Bharat Rakshak

Place to discuss investments, get advice, share experiences in the Indian markets.

My question was about ULIPs as tax free returns investment instruments. They got bax reputation due to fees etc. Are things changing?

http://m.thehindubusinessline.com/featu ... e.co.in%2F

archan wrote:My question was about ULIPs as tax free returns investment instruments. They got bax reputation due to fees etc. Are things changing?

http://m.thehindubusinessline.com/featu ... e.co.in%2F

I have invested quite a bit in Indian stocks (since May 2006), insurance policies (LiC & private companies since Nov 2003), MFs (since Dec 2005), ULIPs (since Sep 2006), PPF, tax free bonds of central govt companies (NHAI, IRFC, REC etc), a little of real estate and gold.

Amongst all of my investments till date, ULIPs are the worst, bar none. These gave me the worst returns and plenty of grief; between Sep 2006 & Dec 2013, the market value of units was below or just about equal to my investment , including the heady days of 2007-08. Only in 2014 did the market value shoot up, thanks to tsuNaMo. And, I am not the only one to experience this; all of my colleagues who invested in ULIPs have similar tales. In fact, I don't recollect reading any article in the financial media where any of the ULIP investors had different experience. The only people who made money on ULIPs were companies and their agents.

If I could go back in time to undo any of my investments, ULIPs & life insurance policies would top my list. IMHO, I don't need any insurance policy other than a term assurance insurance policy.

ULIP I believe is the same thing as variable life in US, ie. life insurance based on equity returns. As such, it should be measured against the returns of other forms of life insurance with tax-free returns being the main benefit for investors besides the prrotection. Unlike other investments, it has a floor which means the insurance company is taking a risk so obviously they will charge more than a non-insurance vehicle. It will return your money unlke a term policy. All said and done, it is the equity outlook over a long period of time--a decade or so--that will determine whether to invest or not. I would have it in my "insurance" mix and India looks like a good bet over the next dacade, unlike the US, and insurance of course is the foundation of a financial plan that includes stocks, bonds and commodities.i

Yes, ULIPs have been bad for people in general. I calculated the fee thy charge, whether you gain or lose. It is as much as 7% of the yearly investment at least in the first few years.
One can just start investing in equity with a handful of known good stocks and work their way from there.
So for someone with disposable income and little knowledge of investing:

1) get term life insurance and health coverage for "big" diseases.

2) open a demat a/c and start monkeying around little by little. Assuming one is reasonable, one can expect ~10% growth from the market. Gains from long term equity investments are also tax free (minus some tax). Am I right on this?

3) Keep a good chunk in safe "debt" instruments. Use PPF in full.

4) get home loan if not a homeowner.

My experience is SIP gives good returns if you are willing to commit to atleast 5 years , Spread it across to Midcap and Largecap.

ATM reducing exposure to Stocks ( shares etc ) would be good idea ...not sure how long the party will last with US Stock expected 20-30 % correction.

Exposure to real Gold ( 20-40 % ) not paper would be a sound investment in context of Global Economic Scenario.

If you are not sure about the stock market, better not to invest.

But if you still want to, buy only blue chips. Spread it across 8-10 stocks from 3-4 sectors. Keep equal allocation.

Some suggested stocks: Asian Paints, HDFC Bank, TCS, NESTLE, GSK, Sun Pharma, Bajaj Auto, Titan Ind.

Such a portfolio should give a CAGR of 18-20 % over the long term with low risks.

Are there any index funds available in India that tracks any one of the big indexes ? (Nifty, BSE) etc?

Yes. There are index funds in India. Check the link below.

http://www.moneycontrol.com/mutual-fund ... index.html

Investing in stock markets in India makes a lot of sense.

1) Long term capital gains are zero
2) Tax on Dividends in the hands of Investor is zero (Companies pay flat 15%)
3) After Demat & SEBI reforms, things are much better now. Can manage portfolio from anywhere using internet.
4) No need to worry about Illegal occupation(If you are thinking about buying land) or abysmal cap rate (If you rent a property) or black money.
5) I think the relentless rise in the price of real estate in cities that happened in the past decade will not happen any more. Because it will simply put house out of grasp for most of the middle class. At those prices it makes sense to rent rather than buy.
6) Even if you are an NRI, probably you should invest in India. The only concern is $ vs Rs exchange rate at the time of cashing out. It is way better option to invest in Indian equity rather than Indian real-estate for an NRI.

