830 (We haven't considered the other rebates / deductions like Section 80 C here for the sake of simplicity). Now here is the best part - with the Home Loan, the tax payable comes out to only Rs. 72,930. The Annual Tax saved comes to Rs 55,522 (Rs 45,900 + Rs 9,622). So, Ramu's Annual Repayment(after tax benefits) comes to only Rs 2,97,870. This has also reduced the Post Tax Effective Interest Rate(PTEIR) of the loan to 7.69% p.a. Monthly rest.
The Total Tax saved over the period of this loan, that is 20 years comes out to a neat Rs 11,60,565(A-B):
(A)Total repayment over the period of the loan WITHOUT tax incentives : Rs 70,67,832
(B)Total repayment over the period of the loan WITH tax incentives : Rs 59,07,267
The Annual Tax saved figure will keep on increasing with each passing year except the last 4-5 years when Ramu won't get the full tax benefits. The explanation which is given on the link I provided above is reproduced here:
You will notice a drastic fall in the effective interest rate that you pay after TAX benefits.
The above table examines for you the year from which you are not getting your full tax benefit. Normally, in the last couple of years you may not be able to avail the full tax benefit as the level of interest & principal payments are low. However if you don't have the full tax break even earlier than that you may not be efficiently using the Tax Policy. Go back and try to reduce the tenure of the loan (or take a larger loan) to get higher tax breaks.
You might also want to see how post tax effective interest rate changes as the Tax Policy changes in the future or the tax rate that is applicable to you changes.
So there you have it! Saving income tax by taking a home loan. Works like a charm I'm told, although I have to give it a try soon myself...
Tuesday, January 15, 2008
ELSS V/s NSC
This is in response to a comment posted by Ankur on my earlier post - Tax Saving for free! . This reply is for the benefit for everyone who would like to know this and therefore I've made a new post out of this instead of a comment.
You cannot compare apples with oranges. As a means of tax saving, ELSS and NSC are comparable but not when it comes to liquidity and returns potential(well, risk is another parameter here). NSCs are the poor and uninformed choice in case one can go in for a slightly higher risk(in the case of ELSS as it is equity oriented).
The lock in period for ELSS is 3 years while it is 6 years in the case of NSCs.
Another fact, ELSS dividends and redemptions after 3 years are completely tax free while the interest income from NSC is taxable. Taking a five year horizon, the post tax return from NSC comes out a POOR 11.25% p.a. only while the average post tax return from ELSS funds over the corresponding 5 year period is upwards of 80% p.a.
I guess you'd already know that equities tend to give the best returns over the long term, so tax saving for the long term will be definitely better in the ELSS way than the NSC way. It also beats inflation over the long term thereby giving the best real returns. Finally the disclaimer, ELSS returns are not guaranteed unlike NSC.
Trust this all will prove the point sufficiently, otherwise I have all the time in the world to validate my views! Thanks for the comment btw, keep 'em coming! As a parting shot, here is an illustration on the kind of brutal out performance of the ELSS over the others(read NSC, PPF etc):
How does an ELSS give you the two-in-one advantage of saving tax and wealth-building? The graph below is an eye opener.
If three separate investments of Rs. 1,000 each were made in June 1999 into NSCs, PPFs and in an ELSS, how would they fare? The Rs. 1,000 invested in an ELSS would be worth approximately Rs. 12,266 today. In sharp contrast, none of the fixed rate savings would be worth more than Rs. 2,077. If you are willing to ride the ups and downs of the market, you may find that an ELSS could be an ideal way to save tax and create wealth for your future.
Sources: ELSS data - ICRA MFIE. PPF, NSC Data - Indian PublicFinance Statistics 05-06, Ministry of Finance (Department of Economic Affairs). To represent ELSS, we have considered the performance of the five largest ELSS funds that published their first NAVs on or before June 30, 1999. Assumes an investment of Rs. 1,000 begun on June 30, 1999. PPF - Assumes Rs. 1,000 invested in the Public Provident Fund. For the purposes of simplicity, rate changes announced any time during a month are assumed to be effective for the entire month for the purposes of calculating accrued interest at the end of the month. Interest for the month is calculated by dividing the effective annual PPF rate by 12. For the purposes of simplicity, interest is assumed to accrue on monthly balance in the PPF account. Portfolio value shown here is notional value based on accrued interest till Jun 30, 2007 only. NSC - Assumes Rs. 1,000 invested in NSC at the prevailing interest rate. Assumes half-year compounding at prevailing interest rate. Past performance may or may not be sustained in future. The minimum amount actually required for these investments may be more or less than Rs. 1,000. This graph is for illustrative purposes only. Ending values are rounded off.
https://www.fidelity.co.in/learning_centre/tax/know_about_the_ELSS_advantage.html
You cannot compare apples with oranges. As a means of tax saving, ELSS and NSC are comparable but not when it comes to liquidity and returns potential(well, risk is another parameter here). NSCs are the poor and uninformed choice in case one can go in for a slightly higher risk(in the case of ELSS as it is equity oriented).