-Vamsee

While term insurance is a no brainer, investing directly in stocks is something that depends on each individual. It requires time and effort to track your portfolio, analyze companies and invest. It is risky too. You will be a small fish in a large ocean of sharks. Mutual Fund is definitely a better option compared to direct stocks for people like me who are averse to taking risks with savings.

Is there any risk in buying GOLD ETF thru banks ?
Posters here keep talking about paper gold but what are the risks involved.
I am invested in Gold ETF for last 2 years.

VikasRaina wrote:Is there any risk in buying GOLD ETF thru banks ?
Posters here keep talking about paper gold but what are the risks involved.
I am invested in Gold ETF for last 2 years.

Yes ETF has just paper value , when push comes banks wont be able to give you the gold or the money.....in a way ETF is just of notional value and AFAIK they are traded over 100 times over the actual gold we have.

Last I saw ETF does not give you more than 5 % and the best figures for 3 years was 12 % in returns a midcap will still give you much more or an index fund.

So it better to buy physical gold and keep it in safe/locker etc then invest in ETF.

Check the Global Economic Dhaga for Gold related discussion

RBI Governor Warns of Global Market 'Crash'

I think this was coming and now RBI Governor is talking about it , If you are exposed to stocks would suggest to sell it off slowly , right now the market is good

Austin wrote:

VikasRaina wrote:Is there any risk in buying GOLD ETF thru banks ?
Posters here keep talking about paper gold but what are the risks involved.
I am invested in Gold ETF for last 2 years.

Yes ETF has just paper value , when push comes banks wont be able to give you the gold or the money.....in a way ETF is just of notional value and AFAIK they are traded over 100 times over the actual gold we have.

Last I saw ETF does not give you more than 5 % and the best figures for 3 years was 12 % in returns a midcap will still give you much more or an index fund.

So it better to buy physical gold and keep it in safe/locker etc then invest in ETF.

Check the Global Economic Dhaga for Gold related discussion

While investing in physical gold is easy, getting out with decent return via legal transparent process in India is very very difficult, hence the high volume of trading via gold ETF. When push comes to shove, you will be hard pressed to realize actual value in exchange of your kilos of physical gold.

If anyone can show me a good way to get out, I will convert my gold ETF to physical gold in no time.

Picklu wrote:While investing in physical gold is easy, getting out with decent return via legal transparent process in India is very very difficult, hence the high volume of trading via gold ETF. When push comes to shove, you will be hard pressed to realize actual value in exchange of your kilos of physical gold.

If anyone can show me a good way to get out, I will convert my gold ETF to physical gold in no time.

Unless you have tons or many 100 kg of gold it shouldnt be an issue to sell it off when you need , Your local jewellery shop will give you decent returns depending on the gold price for the day , I am not sure of you can sell gold back to banks.

You probably needs to break the kilo bar into tens or hundreds of gm unless you know personally some jeweller like your family or friends etc who can buy a kg bar.

just wondering , you could have used this thread

http://forums.bharat-rakshak.com/viewto ... =24&t=6539

archan wrote:Yes, ULIPs have been bad for people in general. I calculated the fee thy charge, whether you gain or lose. It is as much as 7% of the yearly investment at least in the first few years.
<<snip>>
...

Archanji, that's no longer an entirely correct stmt ... yes ULIPs were the worst type of invetment possible pre-2010 days (they were meant purely to maximise profits for the Insurance companies and commission for their Agents).

But not anymore - post Sep, 2010 IIRC, when IRDA stepped in and came out with a hots of regulations - the key ones are as follows:

1) No fooling around with "illustrations" with astronomically-high-perceived-return-rate (which, as expected, almost always was never achieved in real life) - the companies and their agents are now restricted to show illustrations with 4% and 8% return rate only.
So, all those subtle playing around with the consumer's latent greed and make him somehow sign the agreement is long gone.


2) No free-for-all fee/charge structures ... there was a time in early 2000s when 27-30% of the premium went to charges or fees. IRDA has since capped charges/fees at 3% for policies whose tenure is less than or equal to 10 years, whereas, for plans whose tenure exceed 10 years, the total charges can't exceed 2.25%.

This has forced these blood-sucking insurance companies to minimise their internal costs and nowadays it's not uncommon to find products with IRR < 2%.


3) IRDA has also fixed the heads on which various charges and rates are charged:

Premium allocation charge: A charge deducted before making an investment from your premium. This is the killer-one one needs to be careful with this, as this gets upfront dedcuted from the money that you invest as premium - worse the rates are nomally higher for the initial periods while it reduces later.

Mortality charge: A charge levied for insurance protection provided for death and certain other expenses. This is cost of giving you the insurance cover (along with an investment). Rates are quite good actually with the recent revision of "actuaries" etc.

Policy administration charge: A charge for the expenses other than those covered by premium allocation and fund management charges. A minimal charge, so not a very big issue.

Fund management charge: An expenses for managing your funds - this is important, as it can be as low as 0.75% and go upto 1.35% etc, depending upon the type of inevetment you are deciding for. So if you play the safer and conservative money-market type invetment plan, this will be lower - but for the equity-hevy ones it will tend to be 1.35%.
This is fair enough as the return of invetment is supposedly to be more for equity than the money-market etc.

Surrender Charge: A fee levied on premature cancellation of the policy - this has been made less painful. In case of early surrender, penalty is capped at Rs 6000 for premium above Rs 25,000 per annum and Rs 3, 000 for anything below that.

Switching Charge:A charge levied on switching from one fund to another offered within the product. This has also been minimised.


4) And IRDA fixed the minm Insurance cover and linked it to be a multiple of the premium paid - The minimum sum assured multiple has been increased to 10 times for age at entry below 45 years (and 7 times for age at entry above 45 years). Plus at no time can the sum assured be less than 105 per cent of total premium paid including top ups. All top ups also must have life insurance cover built into them.


Now coming back to the perennial and never-ending debate between which is better ULIP or a combo of Sound investment + Term Plan.Well I belong to the old school which firmly belives teh later being a better bet - but a bit of perspective is also important.

IMO, when tying to some important "milestone" expenses (e.g. Child Education, Daughter's Marriages etc), there's sufficient pull for the ULIPs for a lay-man (like moi).
And most of it's psychological I guess ... it's that somewhat-contended-feeling of looking at a piece-of-paper (policy document) and thinking of "having done something", that trumps the "virtual" world of FDs, MFs, CDs etc etc.


Plus if you are a bit saavy investor, the plethora of investment options that are available within an ULIP is mind-boggling ... today a good ULIP will provide you with options of spreading your investment exclusively into Bluechips or Midcaps or even a distributed one. It will also allow you to fix the amount of your invetment into "safe" ones (like debt) while giving moderate growth on your investment via the Equity route. There are evenn Dynamic P/E funds which will switch your invested money amongst Equity depending upon which aspect of the Stock Market is doing better etc etc etc.

If you indulge into MFs, you will notice these options (and also the underlying stocks) are more or less similar to what a good distributed MF portfolio looks like.

But the most important thing that favours ULIPs is the IT rule of 10(10)D - which exempts the return of invetment as there's been a LI component attached to it. Had the same amount of money is invested into MF youa re liablle for long-term-capital gain tax while for FD the actual-IT-rate will become applicable. I tend to look at these various charges that you pay for an ULIP as an round-about and crude way of saving you from paying up these various taxes.

So frankly, ULIPS are no longer such a bad investment decision, as it used to be.

But one needs to be extremely careful while going for ULIPs and consider the actual need, tenure, alternate Insurance cover availability etc etc.

Just my 2 cents ...

pandyan,

I’m an NRI. How should I Invest in Indian Stocks?

Austin wrote:

Picklu wrote:While investing in physical gold is easy, getting out with decent return via legal transparent process in India is very very difficult, hence the high volume of trading via gold ETF. When push comes to shove, you will be hard pressed to realize actual value in exchange of your kilos of physical gold.

If anyone can show me a good way to get out, I will convert my gold ETF to physical gold in no time.

Unless you have tons or many 100 kg of gold it shouldnt be an issue to sell it off when you need , Your local jewellery shop will give you decent returns depending on the gold price for the day , I am not sure of you can sell gold back to banks.

You probably needs to break the kilo bar into tens or hundreds of gm unless you know personally some jeweller like your family or friends etc who can buy a kg bar.

It is an issue, trust me. I know because I have tried.

Banks don't re-purchase gold, period. Most of jewellery shops exchanges gold for jewellery but not cash. So, you can invest in physical gold to be exchanged for jewellery at the time of your sister/daughter's wedding but do not think of selling them to cover other costs, even if the gold is purchased from reputed banks with purity certificate.

If you know otherwise, please post the details of the shops that buy gold from common public.

At the most, it may happen for some minor quantity of grams based on understanding here and there with total cost in thousands but definitely not investment amounts valuing lakhs. And even those who do in thousands, will not do so when push comes to shove and yellow matter hits the fan. There were local jewellers who committed suicide when the price of gold went down, it came on newspapers.