The lock in period for ELSS is 3 years while it is 6 years in the case of NSCs.
Another fact, ELSS dividends and redemptions after 3 years are completely tax free while the interest income from NSC is taxable. Taking a five year horizon, the post tax return from NSC comes out a POOR 11.25% p.a. only while the average post tax return from ELSS funds over the corresponding 5 year period is upwards of 80% p.a.
I guess you'd already know that equities tend to give the best returns over the long term, so tax saving for the long term will be definitely better in the ELSS way than the NSC way. It also beats inflation over the long term thereby giving the best real returns. Finally the disclaimer, ELSS returns are not guaranteed unlike NSC.
Trust this all will prove the point sufficiently, otherwise I have all the time in the world to validate my views! Thanks for the comment btw, keep 'em coming! As a parting shot, here is an illustration on the kind of brutal out performance of the ELSS over the others(read NSC, PPF etc):
How does an ELSS give you the two-in-one advantage of saving tax and wealth-building? The graph below is an eye opener.
If three separate investments of Rs. 1,000 each were made in June 1999 into NSCs, PPFs and in an ELSS, how would they fare? The Rs. 1,000 invested in an ELSS would be worth approximately Rs. 12,266 today. In sharp contrast, none of the fixed rate savings would be worth more than Rs. 2,077. If you are willing to ride the ups and downs of the market, you may find that an ELSS could be an ideal way to save tax and create wealth for your future.
Sources: ELSS data - ICRA MFIE. PPF, NSC Data - Indian PublicFinance Statistics 05-06, Ministry of Finance (Department of Economic Affairs). To represent ELSS, we have considered the performance of the five largest ELSS funds that published their first NAVs on or before June 30, 1999. Assumes an investment of Rs. 1,000 begun on June 30, 1999. PPF - Assumes Rs. 1,000 invested in the Public Provident Fund. For the purposes of simplicity, rate changes announced any time during a month are assumed to be effective for the entire month for the purposes of calculating accrued interest at the end of the month. Interest for the month is calculated by dividing the effective annual PPF rate by 12. For the purposes of simplicity, interest is assumed to accrue on monthly balance in the PPF account. Portfolio value shown here is notional value based on accrued interest till Jun 30, 2007 only. NSC - Assumes Rs. 1,000 invested in NSC at the prevailing interest rate. Assumes half-year compounding at prevailing interest rate. Past performance may or may not be sustained in future. The minimum amount actually required for these investments may be more or less than Rs. 1,000. This graph is for illustrative purposes only. Ending values are rounded off.
https://www.fidelity.co.in/learning_centre/tax/know_about_the_ELSS_advantage.html
Monday, January 14, 2008
Tax Saving for free!
Yes, it's possible. As elucidated in this Economictimes article, you can save taxes via the Section 80C tax which provides for deduction of upto Rs 1 Lakh. We're talking about ELSS (Equity Linked Savings Scheme), a diversified equity mutual fund with a lock-in period of 3 years from the date of investment.
The strategy is pretty simple. Consider a case wherein Ramu has been investing in ELSS over the last say, 5 years. The ELSS investments made by him in the year 2005 are out of the lock-in period now in 2008. What this means is, he can reinvest the ELSS investment of 2005 in this year and still be eligible for the Section 80C deduction. So essentially, he hasn't dug into his pockets to invest for this year. Ramu can shift his 2005 ELSS money to a liquid fund and in a couple of days shift it back into the ELSS fund(which qualifies as a fresh purchase). The double whammy here is that equity mutual fund investments if done by the individual himself (that is applying for mutual fund purchases in person at the AMC office) attract no entry load. Thats a cool saving of the 2.25% entry load as well!
You can check out the best(preferably 5 or 4 star rated) ELSS schemes on Valueresearch
We call it "Aam ke aam, guthliyo ke daam" in India! So there you have it, tax savings for free. Works like a charm for poor people like me...
The strategy is pretty simple. Consider a case wherein Ramu has been investing in ELSS over the last say, 5 years. The ELSS investments made by him in the year 2005 are out of the lock-in period now in 2008. What this means is, he can reinvest the ELSS investment of 2005 in this year and still be eligible for the Section 80C deduction. So essentially, he hasn't dug into his pockets to invest for this year. Ramu can shift his 2005 ELSS money to a liquid fund and in a couple of days shift it back into the ELSS fund(which qualifies as a fresh purchase). The double whammy here is that equity mutual fund investments if done by the individual himself (that is applying for mutual fund purchases in person at the AMC office) attract no entry load. Thats a cool saving of the 2.25% entry load as well!