Breaking higher quantity of physical gold from investment kitty stored in bank locker into smaller chunks for selling in local jeweller store becomes an operational nightmare quickly and your friendly local neighbourhood jeweller is going to catch on the gig pretty soon and won't entertain you for long.

If you have any alternate experience of selling gold for cash please post the details. Since you are advising others, it is expected to be based on experience which can be repeated in most of the circumstances for investment amount of golds (at least in lakhs) and not something like my dad/uncle/FIL/<insert friend/relative name> is in gold import/export or jewellery business etc. etc.

No disrespect intended; genuinely want to know if you are talking from the experience and in that case exactly what did you do and how much(ball park) you sold and with what negative margin from the current date price.

Austin wrote:RBI Governor Warns of Global Market 'Crash'

I think this was coming and now RBI Governor is talking about it , If you are exposed to stocks would suggest to sell it off slowly , right now the market is good

What about money market investments?

Thanks maitya. I am going in multiple ways.
1) Will invest in a reputed ULIP. After talking to the fund manager a few times, it appears that they know what they are doing and the fund has shown good returns in the previous years. There is flexibility to stay in a debt fund and keep getting the 8-9% or moving money around (unlimited times free of charge). Since I don't have time to manage my portfolio, paying someone for it doesn't sound like a bad idea. Everyone needs to earn their bread!

2) PPF will continue year on year. 1.5L from next year on.

3) Small amount in high risk funds like the new L&T Business cycle mutual fund (anyone have any previous experience with them?)

4) FDs here and there.

5) Land and grain storage at native place.

Now I only need to learn how to work the market.

archan,

ULIP = lemon. Keep insurance & investment separate.



-Vamsee

^ Talked to another independent financial advisor today. I had the idea, but I was wavering. I think you are right. Will get rid of the ULIP in the free look in period and concentrate on SIPs with some expert guidance.
Although the ULIP invests in ICICI Pru Maximizer V plan which has not done all that badly with NAV going from 12 at start to 17 now. But yes, you end up locking in your cash and paying fees which can be avoided one educates oneself and takes it slow.

maitya wrote: Plus if you are a bit saavy investor, the plethora of investment options that are available within an ULIP is mind-boggling ... today a good ULIP will provide you with options of spreading your investment exclusively into Bluechips or Midcaps or even a distributed one. It will also allow you to fix the amount of your invetment into "safe" ones (like debt) while giving moderate growth on your investment via the Equity route. There are evenn Dynamic P/E funds which will switch your invested money amongst Equity depending upon which aspect of the Stock Market is doing better etc etc etc.

If you indulge into MFs, you will notice these options (and also the underlying stocks) are more or less similar to what a good distributed MF portfolio looks like.

But the most important thing that favours ULIPs is the IT rule of 10(10)D - which exempts the return of invetment as there's been a LI component attached to it. Had the same amount of money is invested into MF youa re liablle for long-term-capital gain tax while for FD the actual-IT-rate will become applicable. I tend to look at these various charges that you pay for an ULIP as an round-about and crude way of saving you from paying up these various taxes.

So frankly, ULIPS are no longer such a bad investment decision, as it used to be.

But one needs to be extremely careful while going for ULIPs and consider the actual need, tenure, alternate Insurance cover availability etc etc.

Just my 2 cents ...

Yes this ICICI one does have all that. You can go in equity when there is growth and come back into debt when you feel you want to hold on to the gains. There are no switching charges. However, the other adviser says he is not going to try and sell me any plan and has no commisssions to earn from anyone and yet says that you can do better than that particular ULIP (more than the 22% gain).

Can gold be used as collateral for loans? Then that is one way to realize appreciation in value (if any) of physical gold assets. Of course, provenance would important.

At one time when gold was about $250/oz some designer perfumes were more expensive gram per gram.

Lot of companies like Muthoot finance etc give loans against Gold. But interest rates are not benign in India.
Most of the gold in India is in the form of jewelery rather than coins. so unless things are dire, families will simply not sell regardless of price of gold.
Hence in Indian households Gold should be treated as a consumption item rather than investment.