You can check out the best(preferably 5 or 4 star rated) ELSS schemes on Valueresearch
We call it "Aam ke aam, guthliyo ke daam" in India! So there you have it, tax savings for free. Works like a charm for poor people like me...
Monday, June 25, 2007
my BAD?!?!?
So a client makes a notional loss of 0.26% on one of the investments I advised to him. He fails to see the 15% absolute gain on the other investment he's made from my advise. What does he do? He pooh poohs me and goes about redeeming the loss making investment & buys a ULIP!!!!
My bad... Right!
It's more frustrating to note that this ULIP sale comes from a colleague who has absolutely made sure his / her bancassurance targets are overhauled! And the client says I have failed to advise him properly. For the seasoned advisors who are reading this blog, here is the actual lowdown:
My suggestion to the client was Rs 3 Lacs each in Sundaram BNP Paribas Select Midcap Fund (investment horizon of 2 to 3 years) & ICICI Prudential Infrastructure Fund (at least one year; being a thematic fund). Needless to say, the cash component in the Sundaram Fund, albeit a cautious strategy meant a drain on the returns. The Infrastructure fund however, true to market movements, cashed in big time. Both investments were made in Mid January 2007 and the client actually thought I was not advising him properly because I wasn't churning the portfolio!!! Beat that.
Sometimes I wonder if my self righteousness is actually impeding my so called performance. But then, if I would start doing what every other unscrupulous advisor is doing today, I would soon quit this profession. I do what I do because I love advising clients on their money. Not because I want to win every other incentive contest at the risk of murdering my clients' portfolio. Its another matter if I qualify for a contest or two after I've done my duty for my client.
I really am worried how my work shapes up in the future. What I'm sure of is that I will always do whats right for my client in whatever profession I choose at whichever step in my professional life.
As for my client, I sincerely wish someone like me runs into him and tells him what a foolhardy decision he has made, not because then he will understand what I did for him was right, but so that he doesn't make such mistakes again.
My bad... Right!
It's more frustrating to note that this ULIP sale comes from a colleague who has absolutely made sure his / her bancassurance targets are overhauled! And the client says I have failed to advise him properly. For the seasoned advisors who are reading this blog, here is the actual lowdown:
My suggestion to the client was Rs 3 Lacs each in Sundaram BNP Paribas Select Midcap Fund (investment horizon of 2 to 3 years) & ICICI Prudential Infrastructure Fund (at least one year; being a thematic fund). Needless to say, the cash component in the Sundaram Fund, albeit a cautious strategy meant a drain on the returns. The Infrastructure fund however, true to market movements, cashed in big time. Both investments were made in Mid January 2007 and the client actually thought I was not advising him properly because I wasn't churning the portfolio!!! Beat that.
Sometimes I wonder if my self righteousness is actually impeding my so called performance. But then, if I would start doing what every other unscrupulous advisor is doing today, I would soon quit this profession. I do what I do because I love advising clients on their money. Not because I want to win every other incentive contest at the risk of murdering my clients' portfolio. Its another matter if I qualify for a contest or two after I've done my duty for my client.
I really am worried how my work shapes up in the future. What I'm sure of is that I will always do whats right for my client in whatever profession I choose at whichever step in my professional life.
As for my client, I sincerely wish someone like me runs into him and tells him what a foolhardy decision he has made, not because then he will understand what I did for him was right, but so that he doesn't make such mistakes again.
Monday, March 12, 2007
In my spare time I like making models on personal investing, trading strategies, financial goal mapping, financial plans , investments plans etcetera.
One of these which I'm trying to use myself and tweak it regularly is what I call the 10% trading strategy. It addresses 3 different scenarios basically with my supposed market reactions and what the investor (me in this case) can go about doing. As you can see its still primitive and the various permutations / combinations can be dizzying, but for simplicity this is how I would go about. Here it is:
Needless to say it does not take into account the vagaries of the markets in entirety. What this manages to achieve though, is the fact that trading demands consistency and careful monitoring with Stop Losses. After all, if it was easy, everybody would have been minting money by trading on the markets.
One of these which I'm trying to use myself and tweak it regularly is what I call the 10% trading strategy. It addresses 3 different scenarios basically with my supposed market reactions and what the investor (me in this case) can go about doing. As you can see its still primitive and the various permutations / combinations can be dizzying, but for simplicity this is how I would go about. Here it is:
Needless to say it does not take into account the vagaries of the markets in entirety. What this manages to achieve though, is the fact that trading demands consistency and careful monitoring with Stop Losses. After all, if it was easy, everybody would have been minting money by trading on the markets.
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