-Vamsee

^^ Vamseeji, When I checked with Muthoot and other such orgs, there were lot of margins on the rate of the gold of given purity. Basically, they auction off the gold after 18 months of non-payment and include that interest while giving out the loan. Hence, if the price of the gold is Rs 100, you can at the most expect Rs 80 as loan amount and hence this is not really an alternate to sell the gold per se.
If you do not wish to sell, just need some money temporarily, the minimum rate of interest they charge is 18%.
Hence, till the yellow matter hits the fan, gold ETF remains the best bet to invest in gold.

When non-liquid assets are put down as collateral, 80% as the loan amount is not out of line. In US mortgage loans will have lower points and other benefits if one is putting 20% down. Interest rates are decided by the existing economic conditions of course.

Picklu ji,

I was just saying that it is possible to get a loan against gold but not worth it.
Also regarding investing in gold ETF's, I go by Warren Buffett school of investing I do not like to invest in Gold at all. But everyone have their own philosophy.

-Vamsee

^^ Vamseeji and matrimcji,

My comments were more in response to Austinji that investment in gold ETF is of less use than investment in physical gold because "supposedly" it is quite easy to exit that market with good return though local jeweller and chunking your big investment into small pieces.

My point was that if investment needs to be made in gold (and I believe a small percentage of the investment should cover the precious metal sector), the only realistic way to do so is via gold ETF. Physical gold is more of a liability beyond a point when situation is normal.

Bought 500 shares yesterdin. First time in my life! made some money so far but haven't sold them yet. Perhaps today or monday. Keeping fingers crossed!

archan wrote:Bought 500 shares yesterdin. First time in my life! made some money so far but haven't sold them yet. Perhaps today or monday. Keeping fingers crossed!

Indian stocks? May I know which company?

archan, if you're selling stocks in 1-2 days, you're not quite investing. It's strictly speculation. Be careful, don't let beginner's euphoria blind you - cut any losses early, take your profits and run whenever possible

I'm being guided by a branch manager of a bank. The stock went up by Rs.5 in the morning (meaning I gained Rs.2500) but settled down to re. 1 up by the end of the day. I have to sell by Mon/Tue because I bought 4x than I paid for. Some of these companies allow you to buy more than you have in the account. However that "loan" is for 5 trading days. Then either you pay up to hold on to the stocks or they are sold at whatever the rate is. Of course, if the rate goes below what I bought it for, I have to pay for it all.

Will be interesting first couple of days in the next week.

the whole thing sounds ridiculously dangerous. Not only are you speculating, but you're speculating on margin. Personally, I'd smack this bank manager on the head and tell him not to play around with new investors and put them at such risk. What you're doing is dangerous business. I've been investing for years, and still don't do naked options or trade on margin.

I agree with Suraj saar. As a first time investor stay away Margin, F&O, etc. and stay away from tips and advice from other whose track record you cannot verify.

Try coming up with your own investment ideas (Also Investment Logic) and test them in real-time. Invest small amount and diversify (Say 10 stock) specially when you are starting out.

Never allow losses to go beyond 5-10% on any single idea. Keep track of your losses and review them regularly to improve your stock picking.

archan wrote:I'm being guided by a branch manager of a bank. The stock went up by Rs.5 in the morning (meaning I gained Rs.2500) but settled down to re. 1 up by the end of the day. I have to sell by Mon/Tue because I bought 4x than I paid for. Some of these companies allow you to buy more than you have in the account. However that "loan" is for 5 trading days. Then either you pay up to hold on to the stocks or they are sold at whatever the rate is. Of course, if the rate goes below what I bought it for, I have to pay for it all.

Will be interesting first couple of days in the next week.

This is absolutely wrong way to go about. You Branch Manager should be fired. He is doing what is beneficial for HIM/His bank rather than what is good for you.

I am in market for more than 8 years and I have never used leverage or BTST kind of shit. It is not how we make money.

I would suggest you to start reading Berkshire Hathaway Share holder letters by Warren Buffett for proper perspective on how to start investing.

Also if you get can hold of "One up on Wall Street" by Peter Lynch, please do read it.

Rule No.1: Never lose money.
Rule No.2: Never forget rule No.1

By Warren Buffett
=======================================

Please don't come so hard down on Archan saar.

There is nothing wrong with speculating with a small chunk of your money. say 10%-20% as long as you keep the majority of your money in carefully diversified accounts. What is the fun in life if you can't take a little risk and speculate. High risk High reward. Personally some very high risk speculations have paid off very well for me. Though most do bomb. Esp. if one is younger and has time to take more risk I highly recommend high risk-high reward investing in the 30-40 year time period.

It is also useful to make mistakes and learn from them. The operative word is moderation in every thing. Including speculation.